Bob’s Journal for 10/31

Choose Your Medicare Open Enrollment Guide Carefully

It’s Medicare Open Enrollment Period. As I’ve advised several times, Open Enrollment this year is unusually important because of significant changes in Medicare Advantage and Part D prescription drug plans.

Medicare is complicated, and most people have numerous options. So, it’s important to seek help in evaluating the choices.

I recommend using a local insurance agent or broker who specializes in Medicare and works with and evaluates multiple plans available in your area. Use more than one agent or broker if you can’t find one who covers most of the market.

Or use your state’s State Health Insurance Assistance Program (SHIP). SHIP provides independent counseling and advice to anyone at no cost.

The choice of broker, agent, or other advisor is key, as documented in an important study. The researchers held a series of focus groups with a variety of agents and brokers who specialized in Medicare insurance products.

The study found that Medicare Advantage plans pay higher commissions than the Medicare supplement and Part D policies sold to those who opt for original Medicare instead of an Advantage plan. The brokers and agents aren’t required to disclose their commissions.

It’s not unusual for Advantage plan commissions to be much higher. One broker said an Advantage plan paid a commission three times that of Medicare supplement plans. Advantage plans also offer additional ways for agents to make money, such as by preparing beneficiary health risk assessments.

Most of the brokers said the commissions for Medicare supplement and Part D policies were so low that reviewing all the plans was not worth their time. They also said low commissions mean there’s no incentive to help clients re-evaluate their Part D policies each year.

Since commissions are a percentage of the premiums, there is an incentive to sell plans with higher premiums. Among Medicare supplement plans, Plan G policies have the most comprehensive coverage and also the highest premiums and commissions.

The agents said most clients rarely are told they could pay lower premiums with a high-deductible version of Plan G. As a tradeoff, they’d pay more out of pocket in years when they use more medical services.

Brokers and agents also said they tended to favor insurers who are easy to work with and answer their questions quickly.

The brokers said typically they sold higher income clients Medigap and Part D policies to be used in conjunction with original Medicare.

Medicare Advantage plans most often were sold to other clients.

That’s largely because Medicare Advantage plans initially tend to have lower out of pocket costs. But an Advantage plan member who needs regular medical services will pay more out of pocket during the year and be restricted to the plan’s network of providers.

The brokers confirmed that it often is difficult to switch from Medicare Advantage to original Medicare because issuers of Medicare supplement policies review medical records when determining whether to accept an applicant and how much of a premium to charge.

Most of the agents and brokers said they would choose original Medicare with Medicare supplement and Part D policies for themselves. They favor the ability to choose any medical provider and easier approval for treatment and care.

Before choosing an agent or broker, ask how many of the plans available in your area they reviewed, how many insurers they work with, and if they favor Advantage plans over original Medicare with Medicare supplement and Part D policies.

Why Most People Still Plan to Take Social Security Early

Many financial advisors with in-depth knowledge of Social Security recommend that people delay claiming their retirement benefits for as long as possible, preferably until age 70 when benefits are maximized.

But only about one in 10 pre-retirees intend to wait until age 70 to claim the maximum monthly benefit. A strong majority won’t even wait until their normal retirement age when they would receive what Social Security calls the “full retirement benefit,” according to the recent Schroders 2024 U.S. Retirement Survey.

Survey respondents gave several reasons why they plan to claim benefits early.

Ignorance of the rules isn’t a factor for most. About 75% of non-retirees surveyed said they knew that waiting to claim benefits would result in a higher monthly income.

About 43% of non-retirees said they plan to claim benefits before 67, the full retirement age for those born in 1960 or later. Of those, 23% said they intended to claim benefits at 65 and another 12% said they would claim benefits as early as possible at age 62.

A plurality (39%) said the reason for claiming benefits early was they needed the money. That could be a good reason for claiming early and giving up potentially higher lifetime income.

But a non-retiree should look at the numbers carefully before deciding to claim early. Studies (that I discuss in detail in my book, Where’s My Money: How to Get the Most out of Your Social Security) show that many people would have higher lifetime cash flow if they funded living expenses from investment and retirement accounts while delaying Social Security retirement benefits.

The higher benefits, plus inflation indexing over time, often more than make up for spending other assets in the early years.

Other responses to the survey might be a better explanation of why many people claim benefits early. About 57% said they found the idea of not having a regular paycheck to be worrisome and 22% said it was terrifying.

About 88% of respondents said they didn’t know how to generate income in retirement.

I suspect those responses explain why many people believe they need a regular check from Social Security and plan to claim benefits early.

Another reason for claiming early (cited by 38%) is a fear that Social Security will be depleted and benefit payments will stop.

I’ve discussed this idea in the past. Even if the Social Security retirement trust fund runs out of money (currently projected to happen around 2033), the Social Security program won’t end.

Annual tax revenue dedicated to Social Security will pay 75% to 80% of promised benefits. At worst, if Congress doesn’t act, benefits would be reduced by 20% to 25%. The benefits won’t stop.

If benefits are cut across the board, I’d want my benefits to be reduced from the higher level paid to those who delay benefits instead of the lower level from having claimed early.

Another 36% of respondents said they simply wanted access to the money as soon as possible. I suspect that’s really a combination of the belief that the program will run out of money and stop paying benefits as well as the discomfort at not having a regular source of income.

There can be good reasons to claim Social Security retirement benefits early, and genuinely needing the money is one of those reasons.

But before claiming benefits, a person should carefully look at the long-term advantages and costs. Too many people underestimate the benefits of maximizing Social Security’s guaranteed lifetime income that’s indexed for inflation.

California Reduces Protection of Qualified Retirement Accounts

Most states provide qualified retirement accounts (such as 401(k)s and IRAs) significant protection from creditors’ claims.

California recently enacted a law that reduces the protection of many qualified retirement plans, effective Jan. 1, 2025, according to attorney Jay Adkisson, who specializes in asset protection, writing in the Leimberg Estate Planning newsletter.

Before the law, California provided complete protection of most non-IRA qualified retirement plans from creditor judgments. More importantly, distributions from the plans also were protected from creditors.

IRAs and SEPs had partial protection before the new law, and that partial protection will apply to all qualified retirement plans after 2024.

Under the new law, all retirement plans are protected only to the extent of a “means test.”

The test says the retirement plan assets and distributions are protected from creditors only if the individual doesn’t have other means of adequate financial support in retirement. If the debtor has other income and assets that the court deems sufficient, the retirement account is fair game for creditors.

There’s no hardline rule in the law that determines when a person has sufficient other assets. Adkisson says that based on past court decisions involving IRAs, a person doesn’t need to have a lot of assets outside of the retirement plan for a California court to hold that all or most of the retirement account isn’t protected.

The good news is that federal law supersedes state law, and federal law protects a qualified retirement plan from creditors of a plan participant.

But federal law doesn’t protect money once it is distributed from a plan. And California will only partially protect distributions after this year.

A small bit of good news is that the law recognizes most retirement plan distributions are taxable. Income taxes are subtracted before determining the amount that a creditor can claim.

Adkisson says that after 2024, filing for bankruptcy might be the best option for California residents who have substantial qualified retirement accounts and face claims from creditors.

The Data

The Consumer Sentiment Index from the University of Michigan rose to 70.5 in October, the highest level in six months, from 70.1 at the end of September and 68.9 in mid-October. October was the third consecutive month the index increased.

The mid-October PMI Manufacturing Index flash increased to 47.8 from 47.3 at the end of September. The PMI Services Index flash was 55.3, up from 55.2 at the end of September.

The mid-October PMI Composite Index flash was 54.3, an increase from 54.0 at the end of September.

The private sector created 233,000 new jobs in October, the most since July 2023, according to the ADP Employment Report. That’s a jump from 159,000 jobs created in September.

New home sales increased by 4.1% in September after declining 2.3% in August. The number of new homes sold in September was the highest since May 2023.

The median price of new home sales increased modestly over 12 months to $426,300 while the average sale price fell to $501,000 from $515,000.

Pending home sales jumped 7.4% in September, the largest increase since January 2023, after rising 0.6% in August.

September’s pending home sales were 2.6% higher than 12 months earlier. In August, pending sales were 3.0% lower than 12 months earlier.

Home prices declined 0.3% in August after being unchanged in July, according to the S&P Corelogic Case-Shiller Home Price Index. Over 12 months the index increased 5.2% through August and 5.9% through July.

The FHFA House Price Index rose 0.3% in August following a 0.2% increase in July. Over 12 months, the index increased 4.2% through August and 4.7% through July.

The Kansas City Fed Manufacturing Index increased to 0 in October from negative 18 in September.

The Dallas Fed Manufacturing Index improved to negative 3.0 in October from negative 9.0 in September.

Durable goods orders fell 0.8% in September, just as they did in August.

But after excluding defense and transportation orders to obtain a good measure of core business investment, durable goods orders increased 0.5% in September and 0.3% in August.

The number of job openings declined 418,000 in September to 7.443 million, according to the JOLTS (Job Openings and Labor Turnover Survey) report. Also, August’s level of job openings was revised to a lower level than initially reported.

The September level of job openings is the lowest since January 2021.

There were very small changes in the number of hires, separations, quits and layoffs.

Gross domestic product (GDP) grew at an annualized 2.8% rate in the third quarter, according to the first estimate. Growth was 3% in the second quarter.

Personal spending increased at a 3.7% annualized rate, the strongest increase since the first quarter of 2023. Consumption of goods increased by 6% while services consumption rose 2.6%.

When adjusted for inflation, real consumer spending also rose an annualized 3.7% in the third quarter, the highest rate since the first quarter of 2023.

Business investment in equipment increased 11.1% in the third quarter.

New unemployment claims fell by 15,000 to 227,000 in the latest week.

Continuing claims, which lag a week behind new claims, increased to 1.897 million from 1.869 million.

The Markets

The S&P 500 lost 0.27% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 1.59%. The Russell 2000 rose 0.22%. The All-Country World Index (excluding U.S. stocks) dropped 0.50%. Emerging market equities declined 0.70%.

Long-term treasuries lost 0.31% for the week. Investment-grade bonds decreased 0.24%. Treasury Inflation-Protected Securities (TIPS) fell 0.46%. High-yield bonds gained 0.16%.

In the currency arena, the U.S dollar rose 0.34%.

Energy-based commodities retreated 2.89%. Broader-based commodities dropped 1.60%. Gold advanced 0.85%.

Bob’s News & Updates

A recent review on amazon.com of my latest book said, “Carlson is a unique national Asset while alive! Get the book, dude!” Look for “Retirement Watch: The Essential Guide to Retiring in the 2020s” (Regnery Capital: 2023) at amazon.com, barnesandnoble.com, booksamillion.com and regnery.com.

My previous book, “Where’s My Money: Secrets to Getting the Most out of Your Social Security,” is receiving mostly five-star reviews on Amazon for telling you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Series, click here.

A recent five-star review of my book, “The New Rules of Retirement” on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check out my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.