Further Clarification on Illinois Pension Reform

Updated information on this subject can be found in our latest blog post. This post follows up my initial posting about Illinois Pension reform and specifically how it impacts State University Retirement System (SURS) members.  You can read my original post here.

Notwithstanding the likely legal challenges of pension reform, many items are subject to interpretation in the new law.  It is likely additional legislative guidance will be needed to fully understand the impact of these reforms.  This post is based on information from a knowledgeable representative of SURS, but may change in the future.

Pensionable Earnings Limits

See the original post for complete details on this change.  A question that arose is, if your income currently exceeds the limit, how would your future contributions be affected?

SURS interpretation is that your contributions will be based on pensionable earnings.  Similar those who contribute to social security, no SURS contributions will be required on salary exceeding the limit.  If your salary is grandfathered in, contributions are up to your grandfathered salary.  No future pay increases exceeding the limit will increase your grandfathered limit or contributions.

For example, your salary in 2013 is $150,000.  The pensionable earnings limit is $110,631.26.  You receive a pay increase to $160,000.  Your pensionable limit remains at $150,000 and contributions are based on salary up to that limit.

Future raises will not increase your grandfathered limit, which is equal to the participant’s annualized rate of earnings as of June 1, 2014.

Money Purchase Changes

This was not mentioned in my last posting, but changes are also being made to the Money Purchase Formula, which is one of three options for calculating your defined benefit pension.  The annuity under this method is calculated by a cash value (determined from contributions made by the employee, employer, plus an effective interest rate determined annually).  If used, this system determines the annuity from cash value using an actuarial table.  The larger the cash value, the larger the annuity (up to limits).  The effective interest rate of that cash value going forward will be the 30-year US Treasury bond rate plus 75 basis points (0.75%).  Estimating the current 30-year US Treasury bond rate at 3.85%, the current Effective Interest Rate would be equal to 4.6%.  Compare this to the effective interest rate 7/1/12 through 6/30/13 of 7.5%.  As the interest rate is decreased, the potential cash value will grow more slowly therefore slowing the potential growth of the annuity.

This will also affect purchasing of service credit and the refund for those in the Portable system.

You should also note, the actuarial assumptions used in determining the annuity tables may now be revised annually.  If experienced lifespans are increased or earnings are decreased, annuities calculated under this system would also decrease.

Pension Reform for SURS Participants

This past week, the Illinois General Assembly passed a bill aimed at reforming the pension systems for most Illinois public employees and Governor Pat Quinn has signed the bill into law.  It is likely too early to begin a full assessment of what these changes mean for participants, including those in the State University Retirement System (SURS).  Time will be needed to fully review, interpret and digest the implications of the entire 327 page bill.  Additionally, lawsuits to contest the constitutionality of this bill are expected and will take time to resolve. At this point, we know very little.  The following is an attempt to summarize key provisions and begin thinking about planning to be done in the future.  As so much is unknown, it is likely too early to begin making decisions regarding your employment or retirement prospects.  This includes trying to contact SURS for an assessment of your individual situation.  Below are some of the key provisions with some of my own planning commentary in red:

Note: 

• A Tier 1 participant is an employee or retiree who began SURS participation before January 1, 2011.  A Tier 2 participant is an employee who began SURS participation on or after January 1, 2011.
• This content mostly applies to all pensions, written specifically to those in the SURS system.  A colleague, Dave Grant of Finance for Teachers, has a more thorough blog post specific to the Illinois Teachers' Retirement System (TRS).  You can read his post here.

Automatic Annual Increases:

Beginning in 2015, annual increases for Tier 1 participants will be 3%, compounded annually, but will only apply to the lesser of the annuity or a multiplier equal to $1,000 times number of years of service.  The multiplier will be adjusted annually by inflation (CPI-u).  Since the cost of living adjustment (COLA) was added to the SURS pension in 1989 and has become a large portion of the pension liability, this was a likely target of reform.  In past conversations Karen and I have had with a knowledgeable SURS official, it was this official's opinion this COLA Adjustment was not constitutionally guaranteed.  Soon to be filed court cases will be the final judge.

Retirement Age:

For those under the age of 46 (as of June 1, 2014), retirement eligibility will be delayed.  The younger you are, the longer the delay.

Earnings Limits:

Tier 1 participants will be subject to the same pensionable earnings limits that Tier 2 participants are already subject to (currently about $110,000, adjusted annually).  Participants exceeding this limit at the time of enactment will be grandfathered in at their earnings rate on June 1, 2014.  It appears if your salary is currently over this $110,000 limit, future pay increases will not increase your pensionable earnings except to the extent the pensionable limit exceeds your income.  However, number of years in the SURS system will still affect your final pension.  This is a big loss for higher income earners or those who expect higher income in the future.

Employee Contribution Decrease:

Tier 1 participants will have their contribution decreased by 1%.  This appears to be a point of negotiation in exchange for other losses of benefits.  This will likely be a point of consideration for the courts to judge if this is adequate consideration for lost benefits.  At a minimum, anyone affected may consider contributing that 1% decreased contribution to an alternate retirement savings vehicle such as their 403b or Deferred Compensation Plan.  

Defined Contribution Plan:

Tier 1 participants will have the option of electing into a defined contribution type plan by July 1, 2015.  This will be limited to 5% of participants.  A lot more details are to be worked out here, though it will likely look similar to the SURS Self Managed Plan (401a).  This may be enticing to younger, higher income participants.    

Unused Sick/Vacation Time:

For new hires after June 1, 2014, unused sick and vacation time will no longer be applied towards service credit or enhancing pensionable earnings.

For more details on these changes, see the full bill (SB1 - Click Here) or a summary of changes by SURS (SURS Summary of Senate Bill 1).

Note: It appears many of these changes are not slated to affect participants in the self-managed plan or Tier 2 participants.

The Takeaway:

This is a very contentious issue with various interested parties and real impacts on many people.  It will take a lot of time before all these issues are sorted out.  As more is known, we will be addressing the individual impact with each of our affected clients.  For those who are not our clients, I acknowledge that planning in uncertainty is difficult and stressful.  My best advice is focus on what you can control and build some cushion into your savings plan to deal with the uncertainty.  Contact us if you want the peace of mind of having an experienced Advisor on your side helping to plan for events such as this.

A Simple Strategy to Maximize Open Enrollment

As the year draws to a close, days grow shorter, and the holiday bustle begins, there is one item many are dealing with – Open Enrollment.  This is often the time of year to review and elect changes to your employer benefits for the coming year.  Although this may not make your top 10 holiday task list, here is one helpful tip to maximize your election for the upcoming year: The days of employer pensions are past and today’s worker needs to take responsibility to secure a comfortable retirement.  According to the National Institute of Retirement Security, Americans are doing a poor job of it.  They report the median retirement account balance is only $3,000.  This is nowhere near the $1-2 million figure most professionals quote as needed to ensure financial independence.

Do yourself a favor and make one small change this year.  Increase your own retirement savings contribution by 1%.  You will hardly notice the change.  Assume you earn $40,000 per year and are paid bi-weekly.  An increase of 1% in savings means saving about $15 extra per pay period.  Plus, if you save to a pre-tax account such as an 401k or 403b, you will save tax.  Assuming an average federal and state income tax rate of 20%, your $15 contribution will only result in a paycheck decrease of $12.00 net of tax.  Would you even notice a change that small?

The chart below illustrates the power of increasing your retirement savings annually.  Barney and Eric are both 30 years old earning $40,000 per year.  They each have $3,000 in savings and are saving 5% of income per year.  Eric increases his savings rate by 1% per year until he hits 10% annual savings at age 36.  Assuming they each earn a 7% return on investments over their careers, Barney would end up with savings of $328,000 compared to Eric’s $580,000.

Even though Eric is saving more, he probably does not notice much difference in lifestyle as compared to Barney.  Barney does have more discretionary income throughout his career, but he is likely spending it on goods and services that have little lasting value.  Because he is used to spending more than Eric, Barney needs 5% more annual retirement income.  This means he needs even more savings than Eric to maintain his lifestyle through retirement!  And, if Eric continues increasing savings by 1% each year until he is 41 to achieve 15% savings, he will have $741,000 at retirement.

If you are lucky, your employer might even offer the option to automatically increase your savings each year.  Choosing this election increases your retirement savings on an annual basis or when you get a pay raise.  According to Nudge by Richard H. Thaler and Cass R. Sunstein, these types of automatic options in plans can help you avoid the procrastination that is so common for all of us.

Even if your employer does not automatically adjust for you, you can easily setup a reminder on your Google Calendar.  Otherwise, you can hire me to be your “paid nag” and make sure you are on track to reach financial independence at your desired age!

Insurance changes for Illinois State Retiree Health Insurance

The following is information regarding recent changes to Illinois State Retiree Health Insurance. These changes only apply to those who are enrolled in Medicare.  If you are affected by this change, you should be receiving a letter from CMS regarding the proposed changes to the SURS health insurance plan this week.  Note: if you are covering a dependent, you must both be enrolled in Medicare for this change to affect you.  If only one of you is enrolled in Medicare, then you will keep your existing coverage and May benefit choice period. Here is a summary of what we know:

Important! You must make a decision and enroll (postmarked) by December 13, 2013.  There is no default choice.  If you do not enroll, you will only have Medicare Parts A and B coverage which is very limited and does not include prescription drug coverage.    New state coverage will start February 1^st and run through December 31^st of 2014.    In future years, your open enrollment period for health insurance will be the same as the Medicare Fall enrollment period.  You will note this has changed from May, as in past years, to fall enrollment for this year and future years.  This is also the time to add or drop dependents, add, drop or change Optional life insurance coverage, and add or drop dental coverage.  

Coverage Summary

Every county in the state has different choices of plan.  Consult the map in the materials you receive, or follow this link and view page 8

In Champaign County, you have two choices of plans: UnitedHealthcare (UHC) PPO and Coventry Advantra HMO.

With the UHC plan, you can see any willing provider as long as the provider is in the Medicare program.  You should note there is no difference for in-network and out-of-network coverage levels, as with most PPO plans.  After a $100 deductible, you pay 10% of charges for services up to the $1,300 annual out-of-pocket maximum, then the plan covers 100%.

With the Coventry Advantra HMO plan, you must choose a primary care physician from within their network of providers, and use only in-network providers except for emergency care.  There are copays, and the annual out-of-pocket maximum is $3000.  There is a chart on page 11 of the Trail booklet comparing the costs for the two plans.

All SURS annuitants who are enrolled in Medicare Parts A&B (and SURS annuitants with Medicare enrolled dependents) will be required to enroll in a Medicare Advantage plan if they want to be covered by the SURS health insurance.  These plans include prescription drug coverage (MA-PD plans; MA equals Medicare Advantage, including Part A and Part B coverage; PD equals Prescription Drug), so you do NOT have to enroll in a Medicare Part D plan.

Caution! Be careful when enrolling as you may also be receiving mailed offers from private Medigap insurance companies.  These options do not qualify for State coverage.  To enroll in the state plan, your forms must have the “Total Retiree Advantage Illinois” logo (Your TRAIL to Better Health).  Here is the logo:

Vision, dental and life insurance benefit plans are not changing, but you must enroll in one of the State-sponsored plans to continue access to existing vision coverage.  Life insurance and dental, if elected, continue automatically.

Carle Patients: It appears that if you want to stay with Carle doctors, you need to choose the UnitedHealthcare PPO.

The Coventry Advantra website will be available on November 1^st.  At that time, you can look there for their providers in Champaign County.

Other Notes:

For community college retirees, you are in the College Insurance Program (CIP); if your SURS is from a State University or State of Illinois Department, you are in the State Insurance Program.  This is important, because prices are different for each program.

You could opt-out of state coverage and shop for an individual Medigap or Medicare Advantage coverage policy.  You would lose any subsidy from SURS state coverage if you make this election.  This could make sense if (1) premiums on a private policy are smaller than your 2014 2% of pension contribution (those with large pensions) or (2) you would rather pay a higher premium and continue on a Health Alliance Medicare plan.

If you are in the State Insurance program and you opt-out, you would have the option to enroll in the State-sponsored plan during the next open enrollment with coverage beginning January 2015.

If you are in the College Insurance program (CIP), opt-out provisions are different; you would want to verify them with CMS.

Complete information for: CIP – The Trail

Complete information for: State Insurance – The Trail

As always, please contact us if you have any questions or would like clarification.  

5 Excuses for Not Hiring a Financial Advisor

(And why you should rethink the excuses)

Are you thinking about hiring a Financial Planner, but failing to take action?  We see many people who put off the decision for far too long, costing them time or money.  Here are some common reasons many fail to hire an advisor  and misinformation that you may have heard about financial advisors.

#1 – I do not have enough money

I will concede that Financial Planners have a reputation for only serving the wealthy.  Many firms  have portfolio minimums, often in the mid-six-figures or more.  However, Financial Planning as a profession (not sales as discussed below) is relatively young and still evolving.  Early models of the 1980’s and 90’s were built around investment management.  Financial planning was a manual, time intensive process.  Large portfolios were needed to cover the high cost of doing comprehensive financial planning.

However, this is rapidly changing.  Financial Planners, like all entrepreneurs, are continuously developing new business models to serve a wider base of clients.  New efficient technology has pushed down the cost of providing services.  There are many groups of advisors and companies who provide financial planning services to a wider audience.  For instance, online companies such as LearnVest are springing up to provide basic planning services at ultra-low cost.  For more customized services, there are advisors who provide hourly consultations, such as those in the Garrett Planning Network.  Finally, there are advisors that provide ongoing, holistic services to the middle market, members of the Alliance of Comprehensive Planners.

My point here is, there are many types of advisors out there.  You have to be willing to put a little time into your search to find the right fit. The right advisor will provide services in line with your needs, have expertise in issues you face, and communicate with you in a manner that you understand and trust.

At Bluestem, we not have a minimum portfolio size for new clients.  We are a growing firm and always accepting new clients, but we do limit our growth each year to ensure that we provide the best service we can to new and existing clients.  This means we are selective about the clients we take on in order to ensure that our expertise and services match their needs.

#2 – Financial Planning means “Sales”

I sometimes get uncomfortable when people ask me what I do for a living.  Not because I am ashamed, but because of the response I get to saying Financial Planner.  There is is a lot of negative connotation behind the title.

The problem lies in the lack of regulation or consistency of the title Financial Planner/Advisor.  Pretty much anyone can use the title, regardless if they are actually providing planning services or are just a salesperson for investments or insurance products.   There have been efforts to clarify, but the sales industry is quick to mimic true financial advisors or confuse consumers. Even so, those selling products cannot copy what a true Financial Planner really does, so let me tell about that.

A true financial planner is interested in who you are.  They want to learn your goals, ambitions and values.  They understand that maximizing your income and wealth are important, but only because that helps you achieve something more.  Money is not the end result.  Once they understand who you are and what you are about, they help you begin piecing together a financial strategy to achieve those goals and values.

They understand there are many pieces to your financial life to manage; human capital (career), taxes, insurance, children, legal, retirement, and the list goes on.  A planner is there to help you make decisions that encompass all the different areas.

I have been called a Jack of all Trades and Master of None.  In the context, it was meant to be negative, but it has some truth.  My knowledge is broad by design.  I need personal skills to learn about you and technical skills to see how all the pieces fit together.  I also have to recognize how changing one financial piece of your life will affect another.  I am a professional and recognize my limitations.  When depth of knowledge is needed, I maintain an arsenal of professionals to assist.  Attorneys, Insurance Agents, CPAs, Real Estate Agents, and Brokers may be brought in when needed.  Alone they may not know the whole picture, but I am there to assure that a cohesive result is achieved for my clients.

If you are looking to hire an advisor, be willing to ask lots of questions.  You should be especially interested in hearing about the process of working with the advisor.  Results are important, but there are no guarantees in life.  There are too many unknown variables for a professional to make promises they cannot keep.  Do not be influenced by flashy marketing with anecdotal success stories and past performance statistics.  That may not indicate success for your future.  Focus on hiring someone who has a solid process to help you evaluate your needs, anticipate changes and help you adjust course as needed.

#3 – I can do it myself

I concede, this one is actually true.  You probably can do it yourself. Be honest with yourself, will you?  Will you devote the time to set goals, educate yourself, evaluate important financial decisions, monitor your progress and adjust as needed?  Most of us will not.  It is too easy to get caught up in day-to-day life to think about our own future objectively or strategically.

Would it surprise you to know I hired my own Financial Advisor?  It is not because I cannot do it myself.  It is because I know there is value in having an objective third party.  Someone who can cut through my own emotional and mental roadblocks.  Someone who can force me to take a long term view and someone who can coach and encourage me to keep moving in the right direction.

There are many reasons someone might hire an advisor.  Some people like to manage their own plan, but hire an advisor for an objective review to validate that they are on the right track.  Others find they have little patience for the process and do not enjoy learning the ins and outs of financial planning. They hire an advisor to delegate and turn over the responsibility to a competent planner.

#4 – I cannot afford to hire an Advisor

Many of us are willing to make an investment if we expect the future benefits will be greater than the initial outlay.  The same should be true of hiring an advisor.  I believe any advisor you hire should, in the long term, add more value than the cost of their services

As clichéd as it may sound, sometimes peace of mind can be one of the biggest values in hiring an advisor.  Research from the Consumer Federation of America (CFA) and Certified Financial Planner Board of Standards (CFP Board) has shown that families that take time to plan have better financial preparedness for meeting goals and dealing with emergencies, save more and are more confident about their finances. Is it worth your money to sleep better at night, avoid arguments with a spouse over money, or to know you are on the right track?

Maybe you are skeptical and want to see hard dollar savings.  Morningstar, an investment research firm, has attempted to quantify the value of hiring an advisor.  They define gamma as value an advisor adds to an individual through the financial planning process.  These values include added investment returns through optimizing portfolio allocation, withdrawal strategies and tax savings.  They postulate the added return could be as high as 1.59% of your portfolio.

This research does not even include the savings of avoiding mistakes such as incorrect tax returns, buying the wrong financial product, paying unnecessary fees to high cost institutions and financial products.  How about the cost of inaction?  How much are you paying because you fail to take action?

#5 – This is not the right time OR I do not have the time

I hear this a lot.  Someone will reach out because they are experiencing a life transition that comes with a financial pain or have an important decision to make.  The person is so caught up in the life transition, they ignore or procrastinate making needed financial decisions.  They deal with the symptoms, not the underlying problem.

I think a person’s overall health and well-being is like a wagon wheel.  Each spoke represents one aspect of the person’s life.  The spokes include physical, mental, relationship, spiritual/moral/religious, and financial health.  In order for the wheel to be round and turn easily, you need to devote equal time and energy to all.  Otherwise, your wheel may become flat in certain sections and have trouble moving you forward.

Another way to put it, if you ignore one area of overall health and balance, you may end up harming the whole system.  Taking the time to make a plan will take an investment of time and energy, but will pay off with future peace of mind, flexibility and independence.

Moving Jobs, Moving Retirement Plans - New York Times

Changing jobs can be a stressful event.  At the same time you are learning new job responsibilities and acclimating to a new company culture, you have to juggle financial decisions such as choosing new employee benefits.  An often neglected detail of this process is what to do with your old retirement plans.  We often work with clients in “cleaning up” these old accounts that multiply and are lost track of over a career. With all the complexities of rolling over old plans, studies are showing many younger professionals are just cashing these plans out.  I recently discussed this with Ann Carrns of the New York Times.  I explain why I see this happening.  Here is an excerpt from that article:

[Jake] says when young adults are switching jobs, money is often tight — they may be moving, and need financing for rental deposits and other costs — and it is tempting to withdraw the cash.  In addition, he said, it is often difficult for them to envision retirement, when they are just starting their careers.

Besides the tax consequences of this action, which can be high, cashing out small retirement plans cheats the individual out of their most important asset — time.  The more time you have in investing, the less you need to “save” to end up with the same pot of money at the end.  By cashing out now, you are cheating your future self.  By putting off savings, you end up saving more and ending up with less value at retirement.

It is easy to see why someone in their 20′s or 30′s would be so willing to make this trade-off.  Retirement is an abstract concept many years into the future.  I try to counteract this thought by aiming for a different goal.  Replace the concept of “Retirement” with “Financial Independence”.  Financial independence is having the freedom from working to support your lifestyle.  Instead, you have the financial flexibility to work, volunteer or even not work and follow your passions.

The entire article was printed in the October 5th Edition of the New York Times, which you can read online by clicking this link.

Reconciling Fed Policy with your Financial Life

This past week, the Federal Reserve Board announced they were not cutting back on their efforts to stimulate the economy.  This surprised many investors, who had been expecting the Fed to begin tapering their bond buying program.  The question many have is, how does this affect my own financial decisions?  I had a chance to answer some of these questions on the September 20th Edition on Focus 580 with host Jim Meadows and guest Kevin Waspi.

Summarizing some of this program:

How Should I React to this News?

Both Kevin and I agreed on the answer to this question: for most people this is just market noise that can be ignored.  It is important to recognize the difference between an Investor, who is seeking gains by investing long term in companies and participating in the growth and income of those investments, and a Speculator, who attempts to profit by making bets on short term market movements.  For most individuals, it is more important to focus on meeting long term goals through sticking to their investment plan.  Speculating requires a lot more risk, knowledge and time than the average investor possesses.

What Does this News Mean about the Economy and my Portfolio?

One interpretation could be that the Fed is not optimistic about the recovery of the economy, which could be worrisome to investors.   However, the Fed's decision is based on many factors including unemployment and inflation.  They are in a delicate balancing act among many different factors.

Kevin pointed out that as the Fed does taper off their stimulus in the coming months or years, savers may benefit.  It could be expected that interest rates would rise over the long term, resulting in higher yields on checking, savings and even bonds.  In the short term, we should expect some volatility as investors try to gauge how market changes will affect future profits.

Check out the complete episode here.  We also addressed many other questions including:

•  How to decide between investing and saving an emergency fund
• What Fed policy may mean for future inflation
• How would changing interest rates affect the Fed Balance Sheet

Cutting the Cord

How I cut the cord to save over $900 annually.

I have to admit that I love new technology.  Anything that makes daily tasks simpler, more convenient,  or more accessible, I am on board.  At the same time, early adoption of technology can clash with my general nature to be frugal, especially when new technology hardware, software and services fees begin to add up. In some cases, technology can actually save money.  Coming up on my first year of kicking the cable habit, I am sharing my story of how I dropped my pay television cable services and replaced it with less expensive streaming video services.

My decision to drop my cable TV service did not come easily.  I am a sucker for convenience.  I expected some trauma, especially with the loss of my on demand DVR.  My motivation was the continuously increasing monthly cable bill stuffed with add on fees such as the HD Technology Fee, DVR Service Fee, and Franchise Fees.  After a couple weeks of adjustment, the switch was fairly smooth and I am ready to call it a success after a year.

The Math

In my last month of TV service in September of 2012, my total cable and internet bill was $135.75.  My internet package became slightly more expensive with the bundling loss, now at $49.95/month.  As discussed below, I added Hulu Plus service at $7.99/month but already had Netflix.  This makes my total monthly savings $77.81/month or $933.72/year.

In terms of hardware, I outlayed $58 for a Roku (slightly more than current retail), $39 for an antenna and $35 for a Chromecast (which included two month of Netlfix streaming free, saving $15.98).  This is a net total hardware cost of $116.02, but a payback period of less than two months.  

Hardware

Making the switch required minimal outlay in new expenses, partly because I already owned some equipment already.  Here is a list of what I own and what I purchased:

Sony Playstation 3 ($320): Before dropping cable, this acted as my primary DVD/Blue-ray Disc player.  Paired with subscriptions, I use this to stream TV Episodes and Movies from Netflix and Hulu Plus (as discussed below).  With the dual capabilities of streaming and DVD/Blue-ray, this is my primary TV hardware.  I run it through my A/V Receiver, which allows for HD video and 5.1 Audio Channels.  For those who might be interested, many options also have subtitles available through streaming as well.  If I had not already owned this unit, I would have opted for a cheaper alternative such as the Roku (described next), Smart TV with WIFI, or DVD Player with streaming capabilities.

Roku ($49): For my secondary TVs, I just needed something that could stream content at a much lower cost.  The Roku is an excellent choice.  Much like the Playstation, you can download "apps" (Roku calls them channels) to stream subscription services such as Netflix and Hulu Plus.  However, their app selection is much more extensive and adds channels such as PBS, CNN, Vudu (movies) and hundreds more.  Often these channels are free, if you are willing to watch ads.

Chromecast ($35): This is my newest addition.  Sometimes content I want to watch is only web-based.  I previously hooked my laptop directly to the TV using an HDMI output, but this allows a similar functionality through a wireless connection.  Essentially, almost any video I can stream through a browser on my phone, tablet or laptop can be "beamed" to my television wireless through this device.

Antenna ($39): Of course, I cannot leave out the fact that a ton of content is available over the air through broadcast networks.  With a digital signal over the air, the quality is oftentimes better than the compressed data coming through cable or online streaming.  The main downside is content is limited to a broadcast schedule, which means my main use is the morning news while getting ready each morning.  Choosing an antenna will depend on how far away and direction of the signal you are trying to receive. Antennaweb.org is a good website to check out when trying to determine what antenna to buy for your area.

Services

A lot of content is available online for free, but subscriptions open up more content.  More importantly, subscriptions add convenience of centrally locating content and longer period of access to that content.  In some cases, it will reduce advertisements and increase picture and video quality.

Netflix ($15.98/month): Netflix is one of the most popular streaming services.  Their streaming library is impressive, boasting a huge selection of classic and fairly current movies.  New movie releases will not likely be available in their library.  Additionally, they have a huge library of TV Shows.  For shows currently in production, you may find past seasons, but not likely to find the most current season.  They have begun to offer series they produce and make available exclusively to their subscribers.  I am subscribed to their DVD Services, expanding the available of shows and newly released movies. This feature can be dropped, reducing the monthly cost to $7.99/month.  Note: I was already paying for this service before dropping cable, so I am not considering this as a "new" cost.

Hulu Plus ($7.99/month): Where Netflix has mastered the movie and past TV episode streaming, Hulu Plus has the newer TV shows.  Generally most major broadcast TV network shows are available the day after airing as well as many cable network shows. You can access much of their content through your computer browser for free.  The paid subscription service expands the library of content and allows from streaming through more devices including the Playstation and Roku discussed above.  One downside is even their paid subscription includes advertisements, but their library is expanding all the time.

Looking for more options?  There are lots of other services available, such as Amazon Prime Instant Video or buying content through services such as iTunes and Google Playstore.

Caution...

Cutting the cord is not for everyone.  Sports fans might be weary as a lot of content will not be available through streaming services.  Additionally, Luddites (technology haters) may not enjoy the learning curves of making the switch.  Watch out if you have restrictions on your internet service.  Those on cell networks will want to be aware of their data caps.  It is not unheard of to use 80+ Gigabytes of data in a month by just streaming at home.  You will also need a reliable internet connection with at least 5-7 Megabits/Second of bandwidth.

The technology is constantly getting better, so be sure to thank an early adopter for clearing a path to convenience and cost savings for the rest of us.  Feel free to comment below if you have questions or strategies I have not mentioned.

Detroit and Public Pensions - Kiplingers

This past month, I spoke with Anne Kates Smith of Kiplinger Magazine on how those in public pensions should react to the the ongoing news regarding the Bankruptcy of the City of Detroit.  She posed the question, what should pension participants expect? Before addressing this concern, I would first start by cautioning everyone to put the Detroit crisis in perspective.  Municipal and Government bankruptcies are rare, and though they do happen from time to time, focusing on the outlier makes us believe this is more common than it really is.  This is a common mental bias we should be aware of.  This is why I always remind clients, focus most of your energy on what you can control because it will have the biggest impact on your future.

Given there is some risk, how should you respond?  I answered:

"Relying solely on your employer is never a good move," [...]

If you can contribute to a supplemental savings plan, such as a 403(b) or 457(b), do so. [...] If you're not offered a savings plan outside a traditional pension, set up your own individual retirement account—even if you don't qualify for tax-deductible contributions. Kuebler tells clients to aim for savings equal to 15% of income, which means that if the state requires you to contribute, say, 8% toward a pension, you should sock away another 7% elsewhere.

Your actual rate of savings may vary based on your own goals and resources, but each employee needs to take some responsibility towards their own retirement.  The State University Retirement System (SURS) for Illinois University Employees and the Teachers' Retirement System (TRS) for public school teachers are a great component of a retirement plan, but needs to be integrated with outside sources of retirement funding as well.

Be sure to check out the complete article in the October issue of Kiplinger or online.

Same-Sex Marriages Recognized For Federal Tax Purposes

Yesterday, the US Treasury and IRS ruled same-sex couples legally married in a jurisdiction that recognizes that marriage will be valid for federal tax purposes.  This applies whether or not the couple is currently living in a jurisdiction that recognizes the marriage.  This ruling clarifies tax filing and benefit questions following the Supreme Court striking down the Defense of Marriage Act (DOMA) in June of this year.  You can read the complete ruling here.

What about Illinois Civil Unions?

This ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law, thereby excluding Illinois Civil Unions.  However, if you were married in another state or foreign country recognizing same-sex marriages, you may still qualify.

What benefits does this include?

The ruling applies to all federal tax provisions where marriage is a factor.  This includes:

• The ability to file a joint tax return and the ability to take personal and dependency exemptions
• Taxation of employee benefits, such as tax free receipt of same-sex spousal health insurance
• Estate and gift taxes, allowing for unlimited tax-free gifts and unlimited marital deduction for estate tax purposes to your same-sex spouse

Can I Amend Prior Tax Returns?

Yes, if you previously filed single or head of household in a year in which you were legally married, you may be eligible to amend the return to change marital status. There are limitations to be aware of.  For instance, the statue of limitations general restricts amendments of returns to three years following the original due date of the return.  For most couples, this would restrict them to amending only 2010 and beyond.  Exceptions may apply for specific circumstances.

What are the next steps?

For our clients who are affected by this ruling, we will be discussing how this applies to you directly and how to adjust your financial and tax plan accordingly.

If you are not a client, but interested in finding more about how your tax situation integrates into your entire financial picture, contact us today!

Bluestem Launches our Blog!

Welcome to the inaugural blog post of our newly redesigned website!  I am particularly excited about this new site.  It tells the story of our planning process, and is designed to be more interactive!  With the launch of our Blog, we hope to keep you up to date on what is happening in the firm and add short discussions and articles of interest in between our quarterly newsletter. If you want to follow this blog, you can subscribe by email in the right hand sidebar.

In my first post, I am excited to announce a two milestones in my own education and experience you might be interested in.

Master's Degree

This past summer, I have completed my Master's Degree through Kansas State University.  I started this journey 4 years ago to meet the educational requirements to becoming a CERTIFIED FINANCIAL PLANNER™.  My degree is in Family Studies and Human Services, specialized in Financial Planning.  Like my Bachelor's Degree from the University of Illinois, this program is based on family and consumer research and theory.  My Masters courses beyond the CFP® courses included studies of quantitative issues such as real estate and consumer law issues, as well as qualitative applications such as financial counseling, family dynamics, and behavior biases.

Enrolled Agent

As part of my Master's program, I was able to use self-study coursework to become an Enrolled Agent (EA).  Enrolled Agent status is granted by the IRS after showing a high level of competency in the areas of Personal and Business Income Taxes, Tax Ethics and Procedures, and passing a background check.  Like a CPA or Attorney, EA's are afforded unlimited rights to practice in front of the IRS.  After a long process of studying, testing and application, I was granted the Enrolled Agent status in May of 2013.   This means that as part of Bluestem's audit protection services, I now have expanded rights to defend or represent our clients in the event of an audit.

These items both represent the completion of two large significant personal and career goals.  Though I have no immediate plans for additional degrees, I look forward to continuing my lifelong education and development.