A Primer on Medicare and Medigap Coverage

Despite all the public discussion about health care, very few people under the age of 65 understand the basics of Medicare, the federal health program for seniors and certain disabled individuals, or Medigap, the supplemental private coverage many buy to cover treatment that shortfalls what the federal program doesn't pay.

Even if you have years before you qualify, why focus on Medicare and Medigap now? Because as big changes happen in our healthcare system, those who understand the programs and products ahead of time will not only be better equipped to plan for their post-retirement healthcare options, but they'll have a better understanding of these critical federal programs change over time.

A visit with your Vermillion Financial Advisor can give a broader view of what the federal government will and won't pay and how you should plan your coverage going forward.

Here's a summary:

Who is eligible for Medicare?  More people than you might think believe Medicare is available to anyone over the age of 65 qualify under certain circumstances, including: if they are permanently disabled and have received Social Security disability payments for the last two years, or if they need a kidney transplant, are under dialysis for kidney failure or have Amyotrophic Lateral Sclerosis also known as Lou Gehrig's disease.

How does Medicare cover expenses? Medicare coverage is divided into three primary parts: Part A, Part B, and Part D. And yes,there is a Part C. Here's what each part covers:

• Part A is the segment of the program most associated with hospital care. It covers hospital inpatient care, a limited amount of care at some skilled nursing facilities, and some specific home health care alternatives and hospice care. Most people are enrolled automatically in Part A when they reach 65 and they get this coverage for free. What's important is that Medicare doesn't cover long-term nursing home expenses, so that's why long-term care planning is necessary for all individuals. 
• Part B is all about outpatient services. This is the part of the plan that covers doctors' visits, outpatient care and some other medical services that Part A doesn't cover, such as the services of physical and occupational therapists, and other aspects of the home health care. You do have to pay a monthly premium for Part B coverage with a deductible - in 2012, the basic premium is $99.90 per month though it might be higher for some people based on income.  By the way, you'll sometimes hear people refer to Part A and Part B coverage as "Original Medicare".
• Part D is Medicare's prescription drug coverage. Part D is administered by a number of private insurance companies that operate in various areas of the country, so this requires some shopping on your part to make sure you're getting the right drugs at the right price. Financial assistance might be available if you need it.
• Part C is actually the Medicare Advantage Plan, which is an optional plan individuals may choose so they receive their Medicare benefits through private health plans. You'll also hear this plan referred to as Medicare+Choice. These private plans include conventional HMO's and PPO's and are required by law to offer benefits that cover everything that Medicare covers, but they don't have to cover everything exactly as Medicare Part A and B do. There might be some customized options that allow for lower co payments or lower total out-of-pocket expenses. In simplest language, Medicare Advantage plans blend the benefits of Original Medicare and Medigap plans (more on this below). By law, you can't buy Medigap supplemental insurance if you've chose Medicare Advantage. However, it's very important to get some expertise on the choice between Original Medicare and Medicare Advantage plans based on your anticipated health needs to make sure the coverage you buy covers what you really need.

What about Medigap? So-called "Medigap" coverage is supplemental coverage that's available for people who opt out to be covered under Original Medicare -- Part A and B coverage. You buy Medigap insurance from a private insurer, and your primary goal is to determine whether that supplementary coverage actually pays for the things you know you'll need that Medicare doesn't cover. You do have to pay a monthly premium for this coverage. And again, if you choose Medicare Advantage (Part C) coverage, you're not allowed to buy Medigap coverage.

To compare Medicare and Medigap coverage, visit the Medicare Personal Plan Finder on the Medicare.gov  website.

When do I enroll for Medicare? You have a six-month window to enroll for Medicare that starts three months before your 65th birthday and ends three months after. As mentioned above, if you're already receiving Social Security at age 65, you'll automatically be enrolled in Part A, but if not and you enroll more than three moths after your 65th birthday, you may be subject to a late enrollment penalty.

By the way, what's Medicaid? This is the name for the federal program -- and corresponding state programs -- that pick up healthcare costs for indigent children and adults. Unless you're below the poverty line or you spend out your assets in your senior years, this won't be part of the discussion.

Three Keys to Surviving Market Turbulence

From the desk of Mark LaSpisa, President and Managing Advisor: Three Keys to Surviving Market Turbulence

All too often, investors react to a sharp drop in prices by panic selling or digging in their heels despite deteriorating fundamentals. But more thoughtful investors see a correction or downturn as an opportunity to review the risks in their portfolios and make adjustments where necessary.

Most stock market investors are looking for the same result: strong and steady gains of their investments. Dealing with a period of sustained falling stock prices is not easy. All too often, investors react to a sharp drop in prices by panic selling or digging in their heels despite deteriorating fundamentals. But more thoughtful investors see a correction or downturn as an opportunity to review the risks in their portfolios and make adjustments when necessary.

Any time you are feeling nervous when confronted with any adverse market event -- whether it is a one day blip, a more lengthy market correction (a decline of between 10% to 20%), or a prolonged bear market (a decline of more than 20%) -- take time to review your portfolio and call your Vermillion Financial Advisor. It will help you in dealing with the difficulties that volatility can bring. Here are three suggestions to help you and your portfolio survive market turbulence.

Talk with your Advisor. Your Vermillion Advisor can help you separate emotionally driven decisions from those based on your goals, time horizon, and risk tolerance. Researchers in the field of behavioral finance have found that emotions often lead investors to read too much into recent events even though those events may not reflect long-term realities. With the aid of your Vermillion Advisor, you can sort through these distinctions, and you'll likely find that if your investment strategy made sense before the crisis, it will still make sense afterward.

Keep a long-term perspective. The only certainty about the stock market is this: it will always experience ups and downs. That's why it's important to keep emotions in check and stay focused on your financial goals. A buy-and-hold strategy -- making an investment and then holding on to it despite short-term market moves -- can help. The opposite of buy-and-hold investing is market timing -- buying and selling investments based on what you think the market will do next. Market timing, as most investment professionals will tell you, is risky. If your predictions are wrong,  you could invest when the market is on its way down or sell when its on it's on its way up. In other words, you risk locking in a loss or missing the market's best days.

Update your Capital Preservation Policy. While it's important to remember that periods of falling prices are a natural part of investing in the stock market, your written capital preservation policy (CPP) is pre-planned action step(s) to be taken when volatility raises above normal levels. Your advisor has a variety of tools to use to address volatility in your portfolio including automatic stop losses, dollar cost averaging, individual stock and stock index options to hedge their portfolios against a sudden drop in the market. Perhaps the best move you can make is reevaluating your risk profile which limits your CPP for taking overall risk.

Investing Through Life’s Stages

Investing is a lifelong process. The sooner you start, the better off you'll be in the long run. It's best to start saving and investing as soon as you start earning money, even if it's only $10 a paycheck. The discipline and skills you learn will benefit you for the rest of your life. But no matter how old you are when you start thinking seriously about saving and investing, it's never too late to begin. The first part of a successful lifelong investment strategy is disciplined savings habits. Regardless of whether you are saving for retirement, a new house, or just that extravagant dining room set, you will need to develop rigid savings habits. Regular contributions to savings or investment accounts are often the most productive; and if you can automate them, they are even easier.

Factors That Affect Your Investment Decisions
Once you begin saving on a regular basis, you'll soon have to decide how to invest the money you are saving. Regardless of what financial stage of life you are in, you will have to decide what your needs are and how comfortable you are with risk.

Growth or Income
What do you need the money to do? The answer to this question will help determine whether you want to put your savings into investment products that produce income for you, or that concentrate on growing the value of your investment. For instance, a retirement fund does not need to produce income until you retire, so your investing strategy should focus on growth until you are close to retirement. After you retire, you'll want to draw income from your investment while keeping your principal intact to the extent possible.

Time and Risk Tolerance
All investing involves a certain amount of risk. How well you tolerate price fluctuations in your investments will need to be balanced against your required rate of return in determining the amount of risk your investments should carry. An offsetting factor to risk is time. If you plan to hold an investment for a long time, you will probably tolerate more risk because you have the time to make up any losses you may experience early on. For a shorter-term investment, such as saving to buy a house, you probably want to take on less risk and have more liquidity in your investments.

Sound Strategies for Everyone
Everyone lives his or her life differently, and everyone has complicated emotions about money, so investment decisions are highly personal and unique to each person.
But there are some basic rules that apply to most investors.

• To provide liquidity for emergencies, you should probably always have a cash reserve in a money market fund or traditional savings account or CD, no matter what your life stage.

• Also, if you can tolerate even a little risk, you should probably always have some portion of your portfolio in stocks to help protect your savings from being devalued due to inflation.

• Another good idea is scheduling regular reviews of your investments with a financial advisor. This habit will keep you up to date on your investments and help spot potential problems in your investment strategy. Finally, every investment decision should include tax considerations. Investments can be taxable, tax deferred, or tax free. You should be aware of the taxable status of your investments and take that into account when setting up and reviewing an investment strategy.

Investing for Life Stages
Although everyone's attitude toward investing and money is different, most investors share some common situations throughout their lives. For instance, where you are in your life cycle certainly affects how you invest for retirement, but what about other life stages that aren't so closely related to age? Let's say you're 40 and expecting your first child. You'll need to decide how to balance your finances to account for the additional expenses of a child. Perhaps you'll need to supplement your income with income-producing investments.
Moreover, your child will be entering college at about the time you're ready to retire! In these circumstances, your growth and income needs most certainly will change, and maybe your risk tolerance as well.

Three-Step Retirement Plan Tune-Up

Even if your personal outlook hasn't changed, keep in mind that uneven returns provided by different investments may have caused your portfolio to shift from your intended asset allocation.
Conducting an annual review of your retirement goals and strategy is a great way to help ensure that your plans for your financial future remain realistic and on track. With that in mind,  taking the three easy steps outlined below will help you conduct your retirement tune-up.

Step 1: Review your retirement goals
Your first step should be to review your retirement savings goals and assess whether anything significant has occurred during the past year that might affect either your outlook for retirement or your current strategies to prepare for it. For example, have you decided to change the date when you'll retire? Or have you experienced any new milestones such as getting married, divorced, or having a child? Any of these events may affect how much you will want to save to fund the retirement you envision.

Step 2: Take a fresh look at your retirement strategy
Your portfolio's specific mix of stocks, bonds, and cash, known as your asset allocation, should complement your financial goals, risk tolerance, and time horizon. If you haven't taken a fresh look at your investments in awhile, don't assume that your old asset allocation is still appropriate for your current needs. Even if your personal outlook hasn't changed, keep in mind that uneven returns provided by different investments may have caused your portfolio to shift from your intended asset allocation. Given the market volatility that has occurred since 2007, if you have not reviewed your asset allocation since that time, there may be a good chance that uneven returns have caused it to change. If your asset allocation needs to be rebalanced, now may be the time for action.

Step 3: Consider saving more
None of us know what the future might hold. A good way to improve the odds that you have saved enough for retirement is to save more, no matter how prepared you may already be. If you have not already done so, consider funding an IRA. To find funding limits for your IRA account, more information can be obtained at www.irs.gov. If you participate in a workplace-sponsored retirement plan -- such as a 401(k), 403(b), or 457 -- you can contribute up to $16,500 for 2011. Those aged 50 and over can add up to another $5,500. If you are eligible for a plan at work, but haven't enrolled yet, what are you waiting for?

Conducting a retirement tune-up is always a great idea, but don't forget to consult with your financial advisor to discuss what else you can do to help achieve retirement security.