It will probably end badly!
“It’s paradoxical, that the idea of living a long life appeals to everyone, but the idea of getting old doesn’t appeal to anyone.” –
Andy Rooney

Modern medicine has made huge strides and while we are living longer, we all still die eventually. The Grim Reaper is still undefeated as far as I know.

If we are lucky, we die suddenly and peacefully in our sleep. Sad for our loved ones, but much better than dying a slow death where our health declines daily, limited to a wheelchair, incapable of recalling our children’s names, and needing assistance to go the bathroom.

Depressing, I realize. But that is life.

Because as a society, we are living longer our money has to last much longer and potentially pay for things like long term care – or custodial care when we can no longer care for ourselves.

The following are some things to consider:

• If you reach age 65, there is a 70% chance you will need custodial care.
• The average stay in a nursing home is almost three years.
• The average cost of a nursing home is $70,000.
• Nursing home costs rise at twice the average inflation rate.
• Medicare doesn’t pay for long term care.
• Medicaid is only available to you after you spend down your assets.
• Most people in nursing homes are on Medicaid, but they didn’t actually start there.

Basically you have three options when it comes to long term care.

First, you can self-insure the exposure. Meaning you can use your savings to pay for care if you need it. But remember this type of coverage costs $70,000 per year and at 6% inflation that price will double in 12 years.

Second, you can rely on Medicaid. Why not? Most do, but, that is only after you have spent your own money. If you are married, Medicaid kicks in when you have about $100,000 in assets left. You don’t have to sell your home but the government can attach a lien on it after you die to recoup the cost of your care.

Third, you can buy long term care insurance. For many, this is the right choice. But often, I hear people say they don’t want to buy it for fear that they won’t use it and thus waste their money. Well guess what – here is a little secret: the people who go to a nursing home with long term care insurance don’t win the game. It’s those who have long term care insurance that die peacefully in their sleep, healthy today…dead tomorrow, who win the game! When your car isn’t stolen or your house doesn’t burn down, do you regret having auto or homeowner’s insurance? Never feel regret for being prudent.

Long term care insurance can be expensive but there are things that can be done to reduce the cost:

• You can limit your coverage to four years. Odds are very high that you won’t need the coverage after four years. By limiting coverage you reduce the cost dramatically over the lifetime of the policy.
• Self-insuring a portion of the cost is an option. If the average cost of a nursing home in your part of the country is $200 per day, consider buying coverage for $150 per day. But be sure to study the long term impact of not being fully insured.
• Ask your children to pay for it. Let’s face it they are the ones that will benefit from you not spending all of their inheritance on this type of care!

Remember statistically it’s not a matter of if we will need long term care in our lifetime but when we will need it!

— Nikki Earley

Having Won its Battle to Operate, the Keystone XL Pipeline Struggles to Find Customers

Keystone XL is facing a new challenge: The oil producers and refiners the pipeline was originally meant to serve are not interested in it anymore. Delayed for nearly a decade by protests and regulatory roadblocks, Keystone XL got the green light from the President in March. But the pipeline’s operator, TransCanada Corp., is struggling to line up customers to ship crude from Canada to the U.S. Gulf Coast. TransCanada Chief Executive Russ Girling remains committed to completing Keystone XL and believes it will prove profitable in the long term—but it may be years before the company recoups its investment in the pipeline.

TransCanada has spent $3 billion to date on Keystone XL, much of it on steel pipe, land rights, and lobbying. When completed, the pipeline would travel 1,700 miles from Alberta to Steele City, Neb., where it would link up with existing pipelines that run to the Gulf Coast. The lack of interest has put the pipeline’s fate in jeopardy. The company, based in Calgary, Alberta, has said it wants enough customers to fill 90% of Keystone’s capacity before it proceeds. It started to aggressively court potential customers earlier this year as it seeks to meet that target. TransCanada expects the pipeline, which would carry up to 830,000 barrels of oil a day, to cost $8 billion, compared with its initial estimate of $7 billion. The company took a $2 billion write-down related to the pipeline last year.

A TransCanada spokesman said the company is making progress with customers and anticipates it will firm up support in coming months. The company has said construction could begin next year and finish as early as 2020. But much has changed in the oil markets since TransCanada first filed an application with the State Department in 2008 for a cross-border permit. Back then, the price of oil had surpassed $130 a barrel, producers were rushing to pump as much as possible and refiners were itching to secure steady supplies. Today, oil is trading around $45 amid a global supply glut caused in part by the emergence of American shale drillers.

Refiners want the flexibility of being able to buy oil from wherever it is cheapest. In a world awash in low-price oil, Canadian crude doesn’t look as attractive as it once did. Many refiners thus far are unwilling to commit to long-term deals for Canadian crude. “A lot of water has gone under the bridge over the last seven or eight years since we proposed that project with respect to where energy prices are today,” Mr. Girling told investors in May. “So it all sort of complicates the negotiation.”

Meanwhile, uncertainty about output growth from Canada’s oil sands has given producers pause about signing long-term agreements for space on a pipeline they may not need, people familiar with the matter say. While forecasters predict production there will grow into the next decade, largely due to investments already made, some analysts warn increases beyond that are far from assured. The oil-sands industry faces potential regulatory headwinds as Canada seeks to reduce carbon emissions to comply with global climate agreements. Some shippers are choosing to move crude out of Canada by rail. Transporting crude to U.S. refineries this way is $2 to $8 a barrel more than pipeline tolls, which average around $8.50 a barrel from Alberta to Texas, according to analysts. But rail shipments generally don’t require long-term commitments.

While Keystone XL stalled for years, other projects moved forward. Goldman Sachs analysts estimate that Enbridge Inc.’s expansion of an existing pipeline connecting Alberta and Superior, Wis., will be completed by 2019, while Kinder Morgan Inc.’s expansion of the Trans Mountain Pipeline from Alberta to the coast of British Columbia will be finished by 2020. They predict Keystone XL may not be finished until 2021. Keystone XL still requires final approval from Nebraska and faces the prospect of additional protests from a reinvigorated anti-pipeline movement in the U.S. following the fight over the Dakota Access Pipeline. The other pipeline projects face similar obstacles.

TransCanada is betting the demand that spurred the project still exists. Analysts project that over the long term the Gulf Coast’s demand for Canadian crude will rise as oil imports from Venezuela and Mexico fall. The company’s U.S.-denominated shares have risen by almost 50% since Keystone XL was blocked in November 2015, signaling the market’s belief that the company can afford to move on. Investors warmed to TransCanada after the company bought Columbia Pipeline Group Inc. for about $10 billion in 2016, a deal which offers the opportunity to expand its natural-gas operations in the U.S. Northeast. Revenue from TransCanada’s power operations has continued to grow, as has its natural-gas pipeline business, which expanded into Mexico. “We don’t own TransCanada because of Keystone,” said Rob Thummel, portfolio manager at Tortoise Capital Advisors LLC, which manages about $16 billion. “We own it because of the potential for expansion of natural-gas infrastructure in the Northeast.”

Citations

1. http://on.wsj.com/2s5hmOP – Wall Street Journal
2. http://read.bi/2t9HxVN – Business Insider

The Good News Is . . .

• The government revised the first-quarter growth in gross domestic product (GDP) to a 1.4% annualized rate vs the prior estimate of 1.2%. Growth in consumer spending was also revised upward to 1.1% from its prior estimates of 0.6%. The government report showed that inventory growth in the first quarter was weak, but final sales, which exclude inventories, grew at a rate of 2.6%. Both residential investment and business investment were the big positives that offset consumer weakness, adding 0.5 points and 1.2 points respectively.

• KB Home Corp., a leading home builder, reported earnings of $0.33 per share, an increase of 94.1% over year-earlier earnings of $0.17 per share. The firm’s earnings topped the consensus estimate of analysts by $0.07. The company reported revenues of $1.0 billion, an increase of 23.6%. Management attributed the results to increased deliveries driven by strength in the housing market, as well as a rise in the average selling price of its homes and operational efficiencies.

• Staples, a mainstay in the office supplies business, has agreed to sell the company to a private equity firm. The deal is the latest instance of a once-prominent name in retailing being laid low by the powerful forces reshaping how people shop. Sycamore Partners—a private equity firm that specializes in retailers and already owns Talbots, The Limited, and Hot Topic—said that it would acquire Staples for $6.9 billion or $10.25 per share. The company has faced stiff competition from online retailers such as Amazon.com, mass merchants such as Walmart and Target, warehouse clubs such as Costco, and computer and electronics retail stores such as Best Buy. Staples sells only a minority of its goods at bricks-and-mortar locations. Some $10.6 billion of its sales are delivered to customers, compared with about $6.6 billion sold in stores. That suggests that even as stores close and consumers shop online, Staples has a large and potentially profitable opportunity. This factor, its minimal debt load, and its size made it an attractive acquisition for private equity investors.

Citations

1. https://bloom.bg/2eVhfSb – Bloomberg
2. http://cnb.cx/2lwnm3s – CNBC
3. http://bit.ly/2sqwtqe – KB Home Corp.
4. http://nyti.ms/2u8abqy – NY Times Dealbook

Planning Tips

Strategies for Building and Preserving Wealth in Retirement

Increasing your wealth over time takes patience. You need to develop a plan for saving, investing, and minimizing taxes that will help you achieve your financial goals. Below are a few lesser-known strategies and ways of thinking that can help you along the way. Be sure to consult with your financial advisor to determine if these strategies are appropriate for your situation.

Non-Deductible IRA vs. Roth IRA – If you do not qualify for a tax-deductible IRA you may still contribute to a non-deductible (no tax deduction) IRA or you may qualify for a Roth IRA. Given the choice, contributing to a Roth IRA is always a much better choice than a non-deductible IRA. While you do not get a tax deduction for either, the money in the Roth IRA will be tax-free when withdrawn, while the non-deductible IRA will be taxable to the extent of growth in the account.

Plan Which Assets to Spend First in Retirement – The spending order of your assets in retirement matters. In general, it is preferable to spend principal from your non-IRA investments rather than taking a taxable distribution from your IRA and/or retirement plan. This is based upon paying lower capital gains tax rates (now) in the non-IRA account versus ordinary income tax rates (later) in the IRA and or retirement account. Generally, the spending order should be:

• Income Sources – Pensions, dividends, interest and capital gains, Social Security.
• Non-IRA Assets – Investments that will sell at a loss or break even, than more highly appreciated assets.
• IRA and Retirement Plan Assets – IRA, 403(b), 401(k) and so forth, dollars over and above required minimum distributions.
• Roth IRA – Roth IRA dollars.

Preserve Wealth with a Roth Conversion – Converting IRA assets to a Roth IRA will preserve tax-free distributions for generations. Under current law, the Roth IRA will grow income-tax free for the rest of your life, the rest of your spouse’s life and lives of your children, your grandchildren and potentially even your great grandchildren.

Avoid Having Withdrawals Bump You Into a Higher Tax Bracket – If you want to be a little more strategic with your withdrawals, you may consider taking withdrawals from a mix of taxable, tax-deferred, and possibly tax-free accounts. This can help you avoid moving into a higher tax bracket. This strategy may help you generate the cash flow you need to help meet expenses, while potentially reducing your taxes. If performed consistently over time, it may help you preserve more of your investments for the future. Be sure to check with your tax advisor to make sure this approach is appropriate for you. There are cases where the benefits of this strategy may not be worth the upfront cost.

Give Away More Than Annual Gift Tax Exclusion and Not Pay Taxes – Because of the generous lifetime gifting/estate tax exemption under current tax law the annual gift tax exemption limit is not meaningful. Many are under the assumption that making a gift greater than the current $14,000 exclusion per donee will result in tax. However, no tax will be owed because any amount over the $14,000 will simply reduce your estate or lifetime gift tax exclusion of $5.45 million by the amount of the gift value over $14,000. The only thing you would need to do is file Form 709 informing the IRS that the current year gift consumed part of your estate exemption.

Citations

1. http://bit.ly/2j283Pf – Fidelity
2. http://bit.ly/2saX9qW – Kiplinger
3. http://bit.ly/2u86elJ – Investopedia
4. http://on.mktw.net/1IXsGhO – MarketWatch.com
5. http://bit.ly/2t9PA4W – WealthPreservationStrategies.net