The Certified Financial Planner™ (CFP®) designation is a professional designation which is frequently held by financial planners, investment advisers and other financial advisers. It is conferred by the Certified Financial Planner Board of Standards, Inc. Candidates must have a bachelor’s degree (or higher) from an accredited college or university, three years of full-time personal financial planning experience and complete a course of study in financial planning topics. These subject areas include investments, taxes, estate planning, insurance planning, employee benefits, and asset protection.
A candidate may be exempt from the course of study requirement if he or she holds a CPA, ChFC, CLU, CFA, Ph.D in business or economics, a Doctor of Business Administration, or an attorney’s license.
All candidates must successfully complete the CFP® Certification Examination, which has a reputation for being very challenging, comprehensive and arduous.
CFP® practitioners are subject to the CFP Board’s ethical standards, and must abide by a fiduciary standard.
Certificants must typically complete 30 hours of continuing education every two years, and 2 hours of these 30 hours must be in topics related to ethics.
In many jurisdictions, the CFP® designation will exempt an investment adviser representative from having to pass the Series 65 examination.
Certain parts of medicare are administered by private insurance companies. These include medicare part C (“medicare advantage”), medicare part D (prescription drug plans), and medicare supplement plans.
Medicare part C, frequently referred to as “medicare advantage”, provides a means for medicare eligible individuals to obtain their hospital and outpatient medical coverage through private insurance companies. This is in contrast with medicare part A and part B, in which such coverage is administered and provided by the federal government.
Medicare advantage plans vary and have different rules, provider networks and out of pocket costs. Some medicare advantage plans include prescription drug coverage while others do not, and the premiums for these plans are typically paid for by medicare. The private insurance companies and the plans which they provide must be approved by and are regulated by the federal government.
Medicare part D includes prescription drug coverage. As discussed previously, some medicare advantage plans include this coverage while others do not. Additionally, medicare beneficiaries who are enrolled in part A and part B have the options of purchasing stand alone part D prescription drug coverage.
Medicare supplement plans, frequently referred to as “medigap” plans, are private plans which can be purchased by an individual who is enrolled in medicare part A and part B. These plans provide a means for medicare participants to obtain coverage for deductibles, co-insurance, and other out of pocket costs associated with medicare part A and part B. Like medicare advantage plans, medicare supplement plans are regulated by the federal government.
Medicare coverage is broken down into parts A, B, C and D. Medicare part A (hospital coverage) and medicare part B (medical coverage) are run by the federal government. Part C (medicare advantage) and part D (medicare supplement) are administered by private insurance carriers and are approved by the federal government to replace or supplement parts A and B.
How you manage your medicare coverage is an important part of financial planning if you are of the age where you qualify for benefits of any kind. Here we will provide a very basic overview of medicare parts A and B and how they work. In subsequent articles we will discuss medicare parts C and D and how you can use these private plans to actively manage your individual situation.
Medicare part A – hospital coverage
Medicare part A is hospital coverage, and you do not have to pay premiums for this coverage if you are age 65 and you meet certain requirements. Medicare part A covers medically necessary services required to treat a disease or condition. These include hospital care, skilled nursing facility care, nursing home care, hospice, and home health services.
Medicare part B – medical coverage
Medicare part B is outpatient coverage, and you must typically pay premiums for part B. You must under many circumstances enroll in medicare part B when you are first eligible. If you do not, you will have to pay a penalty in the form if higher premiums when you finally do enroll, unless you meet certain exceptions. Medicare part B covers medically necessary supplies and services needed for diagnosis or treatment of your condition. This includes services received at a doctor’s office, clinic, hospital, or other health facility.
Disability insurance protects your income in the event of a disability preventing you from earning income through employment. Social security has a disability program which provides some amount of coverage in the event of a long term disability. The social security disability program provides long term benefits with an elimination period of 6 months. What this means is that a person must be disabled for six months before they can begin collecting benefits. More information about the details of this coverage can be found on your social security statement, or by accessing your social security benefit information online at www.ssa.gov.
In addition to benefits provided through social security, you can also obtain coverage through a group plan such as an employee group or union, or purchase individual coverage through a private insurance carrier. Private disability insurance is subject to stringent underwriting requirements, and pricing is based upon occupation, health, benefit amount, and time frame of benefits which are provided.
Private disability insurance can be either short term or long term. Short term disability insurance covers disabilities lasting from a few weeks to several months or a year, while long term disability insurance coverage begins after an elimination period of several months to a year and lasts anywhere from a few years up to retirement age or longer.
We will discuss how to protect against the most common risks – unemployment, disability and death.
Unemployment insurance is typically provided by state or federal government programs. Private insurance for this type of issue does not exist for the most part, and in order to take a proactive approach to managing this risk an emergency fund should be established.
Disability insurance is provided by the federal government through the social security program, and in some situations is mandated by states through workers compensation laws. Many employers and unions provide disability insurance for their employees and members. A proactive approach can be taken by purchasing private insurance coverage as well. Pricing for this type of coverage is typically based upon age, health and occupation. Disability insurance can generally be broken down into two types: short term disability insurance (STD) and long term disability insurance (LTD). Short term disability programs typically cover events lasting from a few weeks to a year, depending on the particular coverage, while long term disability coverage typically covers events which are long term in nature. Disability insurance policies are typically subject to an elimination period, which is the minimum amount of time which the disability must last in order for the policy holder to begin collecting benefits.
Coverage to protect dependent survivors in the event of death of a breadwinner is typically provided by purchasing life insurance. Social security also has a dependent survivor’s benefit program, where benefits are provided to a surviving spouse as well as to surviving children. Details of this coverage can be found in the social security statement.
When you decide to take your social security retirement benefit will have a significant impact on the amount of the benefits. Your “full retirement age”, according to social security rules, will vary depending upon your birth year, between the range of age 65 if you were born in 1937 or earlier, to age 67 if you were born in 1960 or later. You can take benefits earlier than this, as early as age 62, and receive a reduced benefit amount, or take benefits later than this, up until age 70, and receive an increased benefit amount. The exact amount of your social security retirement benefit amount can be found on your social security statement, which is sent to you annually by the social security administration. You can also access your benefit information online at www.ssa.gov. When you should file will depend on a number of factors including your health and life expectancy and your additional financial resources available to you to fund your retirement.
In many situations a strong case can be made for delaying the taking of social security benefits as long as possible, until age 70, because in many cases this will result in the largest benefit overall. Of course each individual’s situation is different and a thorough analysis should be done taking into account a number of different factors unique to the individual. A financial adviser can assist with the process of analyzing your situation in relation to your balance sheet and income statement, to help you determine the option which best suits your needs.
Retirement income can be broken down into three general categories: income from investments, income from pension plans, and income from social security. Of course, many decide to continue working during retirement so employment, self employment or business income may be available as well.
Investments can be used to to fund retirement needs by either generating dividend and interest income or by gradually liquidating the assets over the course of retirement. The main advantage of the first method is preservation of principal, and its disadvantage is that it results in lower income than the second method. The advantage of the second method is larger income, and the disadvantages include depletion of principal and longevity risk related to the assets lasting throughout retirement. In certain cases this longevity risk can be managed by means of insurance contracts such as annuities, however such contracts require the policy owner to give up control over the principal.
Income from pension plans
Defined benefit pension plans are another source of retirement income. Benefits paid are typically a function of age, income received while employed with the company or organization associated with the defined benefit plan, and years of service provided to the employer or organization. Other factors can also impact the income provided by the plan, including whether or not a spousal survivor benefit is included in the plan. Pension plan income is advantageous in that there is no longevity risk associated with the benefits, as benefits are in most cases paid throughout the life of the pensioner. Careful planning should be done with respect to coordinating survivor benefits of the pension plan. In certain cases, life insurance contracts can be purchased in lieu of activating survivor benefits on pension benefits, however a careful analysis should be done before doing so.
Income from social security
Income from social security is the most common source of income for Americans, providing 40 percent of income for persons 65 years old and older according to the Social Security Administration. When to file for social security benefits is an important decision and should be coordinated carefully with other retirement income sources in order to maximize retirement income.
According to the Social Security Administration, over half of the elderly in the United States receive more than half of their income from social security, and in 2015 social security benefits accounted for almost 40% of the income of the elderly. Besides providing old age benefits, social security provides protection related to disability as well as benefits for dependents of a decedent. We will focus primarily on retirement income benefits in this article.
In order to qualify for social security, you must first acquire 40 credits (if you were born before 1929, you may need less). You can obtain up to four credits per year, and in 2016 you would have earned one credit for each $1,260 of covered earnings. So if you had earned $5,040 in 2016, you would have earned the maximum four credits for that year. Once you have earned the required 40 credits, you qualify for retirement benefits, and the amount of your benefits will depend on your earnings throughout your working life.
The retirement benefit amount will depend upon the age at which benefits are filed for, with “full retirement age” being the benchmark . Benefits will be higher if taken later than full retirement age, and lower if taken earlier than full retirement age. Full retirement age will vary depending upon your birth year. Details of your retirement benefits can be found in your social security statement, which is sent to you annually, and can also be accessed online at www.ssa.gov.