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Market Week: November 4, 2019

November 4, 2019

The Markets (as of market close November 1, 2019)

A better-than-expected jobs report and strong third-quarter earnings from some major companies drove stock prices higher for the fourth consecutive week. The S&P 500 and the Nasdaq reached closing highs while the other benchmark indexes listed here posted solid returns. The small caps of the Russell 2000 recorded the largest weekly gain, followed by the Nasdaq, the S&P 500, the Dow, and the Global Dow. Long-term bond prices rose, pulling yields lower as the yield on 10-year Treasuries fell 8 basis points.

Oil prices fell last week, closing at $56.14 per barrel by late Friday afternoon, down from the prior week’s price of $56.65. The price of gold (COMEX) rose for the third week in a row last week, closing at $1,515.70 by late Friday afternoon, up from the prior week’s price of $1,507.10. The national average retail regular gasoline price was $2.596 per gallon on October 28, 2019, $0.042 less than the prior week’s price and $0.215 less than a year ago.

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

Last Week’s Economic News

  • The Federal Reserve lowered interest rates for the third consecutive time, dropping the target range for the federal funds rate 25 basis points to 1.50%-1.75%. The Committee noted that while the labor market remains strong, economic activity has been rising at a moderate rate, and household spending has been accelerating at a strong pace, business fixed investment and exports remain weak. In addition, inflation continues to run below the Fed’s target rate of 2.0%. The Committee vote was 8 in favor and 2 voting to maintain the target range at 1.75%-2.00%. Further rate cuts are on hold for the time being. The Committee next meets in December.
  • The initial, or “advance,” estimate of the third-quarter gross domestic product showed the economy grew at an annualized rate of 1.9%. The second-quarter GDP increased 2.0%. While economic growth decelerated in the third quarter, it is better than most experts expected, primarily due to consumer spending, which offset weakness in other sectors of the economy. In the third quarter, personal income increased $172.8 billion compared with an increase of $244.2 billion in the second quarter. Disposable personal income increased $181.7 billion last quarter compared to $192.6 billion in the second quarter. With a reduction in consumer income in the third quarter came a deceleration in consumer spending (accounting for more than two-thirds of economic activity). However, consumer spending was enough to offset weak business investment, which turned negative for the first time since 2016.
  • There were 128,000 new jobs added in October, and the unemployment rate inched up one tenth to 3.6%. Job growth has averaged 167,000 per month thus far in 2019. The number of unemployed persons also climbed marginally from 5.8 million in September to 5.9 million. The labor participation rate rose from 63.2% to 63.3% last month. The employment-population ratio held at 61.0%. Notable job gains in October occurred in food services and drinking places (48,000), social assistance (20,000), professional and business services (22,000), and financial activities (16,000). Indicative of the slowdown in manufacturing production, that sector declined by 36,000 jobs in October. The average workweek was unchanged at 34.4 hours in October. Average hourly earnings rose by $0.06 to $28.18. Over the past 12 months, average hourly earnings have increased by 3.0%.
  • Prices for consumer goods and services decreased less than 0.1% in September as inflationary pressures remained muted. Personal income and disposable (after-tax) personal income each climbed 0.3%. Consumer spending ramped up 0.2% in September, helped by robust employment and rising wages.
  • Manufacturing continued to lag in October, according to the latest Manufacturing ISM® Report On Business®. The purchasing managers’ index registered 48,3%, which, while better than September’s 47.8%, still represents contraction in the manufacturing sector (a reading below 50% constitutes contraction). Survey respondents noted an increase in new orders, up 1.8% at 49.1%, but still contracting. Production, supplier deliveries, and prices each fell in October and are all below 50.0%. Employment, inventories, and new export orders increased, respectively.
  • The international trade in goods (excluding services) deficit for September was $70.4 billion, down $2.7 billion from August. Exports of goods for September were $135.9 billion, $2.2 billion less than August exports. Imports of goods for September were $206.3 billion, $4.9 billion less than August imports. While the goods deficit shrank last month, both import and export trading contracted — evidence of a slowing global economy.
  • For the week ended October 26, there were 218,000 claims for unemployment insurance, an increase of 5,000 from the previous week’s level, which was revised up by 1,000. According to the Department of Labor, the advance rate for insured unemployment claims remained at 1.2% for the week ended October 19. The advance number of those receiving unemployment insurance benefits during the week ended October 19 was 1,690,000, an increase of 7,000 from the prior week’s level, which was revised up by 1,000.

Eye on the Week Ahead

While the last week of October was full of economic information and reports, the first week of November is relatively calm. The goods and services trade report for September is available this week. The 2019 goods and services international trade deficit sat at $429 billion for January through August — about $28 billion higher than the deficit over the same eight-month period in 2018.

Data sources: News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indices listed are unmanaged and are not available for direct investment.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Market Month: October 2019

November 4, 2019

The Markets (as of market close October 31, 2019)

Investors continued to buy stocks, pushing values higher in October. Each of the benchmark indexes listed here posted solid monthly gains despite signs that the economy is slowing, both domestically and globally. Businesses remain hesitant to invest in nonresidential structures, equipment, and software, exports are lagging in volume, and prices remain subdued. Manufacturing continues to wane, and residential sales have been erratic at best. However, there may be headway in the negotiations between the United States and China, as the two economic giants try to resolve their ongoing trade war (although rhetoric from either side changes almost daily). The labor market continues to add new jobs, although wage inflation was muted last month. Since the beginning of the year, interest rates have been reduced by 75 basis points to their lowest levels since May 2018. The last day of the month saw the House of Representatives pass a resolution establishing a framework for a new phase of the impeachment inquiry.

By the close of trading on the last day of the month, each of the benchmark indexes listed here posted gains, led by the tech stocks of the Nasdaq, which climbed more than 3.50% from its September closing value. The large caps of the S&P 500 and the small caps of the Russell 2000 each gained over 2.0% by the end of October, while the Global Dow was close behind. The Dow advanced on the month, but by less than 0.50%. The yield on long-term bonds fluctuated during the month, ultimately closing October about where it began.

By the close of trading on October 31, the price of crude oil (WTI) was $54.09 per barrel, down from the September 30 price of $54.37 per barrel. The national average retail regular gasoline price was $2.596 per gallon on October 28, down from the September 30 selling price of $2.642 and $0.215 less than a year ago. The price of gold rose by the end of October, climbing to $1,515.10 by close of business on the 31st, up from its $1,479.30 price at the end of September.

Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments.

  • Employment: The unemployment rate declined 0.2 percentage point to 3.5% in September. The last time the rate was this low was in December 1969, when it also was 3.5%. Total employment increased by 136,000 in September after adding 168,000 (revised) new jobs in August. The average monthly job gain so far in 2019 is 161,000 per month (223,000 in 2018). Notable employment increases for September occurred in health care (39,000), professional and business services (34,000), government (22,000), and transportation and warehousing (16,000). The number of unemployed persons dropped by 275,000 to 5.8 million. The labor participation rate remained at 63.2%, and the employment-population ratio rose to 61.0% (60.9% in August). The average workweek remained at 34.4 hours for September. Average hourly earnings fell by $0.01 to $28.09. Over the last 12 months ended in September, average hourly earnings have risen 2.9% (3.2% for the 12 months ended in August).
  • FOMC/interest rates: By an 8-2 vote, the Federal Open Market Committee dropped the target range for the federal funds rate 25 basis points following July’s 25-basis-point cut and September’s comparable rate slash. The federal funds rate range has been decreased by 75 basis points so far this year. The target range now sits at 1.50%-1.75%. In support of its decision to reduce interest rates again, the Committee noted that inflation continues to run below the Fed’s 2.0% target rate, business fixed investment and exports have weakened, and global economic developments are uncertain.
  • GDP/budget: Economic growth slowed again in the third quarter. According to the initial estimate for the third-quarter gross domestic product, the economy accelerated at a rate of 1.9%, down from the second quarter’s 2.0% annual growth rate. The first quarter saw an annualized growth of 3.1%. The personal consumption expenditures price index increased 1.5% in the third quarter compared to an increase of 2.4% in the second quarter. Driving economic growth in the third quarter was consumer spending, which increased at an annualized rate of 2.9% (4.6% in the second quarter). Another positive from the report comes from residential investment, which rose 5.1% — the first positive contribution to the GDP since 2017. Nonresidential (business) fixed investment continues to lag, falling 3.0% in the third quarter after dropping 1.0% in the second quarter. September marked the close of the 2019 fiscal year for the federal government. For the month, the federal budget came in at a smaller-than-expected surplus of $82.2 billion in September, narrowing the fiscal 2019 deficit to $984.4 billion, still 26.4% higher than the fiscal 2018 deficit.
  • Inflation/consumer spending: According to the personal income and outlays report, inflationary pressures remain weak, as prices for consumer goods and services rose less than 0.1% in September. Prices are up 1.3% over the last 12 months. Consumer prices excluding food and energy showed no movement in September and are up 1.7% year-over-year. On the other hand, consumers continue spending, as purchases rose 0.2% (0.2% in August). Personal income and disposable (after-tax) personal income each climbed 0.3% in September (0.5% and 0.6%, respectively, in August).
  • The Consumer Price Index was unchanged in September following a 0.1% advance in August. Over the 12 months ended in September, the CPI rose 1.7%. Energy prices fell 1.4% on the month with gasoline down 2.4%. Prices less food and energy rose 0.1% in September after increasing 0.3% the previous month. Since last September, core prices (less food and energy) are up 2.4%.
  • According to the Producer Price Index, the prices companies received for goods and services fell 0.3% in September after increasing 0.1% in August. The index increased 1.4% for the 12 months ended in September. Prices for goods fell 0.4% in September. Most of the decline is attributable to energy prices, which tumbled 2.5%. Prices for services dropped 0.2% in September, pulled down by declining prices for machinery and vehicle wholesaling, which fell 2.7%. The price index less foods, energy, and trade services was unchanged after jumping ahead 0.4% in August. For the 12 months ended in September, producer prices less foods, energy, and trade services advanced 1.7%.
  • Housing: The housing sector has been anything but steady for much of the year, and September was no exception. Existing home sales plunged 2.2% in September following two consecutive monthly increases. Year-over-year, existing home sales are up 3.9%. Existing home prices fell in September, as the median price for existing homes was $272,100, down from August’s median price of $278,200. Nevertheless, existing home prices were up 5.9% from September 2018. Total housing inventory for existing homes for sale in September decreased to 1.83 million (1.86 million in August), representing a 4.1-month supply at the current sales pace. After rising 6.1% in August, sales of new single-family houses tumbled 0.7% in September. However, new home sales are up 15.5% over their September 2018 estimate. The median sales price of new houses sold in September was $299,400 ($328,400 in August). The average sales price was $362,700 ($404,200 in August). Inventory at the end of September remained at a supply of 5.5 months.
  • Manufacturing: According to the Federal Reserve, industrial production fell 0.4% in September after advancing 0.8% in August. Manufacturing output declined 0.5% following a 0.5% rise the prior month. In September, mining output fell 1.3%, while utilities climbed 1.4%. Total industrial production was 0.1% lower in September than it was a year earlier. Following three consecutive monthly increases, new orders for durable goods dropped 1.1% in September. Excluding transportation, new orders decreased 0.3%. Excluding defense, new orders decreased 1.2%. Transportation equipment, also down following three consecutive monthly increases, led the decrease, dropping 2.7%. New orders for capital goods (used by businesses to produce consumer goods) fell 2.8% in September as business investment continues to be weak.
  • Imports and exports: Both import and export prices remained soft in September. Import prices rose 0.2%, pushed higher by a boost from petroleum-based products. Nonfuel goods edged down 0.1%. For the year, import prices are also down 1.6%. Export prices fell 0.2% and are down 1.6% over the past 12 months. Agricultural export prices declined 1.8% in September, while nonagricultural prices for items such as consumer goods, automobiles, and industrial supplies and materials dropped 0.1%. The latest information on international trade in goods and services, out October 4, is for August and shows that the goods and services deficit was $59.4 billion, $0.9 billion over July’s revised figure. August exports were $207.9 billion, $0.5 billion more than July exports. August imports were $262.8 billion, $1.3 billion more than July imports. Year-to-date, the goods and services deficit increased $28.3 billion, or 7.1%. Exports decreased $3.2 billion, or 0.2%. Imports increased $24.1 billion, or 1.2%. The advance report on international trade in goods (excluding services) revealed the trade deficit fell to $70.4 billion in September, down from $73.1 billion in August. However, both export and import trading slowed in September, with exports of goods dropping $2.2 billion from August and imports falling $4.9 billion below August’s total.
  • International markets: Still unable to reach an accord on a Brexit plan, the United Kingdom requested, and was granted, another extension by the European Union, this time to January 31. However, the UK could leave before that date if Parliament passes a withdrawal bill. UK stocks sank following news that the country was headed to yet another general election before the end of the year. In China, consumer prices rose 0.9% in September and are up 3.0% over the past 12 months — the highest level since 2013. Nevertheless, the Chinese economy continued to slow as its third-quarter gross domestic product expanded at a 6.0% year-over-year pace, down from the 6.2% rate of expansion in the second quarter.
  • Consumer confidence: Consumer confidence remained tepid in October. The Conference Board Consumer Confidence Index® registered 125.9, down from 126.3 in September. The Present Situation Index — based on consumers’ assessment of current business and labor market conditions — increased from 170.6 to 172.3. The Expectations Index — based on consumers’ short-term outlook for income, business and labor market conditions — declined from 96.8 last month to 94.9 this month.

Eye on the Month Ahead

While stocks rebounded nicely last month, will that trend continue in November? Stock market growth seemingly rides on the progress made in the trade negotiations between the United States and China. With the impeachment process moving on to another phase and the government on target to shut down by the middle of November, it should be an interesting fourth quarter.

Data sources: Economic: Based on data from U.S. Bureau of Labor Statistics (unemployment, inflation); U.S. Department of Commerce (GDP, corporate profits, retail sales, housing); S&P/Case-Shiller 20-City Composite Index (home prices); Institute for Supply Management (manufacturing/services). Performance: Based on data reported in WSJ Market Data Center (indexes); U.S. Treasury (Treasury yields); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold/silver); Oanda/FX Street (currency exchange rates). News items are based on reports from multiple commonly available international news sources (i.e. wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results. All investing involves risk, including the potential loss of principal, and there can be no guarantee that any investing strategy will be successful.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2,000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. The U.S. Dollar Index is a geometrically weighted index of the value of the U.S. dollar relative to six foreign currencies. Market indices listed are unmanaged and are not available for direct investment.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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It Isn’t Too Late to Save for Retirement

November 4, 2019

If you’re 40 or 50 and haven’t begun, you must make the effort.

Some people start saving for retirement at 20, 25, or 30. Others start later, and while their accumulated assets will have fewer years of compounding to benefit from, that shouldn’t discourage them to the point of doing nothing.

If you need to play catch-up, here are some retirement savings principles to keep in mind. First of all, keep a positive outlook. Believe in the validity of your effort. Know that you are doing something good for yourself and your future, and keep at it.

Starting later means saving more – much more. That’s reality; that’s math. When you have 15 or 20 years until your envisioned retirement instead of 30 or 40, you’ve got to sock away money for retirement in comparatively greater proportions. The good news is that you won’t be retiring strictly on those contributions; in large part, you will be retiring on the earnings generated by that pool of invested assets.

How much more do you need to save? A ballpark example: Marisa, a pre-retiree, has zero retirement savings at age 45 and dedicates herself to doing something about it. She decides to save $500 each month for retirement. After 20 years of doing that month after month, and with her retirement account yielding 6% a year, Marisa winds up with about $225,000 at age 65.1

After 65, Marisa would probably realize about $10,000 a year in inflation-adjusted retirement income from that $225,000 in invested retirement savings. Would that and Social Security be enough? Probably not. Admittedly, this is better than nothing. Moreover, her retirement account(s) might average better than a 6% return across 20 years.1

The math doesn’t lie, and the message is clear: Marisa needs to save more than $6,000 a year for retirement. Practically speaking, that means she should also exploit vehicles which allow her to do that. In 2014, you can put up to $5,500 in an IRA, $6,500 if you are 50 or older – but you can sock away up to $17,500 next year in a 401(k), 403(b), Thrift Savings Plan and most 457 plans, which all have a maximum contribution limit of $23,000 for those 50 and older.2

If Marisa is self-employed (and a sole proprietor), she can establish a solo 401(k) or a SEP-IRA. The yearly contribution limits are much higher for these plans. If Marisa’s 2013 net earnings from self-employment (after earnings are reduced by one-half of self-employment tax) work out to $50,000, she can put an employer contribution of up to $10,000 in a SEP-IRA. (She must also make similar percentage contributions for all “covered” employees, excepting her spouse, under the SEP IRA plan.) As a sole proprietor, Marisa may also make a combined employer-employee contribution of up to $33,000 to a solo 401(k) this year, and if she combines a defined benefit plan with a solo 401(k), the limit rises to $47,400. If her 2013 net earnings from self-employment come out to $150,000, she can make an employer contribution of as much as $30,000 to a SEP-IRA, a combined employee salary deferral contribution and employer profit sharing contribution of up to $53,000 to a solo 401(k), and contribute up to $96,300 toward her retirement through via the combination of the solo 401(k) and defined benefit plan.3

How do you save more? As you are likely nearing your peak earnings years, it may be easier than you initially assume. One helpful step is to reduce some of the lifestyle costs you incur: cable TV, lease payments, and so forth. Reducing debt helps: every reduced credit card balance or paid-off loan frees up more cash. Selling things helps – a car, a boat, a house, collectibles. Whatever money they generate for you can be assigned to your retirement savings effort.

Consistency is more important than yield. When you get a late start on retirement saving, you naturally want solid returns on your investments every year – yet you shouldn’t become fixated on the return alone. A dogged pursuit of double-digit returns may expose you to considerable market risk (and the potential for big losses in a downturn). Diversification is always important, increasingly so when you can’t afford to lose a big portion of what you have saved. So is tax efficiency. You will also want to watch account fees.

If you start saving for retirement at 50, your retirement savings will likely double (at least) by age 65 thanks to consistent inflows of new money, decent yields and compounding.4

What if you amass a big nest egg & still face a shortfall? Maybe you can reduce expenses in retirement by moving to another city or state (or even another country). Maybe you can broaden your skill set and make yourself employable in another way (which also might help you before you reach traditional retirement age if you find yourself in a declining industry).

If you haven’t begun to save for retirement by your mid-40s, you have probably heard a few warnings and wake-up calls. Unless you are independently wealthy or anticipate being so someday, the truth of the matter is…

If you haven’t started saving for retirement, you need to do something to save your retirement.

That may sound harsh or scary, but without a nest egg, your vision of a comfortable future is in jeopardy. You can’t retire on hope and you don’t want to rely on Social Security, relatives or social services agencies for your well-being when you are elderly.

Citations.

1 – money.cnn.com/2012/08/15/pf/expert/late-start-retirement.moneymag/ [8/15/13]

2 – irs.gov/uac/IRS-Announces-2014-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$17,500-to-their-401%28k%29-plans-in-2014 [11/4/13]

3 – forbes.com/sites/ashleaebeling/2013/11/01/retirement-savings-for-the-self-employed/ [11/1/13]

4 – forbes.com/sites/mitchelltuchman/2013/11/21/financial-planning-for-late-starters-in-five-steps/ [11/21/13]

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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The Habit

November 4, 2019

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

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Earthquake Insurance

November 1, 2019

Most homeowners policies have very limited coverage for earthquake damage–excluding direct loss from earth movement but covering loss by a subsequent fire, explosion, breakage of glass, or theft. As a result, if you live in an area prone to earthquakes, you may want to purchase additional coverage with earthquake insurance.

What is earthquake insurance?

Earthquake insurance policies cover loss to your home and your possessions. Coverage can also include costs incurred to minimize further damage after the earthquake, and costs of additional living expenses. The cost of earthquake insurance varies, depending on the scope of coverage and your location (e.g., earthquake zone). You can purchase earthquake insurance through an insurance company, and some states even offer earthquake insurance to their residents.

Should you buy earthquake insurance?

It depends on a variety of factors. Consider the following questions before you buy earthquake insurance:

  • What are the chances of an earthquake occurring near your home? If you live in a seismically active area, you may want to consider purchasing earthquake insurance.
  • What is the likelihood of an earthquake causing considerable damage to your home? The construction of your home, the strength of your walls, how well your home is attached to its foundation, and the number of stories in your home all play a role in how well your home will fare during an earthquake.

If you’re unsure of the answers to these questions, ask your insurer or visit the Federal Emergency Management Agency website at www.fema.gov for more information.

The claims process

You’ll want to report your losses to your insurance agent or company as soon as possible. Remember to be patient, since your insurance agent or company is probably receiving hundreds of similar claim reports at the same time.

Depending on the severity of the earthquake and number of claims in the area, you may receive a claim form in the mail or a personal visit from your insurance adjuster. If an adjuster comes to your house, he or she will study the damage to your home and possessions and assign a dollar value to it. The more information you can give the adjuster (e.g., inventory of damaged or lost possessions, photographs, receipts), the faster and more accurately your claim will be settled.

After the earthquake, you may also be contacted by a public adjuster. Public adjusters do not work for an insurance company. They work for you and charge a fee for their services, which can be up to 15 percent of your settlement and is not covered by your insurance. These types of adjusters maintain that because they are independent, they can more effectively negotiate your claim settlement. If you use a public adjuster, you can check his or her qualifications by contacting your state’s department of insurance.

Earthquake safety tips

Although no one is ever prepared for a disaster such as an earthquake, there are some steps you can take to ensure your safety:

  • Know the areas in your home that you should go to during an earthquake (e.g., underneath strong desks or tables, sturdy doorways) and the areas that you should avoid (e.g., windows, bookshelves).
  • Know how to turn off the gas, water, and electricity.
  • Make sure that your house is properly structured (i.e., the roof is attached securely to the walls, the walls are attached strongly to each other, and the walls are braced and firmly attached to the foundation). A building inspector or contractor can help you determine if the structure of your home needs to be strengthened.
  • Reinforce your chimney to the house.
  • Bolt down water heaters, gas tanks, and large appliances.
  • Anchor large pieces of furniture to the floor or wall.
  • Place large items on lower shelves.
  • Make sure you have enough water and food to last three days. Have a first-aid kit and a fire extinguisher readily available.
  • Keep an inventory of your possessions, including model and serial numbers, and keep a copy outside of your house.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Dealing with the Damage: The Auto Repair Process

November 1, 2019

Anyone who has been involved in a car accident knows that it is a stressful event. And the added pressure of getting your car fixed certainly doesn’t make things any easier. Fortunately, knowing how the auto repair process works can make things go more smoothly for you.

First things first–contact your insurance company

If you are in an accident and are going to file a claim for damages, you should contact your insurance company as soon as possible. Typically, you’ll need to fill out a claim form (usually done over the phone). To support your claim, you may need to supply the insurance company with certain information pertaining to the accident, such as a proof-of-loss form and a copy of the police report. You may also need to complete an operator’s report, which will be sent to the appropriate registry of motor vehicles and the local police. Procedures for filing a claim vary, depending on the insurance company. Call your insurance agent or check your policy for specific instructions on what to do immediately after an accident.

Keep in mind that when you file a claim for damages, the payment made by your insurance company is subject to a deductible, which is the amount you’ll need to pay upfront (usually $250 or $500) before your insurance will kick in. This deductible applies to physical damage only; there’s no deductible for personal liability claims. And remember to keep copies of your claim, along with any supporting paperwork–you may need it again at some point in the future.

The settlement process

Soon after you file your claim, it will be assigned to a claims adjuster, who will begin the settlement process by investigating your claim and making a recommendation to the insurance company. The claims adjuster will contact you to make an appointment to assess the damage to your car. Many companies use drive-in appraisal centers.

The length of the settlement process varies, depending on the cooperation of the parties involved and the complexity of your claim. Your insurance company will contact you once it has made a decision regarding the payment of your claim. If you feel the amount offered by your insurance company is too low, don’t feel like you have to accept it. Do some research–if you feel you deserve a higher payment, try to reach a more equitable settlement.

Repairing your car

When your car is damaged in an accident, you have the option of going to a repair shop of your choice or one assigned to you by your insurance company, known as a direct repair shop. It’s important to note that sometimes repair shops will use aftermarket parts (parts manufactured by third-party operators rather than by the maker of your car) to repair your car. Even if your insurance company employs the use of aftermarket parts, you may have the right to insist on original equipment manufacturer parts–check the laws of your state. However, some insurance companies will not pay you for the total cost of your repairs if you insist on parts manufactured by the original maker. Check with your agent or company representative to find out what types of parts are provided for in your policy.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Life Insurance: Do You Need It?

October 31, 2019

At some point in your life, you’ll probably be faced with the question of whether you need life insurance. Life insurance is a way to protect your loved ones financially after you die and your income stops. The answer to whether you need life insurance depends on your personal and financial circumstances.

Should you buy life insurance?

You should probably consider buying life insurance if any one of the following is true:

  • You are married and your spouse depends on your income
  • You have children
  • You have an aging parent or disabled relative who depends on you for support
  • Your retirement savings and pension won’t be enough for your spouse to live on
  • You have a large estate and expect to owe estate taxes
  • You own a business, especially if you have a partner
  • You have a substantial joint financial obligation such as a personal loan for which another person would be legally responsible after your death

In all of these cases, the proceeds from a life insurance policy can help your loved ones continue to manage financially during the difficult weeks, months, and years after your death. The proceeds can also be used to meet funeral and other final expenses, which can run into thousands of dollars.

If you’re still unsure about whether you should buy life insurance, a good question to ask yourself is: If I died today with no life insurance, would my family need to make substantial financial sacrifices and give up the lifestyle to which they’ve become accustomed in order to meet their financial obligations (e.g., car payments, mortgage, college tuition)?

If you need life insurance, don’t delay

Once you decide you need life insurance, don’t put off buying it. Although no one wants to think about and plan for his or her own death, you don’t want to make the mistake of waiting until it’s too late.

Periodically review your coverage

Once you purchase a life insurance policy, make sure to periodically review your coverage–especially when you have a significant life event (e.g., birth of a child, death of a family member)–and make sure that it adequately meets your insurance needs. The most common mistake that people make is to be underinsured. For example, if a portion of your life insurance proceeds are to be earmarked for your child’s college education, the more children you have, the more life insurance you’ll need. But it’s also possible to be overinsured, and that’s a mistake, too–the extra money you spend on premiums could be used for other things. If you need help reviewing your coverage, contact your insurance agent or broker.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Professional Liability Coverage

October 31, 2019

Professional liability coverage protects you if you’re sued for the work or advice provided by your business. You may also hear this coverage referred to as errors and omissions insurance or malpractice insurance. In more legalistic terminology, professional liability insurance covers you for things like breach of duty, negligence, misstatement, omissions, and wrongful acts.

If you hold yourself out as an expert in your field (or if you can legally be considered an expert), professional liability coverage should be a part of your business insurance plan, just like property insurance or workers’ compensation. Professionals in the following fields should seriously examine their need for this coverage: accounting, health care, legal, architecture, engineering, software, and service businesses (e.g., travel agents or consulting firms).

Why is professional liability coverage necessary?

Our society is quick to sue and litigate, and liability claims aren’t cheap to defend or settle. In such a climate, professional liability coverage is necessary to protect you and your business if you’re sued and found liable. In fact, depending on your trade, your state or local government may require you to carry professional liability coverage (e.g., most states require medical doctors to have malpractice coverage). Similarly, government agencies or private companies may require you to have this coverage before they award key contracts.

As a business owner, you may want to require your subcontractors to carry their own professional liability coverage. This is a growing trend in the private technology sector. In other trades, like construction, it’s common practice for general contractors to require subcontractors to carry their own liability insurance.

The cost of defending your business in a lawsuit is another reason to carry this coverage. Whether a claim is valid or not, you’ll still incur the legal expenses of defending yourself. And if a claim is valid, you’ll have the additional expense of paying the claim. If your business doesn’t have the deep pockets to handle these potentially large expenses, professional liability coverage can serve as a cost-effective resource.

What types of coverage are available?

Two main types of professional liability coverage are available: occurrence coverage and claims-made coverage. With occurrence coverage, you’re covered for any incident that occurs while your policy is in force, regardless of when a claim is filed. So if a claim is filed this year for work you did 10 years ago while you were insured, you’re still covered, even if you’re no longer in the business. As you might expect, occurrence coverage is not cheap. Also, you should realize that the policy limits in force at the time you bought the policy will still apply today. So while $100,000 of coverage might have seemed more than enough 20 years ago, that same amount of money may be totally inadequate today.

The other main type of coverage is claims-made coverage. With this type of coverage, you’re covered for any claim that is made during the term of the policy. In other words, if a claim is made after the policy expires, there’s no coverage–even if the claim resulted from an event that took place while the policy was in force. The advantage of a claims-made policy is that the premium is usually discounted in the early years. So, it can be a good choice for a start-up business trying to hold down expenses. But over time, the premium will increase to more accurately reflect the real costs of insuring your business, usually around the fifth year of the policy.

Because it’s hard to know whether a claim will be filed in the future (after your policy expires), insurers offer two types of supplemental insurance that fill the gaps of claims-made coverage. The first type is tail coverage, which covers any incidents that occur while the original claims-made policy is in force but are not reported until after the claims-made policy expires. This coverage is often used when a professional changes insurance carriers, goes part-time, becomes disabled, enters retirement, or dies. Some claims-made policies offer guaranteed tail coverage as an option.

The second type of supplemental insurance to claims-made coverage is nose coverage, which is prior-acts coverage that works like tail coverage. Whereas professionals may use tail coverage when they’re winding down a business, they can use nose coverage when they want to continue in business but change their insurance carrier or employer. For instance, a dentist in one practice who wants to join another practice would use nose coverage to provide continued liability protection in the event he or she were sued because of an event that happened in the previous job.

What should you look for in a professional liability policy?

There are two significant expenses in any liability claim: the cost of defending yourself and the cost of any claim awarded to the person or business suing you. So, a key factor to consider in any policy is the size of your claim limit. Claim amounts vary from industry to industry, and there’s no rule of thumb for all businesses. But by talking to a few peers in your trade who’ve been around for a while, you can get a good idea of typical claim amounts. An insurance agent who specializes in professional liability insurance can also be a good source of information about claims experience in your industry.

When you’re examining claim limits, note how defense costs are handled. Some policies subtract defense costs from your overall claim limit, which lowers the amount left over to pay claims. Other polices pay for defense costs in addition to a claims limit, which leaves all of your coverage available to pay claims.

You’ll also want to examine the specific provisions relating to your legal defense. Some policies include a “duty to defend” clause, which means that the insurance company will pay to handle your case in all situations. Other policies have an “option to defend” clause, which means that the insurance company will decide whether to provide a legal defense for you. Policies also vary in how your defense may be handled. Some policies may let you choose your attorneys; others leave it to the insurer. And some policies may ask for your input regarding settlements, while others leave this decision solely to the insurance company.

Another factor to consider is loss of earnings. If you have to spend time in court as part of your defense against a claim, you’re probably not generating income. That lost time means lost revenue. Some policies will pay for your time in court, while others won’t.

Where can you get coverage?

Probably the best place to begin researching professional liability coverage is with your association or trade group. Association members have experience in this area and will know the best insurance carriers for your industry. As a member of the association or trade group, you may qualify for coverage at a favorable cost. And you should also talk with the insurance agent who handles your other business insurance coverage.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Coping with Medical Bills

October 30, 2019

A single procedure or trip to the hospital can fill your mailbox with stacks of bills. These can come from hospitals, doctors, pharmacies, emergency rooms, labs, and many others. The stress involved with handling all of this paperwork can be almost as overwhelming as the illness or injury itself. If your medical bills start to pile up faster than you can pay them, don’t wait for a crisis to occur before doing something about it.

Get organized

Don’t throw anything away. Keep all receipts, insurance forms, bills, and anything else that relates to your medical care. Organize your bills so you can keep track of them. One way is to make a file for each provider. Inside each file, organize the bills by date of service. If you don’t receive itemized bills, request them. Go over each bill when you receive it because errors are common. A simple mistake, such as the wrong computer code, can cause you much grief. Here are some things to check:

  • Is your personal and insurance information correct?
  • Were you charged twice for the same service?
  • Were you charged for something you refused or did not receive?
  • Is there anything that seems unreasonably high or questionable?

Don’t ignore the explanation of benefits form

This form comes from your insurance company. It shows the medical service provided, date provided, how much your plan will pay, and how much you will have to pay yourself. If you don’t understand what you owe and why, call your insurance company or agent.

What if you think there’s a mistake?

Medical bills and the billing process can be complicated. If you think your doctor or hospital has made an error, here’s what you should do:

  • Contact the appropriate billing office. Give it a reasonable amount of time to correct a mistake.
  • Don’t refuse to pay a bill because you think it should have been paid by your insurance company. Most likely, any agreement you made with a hospital or doctor holds you responsible for payment, even if your insurance company doesn’t pay.
  • Contact your insurance company to review the claim. Explain why you think the company’s wrong. If the company needs to do something, find out when it will get done. If you have to do something, make sure you understand exactly what and when it must be done. Get the full name of the person you spoke to, and send a letter confirming your conversation.
  • Request a written explanation of denial if you’re still unsatisfied. To save your credit rating, pay the bill yourself, or negotiate a payment arrangement with the medical provider. Then use the insurance company’s appeal process as soon as possible to collect your money.

Suppose you just can’t pay

If you’re having financial problems and can’t pay your medical bills, it’s better to work directly with your medical provider. Contact the provider before it contacts you. Perhaps you can work out a payment plan.

Try to keep the bill from being turned over to a collections agency. You don’t want to damage your credit report. If the bill does go to a collections agency, understand that the agency is not interested in hearing that the insurance company made a mistake. Don’t expect the collections agency to call your insurance company. And don’t expect your insurance company to call the collections agency. If your claim is denied, you will have to keep working with your insurance company until it’s settled. In the meantime, write to the collections agency and explain the situation.

Collections agencies get paid only for what they collect. And they can get very aggressive for their clients. However, they must abide by laws that prohibit harassment and unfair practices. For example, if you tell a collections agency that you don’t want to be contacted at work, it must stop calling you there. You can try to negotiate with the collections agency. You might be able to work out a long-term payment plan. See if that will stop the agency from reporting negative information about you to the credit bureaus.

In the meantime, don’t let your health insurance coverage lapse. You may have recovered from your illness or injury and think you would be better off using those premium dollars to pay your medical bills. But if something were to happen again, your financial problems will only get worse. Furthermore, if you drop your current insurance and apply later for a new policy, your recent illness could be considered a pre-existing condition, which would prevent you from getting coverage.

Look for other ways to save on your health insurance premiums. Talk to your insurance agent about increasing your deductible or co-payments. Do you have a child in college? See if the college has a low-cost health insurance plan that would enable you to take your child off your plan.

Finally, do you have any secondary insurance coverage? A secondary plan might pay medical bills not covered by your primary plan. Your spouse’s group plan may give you some benefits. Or if Medicare is your primary insurance, you may have a secondary policy through a retirement plan, another group plan, or an individual plan.

What to do next time

After all of your medical bills are paid, think about what you can do differently to keep from getting overwhelmed again.

  • Understand your health insurance policy’s rules and benefits
  • Keep a record of where you received medical care and who gave it to you
  • Keep a date chart of hospitalizations, lab tests, X rays, treatments, medications, and doctor’s visits
  • If you ask for incidentals, like a toothbrush, slippers, or cot for a family member, understand that you will pay for them
  • If you don’t know why a procedure or test is being done, ask

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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Offering Group Disability Insurance

October 30, 2019

Group disability insurance is a single disability policy that covers many people (a group) who have a common interest or association, such as an employer, a trade, or a school affiliation. When your business offers a group disability plan to its employees, it must choose a specific range of coverage, a funding method for the plan, and the eligibility criteria for participants. The cost of group coverage is often less expensive than the cost of individual coverage, making it an attractive benefit for employees.

Group plans cover non-work-related injuries or illnesses

Unlike individual disability policies, most group policies sponsored by an employer only pay benefits if the injury or illness is not work-related (nonoccupational). Work-related injuries and illnesses are usually covered by workers’ compensation insurance.

Three types of disability benefits

Three types of disability benefits are commonly offered to employees: sick leave, short-term disability, and long-term disability. Each plan covers a different period of disability, and you can usually buy disability insurance to fund the plans.

Sick leave

Company sick-leave plans cover the shortest period of disability, but they’re not insurance. Under a sick-leave plan, the business usually:

  • Reimburses employees either wholly or partially for lost wages as a result of a sickness or accident that lasts for a short period of time (usually six months or less)
  • Provides full pay benefits for a specific number of days each year that do not have to be consecutive
  • Allows employees to either accrue sick days on a monthly basis or receive an allocation of a certain number of sick days each year
  • Funds the plan with company money–insurance is rarely involved
  • Has the option of allowing employees to carry unused sick days from one year to the following plan year

Short-term disability plans

Short-term disability insurance coverage bridges the gap between sick leave and long-term disability coverage. Most employers offer short-term disability insurance plans. If you choose to provide short-term disability insurance, you must also provide female employees with benefits during pregnancy and childbirth. Short-term disability plans generally:

  • Reimburse employees either wholly or partially for lost wages as a result of a sickness or accident that lasts for a short period of time (usually six months or less)
  • Define disability as the employee’s inability to perform his or her regular duties
  • Contain short elimination periods (3 to 14 days) before benefit payments begin

Long-term disability plans

Disability insurance is the best way to provide long-term disability benefits. Long-term disability policies are offered more frequently by medium-size to large companies than by smaller businesses. Long-term disability plans do not have to follow nondiscrimination rules. As a result, your business can reduce the plan’s overall costs by offering the plan to only a select group of employees.

Long-term disability insurance usually:

  • Provides benefits to employees who are disabled as a result of sickness or accident after they have been unable to work for a lengthy time period (usually three to six months)
  • Defines disability as the employee’s inability to perform his or her regular duties and those of any other occupation
  • Pays benefits that are 50 to 70 percent of the employee’s predisability pay
  • Pays benefits until the disabled employee reaches age 65, although some policies may pay lifetime benefits

Definition of disability varies from policy to policy

The definition of disability will vary from policy to policy. An employer-sponsored group disability policy is likely to include an “any occupation” definition of disability. This means that if an employee is able to work in any occupation (even one outside of his or her own area of expertise), he or she won’t be eligible for disability benefits. Some policies cover full or partial disabilities, while others cover only full disabilities. Certain policies may not cover pre-existing conditions until a certain period of time has elapsed while the employee has been insured under the policy.

Group disability policies typically do not cover:

  • Self-inflicted injuries
  • Acts of war
  • Criminal acts
  • Occupational injuries

Sometimes, an employee will return to work after a period of disability and become sick or injured again shortly afterward. Insurance companies differ in their interpretation of the beginning of a new period of disability. Some policies say that if the employee returns to work for even one day, a new elimination (waiting) period must be satisfied. Other policies allow up to six months of continuous active employment before a new benefit period begins, and no new elimination period must be satisfied.

Group policies often have fewer underwriting restrictions

Group disability policies often have fewer underwriting restrictions than individual disability policies, because the risk of disability is borne by the group rather than by an individual. A fairly large group will include mostly individuals who are good risks, as well as a few individuals who are poor risks. Even though individuals enrolling in a group disability plan will not have to submit to medical underwriting, they will have only a limited enrollment period to take advantage of this provision. This helps to prevent individuals with health problems from enrolling after they have discovered that they are sick.

Two ways to pay for the plan

There are two ways for the business to fund a group disability insurance plan. Any premiums paid by the company under either funding arrangement are considered deductible business expenses for the company’s income tax purposes. The funding method used determines the minimum participation rate the insurance company requires to provide the group policy.

Under a contributory plan, your employees must sign up for coverage and contribute part or all of the premium payments, usually through payroll deduction. If the plan is contributory, then usually 75 percent or more of eligible members must be covered by the plan.

If the business pays the entire premium cost, then the plan is said to be noncontributory. If the plan is noncontributory, 100 percent of eligible group members must be covered by the plan, and employees are automatically covered if they meet eligibility requirements, although they must still fill out an enrollment card.

Business is the master policyholder

When your business arranges for group disability coverage, the policy is issued to the business as the master policyholder. The individuals within the group who apply for disability insurance are issued certificates of coverage rather than individual policies. These certificates are proof that coverage exists, and they contain information about the amount and type of coverage provided.

For a contributory group insurance plan to remain in effect, most or all of the group’s members must be included and have coverage. When enrollment levels drop, the group must find new participants from the eligible pool of members.

Business may set eligibility requirements

The business may set eligibility criteria for participation in the group plan. Although a group plan cannot bar an individual from coverage, it can bar a group of individuals from coverage until certain eligibility criteria, such as length of employment, are met.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.

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