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August 18, 2014 at 07:12 AM
In this week’s blog, I’ll write about how I place Medicare Part B premiums into the financial plans I build for clients using my homegrown financial planning software. So how did I come to do this? Let me explain.
My financial planning career officially began when I earned my CFP in the 1990s. At the time, I worked at Merrill Lynch offering financial plans for a mere $250. “What a deal!” I thought. I quickly learned that “the plan” was intended to enhance the sales process and increase production.
About seven years later, I was employed as a financial planner with JP Morgan. I had an office, a laptop, and off-the-shelf planning software which had been customized for the company. I’ll forgo the name of the software, but suffice it to say that I quickly became frustrated by its lack of intuitiveness and clarity. It was at this point in 2004 when I began to develop my own financial planning tool in Microsoft Excel.
In 1998 I purchased a license for Crystal Ball, an add-in to Excel, which provides Monte Carlo simulation, Decision-Table Analysis, Optimization and several other mathematical processes including Time-Series Forecasting, Bootstrap, Predictor, etc. While at JP Morgan, I used Excel and Crystal Ball in the planning process which was extremely well received by co-workers and clients alike. However, as the only person in the planning group using this tool, after a few years, upper management decided that I should be using the same planning software as everyone else
My coworkers and I were less than pleased with this ruling, but when you work for a company this large, you either go along or move along. I chose the latter and departed within a year. My decision to leave was not due solely to this issue. Actually, there were several issues which influenced my departure, including my desire to be published.
The bottom line? I had grown weary of upper management making decisions for client-facing advisors pertaining to the tools used and the manner of serving clients. In short, the emphasis was more on selling than serving. Although this is common for large, publicly traded corporations, it is the client who ultimately loses. Today, as an independent RIA, I make my own decisions about the tools I use and the manner in which I serve my clients. In this post, I’d like to briefly discuss the planning process, specifically, the expense assumptions.
I believe the two most important assumptions used in creating a financial plan are expenses and investment returns. Let’s discuss expenses. One benefit in writing my own planning tool is the ability to modify the plan at anytime. The most recent addition to my planning tool is the inclusion of Medicare premiums for Medicare Part B. Here’s how it works.
Medicare Part B covers outpatient services and is optional. Moreover, its premium is based on one’s income and tax-filing status from at least one, if not two, years earlier. Why? Because this is the most recent tax return available to the IRS.
