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In the Headlines-December 5th, 2014

In The Headlines

Technology Gives Henry Schein the Edge in Digital Dentistry

The health care industry’s digital revolution is only beginning, and medical supply and IT services giant Henry Schein is poised to lead the way. When you visit the dentist or take your dog to the vet, there is a very good chance you touch one of Henry Schein’s products. Nearly 1.3 million veterinarians, dentists, and doctors use the company’s medical equipment and supplies—from latex gloves to reclining dental chairs—making it the world’s largest distributor of health care products and services.

The Long Island based company has the logistical know-how of Amazon combined with the database depth of a consulting firm. According to CEO Stanley Bergman, the company’s goal is not just to sell as many facemasks as possible but to assist dentists and doctors in running their practices efficiently and profitably. “We help these companies operate better businesses so that they can provide better clinical care,” Bergman said. “That’s our business model.”

Bergman, who last month celebrated his 25th anniversary leading the company, has transformed Henry Schein from a small, mail-order dental-supplies operation in the U.S. into a multinational giant, now at No. 292 on the Fortune 500.

The growth is remarkable. Henry Schein has not had a single year of revenue decline since it went public in 1995, with compound annual growth of about 16%. For 2014, analysts estimate it will have more than $10 billion in sales.

“Technology winds its way through a lot of what Schein does,” says Jeff Johnson, a senior analyst with Robert W. Baird. Practitioners are now becoming digital-savvy operations. For example, digital X-rays, which allow dentists to streamline electronic recordkeeping and review potential issues with patients in real time, are in about only 65% of dental offices today. While that is a big jump from about 10% a decade ago, there is still room for expansion. Henry Schein has continued to bulk up its offerings, and education initiatives, to take advantage of the growing digital revolution in medicine, including investing in its own practice management software, now used by nearly 40% of U.S. dental practices.

Henry Schein operates in 28 countries and continues to expand its reach, including a recent investment in Japan, which has the world’s second-largest dental market. “There’s lots of opportunity worldwide. It’s a huge business,” says Bergman. “And we are already the biggest and really only international business in some areas.” The push for global expansion has provided the reach and financial clout to better negotiate with manufacturers and invest in higher-margin offerings, such as office design, financial services, and its own brand of everyday medical supplies.

The saying by Benjamin Franklin—“Doing well by doing good”—drives the company’s nonprofit initiative Henry Schein Cares, says Bergman. The company’s worldwide supply chain and stockpile of basic medical necessities allow it to get supplies to stricken countries as quickly as possible. “Every time there’s a natural disaster, you can find Schein donating supplies to recovery efforts,” says Johnson. “They’re the one company that time in and time out does that.” Most recently Henry Schein donated $1 million worth of protective gear to Ebola-affected West African nations to help curb the outbreak.

Wealth Does a Generational Flip in the U.S.

For most Americans, the economic recovery has been marked by stagnant wages, high unemployment, and declining wealth. According to Federal Reserve data, the median U.S. household had a net worth of only $81,200 in 2013, down from $115,000 in 2004.

But there is one group that is doing better than ever: older people. Historically one of the poorest age cohorts in the country, elderly Americans are now among the wealthiest. As of 2013 people 75 and older had a median family net worth of almost $195,000 in constant 2013 dollars, up from $131,000 in 1989, Federal Reserve data show.

This prosperity reverses decades of demographic trends. In 1959 people 65 and older had a higher rate of poverty (35%) than any other age group in the country. Now they have the lowest (9.5%), according to the U.S. Census Bureau. It used to be that “poor people were old,” says Neil Howe, a demographer and president of Saeculum Research in Great Falls, Va. “That’s a really fascinating contrast with today.” The poorest Americans today are the youngest—those 35 and under—and they are getting poorer.

Many of the oldest Americans, born between 1928 and 1945, are members of the so-called Silent Generation, a term coined by Time magazine in 1951 to describe the group of people then coming of age, who were “working fairly hard and saying almost nothing.” In many ways they are the forgotten middle child of the 20th century: younger than the Greatest Generation, who fought in World War II, yet older, and much fewer in number, than the 80 million baby boomers born between 1946 and 1964.

A relatively small group—about 50 million—given the low birthrates during the Depression, the ‘Silents’ are the rare generation to go through life without sending one of their own to the White House. Carter, Reagan, and Bush Sr. were all from the Greatest Generation; every president from Clinton on has been a boomer.

Still, the Silent Generation has been in the sweet spot of America’s economy for half a century. From 1962 through 1991, when its members were in their prime working years, the U.S. economy grew at an average pace of 3.5% a year, compared with only 2.6% since. As they have aged, the Silents have benefited from improved health care and a much more generous social safety net. Adjusted for inflation, annual federal outlays have risen from about $4,000 per person in 1960 to almost $28,000 in 2011, according to the Urban Institute. The Silents also timed their retirement perfectly. By the time the recession began to wipe out jobs in late 2007, almost all were 65 and older. That has helped make them “the richest older generation we’ve ever seen,” says William Emmons, a senior economic adviser at the Federal Reserve Bank of St. Louis.

That title will probably go unchallenged for years to come, Emmons says. People immediately behind—including many baby boomers and most of Generation X—have seen their wealth dip significantly since the recession. Recouping what was lost before they retire will be difficult, especially since they are unlikely to see the kind of price gains for their homes and investments that their elders enjoyed for most of their lives. “The Silents have done very well, and a lot of it has just been their location in history,” says Howe, the demographer. “They planned ahead, they were risk-averse, they played by the rules, and the system worked for them.”

1. http://for.tn/1zNmiWh – Fortune
2. http://buswk.co/1yF8axr – BusinessWeek

The Good News Is . . .

• Sales of existing U.S. homes jumped to their highest level in more than a year in October and outpaced the year earlier sales level for the first time in 2014. This is further evidence that the housing market is on a recovery path. The National Association of Realtors said existing home sales rose 1.5% to an annual rate of 5.26 million units, the highest rate since September of last year. Sales rose 2.5% compared to a year ago, the first time since October 2013 that sales of existing homes have risen above the prior-year levels.

• Smart & Final Stores, Inc., a value retailer serving both businesses and households, reported earnings of $0.24 per share, an increase of 20.0% over year-ago earnings of $0.20. The firm’s earnings topped the consensus estimate of analysts by $0.01. The company reported revenues of $1.1 billion, an increase of 10.8%. Management attributed the company’s results to robust sales increases in both its Smart & Final and Cash & Carry stores.

• Allergan has agreed to be acquired for $66 billion by Actavis in a deal worth $219 a share in cash and stock. Allergan stockholders will receive $129.22 in cash and 0.3683 of an Actavis share for each of their shares. Combining Actavis and Allergan will create one of the 10 largest global drug makers, with about $23 billion in revenue expected next year. Cost savings could total $1.8 billion annually, the companies said. The deal will combine Allergan’s blockbuster product, Botox, with a suite of Actavis drugs in areas like women’s health and dermatology.

1. http://www.cnbc.com/id/102203875 – CNBC
2. http://www.cnbc.com/id/18080780/ – CNBC
3. http://bit.ly/1xEywkW – Smart & Final Stores, Inc.
4. http://nyti.ms/1xM2KRS – NY Times Dealbook

Planning Tips

Big Retirement Expenses to Watch Out For

When it comes to retirement, what you do not know can cost you—and sometimes cost you dearly. There are a number of potentially savings-depleting expenses in retirement that many people fail to factor in when estimating their future needs. Below are five expenses you should not overlook.

Helping children and grandchildren financially – One of the less publicized effects of today’s uncertain economy is the increasing number of Americans who are providing financial support to their adult children or other family members. In fact, the Pew Research Center reported that in 2013, 34% of adults between the ages of 18 and 31 lived with their parents, often to the detriment of their parents’ retirement savings. Unless you specifically plan for that expense, letting adult children live at home free of charge or lending them a hand financially can be costly. As much as you may want to help your kids and grandkids, your own financial independence should be your first priority.

Retrofitting your house – A lot of people assume that retiring with a fully paid-off house means they will be relatively free of housing expenses. But keep in mind, as your home ages, it is important to include in your budget both expected and unexpected ongoing and one-time costs, such as painting your home inside and outside, replacing the roof and appliances, and repairing air-conditioning and heating systems. It also means setting aside funds for certain updates and renovations that may become necessary in the future to help make your home livable and safe as you age. This includes projects such as the installation of grab bars, expansion of doorways to accommodate a walker or wheelchair, the creation of a downstairs master suite or a room for a live-in helper, and/or a bathroom remodel, all of which may enable you to retire comfortably at home.

Hiring “replacement” services – For many retirees, living comfortably in their own home is key to retaining independence. Yet according to LongTermCare.gov, 75% of those over 65 will need some kind of long-term care service eventually. As people grow older, they often need help with simple household chores and repairs they once handled on their own, both inside and outside the house. Those replacement services, for tasks such as doing the grocery shopping and laundry, cutting the grass, cleaning the gutters, and shoveling snow, also should be considered when putting together your long-term retirement budget.

Purchasing that “last” new car – Deciding how and when to replace a car can be a contentious issue in retirement. Some people want to drive the car they have “into the ground.” Others feel they should start this next stage of life with the car they always dreamed of driving. Whatever side you are on, one thing is certain: The car you have on the day you retire is unlikely to be the last one you buy or lease. After all, you could still be driving 20 or more years from now. What is more, your needs change as you age—and that includes the sorts of things you need in a car. For these and other reasons, it is prudent to add money in your retirement budget for at least another set of wheels.

Maintaining two houses – Owning two homes offers many retirees the best of two worlds: having a primary home near family and a secondary one in a place that satisfies other needs, such as the desire to avoid harsh winters or to have access to intellectual and cultural stimulation, for example. The cost of owning two properties can be greater than you would expect, however. The true cost of home ownership does not end with the mortgage payment, taxes and insurance. You will probably spend several thousand dollars a year for dual expenses on everything from regular lawn care and ongoing utility bills to home-owners’ dues and a monthly fee to someone who can oversee your property when you are not there. Depending on the distance between homes, you may need to also factor in airfare and the cost of leaving an additional car at your second home.

1. http://bit.ly/1toqLcC – US News & World Report
2. http://bit.ly/1xjtWod – MoneyRates.com
3. http://onforb.es/1FeyZwz – Forbes
4. http://bit.ly/1toqMgC – Principal Financial
5. http://huff.to/1Az7rSw – Huffington Post
6. http://yhoo.it/1va3pwE – Yahoo Finance

Please don’t hesitate to give us a call if you need help with any component of your financial planning.

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