Long-term care policies can fill a void
07/14/2009
Insurance is all about protecting what we have from disaster – accidents, death, disability are just a few things we insure against. But as we age, planning to have protection to pay for our care is something not as many people do. Having to pay for medical care in retirement or a nursing home is enough to wipe out savings. But it can be avoided with the addition of a long-term care policy.
These policies pay for care, often a daily amount, if we need skilled nursing care, at home or in a facility. Many falsely believe that Medicare pays for this care when in fact Medicare only helps for the first few months of care. And Medicaid only helps those who have no assets.
Therefore, in order to protect your assets, especially if you want to pass them on, a long-term care policy can fill the financial void.
The amount of protection the policy will provide can vary, but the best way to select a benefit amount is to estimate the cost of care where you will retire. Do a Google search for “cost of long term care” to find estimates, or visit www.longtermcare.gov.
Shop for a policy through an independent broker who can compare policies and the strength of the companies that provide them. Features to look for include: Coverage length: Few people survive beyond four years when they need daily care. Policies can range from coverage for just a few years to longer. The longer the coverage, the higher the premium.
Elimination period: The time between needed care and the beginning of payments is also flexible. If you have the assets, you could wait longer for the start of benefits to lower the premium.
Disease coverage: Because policies can exclude certain diseases, verify the policy doesn’t exclude more common ailments such as Alzheimer’s.
Home health care: Most care begins at home and most people want to stay in their home as long as possible. Therefore, verify the policy covers costs at home and doesn’t limit benefits below 80 percent of nursing home care.
Inflation protection: Make sure the benefit rises with inflation.
Guaranteed renewability: With this, an insurer can’t cancel a policy if there is an onset of early care without yet needing skilled care.
Finally, the younger you are the lower the premium. However, most policies are taken out around age 50, in which at that point the chances of living longer are higher, and the premiums are still affordable.
Key to retirement for couples: Be on same page
06/24/2009
Being married is all about sharing love, time, family – and money. But according to a survey by Fidelity Investments, it’s not always that way.
Fidelity asked 500 couples age 45 and over about retirement and how much they agreed with their spouse on what will happen when the day comes to stop working. You might guess accurately what the results were – not a lot of couples agreed.
To start with, only 40 percent of couples were in agreement on what age they would retire. Then, half couldn’t agree on whether they will continue to work in retirement. Luckily, 60 percent agreed on their expected retirement lifestyle.
Perhaps these were the results because less than half of the couples made financial decisions together. This is a sure way to wreck a marriage or find yourself steamed at your spouse. A marriage creates a community in which decisions start being made as a group. Too many couples come in to a marriage with his money and her money and quickly find themselves in financial trouble. Of those surveyed, more than half said they would advise newlyweds to make decisions together. Apparently, you do learn from your mistakes.
As couples age, there is no better time than around 20 years away from retirement to sit down with a financial planner and take inventory of what has been accumulated, what needs to be accumulated and what retirement goals to make as a couple. Doing this while about 20 years away from retirement allows a chance to recover from past mistakes and make last-minute adjustments to reach goals. Believing when retirement will happen does not always match with knowing when retirement can happen, creating derailed expectations.
These discussions will help form expectations of retirement together, expected or planned expenses to save for, and when both can retire. In addition, most retirees rush into collecting Social Security as soon as they can. Instead, many arguments can be made to wait until collecting. This Social Security planning can answer many questions about retirement expenses and income that can maintain the same standard of living as in pre-retirement, and together both couples can know what to expect and why.
And that should cut down on a few disagreements.
Stimulus scams seek your money
04/05/2009
The federal government’s solution to pull us out of recession is to kick-start the economy through stimulus programs. But the belief that government will come to the rescue might be setting up consumers for rip-offs and fraudulent schemes designed to take money out of your pocket.
Con artists are posing as the government by e-mailing or calling consumers and saying they have some money from the government for you — they just need your bank account information to deposit it.
Don’t give your bank information to strangers — or your bank account might be emptied. If you give out your credit card numbers, your bill probably will go up.
With recent talk of bailouts for banks, con artists also are posing as bank employees, saying recent government action requires verification of bank accounts. If e-mail doesn’t ask for information, it might ask you to click a link for more information. The link ends up installing a virus on your computer.
On the Web, new sites are claiming to search for government stimulus money for you, if you pay a fee for the service. You might even see something on a social networking Web site you thought you trusted.
But there is no economic stimulus from the government to individuals.
If you want help from the stimulus programs, look for companies that will benefit. Many will be receiving help for government projects and might need to hire people to do the work.
The government itself, local to federal, also will need people to run the new programs. Check city, county and state Web sites and www.usajobs.com for government jobs.
Tapping retirement plan for temporary funds carries huge risks
03/23/2009
In times where a job loss or emergency expense create a need for finding sources of income to pay the bills, one method that may help fill the temporary gap is borrowing from your retirement plan. However, this comes at the consequence of robbing your future so should only be considered for desperate measures.
If you are employed and have a 401K account, borrowing from that is an option and is easily paid back through future payroll deductions. Consult with your employer on its rules.
For others who have an Individual Retirement Account, there are a few options.
First, with a traditional account, a rollover from one IRA to another is allowed once a year in which the IRA withdrawal check is mailed to the account holder who then has 60 days to deposit it into a new IRA. During these 60 days, the money can be used for anything such as paying a bill if income is expected to replace it in a month or so. Be aware that 20 percent will be withheld for taxes from this withdrawal and the full amount must be deposited back into a new IRA to avoid the full amount being taxed and incurring a 10 percent penalty for early withdrawal if you are under age 59 and a half. If after 60 days you are not able to put the money back into an IRA, the amount is taxed and penalized.
This can be painful. For example, a $10,000 withdrawal for someone in the 25 percent tax bracket would cost $1,000 in penalty and $2,500 in taxes resulting in a net withdrawal of $6,500.
If you have a Roth IRA, it’s a little easier. You can take out your contributions at any time without tax or penalty at any age. Roth’s allow this because contributions are not tax-deductible like traditional IRAs. If you converted a traditional IRA to a Roth IRA less than five years ago, you have to wait five years before you can take it out tax and penalty free.
You can avoid the penalty but owe the tax if you withdraw from any IRA for the purpose of using it toward a first-time home purchase, higher education, health insurance premiums if unemployed more than 12 weeks, medical costs that are above 7.5 percent of your adjusted gross income or if you are disabled.
While these strategies can help pay bills now, the biggest risk is missing out on any tax-deferred or tax-free growth in your retirement portfolio that in return would mean not having enough for retirement. It’s a decision you shouldn’t make lightly.
Want to save more? Here are some tips on how you can spend less
03/17/2009
The savings rate in America as measured by the government has been zero or negative for years until now. The recession has been the wake-up call.
That savings rate is now 5 percent compared with a 0.1 percent rate a year ago—thanks largely to reduced spending.
It’s easier to increase spending than reduce spending, so Americans have been truly burdened. If you are needing to boost your savings and cut your spending, BillShrink.com has these tips:
•Packaged drinks: Bottled water and specialty beverages are easily replaced. Go with home brew instead of the stuff from coffee shops.
•Packaged food: Ready-to-eat meals and snacks in individual servings are more expensive than buying in bulk and preparing or packaging it yourself.
•Fax service: If you need to fax a resume or document to someone, try an online service that allows you to use the scan feature on your printer, then fax the document over the Internet. That saves the $1 or $2 a page at copy centers.
•Car repairs: Ask family and friends to recommend an independent shop. Check its prices and compare to those of the dealer. You may be surprised.
•Extended warranties: It’s highly unlikely a new product will need to be protected for the long-term as either technology will need to be replaced in a few years or it will break while still under original warranty.
•Bank and credit card fees: Pay on time and maintain minimum balances or move to a bank or account that doesn’t have minimums. Set up overdraft protection to prevent bounced checks. Also avoid ATM fees by using the one from your own bank or find a bank that reimburses fees.
•Print publications: Sunday newspapers often have coupons to make it worth buying the print versions.
Thoughtful actions balance emotional reactions
02/22/2009
A plethora of academic research has been conducted to determine rational patterns of which investments will provide optimal portfolios and returns. However, one area of research that is often ignored in these studies is how the human brain reacts to money and throws off the research. These reactions from the brain can prove detrimental to financial well-being.
The human brain is wired to react emotionally to all events before it begins to think logically. Advertisers are aware of this in order to make a product more appealing because humans base their decisions on desire. The wants over the needs makes investors often base a decision on feelings that arouse emotions, and often that feeling can take precedence even if in the face of suffering a financial shortfall.
Examples of this behavior were highlighted in the late 1990s and early 2000s during the tech bubble in the stock market. A “herd” mentality developed where investors flocked to any company in the tech and Internet industry because of the hype that was prevalent. Behaviors that were evident then (and still are) were greed, herding and fear. Herding is defined as following other investors’ actions instead of making one’s own decision. When fear reared its ugly head, portfolios crashed. We are currently living in an investment environment ruled by fear.
The identification of behavioral influences can reveal the underlying thoughts behind the irrational decisions by investors.
Counselors and financial advisers can assist investors in overcoming their feelings by educating to a level that provides leverage to behavioral influences. Often is the case where an investor is simply unaware of feelings that in return do not allow them to make the correct decision.
Another method of overcoming behavioral biases is using a technique known as life planning. This involves including an investor’s values, motivations, goals and objectives as part of the financial planning process. Factors of human thought are included in this technique during discussions between investor and adviser.
They include beliefs about spirituality, security, control, health, family and community. The values an investor holds in these areas is used to create a financial plan that molds to their beliefs.
Discussing emotions before making an investment decision can help pair the emotional thoughts with the logical thoughts to make the right choice for both the present and the future and not scare us off our path of investing for future financial security.
