Category Archives: Life Insurance/Long-Term Care

What you need to know about life insurance and long-term care for retirement planning.

Posted on

Long-Term Scare

by

I find it interesting how many people take their health for granted. Not only when they are in their 20s and 30s but even in their 50s and 60s. It’s as if we can will good health in spite of the reality that we can’t. The need for long-term care insurance is greater today than ever before which is why I have titled this article “Long-term Scare” because the consequences of not being prepared for health care in retirement are scary.

Only about 10 million people have long-term care insurance in the United States even though about 58% of us will need long-term care by age 65. Let’s define long-term care. Long-term care involves a variety of services designed to meet a person’s health or personal care needs during a short or long period of time. These services help people live as independently and safely as possible when they can no longer perform everyday activities on their own. The services can be provided at home or in a hospital or other care facility.

With the risk so high, why do people avoid buying long-term care insurance? A lot of the reasons mirror why people don’t buy life insurance. They feel they don’t need it, it’s too expensive, Medicare will cover long-term care or a family member will take care of them if they get sick. Let’s take a look at each of these reasons.

First, many people feel that they don’t need long-term care insurance. When you are younger than 50 you are probably correct, which is why most people who buy long-term care insurance do so in their mid-50s. As we get older the risk for a long-term care event increases. Stroke, a fall, cancer or any number of illnesses can strike at any age buy certainly the frequency increases as we age.

The expense argument is real. Long-term care is not inexpensive. The average cost of a policy for a 55-year-old couple in 2019 was $3,055. For a 60-year-old couple, it was $3,400. However, there are a number of hybrid products that can overcome that excuse. For example, some life insurance policies will allow you to use part of the death benefit for long-term care expenses without penalty. Some annuities have riders available that will pay for long-term care expenses. Talk to a financial advisor about these options.

Medicare will cover long-term care is one of the most common misunderstandings. Here is what Medicare will cover:

  • Skilled nursing care. Medicare helps to pay for your recovery in a skilled nursing care facility after a three-day hospital stay. Medicare will cover the total cost of skilled nursing care for the first 20 days, after which you’ll pay $170.50 coinsurance per day (in 2019). After 100 days, Medicare will stop paying.
  • Home health care. If you are homebound by an illness or injury, and your doctor says you need short-term skilled care, Medicare will pay for nurses and therapists to provide services in your home. This is not round-the-clock care. Generally, it’s for no more than 28 hours per week. With your doctor’s recommendation, you may qualify for more.
  • Hospice. Medicare covers hospice care. Hospice is care you get to make you more comfortable when you are in the last stage of life with a terminal illness. You’re eligible if you are not being treated for your terminal illness, and your doctor certifies that you probably will live no longer than six months. You can get care for longer than that, as long as your doctor says you are still terminally ill.

Finally, getting a family member to care for you if you need long-term care can be disastrous for you and your family. Many spouses end up needing long-term care themselves after attempting to help a loved one with the requirements of daily living such as lifting and transporting. Most of us are not qualified or equipped to take care of someone who needs long-term care. It is a heavy burden to place on a loved one.

My grandfather lived the final months of his life in a Medicaid facility because he didn’t have the resources to be cared for in a more fitting facility. My parents cared for him at home until it became unreasonable to do so. Medicaid is meant for the poor. Please make that your last resort. Consider your options today. Relieve your family of the potential burden and enjoy the peace of mind knowing that you will be cared for in the event you need long-term care!

Posted on

5 Reasons to Consider Life Insurance Today

by

I was newly married, in my 20’s, when my good friend suggested that I meet with his father who was a life insurance agent with a large life insurance company. My first reaction was, “life insurance? I’m too young for that. Besides, I have other, more important expenses now that I own a home and have two car payments.”

This was and still is a typical response to life insurance needs when we are “young”, and we think we will live forever. I eventually met with my friend’s father who laid out an affordable executive $100,000 term life policy for me and my wife. I think the payment was something like $18.00 a month. As Cher sings, “If I could turn back time…”. Or as Rod Stewart and Faces sing, “I wish that I knew what I know now, when I was younger.”

Both songs offer good advice when it comes to decisions about life insurance. Hindsight is always 20/20. We procrastinate because death protection is most likely the furthest thing on the horizon when it comes to where we spend our hard-earned dollars.

The bottom line is that we all need it. The irony is that it is less expensive the younger we are for the simple reason that life insurance is risk protection for our family and our assets, and the risk of dying is obviously lower the younger we are, provided we are in good health. Here are five reasons to consider buying life insurance:

  1. Debt Cancellation – Do you have debt that will outlive you such as a mortgage, credit cards, auto loans? Unless you have a big pot of cash set aside for paying off these debts, your heirs will be stuck with the bill. You should consider mortgage life insurance, a debt cancellation policy or a term life policy.
  2. College Education – Do you have young children who want to go to college? Should you or your spouse die, are there funds to cover their college expenses.
  3. Estate Taxes – Are estate taxes an issue? Why use your investments to pay for those when a life policy can be set up to pay your estate taxes, so your heirs inherit more of the nest egg.
  4. Income Replacement – Are you the sole income provider? Should you die, how will you replace the income your family depends on? Again, life insurance can be a solution.
  5. Affordability – Coverage is affordable. Most people can afford life insurance. The younger and healthier you are, the lower the premiums. Your advisor will help you compare policies and find the one that best fits your needs.

Many people approach the life insurance discussion much like they do when buying a car. They are skeptical and often distrusting of the agent. Like any important decision you make such as buying a house or investing your money, you want a professional to help you with these important decisions. So, it is with life insurance.

Speak with a financial advisor or life agent and find one that you can trust, and feel is working for your best interests. Don’t let the fear of being bullied into buying something you don’t need keep you from making this important financial planning decision.

I eventually did buy life insurance. Unfortunately, I waited until I was in my 30’s and, of course, I paid more than I would have as a newlywed. Better late than never. The best time to plant a tree was 20 years ago. The next best time is today. Do not let procrastination get the best of you. Have a financial professional help you assess your life insurance needs today!

Posted on

To CD or Not to CD Redux?

by

Yes, that is the question, to paraphrase William Shakespeare. Although the CD dilemma is not the soul-searching question Hamlet faced in his soliloquy. Nonetheless, it is still an important question for many pre-retirees and retirees looking for a safe place to park their money, especially in times of market fluctuation. Before we can answer that key question there is are two fundamental questions that must be addressed. The first is, what is the purpose of the money you are looking to invest in a CD? The second important question is, what is your experience investing money?

A CD (certificate of deposit) is a fixed-rate instrument. As we know, they can be purchased at banks and credit unions, even through brokerage firms. Like other fixed-rate instruments a CD can provide income and growth of principal. It brings with it the federal insurance that other bank deposits carry. As a result, many people who trust CDs to supplement their income are typically low risk investors.

From my experience of working in banks and credit unions, many CD investors want nothing to do with the stock market. They are more than willing to sacrifice the potential upside that even municipal bonds or other so-called lower risk securities can offer.

I have also found that many savers and investors who look to CDs to provide income and security often fail to ask that all important question, what is the purpose of the money? You see in many cases income is not the goal. Many CD holders don’t need the income and want to leave the money to their heirs. So, they don’t want to risk the principal during their lifetime. We will tackle risk next. First, you need to know that a CD may not be the best wealth transfer option that you have.

There are several wealth transfer products that afford you the ability to leverage your CD into a much greater legacy. For example, a fixed annuity with a death benefit can be a way to transfer wealth in a tax efficient manner.

Now, there are complexities, too many to address here, however, as a strategy it is worth considering if wealth transfer is your goal. You essentially partner with an insurance company to give them your funds and in turn, through the beauty of insurance, they provide you with a death benefit that can be much greater than your original CD investment. You name the beneficiary upon your death as you would with any life insurance policy. A more thorough explanation can be found here.

The second question, what is your tolerance of risk? That is a more complex discussion and should include a financial advisor that you trust. Beware the “one-size-fits-all” approach with a number scoring. While questionnaires are useful, a good financial advisor will have a thorough discussion with you to arrive at an appropriate risk assessment.

If you truly are risk averse, then a CD may be the best vehicle for you. If you can tolerate some risk, then it opens a world of other so-called conservative investments that can move you ahead much faster in the retirement and pre-retirement game. Risk tolerance is unique to you just as your fingerprints are, so I caution you not to follow your neighbor or cousin Harry’s advice as it is based on their risk tolerance not yours.

To CD or not to CD? Perhaps. Perchance to dream of possibilities of a retirement on your own terms. One that is unique to you. Work with a financial advisor that you can develop a trusting relationship with. Retirement is an arduous journey. One that requires help along the way.

Posted on

My Grandfather’s Gift – Long-Term Care Insurance

by

If you happen to be a parent then you can hopefully understand what I mean when I say that the older we get the more we appreciate our parents, or at least understand them. Raising our own children puts us in touch with what our parents had to put up with back when we thought we were the perfect teenagers. Yeah, right. In other words, life gives us perspective.

Life’s experiences also provide us the opportunity to learn from our parents’ mistakes when it comes to managing money and other aspects of personal finance.

My grandfather spent the last year of his life in a Medicaid approved nursing home. That was in 1974. For those of you who are not familiar with Medicaid it is the state’s long-term care program for the poor. In order to qualify you have to be poor or become poor. For more details on Medicare click here. My grandparents were not what I would call “poor” but they could not afford a suitable facility for my grandfather when he needed critical care. I idolized my grandfather and it killed me to see him in what I felt at the time was a “dump” of a care facility surrounded by people who didn’t care for him like I did. It left a lasting impression on me. You see, he developed pancreatic cancer and was given just a few months to live. He lasted almost a year. He and my grandmother moved in with us during my senior year in high school shortly after his diagnosis. The sicker he got the more difficult it became for my mother and grandmother to care for him.

The nursing home that he moved into was close to our home but it became clear with each of our visits that the “care” in this Medicaid facility was lacking to say the least. When you go on Medicaid they tell you where to go for care. It’s not your choice as it has to be a Medicaid-approved facility and as the saying goes, “you get what you pay for”. Among other things my grandfather’s money and watch were stolen by employees and they were not understanding of his failing mental capacity due to his advancing cancer. In short it was a nightmare.

As I stated, that experience left an indelible mark on my psyche and I pledged that my parents would not end up on Medicaid. When I became a Financial Advisor I made it my mission for my parents to get long-term care insurance. I thought the experience with my grandfather would sway my parents as it did me so as to not have to face the prospect of having to rely on Medicaid. As with a lot of people like my parents other life “priorities” got in the way over the years and by the time they got around to getting serious about looking into long-term care insurance they found that they couldn’t afford it. By that time my Mother was diagnosed with Type 2 Diabetes and my Dad had high blood pressure.

With no other viable option we were able to arrange for a Medicaid Asset Protection Trust or MAPT as it is often called. The MAPT protects assets like your home and your life savings that would otherwise have to be used before Medicaid kicks in to pay for care. The MAPT does not provide care it is a defensive tactic. For people like my parents who don’t have the assets to cover a critical care stay in a long term care facility it is a wonderful tool.

Is it what I envisioned for my parents after what we experienced with my grandfather? No, it is a huge disappointment. I don’t know what I could have done differently short of writing the check for a policy myself. Even that would not have worked as pride comes before charity in many families. Fortunately, I did follow through and get long-term care insurance for my wife and myself. Even though the lesson skipped a generation my grandfather taught me an important lesson about taking care of my family. Although I’m sure it wasn’t the way he intended the lesson to be learned.

I believe that each generation has an obligation to improve from the previous one. It is often because of the mistakes of our parents and grandparents that we learn and hopefully succeed where they failed.

Time Out! What financial lessons have you learned from your parents’ life experiences? You can leave a comment here.

Posted on

6 Questions Baby Boomers Need to Answer Before Planning for Retirement

by

So you have some money in your 401(k) and you are concerned about how long it will last once you retire. It’s an important question for sure and one that you should ask. But that is just one of several questions that need to be addressed as you start on the path to a successful retirement.

What exactly does that term mean; a successful retirement? Well, that is the one that you envision for yourself. It’s not one that some advertisement on TV suggested i.e. that you should own a vineyard once you retire. Unless, of course, a vineyard is what you envision and you have the means to get there.

Here’s my definition of success in retirement planning. It’s the day-to-day realization of your retirement goals. That’s right it’s a journey, not a destination. Education and planning are the keys to a successful journey.

To help you on your way here are 6 questions that you will need to come to terms with sooner or later. I suggest that you think about these sooner so you can plan and not be in crisis mode down the road.

  1. Can I continue my current standard of living into my retirement years? The answer to this takes some real introspection. It’s not, “do I want to?” but “can I?”. You will need to do some number crunching and put a current budget together for starters. Check out this budgeting tool if you don’t have one of your own.
  2. When can I retire without running out of money? In order to do this accurately you should work with a CFP®. He or she will use a financial planning tool to analyze your current and future assets along with any pensions you might have as well as Social Security to project how long your money will last. I use a terrific tool, Retirement Analyzer, to come up with the answer to this question. In any event you have to know the answer to this question. This is not a time to guess.
  3. How could my situation change during turbulent economic times? The great economic meltdown of 2008 taught us a lot about contingency planning. Among other things it taught us (although this is no secret) that the stock market doesn’t always go up. Yes, we have to plan for worst case scenarios and many possibilities in between. A good planer will help you do some contingency planning and the help you “put a stake in the ground” and make a decision as to where to start; what rates of return will you use pre and post retirement. What adjustments will you make base on various scenarios for example.
  4. How would it affect my family if I die prematurely? When we are young we think we are invincible. Life insurance seems like a waste of money. As we age life happens as they say. We hear of tragic deaths and illness as well as horror stories of people who died without life insurance. 30% of US households have no life insurance. If you don’t like the answer to this question talk to your financial planner about life insurance.
  5. How would it affect my family if I enter a nursing facility? This question brings up a couple of issues. Do you have sufficient disability insurance? Yes, it is more common than you think for “younger” people to have to go to a nursing facility. Think stroke, Parkinson’s disease or some other malady that can strike at any age. Long-term care insurance is not just for the elderly although most people don’t buy it until they are in their 50’s when of course it costs more and can be more difficult to qualify. As with question #4 if you don’t like the answer then talk to a pro about disability and long-term care insurance.
  6. What are the possible solutions if my situation changes? OK, this is where we get down to the proverbial “brass tacks”. We call these the “Red Line Solutions”. The red line represents the point where you run out of money in retirement. We try to push that red line out beyond age 100 to be safe. But what if your red line is at age 75 or 80. Will you gamble that you won’t live beyond that or will you consider some possible solutions? Here are 5 examples of those solutions:
    1. Work longer – retire later
    2. Work a second job or part-time after retirement
    3. Reduce your monthly expenses
    4. Increase your contributions to your retirement accounts
    5. Sell an asset – maybe a vacation property or the family boat

There is no right or wrong answer to each of these 6 questions. Actually there is a right answer and that is the one that you come up with. Yes, these are personal questions and the answers should be shared with your life partner and your Financial Planner partner. Now is the time to find a financial solutions partner and start collaborating on your plan for a successful retirement. Remember, it’s a journey not a destination. Plan well and live better!

 

Time Out! : Which question concerns you the most? You can leave a comment here.