As millions of Baby Boomers head into their retirement years, it’s surprising how few actually know that the government provides little more than a few weeks of financial support for home-based or nursing home care when the average person needs it for at least a year.
A 2006 Genworth Financial Survey says the national average private room rate at a nursing home – the most expensive care option – was $194.28 per day/$70,912 annually.
Long-term care insurance (LTC) may be one solution for those who need to bridge the gap between their savings and the actual costs they’ll face.
Determining and paying for long-term care is almost too complex a topic to be covered in a short article like this, which is why it makes sense to discuss your individual situation with a Certified Financial Planner ™ professional. Here are some of the questions you need to answer before investing in long-term care insurance or other options:
What resources do you have? We’re not just talking about money here. While care giving puts a strain on family, it’s important to consider whether family and friends are truly willing and able to help with your care, which can provide a considerable financial and emotional benefit. Also, if you live in a community with reliable volunteer resources to help, that’s something to note, though today’s services may not be there tomorrow.
How old are you and your spouse and what’s your health history? People in good health purchasing long-term care insurance at the age of 55 usually get the most affordable deal in LTC insurance. But an individual’s family health history and current health status are the real determinants of what your LTC insurance policy will cost – or if you’ll qualify for coverage at all. Also, it’s important to note that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time.
Are you a single female? Again, personal and family resources come into play here, but since women typically live longer than men – and they still earn less on average than men – women should take a heightened interest in providing for their long-term care safety net. Long-term care insurance might be a good solution given their other investments and their health history.
What types of services are covered? Over the course of time, long-term care policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to recover or live out their last days in a familiar environment. A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence, and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home care and under home health care. Homemaker services are generally covered and other services as listed in the policy.
What triggers coverage? A qualified LTC policy won’t go into effect until the covered individual can’t perform two tasks of daily living for a period, typically 90 days, or when that person needs substantial supervision related to cognitive impairment. This is where you have to read the fine print since some policies are more restrictive than others. More affordable policies generally take longer to kick in. See if coverage for other physical ailments is available as part of the policy and what per-diem or monthly allowances are offered.
What if I never want to go to a nursing home? The idea is to cover every eventuality. The best-designed LTC policies will pay the same amount of benefit whether care is received in a long-term care facility, an assisted living facility, an adult day care center, or in the home. Some policies do offer reduced percentages for home health care versus nursing home care, but it’s a better idea to keep full percentages on home health care benefits since most people would rather stay in their homes.
What’s the record of particular companies in this business? Over the past generation, more companies have gotten involved in the LTC insurance business, and it makes sense to see not only who the leaders are at the time you’re buying and what they’re offering, but how financially healthy these companies are and have been over the course of time. You’ve probably heard of insurance companies that have gone out of business and stranded customers. There’s no restriction on that happening with LTC providers, so check their ratings and financial history very carefully.
April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Tuesday, April 29, 2008
Tuesday, April 22, 2008
How Not To Go Broke If Your Kids Move Back After Graduation
The after-college reality is much different from a generation ago. Two thirds of college graduates owe significant money after graduation. According to the Project on Student Debt, debt levels for graduating seniors with student loans from 1997 to 2007 more than doubled from $9,250 to $19,200 – a 108 percent increase.
That’s why it’s now very common for graduating seniors to move back to the family manse for some time after graduation. For those who don’t have ready employment, it’s probably a necessity. For those with jobs, moving back in with the folks is a way to save for a down payment on a car or possibly a home.
It’s absolutely fine to welcome family back home, particularly if it means you really have an opportunity to help your kids. But it’s not a terribly good idea to welcome home what the experts are calling “boomerang kids” if you’ve put your own retirement savings on the back burner and you’re also facing both expense and strain from taking care of elders.
Like all family transitions, this one requires some planning, and it may not be a bad idea to get some advice. A Certified Financial Planner ™ professional can give you advice not only how to manage the financial aspects of your relationship with your grown child, but how to make sure the other aspects of your financial life are healthy.
Here are some steps:
- Promise not to overextend yourself. Don’t let the return of the prodigal son or daughter derail your own retirement or debt repayment plans. Parents may also have some challenging financial problems to solve, and your child should understand that you should be helping each other.
- Still your house, still your rules: Granted, your kid’s now an adult, not an 11-year-old. But if your child is moving back in, you need to set specific rules for the way you want him operating under your roof. If you want him to pay rent (it’s probably a good idea), set those terms in writing. Set terms for household expenses if you prefer. And to make sure there are no misunderstandings, make sure you both understand where you stand with non-financial issues – how much of their stuff you’ll want them to move in, overnight guests, checking in when away, etc.
- Set an endpoint: If your child needs a year to start paying off credit card bills or tuition debt or is hoping to scrape together enough for a down payment on a condo, discuss it and figure out how long that’s going to take. Deadlines enforce goals.
- Chores are necessary: You may charge rent or demand payment in kind, but a mixture of both is best. You’re not running a B&B. You might insist that your child handles laundry, makes (not buys) dinner a few times a week or helps with a major home renovation project if they have those skills.
- Supervise their financial planning: Some parents bail out their kids entirely. Instead, work with them to build better financial habits. Help them set a budget after you both figure out their net worth – a real eye-opener for many young adults. You might consider, however, matching the amount that they’re putting toward debt or a home down payment each month. If you don’t want to take full responsibility for that training, you might set up one or a series of meetings with a CFP® professional to get them started the right way. Consider it a graduation present.
- Keep records. Even if you never share these with your kid, make sure you keep track of payments, chores and other in-kind efforts made by your “tenant” during the term of his or her stay. It’s a way to look back and see what’s gone on during this phase in your relationship.
- What about the rent? If you are in a relatively good financial position and you don’t need your child’s rent to pay your own bills, you might consider investing those amounts on behalf of your child to chip in for his or her home down payment or possibly a wedding.
April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Thursday, April 17, 2008
Estate Planning for the Worst Possible Scenario –The Death of Both Spouses While the Kids Are Young
The reason why some parents hesitate to make an estate plan is understandable. It calls into consideration your worst fears – the possibility of your death or your kids facing life without one or the other parent.
But what about an even worse scenario – the possibility that you and your spouse could die at the same time or in close succession by accident or illness. One might be reminded of the situation of actor Christopher Reeve and his wife Dana; Dana died of cancer within two years of her husband’s death and they left a teenaged son behind.
From the standpoint of individuals, planning generally gets done with the mindset that one parent will be left to raise any minor children and continue earning and investing for the family. But in reality, you both should consider a plan that accommodates the absolute worst scenario -- the loss of both parents and what would happen to your kids’ lives and finances if that happens.
Most financial experts advise you to revise your estate plan every five years or as lifestyle issues change. It’s important to get help for the financial aspects of your estate plan as well as legal instructions for the support, education and general well-being of your kids. Here are some general topics to explore with tax and estate attorneys as well as a financial planner such as a Certified Financial Planner ™ professional:
Talk first about who would best raise your kids: This is clearly the most important decision you’ll make. You need to find the best person – or couple – to raise your kids if something happens to both of you. You know better than anyone else what hard and soft skills that will require – they need to be people whose own lives won’t blow apart by adding your kids to the mix. It’s also wise to name alternates in case the people you name have a change of heart for any reason, or if something happens to them.
Then talk about who will handle the money: After you choose your guardian and your alternate, you need to build a financial plan that will support those decision makers in the best way possible. Many experts advise you to split the responsibility of handling the kids and the money. This is a personal decision, obviously, but the concept is a good one. Absorbing someone else’s kids into a new family in a tragic situation is a tremendous responsibility with plenty of margin for error. For some time, it will be a full-time job. The appointment of a sharp financial trustee will allow you to allocate resources for day-to-day living expenses, education expenses and if there’s money left over, for investment.
Start thinking through an estate plan: For most of us, it’s going to be a challenge simply to stretch what we have to help our kids after we die. After all, when we go, there goes the weekly paycheck. For individuals who own businesses or have more substantial assets, the idea is to protect first those assets and then continue to grow them as investments. The trustee and whatever advisers you attach to this process will be key. But the first step is to get some general advice on managing the assets you can leave behind or backstopping your kids’ anticipated needs with various insurance options you can put in place now.
About those insurance options: Some married couples may elect to buy insurance together within the same policy. These policies take the form of either a joint first-to-die or a joint second-to-die (survivorship) design. With first-to-die, the death benefit is paid at the death of the spouse who dies first. With second-to-die, no death benefit is paid until both spouses are deceased, and that makes them a useful estate-planning vehicle in the right situation. Ask which policy choices are right for you from a qualified agent.
Make sure you figure this worst-case scenario into your education savings plans: Elementary, secondary and college education costs – particularly if all are in private schools -- need to be factored into the estate picture, and a CFP® professional might be useful in getting a savings plan in place while you’re alive that covers all possible events.
April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
But what about an even worse scenario – the possibility that you and your spouse could die at the same time or in close succession by accident or illness. One might be reminded of the situation of actor Christopher Reeve and his wife Dana; Dana died of cancer within two years of her husband’s death and they left a teenaged son behind.
From the standpoint of individuals, planning generally gets done with the mindset that one parent will be left to raise any minor children and continue earning and investing for the family. But in reality, you both should consider a plan that accommodates the absolute worst scenario -- the loss of both parents and what would happen to your kids’ lives and finances if that happens.
Most financial experts advise you to revise your estate plan every five years or as lifestyle issues change. It’s important to get help for the financial aspects of your estate plan as well as legal instructions for the support, education and general well-being of your kids. Here are some general topics to explore with tax and estate attorneys as well as a financial planner such as a Certified Financial Planner ™ professional:
Talk first about who would best raise your kids: This is clearly the most important decision you’ll make. You need to find the best person – or couple – to raise your kids if something happens to both of you. You know better than anyone else what hard and soft skills that will require – they need to be people whose own lives won’t blow apart by adding your kids to the mix. It’s also wise to name alternates in case the people you name have a change of heart for any reason, or if something happens to them.
Then talk about who will handle the money: After you choose your guardian and your alternate, you need to build a financial plan that will support those decision makers in the best way possible. Many experts advise you to split the responsibility of handling the kids and the money. This is a personal decision, obviously, but the concept is a good one. Absorbing someone else’s kids into a new family in a tragic situation is a tremendous responsibility with plenty of margin for error. For some time, it will be a full-time job. The appointment of a sharp financial trustee will allow you to allocate resources for day-to-day living expenses, education expenses and if there’s money left over, for investment.
Start thinking through an estate plan: For most of us, it’s going to be a challenge simply to stretch what we have to help our kids after we die. After all, when we go, there goes the weekly paycheck. For individuals who own businesses or have more substantial assets, the idea is to protect first those assets and then continue to grow them as investments. The trustee and whatever advisers you attach to this process will be key. But the first step is to get some general advice on managing the assets you can leave behind or backstopping your kids’ anticipated needs with various insurance options you can put in place now.
About those insurance options: Some married couples may elect to buy insurance together within the same policy. These policies take the form of either a joint first-to-die or a joint second-to-die (survivorship) design. With first-to-die, the death benefit is paid at the death of the spouse who dies first. With second-to-die, no death benefit is paid until both spouses are deceased, and that makes them a useful estate-planning vehicle in the right situation. Ask which policy choices are right for you from a qualified agent.
Make sure you figure this worst-case scenario into your education savings plans: Elementary, secondary and college education costs – particularly if all are in private schools -- need to be factored into the estate picture, and a CFP® professional might be useful in getting a savings plan in place while you’re alive that covers all possible events.
April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Tuesday, April 8, 2008
With the Market So Uncertain, Are Immediate Annuities A Good Way To Preserve Your Retirement Savings?
One day, the market is up 400 points. The next day, down 300. Stocks in 2008 haven’t won any points for stability. In periods of market uncertainty, you’ll hear a lot about safe harbor investments that will supposedly guarantee income for life. One of these alternatives is an immediate annuity.
Here’s how they work. Any annuity is a contract offered by an insurance company that promises you a set amount of annual income for life. An immediate annuity is an insurance contract you put money into and soon after starts paying a portion of the agreed-to amount on a set schedule. Retirees who use this option successfully are not pouring their whole retirement savings into an annuity – optimally, they are breaking off only a piece of their retirement savings to place in this option. For example, a 65-ear-old individual might buy an annuity with $100,000 or more that will come back to her in predictable form – maybe $6,000 or $7,000 a year for the rest of her life.
This option is a good one if you luck out and buy one at age 65 and live past 90 – that way, you’ll pull out more money than you put in. But depending on how the annuity contract is written, if you die before your principal is paid out, that money may go into the pocket of the insurance company.
As with other aspects of your retirement strategy, it’s a good idea to discuss such a move with trusted financial experts such as a certified public accountant or a financial planner such as a Certified Financial Planner™ professional. It makes sense to ask the following questions of your own financial circumstances and the annuity product you’re considering:
Before you lock up money in an annuity, how well are your other retirement assets working for you? Perhaps you plan to work a significant number of years in retirement if your health and your will hold out. Those are two big “if’s.” But if you want a part of your retirement money to be “secure,” you still need to have a substantial portion of your assets continuing to grow for you as your life continues. A visit to a CFP® practitioner before you retire can help you balance how you invest your assets as you age.
Does the immediate annuity have inflation protection? It’s not a big surprise to know that $6,000 today won’t be worth $6,000 five years from now. See if the immediate annuity product you’re considering automatically increases your payout each year in accordance with inflation.
Does it make sense to ladder annuities based on your age? If annuity products make sense for you and you have the financial freedom to purchase more than one, it might make sense to buy them in staggered form with amounts and terms that allow you to get larger payouts as you age. That could keep other assets more liquid to invest for your heirs or for other purposes. It’s also a good idea to go with more than one AA-rated (or higher) insurer since the fortunes of such companies may be great now but can change later. Also, remember that immediate annuities can be bought with specific terms such as 10 or 15 years that would allow your estate to recoup unspent assets if you die before the end of that payment term. It’s very important to seek advice here.
Have you projected what your actual income needs will be? Again, you need to ask yourself whether you choose to work or not, and then what your living expenses might be in retirement. This is why an annuity decision should be discussed from both a tax and general financial planning standpoint.
Are your long-term care needs covered? Before you start talking about locking up assets in annuity products, make sure you have money in reserve or long-term care insurance in place should you need to pay for temporary disability or end-of-life care.
Are you fully informed about all the fees? Keep in mind that inflation protection and other features added on to an immediate annuity cost more money than those without. Compare the costs.
April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Here’s how they work. Any annuity is a contract offered by an insurance company that promises you a set amount of annual income for life. An immediate annuity is an insurance contract you put money into and soon after starts paying a portion of the agreed-to amount on a set schedule. Retirees who use this option successfully are not pouring their whole retirement savings into an annuity – optimally, they are breaking off only a piece of their retirement savings to place in this option. For example, a 65-ear-old individual might buy an annuity with $100,000 or more that will come back to her in predictable form – maybe $6,000 or $7,000 a year for the rest of her life.
This option is a good one if you luck out and buy one at age 65 and live past 90 – that way, you’ll pull out more money than you put in. But depending on how the annuity contract is written, if you die before your principal is paid out, that money may go into the pocket of the insurance company.
As with other aspects of your retirement strategy, it’s a good idea to discuss such a move with trusted financial experts such as a certified public accountant or a financial planner such as a Certified Financial Planner™ professional. It makes sense to ask the following questions of your own financial circumstances and the annuity product you’re considering:
Before you lock up money in an annuity, how well are your other retirement assets working for you? Perhaps you plan to work a significant number of years in retirement if your health and your will hold out. Those are two big “if’s.” But if you want a part of your retirement money to be “secure,” you still need to have a substantial portion of your assets continuing to grow for you as your life continues. A visit to a CFP® practitioner before you retire can help you balance how you invest your assets as you age.
Does the immediate annuity have inflation protection? It’s not a big surprise to know that $6,000 today won’t be worth $6,000 five years from now. See if the immediate annuity product you’re considering automatically increases your payout each year in accordance with inflation.
Does it make sense to ladder annuities based on your age? If annuity products make sense for you and you have the financial freedom to purchase more than one, it might make sense to buy them in staggered form with amounts and terms that allow you to get larger payouts as you age. That could keep other assets more liquid to invest for your heirs or for other purposes. It’s also a good idea to go with more than one AA-rated (or higher) insurer since the fortunes of such companies may be great now but can change later. Also, remember that immediate annuities can be bought with specific terms such as 10 or 15 years that would allow your estate to recoup unspent assets if you die before the end of that payment term. It’s very important to seek advice here.
Have you projected what your actual income needs will be? Again, you need to ask yourself whether you choose to work or not, and then what your living expenses might be in retirement. This is why an annuity decision should be discussed from both a tax and general financial planning standpoint.
Are your long-term care needs covered? Before you start talking about locking up assets in annuity products, make sure you have money in reserve or long-term care insurance in place should you need to pay for temporary disability or end-of-life care.
Are you fully informed about all the fees? Keep in mind that inflation protection and other features added on to an immediate annuity cost more money than those without. Compare the costs.
April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Tuesday, April 1, 2008
During the Real Estate Freeze, Vacation Homes Might Be a Warm Spot
Many of us have taken a vacation and found an idyllic spot where we’d love to retire, spend the weekend or telecommute. Some people have actually bought property spontaneously while on vacation – and while that’s not always a horrible idea, it is better to have a strategy.
Finding a relative bargain on vacation property involves research and a solid knowledge of your own finances. It involves knowing something about the market, too. Some thoughts:
Who else is buying? Any real estate purchase involves a market analysis. Don’t assume that just because the residential market’s in trouble that vacation real estate necessarily follows where you’re looking. Keep in mind that in some areas of the country that foreign buyers are a factor thanks to our wheezing dollar. If you like the area and the property, talk to real estate agents, residents and other people who know the town well to see if you can be ahead of the curve in making a purchase.
Know where your money’s coming from. There are plenty of people who finance second homes out of the equity from their first home, but given today’s slow real estate market, it’s a risky option. Before you even start looking for a property, think about what a second home purchase will do to your overall financial picture. First determine the impact on your long-term financial plan. Will you still be able to retire at the same age? Will you have enough money to educate the kids? Then look at your lending options. Many lenders require buyers to put down at least 20 percent on a second home. Keep in mind that your primary home lender may not want to tackle a vacation home mortgage. While you’re planning, clean up your credit first, shop your lending options and get pre-approved first. Above all, get some advice from an expert like a Certified Financial Planner™ professional.
Understand what you’re buying. Even if you haven’t pinpointed a specific home or condo, you need to understand all the cost and environmental issues of owning property in that community. You need to know appreciation rates on similar properties and if there are plenty of sale signs nearby (do people want out?). You need to know about all the potential environmental risks to your property from hurricanes to mold.
Plan for upkeep: An unattended structure is subject to crime as well as wear and tear that can accelerate when owners aren’t present daily. Talk to your insurance agent about insuring out-of-town property. Also, while there are often qualified paid caretakers in vacation communities to help protect and maintain your property, they can be expensive and you need to make sure they’re bonded. Think of anything terrible that can happen to a property and then plan solutions – before you buy. And don’t forget the cost of utilities, telephone, cable, property taxes, etc. All these upkeep costs often add up to a surprising amount.
Is it a fixer-upper? Keep in mind that in some resort or vacation areas, property may be landmarked or otherwise legally protected even if it looks like it’s falling down. Before you become convinced you’ve snagged a bargain and you’re dialing a contractor, check with local real estate agents and City Hall to investigate all the possible protections and restrictions on the property you’re examining.
Are you going to rent or occupy? Renting out a vacation home is a good way to cover some of the cost, but lenders often factor in a 25 percent vacancy rate when determining your qualification for the loan. Plus, you have to play landlord with people you may never meet, and that can be risky. Rental property is a business, so treat it as such.
Talk with your tax advisor. Vacation homes may or may not offer some tax benefits to you depending on your overall tax situation. Ask your tax advisor to run the numbers for you. But don’t make the move for tax reasons alone. If your dream vacation home fits into your financial plan and life and you’ve done your research, it may be time to buy.
March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Finding a relative bargain on vacation property involves research and a solid knowledge of your own finances. It involves knowing something about the market, too. Some thoughts:
Who else is buying? Any real estate purchase involves a market analysis. Don’t assume that just because the residential market’s in trouble that vacation real estate necessarily follows where you’re looking. Keep in mind that in some areas of the country that foreign buyers are a factor thanks to our wheezing dollar. If you like the area and the property, talk to real estate agents, residents and other people who know the town well to see if you can be ahead of the curve in making a purchase.
Know where your money’s coming from. There are plenty of people who finance second homes out of the equity from their first home, but given today’s slow real estate market, it’s a risky option. Before you even start looking for a property, think about what a second home purchase will do to your overall financial picture. First determine the impact on your long-term financial plan. Will you still be able to retire at the same age? Will you have enough money to educate the kids? Then look at your lending options. Many lenders require buyers to put down at least 20 percent on a second home. Keep in mind that your primary home lender may not want to tackle a vacation home mortgage. While you’re planning, clean up your credit first, shop your lending options and get pre-approved first. Above all, get some advice from an expert like a Certified Financial Planner™ professional.
Understand what you’re buying. Even if you haven’t pinpointed a specific home or condo, you need to understand all the cost and environmental issues of owning property in that community. You need to know appreciation rates on similar properties and if there are plenty of sale signs nearby (do people want out?). You need to know about all the potential environmental risks to your property from hurricanes to mold.
Plan for upkeep: An unattended structure is subject to crime as well as wear and tear that can accelerate when owners aren’t present daily. Talk to your insurance agent about insuring out-of-town property. Also, while there are often qualified paid caretakers in vacation communities to help protect and maintain your property, they can be expensive and you need to make sure they’re bonded. Think of anything terrible that can happen to a property and then plan solutions – before you buy. And don’t forget the cost of utilities, telephone, cable, property taxes, etc. All these upkeep costs often add up to a surprising amount.
Is it a fixer-upper? Keep in mind that in some resort or vacation areas, property may be landmarked or otherwise legally protected even if it looks like it’s falling down. Before you become convinced you’ve snagged a bargain and you’re dialing a contractor, check with local real estate agents and City Hall to investigate all the possible protections and restrictions on the property you’re examining.
Are you going to rent or occupy? Renting out a vacation home is a good way to cover some of the cost, but lenders often factor in a 25 percent vacancy rate when determining your qualification for the loan. Plus, you have to play landlord with people you may never meet, and that can be risky. Rental property is a business, so treat it as such.
Talk with your tax advisor. Vacation homes may or may not offer some tax benefits to you depending on your overall tax situation. Ask your tax advisor to run the numbers for you. But don’t make the move for tax reasons alone. If your dream vacation home fits into your financial plan and life and you’ve done your research, it may be time to buy.
March 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA.
Subscribe to:
Posts (Atom)