Category Archives: Senior Living

At what age are you too old to manage your money?

I was fascinated to read an article with the above title that was published recently.  It was accompanied by a picture of an elderly couple and their caregiver walking with canes.

The article reflects many of our own observations.  We have been managing money for people for over thirty years.  During that time we have seen the effect of age and ill health on the people we work with.

Here’s the good news:

“Most people who don’t suffer from cognitive impairment can continue managing their money in their 70s and 80s, according to a report just published by the Center for Retirement Research at Boston College (CRR). But of course some older Americans, and especially financial novices who take over money management after the death of a spouse, will need help …”

Here’s the bad news:

As we get older our ability to process information slows down.  As a result, the elderly are more likely to be defrauded or abused by financial scams.  They may not open their mail regularly, have problems paying bills and fail to read and understand their financial statements and reports.

If you’ve never made investment decisions, paid the bills, balanced the family checkbook or reviewed the investment accounts you are especially vulnerable.  This if often true of older couples in which the wife managed the household and the husband managed the family finances.

As we get older, there are a few basic things that we should do to protect ourselves and our loved ones.

  1. Have a spending plan for your retirement years.
  2. Make sure that your spouse and your financial advisor knows about the plan and knows where your accounts are so that they can be monitored for fraud or abuse.
  3. At some point you or your spouse should agree to transfer your responsibility for managing your investments, and make sure that both members of a couple should know how to run the household finances.

For guidance on these issues, we suggest ordering a copy of BEFORE I GO and BEFORE I GO WORKBOOK.

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The financial risks of dementia

dementia-symptoms-and-brain changes

Dementia covers a broad range of mental diseases that cause a gradual decrease in the ability to think and remember.  It often affects a person’s daily functioning and is different from the decline in cognitive abilities that are the usual effects of aging.  The most common type of dementia is Alzheimer’s disease.

About one in ten people get dementia.  It becomes more common with age and it’s estimated that about half of those over age 85 suffer from it in some degree.

As the disease progresses, most people with dementia require a certain amount of skilled care.  Eventually the family will not be able to provide the 24 hour services that the patient requires and they will be placed in a facility designed to provide that care.

According to the NY Times:

On average, the out-of-pocket cost for a patient with dementia was $61,522 — more than 80 percent higher than the cost for someone with heart disease or cancer. The reason is that dementia patients need caregivers to watch them, help with basic activities like eating, dressing and bathing, and provide constant supervision to make sure they do not wander off or harm themselves. None of those costs were covered by Medicare.

For many families, the cost of caring for a dementia patient often “consumed almost their entire household wealth,” said Dr. Amy S. Kelley, a geriatrician at Icahn School of Medicine at Mt. Sinai in New York and the lead author of a paper published in the Annals of Internal Medicine.

As people age their cognitive abilities deteriorate.  Even before they begin to suffer the effects of dementia, they may become forgetful or lose the ability to focus on their finances.  Obtaining the services of a Registered Investment Advisor (RIA) well before this happens – a fiduciary that puts his clients’ interests first – is vital.  And, as people prepare retirement plans, the cost of dementia treatment and care should be one of the things for which they plan.

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Getting Financial Help

When people have financial questions, what do they look for?  According to a recent survey most people are looking for someone with experience.  We want to take advice from people who are familiar with the issues we face and know what to do about them.  We all know people with experience, but financial problems, like medical problems, are personal.  Most people we know would rather not go into detail about their personal finances with family or friends.  They are more comfortable sitting down with a financial professional to discuss their finances, their debts, their financial concerns, and their financial goals in both the short and long term. Professionals will provide advice without being judgmental and are required by their code of ethics to keep your information confidential.

Once people find someone who has a track record of giving good, professional advice, they want personalized advice and “holistic” planning.

No two people have exactly the same problems.  A good financial advisor listens attentively to learn the goals, the concerns and personal history of the people who come to him for advice.

People have specific issues and questions.  For example: a couple, aged 39, is seeking advice about their path to retirement.  They give their financial advisor a laundry list of their assets, their investments, their savings rate, their debts, and the ages of their children and ask if they should be doing something different or are they on the right path.  That’s a very specific question and the advisor’s response is going to be personalized for them.

The plan that the advisor comes up with is going to involve much more than money.  It’s going to take their personal characteristics into account.  This includes personal experience with investing, their risk tolerance, and their closely held beliefs and ethical values.  This is what is referred to as “holistic” planning; taking personal characteristics into consideration.

There is a fairly big difference in the advice sought by

  • “Millennials” (those born after 1980 and the first generation to come of age in the current century),
  • “Generation X” (the children of the Baby Boomers) and the
  • “Baby Boomers” (children of the soldiers returning from World War 2)

“Millenials” say that among their top three concerns are saving for a large expense such as a car or a wedding.  Too many are saddled by debt acquired to pay for higher education and are finding that their degrees are not necessarily an entry into high paying professional jobs.  Their next largest concerns are saving for their kids’ education and putting money aside for retirement.

“Generation X” is primarily focused on saving for retirement.  They are married, own their own home and may have children in college.  Concerns two and three are tax reduction and paying for their children’s education.

“Baby Boomers” have finally reached retirement age.  More than a quarter million turn 65 each month.  As a group they are a large and wealthy generation, but a vast number have not saved enough for a comfortable retirement.  Many are forced to continue to work to supplement Social Security income.  Their number one concern is the cost of health care.  Concerns two and three are protecting their assets and having enough income for retirement.  The three concerns for Baby Boomers are inter-connected.  For many Boomers, Medicare helps them with the costs associated with most medical issues.  However, as people live longer, there comes a time when they are unable to care for themselves and live independently.  Long-term-care insurance was once believed to be the answer but insurance companies found that costs were much greater than anticipated.  The result is that many insurers have stopped offering the policies and those remaining have hiked premiums beyond the ability of many to pay.  The cost of long term care is so high that many Boomers are afraid that their savings will soon be exhausted if they are forced into assisted living facilities or nursing homes.

Each generation has its own problems and at a time when the world has gotten much more complicated.  Getting experienced, personalized and holistic financial advice is more important than ever.

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Why do elderly Japanese want to go to prison?

I read an interesting comment by Art Cashin that bears considering.

Japan’s prison system is being driven to budgetary crisis by demographics, a welfare shortfall and a new, pernicious breed of villain: the recidivist retiree. And the silver-haired crooks, say academics, are desperate to be behind bars.

Crime figures show that about 35 per cent of shoplifting offenses are committed by people over 60. Within that age bracket, 40 per cent of repeat offenders have committed the same crime more than six times.

There is good reason, concludes a report, to suspect that the shoplifting crime wave in particular represents an attempt by those convicted to end up in prison — an institution that offers free food, accommodation and healthcare.

The mathematics of recidivism are gloomily compelling for the would-be convict. Even with a frugal diet and dirt-cheap accommodation, a single Japanese retiree with minimal savings has living costs more than 25 per cent higher than the meagre basic state pension of Y780,000 ($6,900) a year, according to a study on the economics of elderly crime by Michael Newman of Tokyo-based research house Custom Products Research.

Even the theft of a Y200 sandwich can earn a two-year prison sentence, say academics, at an Y8.4m cost to the state.  The geriatric crime wave is accelerating, and analysts note that the Japanese prison system — newly expanded and at about 70 per cent occupancy — is being prepared for decades of increases. Between 1991 and 2013, the latest year for which the Ministry of Justice publishes figures, the number of elderly inmates in jail for repeating the same offense six times has climbed 460 per cent.

If it weren’t so, so sad, it would be positively elegant. You are an elderly Japanese person who can’t get by. You are not aggressive so you want to commit a crime with no threat or hostility. So, you commit one of the most non-hostile crimes possible –shoplifting.  When the authorities insist you leave and return to poverty, your simple recourse it to repeat the same crime, may even in the same store.  Human adaptation is an absolute wonder to behold. Government planning, however, is prone to bring unintended consequences, usually of the worst order.

People adapt to incentives and the results are not necessarily what was anticipated.  It’s called the law of unintended consequences.

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The Ten Best States for Retirement

From Wealth Management:

  1. Wyoming – It has among the lowest tax burdens in the country; well below the national average for crime rates.  Good weather; cool climate, summer nights are mild, few cold waves during the winter, humidity is also super low, making it the perfect place for retirees who don’t like stuffy summers.
  2. South Dakota – It has one of the lowest tax burdens in the country tying with Wyoming.  It also scored well for overall happiness, particularly when it comes to social well-being.
  3. Colorado – It has great weather, ample sunshine and little humidity.  It scores high for well-being in the Gallup-Healthways index and has a relatively low tax burden.
  4. Utah – It ranks sixth best in the nation for weather, lots of sunshine and low humidity.  The cost of living is below the national average.
  5. Virginia – It has a low cost of living, and a low crime rate. The state also received above-average marks for health care quality and weather.
  6. Montana – The weather ranks above the national average.  Montana ranks high for well-being; residents fell good about their community.  Cost of living and taxes are below the national average.
  7. Idaho – It’s a safe place for retirees to settle down; cost of living and crime rate both ranked among the lowest on the list.  Housing in Idaho is extremely affordable.  Weather and recreational resources add to its appeal.
  8. Iowa – Quality health care is a big feature here along with a low crime rate and an affordable cost of living.
  9. Arizona – It’s warm with great weather; rarely a a cloud in the sky.  It ranked in the top 10 in the Gallup-Healthways Index for overall wellness combined with a fairly low tax burden on its residents.
  10. Nebraska – It has a relatively low cost of living and a low crime rates. Residents here report being slightly happier than people in other states, based on the Gallup-Healthways Well-Being Index.

We’re fans of Virginia, our home state, but the others also sound interesting.

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Getting a bigger tax deduction for long term care insurance in 2016

The IRS is increasing the amount that can be deducted from tax returns in 2016 for Long Term Care insurance premiums.

Medical expenses for seniors keep rising and the cost of a long-term-care facility can reach $10,000 per month. At that rate a lifetime of savings can be depleted rapidly. As a result, many seniors have bought long term care policies.

For people between 50 and 60 years of age the deductible limit is $1,460.

For those older than 60 but under 70 the limit is $3,900.

For younger individuals the limits are lower:
• Under 40 years old it’s $390.
• From 40 to 50 it’s $730.

Keep in mind that the deductibles are classified as unreimbursed medical expenses and can only be deducted if they exceed 10% of your adjusted gross income. Premiums above the new limits are not considered a medical expense.

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8 Common Reasons for Retirement Failure

1. Overspending.

-You won’t spend less in retirement.  The old saw that retirees only spend 80% of their pre-retirement income is a myth.

2. Elder Fraud.

-Seniors are becoming the favored victims of swindlers.

3. Health care.

-As we age the cost of medical care goes up.  Medicare is covering less and premiums are going up.

4. Starting a business.

-Investing capital in a business that fails can devastate retirement finances.

5. Adult children.

-Helping your children through a “rough patch” can become is one of the most common ways of ending up broke.

6. Second homes.

-The cost of maintaining that vacation home when you’re no longer working can drain your resources when your income drops.

7. Divorce.

-Couples sometimes wait until the children leave home to divorce.  When assets are split 50/50, retirement becomes a problem for both parties.

8. Investment mistakes.

-Making poor investment choices is one of the most common ways of ruining your retirement lifestyle.

If you are nearing retirement, don’t enter into it without a plan.

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Survivors’ Income

We are frequently asked to help people whose spouses have died to help settle the estate and plan for life as widows or widowers.  One of the big questions that they face is determining what it costs to live as a single instead of a couple and where the income is going to come from.

We wrote a book specifically designed to help answer those questions.

Below is from page 53 of BEFORE I GO – WORKBOOK

Keep in mind that it’s a lot easier to determine the answer to many of these questions ahead of time, while both husband and wife are still living, and access to information about survivors’ pension benefits, social security income and annuity income are easy to determine.

For a copy of BEFORE I GO and BEFORE I GO – WORKBOOK contact us or order it from Amazon.com

My Survivors’ Income:

“GUARANTEED” INCOME
Social Security:         $__________________
Pension income #1: $__________________ Source:_____________________
Pension income #2: $__________________ Source:_____________________
Pension income #3: $__________________ Source:_____________________
Annuity #1:                $__________________ Source:_____________________
Annuity #2:               $__________________ Source:_____________________
Other Guaranteed:   $__________________ Source:_____________________
SUBTOTAL GUARANTEED: $__________________

PORTFOLIO INCOME:
Interest Income:       $__________________ Source:_____________________
Dividend Income:    $__________________ Source:_____________________
Rental Income:         $__________________ Source:_____________________
Business Income:     $__________________ Source:_____________________
Other:                         $__________________ Source:_____________________
Other:                         $__________________ Source:_____________________
SUBTOTAL PORTFOLIO: $__________________
GRAND TOTAL:                   $__________________

 

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GE Retirees health insurance

GE is one of the companies that are working hard to reduce the amount it must spend on retiree health care. As people live longer, the cost of lifetime health care coverage for retired employees becomes a larger part of a company’s bottom line. GE recently offloaded the supplemental insurance coverage for salaried retirees to another company that specializes in employee benefits.

With that in mind, here is what a member of the GE employee family had to say about this. Even if you are not a GE retiree, the analysis is very worthwhile.  (edited)

When you turn 65, Medicare becomes your primary health insurance even (I think) if you are still working for GE, and definitely if you are retired from GE. … [But] one needs to sign up for Medicare within 3 months before or after their 65th birthday month, or face a lifetime late enrollment penalty.

You can either purchase a Medigap plan on the open market using Medicare.gov to search the available plans, or you can use OneExchange the same way. Or, if you’re feeling lucky/healthy, one can just use the 80% coverage of Medicare Part B and go without a Medigap plan – after all, Medicare Part B pays 80% of Dr. visits…The Medigap plans basically cover the 20% of OV’s that Medicare doesn’t – plus a few other things, but that’s their primary role. A person could do a simple break-even analysis and figure out how many OV’s they would have to have in a year to equate to the premiums they will pay for a Medigap plan. A healthy person would actually be better off financially (in the short term anyway) without a Medigap plan, as most people are paying at least $100 per month per person for that coverage, I believe. Of course, it is insurance, so what you really hope for is that you pay the premiums and don’t need it, right?

Since you also would be losing your GE drug coverage, you very much would want to enroll in Medicare Part D, drug coverage, or you will be paying the retail price for drugs, without the coverage of the Part D plan, and also without the negotiated drug prices the insurance carriers receive – a bad proposition all around. If one’s prescription drug needs are modest, there are very low-cost plans available like Humana/Walmart, which provide good protection at very low cost. If one’s prescription drug needs are a little more exotic, then it would pay to explore which plan would be best, using the plan selector engine at Medicare.gov or OneExchange. My experience using both plan selector engines was they came up with a very closely matching answer. In my case, even with one Tier 3 drug that costs $250 per month retail, Humana/Walmart was the least costly plan, but several others were very close.

Or, if this person was OK with using a managed care plan, there is also the option of going with a Medicare Advantage Plan, or a managed care plan, aka Medicare Part C. Those are the plans for which we get the flyers every Annual Enrollment period. I think generally these are very cost effective, often covering Medicare Parts A, B and D with a premium of zero dollars, but you have to be prepared for the restrictions on where you can go and who you can use, you generally need a visit with a Primary Care Physician (PCP) in the HMO before seeing a specialist, etc. My view on these plans is that you give up some choice and control in exchange for saving quite a bit of money on premiums. But watch out for the geographical and network restrictions.

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How safe is your long-term-care policy?

A guarantee is only as good as the people who stand behind the product. It turns out that when long term care policies were introduced, insurers misjudged a number of issues.

Executives misjudged everything from how much elder care would cost to how long people would live. Result: these policies are costing insurers billions.

Today those problems are a financial headache for insurers who are losing billions. Tomorrow they could be a problem for the insured. Long-term care Insurance premiums are already rising steeply and several insurers including MetLife Inc. and Prudential Financial Inc. are no longer offering new policies.

“I was mad as hell,” says Arthur Mueller, an 83-year-old former real estate executive who lives in Dallas. Over the past 15 years, his annual Genworth premium has roughly doubled to $6,879.

As the cost of insurance has risen, the number of people buying these policies has decreased. Price is one reason. If long-term care insurance is relatively cheap, people will pay for it. As it becomes more expensive, they will explore other options for the elderly. Family members are going back to providing care and government programs cover much of the rest.

Meanwhile, seniors who have long-term care policies generally continue to pay the premiums, having invested years in these policies and hope that the coverage will be there when they need it.

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