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Wealth Preservation For Retirees


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There are now 40 million Americans over the age of 65, comprising 13 percent of the population. Twenty-five percent of these folks will live past age 90, and 10 percent will live past age 95. What’s more, by 2030, one out of every five Americans is expected to be over age 65.

Failure to plan for care needs in later life can result in the loss of a lifetime of savings and failure to leave a legacy. Nationwide, the average annual cost of nursing home care is more than $90,000.  Couple that with the fact that 70 percent of all Americans will need some form of LTC—half of us in a nursing home—and you have the recipe for financial disaster.

The problem here is that none of us know if we will need long-term care and from what age we will need it. You may develop a condition like MS or Parkinson’s that can strike at a relatively young age regardless of family history. You may have a fall that causes a head injury and need long-term care because you are otherwise healthy but have lost your mental facilities.

The Affordable Care Act, for all its benefits, doesn’t pay for any LTC. Neither does Medicare, which, at best, may cover short-term rehabilitation under very limited circumstances. Medicare provides no coverage whatsoever for custodial care, such as for individuals who need help getting in and out of bed, dressing, bathing or with other activities of daily living.

Thus, we aging Americans are either forced to fend for ourselves and pay for LTC out of pocket (either privately or through insurance) or rely on Medicaid, which was originally intended to be a program for the very poor.

In January 2010, a section of the Pension Protection Act of 2006 took effect. That generated excitement because the law permits federal tax-free treatment of withdrawals made from annuity combos to pay for qualifying long-term care expenses.

Fixed annuities, those CD-like investment vehicles that can provide an income stream for life, are a tough sell in the current low interest rate environment. However, if you’re a risk-averse shopper who can’t pull the trigger on a use-it-or-lose-it long-term care policy, an LTC annuity may be worth exploring.  It’s generally a lot less expensive than a long-term care policy.

The 3-to-1 Annuity/Long-Term Care Hybrid Annuity should be considered for money you are using to self-insure for all or part of potential LTC expenses. You instantly multiply the amount that is available for LTC to two or three times the amount you’ve set aside. You continue to earn safe interest on the money and have some access to it. If you are fortunate enough not to need LTC, the money passes to your loved ones.

You have long-term care benefits that are up to three times the annuity’s value. If you deposit $100,000, you now have up to $300,000 of LTC coverage. The cost of the LTC coverage won’t increase over time and won’t reduce your principal. Interest earnings increase your LTC coverage.

As with a standard long-term care insurance policy, the LTC benefit is triggered when you can’t perform two or more of the six activities of daily living (determined by a licensed medical professional) or are cognitively impaired. Eleven long-term care services are covered, including adult day care, home care, homemaker services, and residence in an assisted living facility or nursing home. There’s no waiting period for reimbursements for home health care or respite care, and a 90-day waiting period for other types of care.

Since this is an annuity, your deposit and accumulated interest are available for other uses. You can withdraw up to 10% of the contract value each year or schedule regular annuity distributions, such as a single life annuity or a joint life annuity covering the lives of both you and your spouse. The amount you don’t distribute or use for long-term care can be transferred to your heirs or other beneficiaries. Keep in mind that any lifetime distributions reduce your LTC benefit.

Another annuity available is a Longevity annuity.  Longevity annuities are much simpler than their name would suggest. In essence, a longevity annuity allows you to to trade a fixed amount of money for the promise of a future stream of income that will begin at a fixed age and continue for the rest of your lifetime. Unlike immediate annuities, which begin to make payments right away, longevity annuities are deferred income annuities, with payments set to start years or even decades into the future.

Earlier this year, the Treasury Department established new rules covering the use of longevity annuities. These insurance products are designed specifically to help retirement savers plan for their future income needs in a predictable way.

The new rules allow participants in 401(k) plans and other employer-sponsored retirement plans to incorporate these longevity annuities into their plan offerings without running afoul of guidelines that require minimum distributions of retirement-account assets past age 70 1/2. Yet even though retirement savers will be able to use annuities more freely, the big question is whether it makes sense for them to do so.

The main benefit of longevity annuities is that they give investors the certainty of knowing they will receive a certain amount of money no matter what happens in the financial markets. Moreover, for those who exceed the typical life expectancy, longevity annuities pay off by ensuring monthly payments as long as you’re alive to receive them.

By putting a portion of your savings aside toward a longevity annuity, you’ll be certain that even if you run out of other assets, you’ll have a minimum baseline income on which to survive. In that way, longevity annuities provide the same financial stability that Social Security does, with the federal payments also continuing until death.

Fixed indexed annuities, however, will continue to be a bright spot in a persistently low interest rate environment, as both a retirement savings accumulation vehicle offering a principal guarantee and growth potential, and as an attractive alternative to certificates of deposit.

Fixed indexed annuities can provide retirees with one of the most reliable and efficient sources of retirement income. “Savvy savers have long understood the merits of indexed annuities, but now a broader cross section of the investing public has entered the marketplace in droves.

With the economy still on shaky ground, many near retirees worry they’ll be working much longer than anticipated. Fixed indexed annuities are a virtually recession-proof bulwark against those kinds of concerns.”

If you know you won’t have a long lifespan, purchase a Life Insurance Combo plan.  It’s an easy sale, because people do want long-term care.” They may like standalone long-term care products, “but they don’t like knowing that if they don’t use it, they will lose (the money they put into) it.” For those people, the life combo — which pays for care if needed and/or at death — is “an attractive product.

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Tuesday, December 23rd, 2014 Wealth Preservation Comments Off on Wealth Preservation For Retirees

Why Self-Insure Long Term Care?

From dissolving the barriers between accumulation and decumulation, the liability of longer lives and a raft of investment choices; retirees will find themselves on a very different pension’s pathway than anyone before them.

In my experience, over half the people who shun long term care insurance do so because they feel they will never need it. It is difficult to visualize going to a nursing home. Statistically, half of these people will be right.  However, there are a number of scenarios where the person may need some kind of assistance but never see the front door of a nursing home. In fact, most people who need long term care can receive care without ever leaving their home.

When you stop and think about it, the decision not to buy long term care insurance is a decision to self insure. This can be costly and possibly devastating.  The average cost of a nursing home today is $80,000 per year and rising. At that rate, it doesn’t take but a few years to grind through a modest estate. If both the husband and wife need nursing home care, the time to dissipate an estate is cut in half.

A person can spend 40 years in a career building a retirement nest egg. They spend another 40+ years conservatively managing their money while trying to keep up with inflation. If they need to go into a nursing home during the last five years of their life, it all could be gone quickly.  Long term care is used for a person who becomes unable to care for themselves and needs assistance. This assistance might in their home, daycare, or nursing home care.

Most people react to a problem only when the problem surfaces. If a person waits to apply for long term care insurance until they are experiencing health problems, any long term care insurance plan may be prohibitively expensive or altogether unavailable.

One reason for the popularity of long-term care insurance policies is Medicaid; this government-sponsored program can pick up the cost of nursing home expenses, but only after patients have already depleted their assets and life savings.

On June 30 of 2009, the government has mandated rules and regulations on restricting the transfer of assets of the elderly. There is now a five year look-back provision if you apply to Medicaid to qualify for the nursing home – the Medicaid nursing home. These restrictive laws are intended to impoverish the healthy spouse.

Before you can qualify to receive, or to enter a nursing home, you must spend down your assets, which means that, if you are of the age where the nursing home may become an issue, in order to protect your wife, or the healthy spouse (i.e. you or your wife, whoever is not sick) you must do Medicaid planning 5 years earlier than the date that you went in to the nursing home.

The Solution: The Long Term Care Insurance That is Not a Policy

The underlying base of an “LTC annuity” is an annuity. Nothing new here; annuities have been around for a hundred years. They are safe, the funds accrue at a competitive interest rate, and the account grows tax-deferred. To form an LTC annuity, the insurance company has built in a “long term care option.” It is not a rider. There is no premium. It is simply an option you elect if long term care is ever needed. Sweet.

To qualify for benefits, a person only needs to lose two of six ADLs (activities of daily living). ADLs are insurance companies’ method of determining the qualification for levels of care. They are eating, bathing, dressing, toileting, transferring (walking) and continence. The person doesn’t have to be in a nursing home. They simply need to have demonstrated the inability to perform two of the six ADLs to qualify to put the long term care option in their annuity in action.

An Example:

If a male, age 60, places $200,000 into an LTC annuity, assuming a conservative interest rate, the policy would grow to $300,000 in ten years. If the $300,000 were converted into a life income, the person would receive $2,200 per month for the balance of their life. An 8.8% return. Not too bad, considering it is guaranteed no matter what. If this person needs long term care at age 70 by virtue of losing two of six ADLs and elected the long term care option, the life income would jump to $4,500 a month.

Long term care annuities, provide the option to receive long term care benefits only if they are needed. There is no separate long term care insurance policy, no premiums and generally little underwriting. Many buy an annuity to secure a stable retirement income. This new kind of annuity adds on coverage for long term care.

The coverage is paid for by the investment return from the annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit.

Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted.

For example, a policyholder with a $100,000 annuity who had selected an aggregate benefit limit of 300% and a two year benefit factor would have an additional $200,000 available for long term care expenses after the initial $100,000 policy value was depleted.

The policy owner would spend down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less benefit is needed.

Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary. Consumers who utilize hybrid policies can avoid self-insuring against catastrophic long term care related expenses and have the peace of mind associated with a comprehensive plan.

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Wednesday, December 3rd, 2014 Wealth Preservation Comments Off on Why Self-Insure Long Term Care?

Retirement Crisis Looming

Inability to plan, save and invest incomes has been identified as the major reason why working class people end up broke and financially down during and after their working life.  The future is unpredictable, so there’s no way to account for every possible scenario.  The country is facing a retirement crisis as its citizens live longer, which will result in greater demands on their assets. Yet many workers are failing to save enough — or anything at all — for their golden years.

However, Americans are living longer and we all want to age with dignity, independence and choice but that requires planning that few undertake.  Personal income management as one of the fundamental elements for a secure future.  The message is that when you fail to plan, you are planning to fail.

In 1950 the life expectancy was 68 and now it’s closer to 80, so that means that this whole generation of Baby Boomers is going to live in retirement 20 to 25 years, [compared with] the previous generation of 14 years.

With the shift to investment plans such as 401(k)s, that puts the onus on workers themselves to contribute money to their retirements.  Even when Americans do put away funds for retirement, they’re often making an investment misstep that could lower their long-term financial prospects.

The gap between the reality of Americans’ low participation in saving for retirement and their very real concerns about running out of money may reside in the economic realities facing many workers.

If you’re nearing retirement, make sure one of the most important and expensive aspects of your golden years—your future health-care needs—is not overlooked   Blowing through hundreds of thousands of dollars for medical expenses in retirement is a reality for many people.  People spend the most on health care during the last 10 years of their life.

Few boomers recognize that most who reach age 65 will need some form of long-term care. Government has no plan in place to deal with the needs of millions of aging boomers and few have set aside money to cover costs. In retirement, you may encounter expanding healthcare needs or even experience a life-changing disability. When trying to cover these health costs, you may realize that health insurance and Medicare fall short when it comes to providing ongoing, long-term care.

For instance, if you don’t need the care of a doctor, but need custodial care for daily living activities, such as bathing, dressing or eating, those costs are never reimbursed by traditional health insurance or government programs. People mistakenly associate long-term care with nursing home care, but most care actually takes place at home or in the community.  Either way, the costs are significant as is the toll on loved ones who typically are called on to provide care. Long-term care insurance can be an affordable option but many wait too long so it’s not available because they’re either too ill or it’s too expensive.

The biggest costs come from co-payments, deductibles and excluded benefits, along with out-of-pocket costs for prescription drugs and the cost of premiums for Medicare Part B (basic coverage) and Part D (prescription drug benefits).  Premiums for Medicare are based on income; the higher your income, the more you’ll pay. Beyond basic coverage, there also are other options that come with additional costs.

On top of all that are long-term care needs that arise from chronic illness, disabilities or other conditions that require daily assistance. Medicare doesn’t pay for continuing care in nursing homes, assisted living or home-based aides.  Medicare doesn’t pay for long-term care in a nursing home. The most it will pay for is 120 days. And that’s if you are improving the entire time you’re there. Improvement doesn’t always occur, so the period Medicare would pay for could be even shorter than that.

There is another program that will pay for a nursing home “Medicaid” and how do we qualify for that?  You have to have a medical condition that requires the medical attention provided in a long-term care facility. The income and resource amounts change from year to year. This year your monthly gross income can’t exceed $2,161, if you are the only one applying for Medicaid. If you and your spouse both apply, the income can be as much as $4,326.

And you must have a limited number of assets. What’s the limit on that? That depends on whether a person is singe or has a spouse who is not going into the nursing home and upon whether the assets are ‘countable resources.’ Some things, like your home, a car, a life insurance policy less than $1,500 cash value, a pre-paid burial policy and burial plots, aren’t ‘countable resources.’ If you were single, you would have to spend down any countable resources to $2,000.”

If married the difference is if one of you has to go into the nursing home, the other is considered the ‘community spouse.’ Congress decided some years ago the spouse who stays at home shouldn’t be impoverished just because a partner is in the nursing home.  So they put all yours and spouse’s countable resources in a pile, then they divided them in half. If Mom is the one staying at home, she gets to keep half of those assets up to $117,240. Also, since Mom’s income, even after allocating your income to her is still less than $2,931, some of your half of the assets can be invested to produce an income stream for Mom up to that amount.

It is recommended that you closely examining your options—especially because chances are that medical expenses will increase as you age. It’s [typically] the end of life when you have the really bad stuff that costs a lot of money.  This is where long-term-care insurance comes in. The cost is based on many factors, including your age when you purchase the policy and particular choices in coverage. Long-term care (LTC) insurance policies were created to pay for daily care expenses. They reimburse you for a pre-selected daily amount of care either in your home or in a nursing facility.

The cost of a LTC policy depends on several factors such as your age when you purchase the policy, the daily coverage amount, the number of years of coverage and any optional benefits you choose.  While having LTC insurance sounds like the perfect solution for getting the care you need, the reality is, there are challenges with these policies. One problem is getting the coverage to begin with. If you’re in poor health or are already receiving long-term care services, you can be turned down. Unlike regular health insurance, which can’t be denied to those with pre-existing health conditions, most LTC policies require medical underwriting.

Another problem is the availability of long-term care insurance. Due to an environment of rising health care costs, increased longevity and low interest rates, in the past five years, 10 of the top 20 providers (such as MetLife and Prudential) have gotten out of the LTC insurance business.  For providers offering LTC insurance, it’s possible they’ll be forced to raise premiums to remain profitable.  If LTC premiums go up, one way to manage the cost is to reduce your coverage. For instance, you could shorten the benefit period from five to three years or reduce the daily benefit amount from $100 to $75.

In the worst case, if LTC premiums become unaffordable, you might have to abandon the policy altogether without getting any benefit from it. Unfortunately, no other type of insurance can completely replace it; however, there are other options. To protect yourself or a loved-one from the rising costs of long-term care, consider these alternatives to regular LTC insurance:

Fixed Indexed Annuity (FIA) – is a financial product sold by an insurance company. The insurer guarantees to protect your principal and give you the potential for growth linked to an index, such as the S&P 500.

An FIA offers the opportunity for growth through a steady, guaranteed lifetime income stream, all while protecting your principal from the uncertainty of market volatility. You don’t actually invest your money in the stock market, but you can receive some of the upside potential of growth without putting your money at risk.

In addition to receiving guaranteed income for retirement, many FIAs offer annuity riders that provide additional financial security to pay for unexpected health care expenses, such as long-term care.

For instance, a nursing home rider may allow you to increase the monthly income on an annuity or to withdraw from your account to pay for care in your home or at a nursing facility. Another option is a terminal illness rider, which allows you to access a portion of your account value if you’re diagnosed with a terminal illness.

Having coverage through LTC insurance or a fixed annuity with optional riders gives you peace of mind for future health costs. If you carefully consider all your options and plan now for future long-term care expenses, you’ll be prepared to cover the care you need when you need it.

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Friday, October 31st, 2014 Wealth Management Comments Off on Retirement Crisis Looming

Long Term Care Awareness Month

November is Long Term Care Awareness Month… a continuing effort to raise public awareness regarding the importance of long term care planning. Consider this: 3 out of every 4 people who live past age 65 will need some sort of long-term care support, according to the US Department of Health and Human Services.  A stroke, a broken hip, Parkinson’s, simple frailty from aging – these are just a few examples.

The single biggest health issue requiring long-term care is that of Alzheimer’s and/or dementia. More than 50% of all long-term care insurance claims are related to a cognitive issue such as these. The Alzheimer’s Association 2014 Facts and Figures reports:

  • Alzheimer’s disease is the 6th leading cause of death in the United States
  • The disease kills more people than breast and prostate cancer combined
  • More than 5 million Americans are currently living with Alzheimer’s
  • 1 in 3 seniors dies with Alzheimer’s or another dementia
  • Almost 2/3 of Americans with Alzheimer’s disease are women
  • Women age 60 and older have a 1 in 6 chance of getting Alzheimer’s, men: 1 in 11
  • Women in their 60s are about 2 times more likely to develop Alzheimer’s than breast cancer at some point in their remaining years
  • More than 60% of Alzheimer’s and dementia caregivers are women
  • The average Alzheimer’s patient requires 24-hour care for an average of 4-7 years

Long term care includes a range of services to assist you when you suffer from a chronic or prolonged illness or disability (Alzheimer’s, Parkinson’s, stroke, cancer, accidents and much more) that leaves you unable to care for yourself for an extended period of time.

It is not just medical care, but is considered custodial care – care that is generally needed when you are unable to perform certain ‘Activities of Daily Living’ – bathing, eating, walking, getting dressed, etc. Services may be provided in nursing homes, assisted living facilities or a patient’s own home.

Long-term care is poised to become an important issue in the U.S. as the nation’s population grows older.  Each and every day, over the next two decades, 10,000 Americans will celebrate their 65th birthdays and as many as 70 percent of them, at one point as they grow older, will need some level of assistance with every day necessary chores.

When you stop and think about it, the decision not to buy long term care insurance is a decision to self insure. This can be costly and possibly devastating.  The average cost of a nursing home today is $80,000 per year and rising. At that rate, it doesn’t take but a few years to grind through a modest estate.

Until recently, consumers had few choices when it came to long term care insurance. Traditional policies, which provided a certain amount of selected coverage, were the norm.  If the policy was never used, the owner would lose the investment of his or her premium payments.

The Solution: The Long Term Care Insurance That is Not a Policy!  These new products, long term care annuities, provide the option to receive long term care benefits only if they are needed. There is no separate long term care insurance policy, no premiums and generally little or no underwriting.

In response to customer and agent demand, insurance companies have designed what can be best described as hybrid or linked policies. These policies combine the benefits of an annuity or life insurance agreement with a traditional long term care contract.

With hybrid policies, the consumer has the guarantee of long term care benefits or, if no care is needed, the promise of insurance benefits to themselves and their beneficiaries.

The newest addition to the hybrid marketplace is the long term care annuity. This product also functions exactly like a fixed annuity, but has a long term care multiplier built into the policy. There is no premium rider attached to this medically underwritten annuity policy. Instead, a portion of the internal return in the contract is used to pay for the long term care benefit.

A Long-Term Care rider provides long term care insurance in addiction to a steady stream of income. The 2006 Pension Protection act now allows for withdrawals from an annuity or life insurance policy with a long term care rider to be tax free to the individual for qualified long term care expenses.

  • Please Note – Applies to non-qualified money – Your money is used first.

Long term care coverage is calculated based on the amount of coverage selected when the policy is purchased. The insurance company offers a payout of 200% or 300% of the aggregate policy value over two or three years after the annuity account value is depleted.

For example, a policyholder with a $100,000 annuity who had selected and aggregate benefit limit of 300% and a two year benefit factor would have an additional $200,000 available for long term care expenses after the initial $100,000 policy value was depleted.

The policy owner would spend down the $100,000 annuity value over a two year period and then receive the additional $200,000 over a four year period or longer. In this example the contract pays $50,000 a year for a minimum of six years, but care will last longer if less benefit is needed.

Again, if long term care is never needed the annuity value would be paid out lump sum to any named beneficiary.

Long term care planning for you and your family is an important strategy for protecting your financial future. Regardless of whether or not insurance is utilized, the out-of-pocket costs for care can be a heavy financial burden.

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Tuesday, October 28th, 2014 Wealth Management Comments Off on Long Term Care Awareness Month

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