Category Archives: Retirement Planning

Ideas to help preserve and grow your money

Retirement Roulette

My Comments: I’ve been known to place a bet now and then. But Las Vegas, for me, is nothing more than a place to visit from time to time. But it takes all kinds, and if you are one who enjoys the uncertainty of your financial future, here’s an article for you to consider. Thanks Dirk.

April 19, 2017 / Dirk Cotton

Phyllis loves to play roulette at the casinos. She knows there are games with better odds but there’s something about the large spinning wheel and the big green table with its field of many bets that she finds irresistible.

Phyllis has a roulette strategy – she calls it a “system” – that she adheres to rigorously. Because a fair roulette game is totally random and the odds favor the house her strategy isn’t statistically profitable but that isn’t something that concerns a typical gambler. Watching a YouTube video of a roulette game, I heard one player say he watches for trends in the random winning numbers (humans are really good at seeing trends, even when they don’t exist) and I hear another say that he seems to win a lot with the number 26.

Phyllis’ strategy is to place several small bets on the first spin of the wheel and to double the bets each time she loses. After a winning bet, she bets the same amount on the next spin.

She places a bet on red, another bet on 36, a corner bet, and a street bet for each spin. (Watch a few minutes of this YouTube video if you’ve never seen a roulette game. Notice the multiple bets placed by each player at each spin of the wheel.)

After each spin, she calculates the revised amount of her bankroll and places another set of bets on the next round. Her strategy is to stop playing should she double her initial bankroll and, of course, she will stop playing when she is ruined.

At this point, you may wonder what Phyllis and her roulette strategy have to do with financing retirement. The answer is that the mechanics of her roulette game are somewhat analogous to the way in which retirement should be played. Visualizing retirement funding as a roulette game can demonstrate the process as a whole as opposed to seeing a set of related but independent strategies for income generation, asset allocation, annuitization, and the like.

We start with a grand strategy, hopefully one that is more profitable than a roulette strategy, and play one year at a time in the same way that Phyllis plays one spin of the roulette wheel at a time. We stop playing retirement when no one in our household is still alive.

It’s not a perfect analogy. Phyllis stops playing roulette when she runs out of money but, unlike roulette players, we can’t stop being retired when we go broke. We have to figure out how to continue playing retirement until the end, perhaps getting by on Social Security benefits alone – not a pleasant prospect2.

Now, let’s play a game of Retirement Roulette. Over my working life, I have accumulated wealth that I can use to pay for retirement. That wealth is represented by the three stacks of chips in front of me that constitute my “bankroll.”

My financial capital (pink), social capital (red) and human capital (blue) at retirement. (Image from designinstruct.com)

The first stack of chips represents my financial capital. It represents my wealth held in taxable accounts, retirement accounts, home equity, etc. The second stack of chips represents my human capital, my ability to generate income from labor. Perhaps I can retire as a college professor and still teach a couple of classes each semester for a few years. This stack of chips will shrink over time whether or not I use it as my ability to generate income from labor diminishes.

The third stack of chips represents my “social capital” and includes my Social Security benefits and a small pension I earned from a previous employer. I have three chips. The first represents my pension, the second represents my wife’s Social Security benefits and the third chip represents my own Social Security benefits.

My social capital.

On the “Retirement Roulette” table in front of me lies a broad array of potential retirement bets including:
• a bet on a retirement date
• a bet on an amount to spend this year
• a bet on stocks
• a bet on bonds
• a bet on cash
• a bet to claim or delay Social Security benefits
• a bet to purchase an annuity
• a bet to purchase long-term care insurance
• a bet on a legacy for our heirs
I refer to these as “bets” because each has a cost, each has a payoff, and each payoff is uncertain.

I use my strategic retirement plan to guide my bets in much the same way Phyllis uses her strategy to place roulette bets. That plan identifies my strategic objectives – the long-term financial retirement goals I’m trying to achieve. I now need to identify the best tactical moves I can make in the present round (this year) to further those long-term objectives. For example, I have a strategic goal to not outlive my savings so perhaps a good tactic for the current round is to not claim my Social Security benefits, yet.

First, I bet that I have enough retirement resources to retire this year at age 65.

I decide to wager the pension bet immediately because I am 65 years old and, unlike postponing Social Security benefits, delaying my pension claim has no financial benefit. The payoff for this bet is $1,000 of income monthly for as long as I live.

I have determined that the optimal Social Security claiming strategy for our household is for my wife to claim at age 66 and for me to claim at age 70. Since she is now 66, I will bet her Social Security benefits chip now and save mine for the year I turn 70. Of course, I can decide to bet my chip sooner should I need the money.

The payoff for this bet is some immediate income from my wife’s benefit and maximum lifetime retirement and survivor benefits for both of us should we live longer than an average life expectancy at the claiming age.

I won’t bet the home equity chips right away in case I need those for an emergency later in retirement.

My strategic retirement plan calls for a floor-and-upside retirement strategy so I will add a small pension bet to my wife’s Social Security benefits to create the floor. I move chips from my financial capital pile to the pension bet.

After calculating the income from my floor bet, I decide that I will need to spend 3% of my remaining portfolio balance on expenses for the coming year. I move that amount of chips to the spending bet on the table.

I count the number of chips left in my financial assets pile and decide on an asset allocation. I move 5% of the chips remaining in that pile to the cash bet on the roulette table, 35% to the bonds bet, and 60% to the stocks bet. All of my chips are now on the table on eight different bets and they look something like this:

I am actually making 12 bets, not eight, because not buying Long-term Care Insurance (LTCi), for example, is also a bet. It’s a bet that I won’t need the insurance in the coming year and that I will have both the resources and the health to enable me to make that bet a year from now should I so decide.

I win this “non-bet” when I don’t need to claim LTCi in the coming year and the payoff is a year of typically substantial premiums. I lose this non-bet when I do need to make a claim but don’t have insurance or when my health deteriorates to the point that I can’t qualify for the insurance in the future. I would lose a purchase bet if the insurer raises my future premiums so much that I am forced to let the policy lapse before I need it. And, of course, I lose the bet if delaying the purchase results in significantly higher premiums when I eventually do buy. Retirement bets can be very complicated and understanding them in their entirety is critical.

In Retirement Roulette, we bet all of our chips every year and we make every bet even if the bet is that we should wager nothing on it.

I “spin the wheel” and nature takes its turn. A year later the results are in.

The payoff on my stock bet will be about 8% with a standard deviation of about 12%, meaning that about two-thirds of annual returns will fall between a 4% loss and a 20% gain. The payoff on my bonds bet will be about 3% with a standard deviation of about 3%. My cash bet will return about the rate of inflation, or about zero in real dollars.

My pension bet will pay off $12,000 and my wife’s Social Security benefit will pay off about $20,000. My cash will increase by about the rate of inflation but decrease by about the 3% I planned to spend. Of course, expenses are unpredictable and I may actually spend more or less. The “payoff” for the spending bet will be about a 3% loss.

My life expectancy and that of my wife have decreased by a little less than one year. (Life expectancy is a key factor in many retirement decisions.)

And so ends round one.

To prepare for round two I must evaluate the results of all my bets, changes in my life expectancy and my wife’s, changes in our health, our expectations for the financial markets going forward, and other critical factors to decide which if any of my bets I should change for the coming round.

How will I bet in future rounds? I won’t know for certain until I see how retirement unfolds between now and then, but my plan is to play my Social Security chip when I reach 70. My spending next year might go up or down a little depending on this year’s market returns. I may move some chips from the stocks bet to the bonds bet after a really good run for stocks, or vice versa after a poor run, but only if the percentages get seriously out of whack. Most years I will tweak my bets just a little and spin again.

The game will continue as long as one of us survives. Unlike roulette, our game doesn’t end if we deplete our bankroll, though our lifestyle is likely to be severely curtailed in that event.

The important perspectives of the roulette analogy are:
• Like roulette, retirement funding has a very large element of uncertainty. This includes the length of our careers, how long we will live, market returns, interest rates, annuity payouts, inflation, discretionary spending and spending shocks, which is to say all of the critical factors are uncertain. Even households who generate retirement income completely with “risk-free” assets will be exposed to expense risk.
• Like roulette, retirement funding is a series of “rounds”(typically years) during which the retiree makes a series of decisions (bets) and the universe responds. These first two characteristics define what game theorists refer to as a sequential stochastic game against nature.5
• Retirement ends with death; roulette ends when the gambler decides to walk away or is ruined. Retirees can’t walk away but they can lose their standard of living.
• Unlike roulette, a retiree plays all her wealth every round. Some bets, like cash, will have very little risk. Bets we don’t make are as important as those we do.
• A “round” typically involves multiple bets that are separate, yet the ultimate result of the round is the sum of the bets won less the sum of the bets lost.
• Critical factors can change from one round to the next and these must be considered when placing next year’s bets. Retirement funding is dynamic, not set-and-forget.

Here’s the source article link: https://seekingalpha.com/article/4063573-retirement-roulette

 

A $400 Trillion Financial Time Bomb

My Comments: Scary. I’ll be gone by then, but are you kids listening?

Allison Schrager / June 2, 2017

Financial disaster is looming, and not because of the stock market or subprime loans. The coming crisis is more insidious, structural, and almost certain to blow up eventually.

The World Economic Forum (WEF) predicts that by 2050 the world will face a $400 trillion shortfall (pdf) in retirement savings. (Yes, that’s trillion, with a “T”.) The WEF defines a shortfall as anything less than what’s required to provide 70% of a person’s pre-retirement income via public pensions and private savings.

The US will find itself in the biggest hole, falling $137 trillion short of what’s necessary to fund adequate retirements in 2050. It is followed by China’s $119 trillion shortfall.

Asset returns have been lower than they were in the past and people are living longer, so some of this shortfall is to be expected. The WEF assumes many people born recently will live beyond 100, which may be a bit much (the Social Security Administration expects most Americans born today to live into their mid-80s). But much of the massive shortfall is baked into retirement systems; setups in which nobody, neither individuals nor the government, saves enough. About three-quarters of the projected comes from underfunded promises from governments, with the rest mostly accounted for by under-saving on the part of individuals.

Michael Drexler, head of financial and infrastructure systems at the WEF, who edited of the report, likens the problem to climate change. “Like climate change, you don’t see the consequences today, but if you do nothing the problem builds up and then there is nothing you can do,” he says. “Today you can still change things, but if you do nothing you’ll wind up with a problem that is three to four times the global economy.”

Forecasting anything accurately in 2050 is tricky. We could get lucky, in a sense, and people might start dying younger. More happily, asset returns might pick up. Some argue that worries are unfounded, because we can still pay pensions today and sort out any future problems if they become acute. Others cite uncertainty around the estimates as reason to delay action today. But uncertainty goes both ways—things could be better or worse, and the worst-case scenario poses much bigger costs than we can bear.

Acting sooner ensures lower costs in the future. Putting money aside for retirement now confers the benefit of compound interest and provides certainty to financial markets that fear ballooning government debts. For example the US Social Security Administration estimates that its shortfall could be fixed with an immediate 2.58-percentage-point tax increase, or a 16% cut in benefits. If the government waits until 2034 (the year it can no longer pay full benefits given its current trajectory) it would need a 3.58-percentage-point tax increase, or a 21% benefit cut. If the shortfall proves bigger than expected, the costs of waiting will be larger, too.

The report offers several suggestions to address the shortfall. Most include ways to boost individual saving by offering retirement accounts to a wider population and expanding financial literacy. The authors advocate diversifying investments beyond traditional stocks and bonds. Drexler says that investing in a diversified portfolio of infrastructure projects can increase returns and enhance economic growth.

Financing a long and comfortable retirement requires contributions from multiple sources, as well as shared risk. “If in 2050 people reach 85 and run out of money they’ll need to rely on Social Security,” Drexler explains. “But if there’s a shortfall the government will be overwhelmed by demand or pensioners living in poverty. We must start educating people now, so we have a good [defined-contribution pension] plans so people have something.”

Still, an overwhelming majority of the short-fall comes from government programs. In order to address this problem, governments must adequately and proactively fund their entitlements too, either by increasing taxes or by cutting benefits. Individuals alone cannot save enough to compensate for the unrealistic promises their governments have made. ■

Nursing Homes, LTC And College Planning Are Toast, So Is Retirement

My Comments: I graduated from high school some 58 years ago this month. So… Time for a visit and see who is still alive. And also meet up with my college roommate whom I haven’t seen for 54 years. A busy few days. He’s the one in the middle staring at the camera.

So I leave you with these thoughts as you think about your future in retirement…  We’ll be back in a few days.

June 8, 2017 • Evan Simonoff

Retirement isn’t the only stage of life or financial planning discipline that is headed for the history books, Edelman Financial Services founder Ric Edelman believes.

Nursing homes have lost 20 percent of their residents since 2010, and long-term-care insurance will soon be history as well, Edelman told attendees at Singularity University’s Exponential Finance conference in New York on June 8.

Americans’ longevity is increasing, and their financial lives are changing faster than most advisors or their clients can imagine. Clients who live until 2030 can expect far longer lives than most expect today, Edelman said, citing Ray Kurzweil, Google’s chief futurist.

Breakthroughs in health care and medical science are likely to eliminate heart disease and cancer as major causes of death in 15 or 20 years, Edelman said. This may sound like happy talk. But in 1900, cholera, dysentery and scarlet fever were among the five major illnesses that caused people to check out. Where are they now?

This means that retirement, which was only a late 20th century phenomenon, will soon cease to be advisors’ chief challenge. Advisors’ major task will become career counseling, or second-career counseling, Edelman said, because even clients who are well off at 65 and would be able to retire if their life expectancy was 90 will face a different set of variables if they have a good chance of living to 110 or 120.

The upshot is that advisors should start thinking in terms of a cyclical lifeline of education, work, re-education, more work, a sabbatical and a third or fourth career rather than a linear lifeline. It means clients need to diversify skills and occupations and maintain their employment viability as much as they need to diversify their investments.

Edelman also predicted that many forms of education would become free or very inexpensive. States like Oregon, Tennessee, Arkansas and New York already have offered free or very cheap tuition to students, and free online education is appearing all over the planet.

At George Washington University, over 1,000 students are 50, though it’s not cheap. But the cost of college has become so ridiculously high that it is unsustainable, Edelman implied. Free college may sound far-fetched, but it was not that long ago that America’s best state university system, California’s, was essentially free.

Hey, in the 1960s, the Free Speech movement was born at UC, Berkeley, a university that rivals Harvard in America or Cambridge in the United Kingdom. Both speech and tuition once were free at Berkeley, but these days it is hard to believe that was only 50 years ago.

Other industries that can expect to see higher growth rates include leisure and travel. The cruise ship business is booming, and on at least three cruise ships, state rooms have become permanent homes for residents who live there year-round.

Asked how clients in their 40s and 50s respond when they are told retirement at 65 or 66 is so yesterday, Edelman acknowledged that their first reaction is usually denial, followed by fear and anger. But when the idea of living a lot longer in good health sets in, their reaction is more balanced.

The timing of these predictions from Singularity University remains debatable. But as Yogi Berra said, the future isn’t what it used to be.

Dangerous Retirement Myths

My Comments: Myths, risks, assumptions, variables. What’s your poison? Retirement is both a frightening and exciting time to be alive. Frightening as it quantifies the start of the end and exciting because, if done right, it creates new opportunities for life.

Wendy Connick \ May 26, 2017

Don’t put your retirement dreams at risk by falling for these retirement myths.

Ideally, retirement is an idyllic time during which you can relax and do all the things that you’ve always wanted to do. But getting to the point where you can pay for the retirement you want isn’t easy; it requires hard work and sacrifice during your working years. And if you fall for any of these common retirement myths, then all that effort you put into saving over the years may be for naught.

1. 65 is the right age for retirement
Once upon a time, 65 was considered “full retirement age.” This was the age when many people both retired and filed for Social Security benefits, because they were now entitled to receive the full benefit amount for which they were eligible. However, as the average lifespan has climbed, the Social Security Administration has pushed the full retirement age forward a bit. If you were born between 1943 and 1954, your full retirement age is 66. For those born in the following years, retirement age creeps up by two months per year, meaning that someone born in 1955 would have a full retirement age of 66 years, two months. Everyone born after 1959 has a full retirement age of 67. If you claim Social Security at age 65 under the mistaken belief that that’s the best time to file, your benefits will be permanently reduced because you claimed them before your actual full retirement age. And without the help of Social Security benefits, most people wouldn’t be able to afford retirement at age 65 without putting a dangerous strain on their retirement savings.

2. Stocks are too risky for retirement investments
Stocks are definitely a riskier investment than, say, government bonds or bank savings accounts. However, stock investors are rewarded for taking on risk by getting a comparatively high average return over the long haul. Without the help of that high average return, you’d need to save much, much more money during your working life to get enough retirement savings built up. For example, let’s say you’ve saved $1,000 per month (which adds up to $12,000 per year) and put it in government bonds, getting an average annual return of 2%. At the end of 30 years, you’d have $496,553 saved up — which is nowhere near the amount the average retiree needs. On the other hand, if you’d put that same $1,000 per month in stocks and gotten an average annual return of 7%, you’d have $1,212,876 saved up after 30 years. That’s enough to finance a very comfortable retirement indeed. The most significant risk factor with stock investments is their volatility: while they show terrific returns over the long term, in any given year they can climb or fall dramatically in value. Thus, as you approach retirement, it’s wise to shift most of your retirement funds over to bonds instead. That way you can have your cake and eat it too: enjoy the high returns of stocks, yet enter your retirement with a much safer portfolio of bonds in hand.

3. I don’t need retirement savings, I can live on Social Security
Social Security is tremendously helpful for retirees, there’s no doubt about that. However, few retirees can reduce their expenses to the point where they can comfortably live on nothing but their Social Security benefits. As of January 2017, the average monthly Social Security benefit is $1,360. Could you really live on that much money and still enjoy the retirement you want?

4. Medicare will cover all my healthcare costs

Like Social Security, Medicare is a wonderful program — but it’s not a cure-all. Original Medicare will cover some hospital and doctor related medical expenses, but there are large gaps in its coverage. For example, Medicare will only pay for the first 100 days in a nursing home. If you need to stay longer than that, you’d better be prepared to pay a great deal of money; according to AARP, the average cost for a nursing home is over $50,000 per year and about 1/3 of nursing home residents pay all of it out of their own pockets. And that’s just one example of where Medicare can fall short. Plus, several components of Medicare require you to pay monthly premiums, including Medicare Part B. It’s important to set aside part of your retirement budget to cover the (inevitably increasing) medical costs you will incur.

5. Once I retire, I won’t have to worry about taxes
You’ve probably heard the saying about death and taxes. As long as you live, the federal government — and possibly your state as well — will continue to present you with an annual tax bill. But once you retire, you won’t have an employer to take that money out for you every month and send it to the IRS. You’ll be responsible for calculating and paying your taxes yourself. This means that your tax challenges will likely increase rather than decrease once you retire. And you should definitely budget for the taxes you’ll be paying on part if not all of your retirement income.

6. I can keep working as long as I have to
Anyone who’s ever been through an unexpected layoff knows that job security isn’t what it used to be. The days when someone could expect to work for the same company for their entire career are long gone. And if you think that hustling up a new job on short notice during your 30s and 40s is tough, think how hard it would be when you’re in your 60s. Even if your employer doesn’t kick you out of the nest, you could run into health problems or other challenges that would require you to leave your job earlier than you anticipated. Thus, it’s wise to plan for a retirement date somewhere in your 60s and save accordingly. If all goes well, you may indeed end up stretching out your working years into your 70s and beyond — but if all doesn’t go well, you’ll have the funds to take care of yourself.

Keep calm and carry on
Preparing for retirement can be a challenge, but it’s not as difficult or as complicated as you might believe. If you’re setting aside around 15% of your income in retirement savings every month and are investing the funds in a reasonable way, you should be fine once retirement time finally rolls around.

Maximize Your Medicare

My Comments: The ideological fight now gripping much of the country includes healthcare and whether it’s a privilege or a right. It is moving rapidly into the arena of a ‘right’ as opposed to a ‘privilege’.

Some of this is driven by demographics; the number of people qualifying for Medicare is growing daily. Some of it is driven by expectations and the reluctance of old people to simply roll over and die.

A hallmark of society from day one has been to look after children and elders. As an elder myself, and unwilling to roll over and die just yet, I’m happy to add my voice to the argument that as a very wealthy nation, we can, and must, find a way to make sure the elderly are properly taken care of.

Selena Maranjian May 20, 2017

These five ways to maximize your Medicare can help you keep costs down while getting good care. They might even help you live longer and better.

With healthcare costs now making up about 17% of our country’s entire GDP, it’s become a challenge for many of us to be able to afford care. Companies and individuals are looking for ways to keep costs down — and for most folks aged 65 and up, Medicare is an important piece of the puzzle.

Indeed, there are close to than 58 million enrollees in Medicare, as of March 2017. Considering that there are roughly 325 million people in America, that’s a hefty 18% of the population — nearly one in five. Since it’s in the cards for most of us, here are five valuable ways to maximize your Medicare.

Enroll at the right time — being late can cost you

If you’re late enrolling in Medicare, your part B premiums (which cover medical services, but not hospital services) can rise by 10% for each year that you were eligible for Medicare and didn’t enroll. Yikes!

When, then, should you enroll? Well, you’re eligible for Medicare at age 65, and you can sign up anytime within the three months leading up to your 65th birthday, during the month of your birthday, or within the three months that follow.

There’s a helpful loophole, too: If you’re among the many Americans who are already receiving Social Security benefits by the time they reach age 65, you should be enrolled in Medicare automatically. You might also avoid the late-enrollment penalty and be able to skip the deadline if you’re still working, with employer-provided healthcare coverage, at age 65, or if you’re serving as a volunteer abroad.

Choose wisely between “original” Medicare and Medicare Advantage plans

There isn’t a single Medicare plan for everyone. Each enrollee needs to make some decisions — with the primary one being whether you opt for “original” Medicare or a Medicare Advantage plan.

Traditional or “original” Medicare features Parts A and B that respectively cover hospital expenses and medical expenses. If you opt for it, you’ll likely add Part D, which offers prescription drug coverage, including insulin supplies. Instead of opting for parts A, B, and D, though, you can choose from among available Medicare Advantage plans, sometimes referred to as Part C. Offered by private insurance companies, they are required to provide at least as much coverage as Parts A and B — and they usually offer significantly more. They cap your out-of-pocket expenses, too.

While original Medicare doesn’t cover hearing, vision and/or dental care, many Medicare Advantage plans do — and they generally include prescription drug coverage, too. While original Medicare will often have you footing 20% of many bills with no end in sight, a Medicare Advantage plan might charge you a low copay per doctor visit or service, with the total amount you’ll pay limited. (The average out-of-pocket cap was recently $5,223, but many plans feature caps below $3,000, and the limit for 2017 is $6,700.) While original Medicare lets you see any healthcare provider who accepts Medicare, Medicare Advantage plans will typically limit you to a network of doctors — though these networks are sometimes very big.

To help you zero in on your best choice, make a list of the prescription drugs you take and the doctors you see. Also list the kinds of healthcare services you need and use, noting any upcoming surgeries or big-ticket expenses. When you review the plans you’re considering, see which drugs they cover and which doctors are included — and how much you’ll likely spend out of pocket with each one. The Medicare Plan Finder at the Medicare website can help you compare and choose. Note the star ratings of your candidate plans and favor four- or five-star plans. Note, too, that you can change your mind once a year, during the annual enrollment period, and can switch between plans.

Get screened

Once you’re in a Medicare plan, make the most of the screenings and preventive care that are available — typically at no cost to you. Doing so can help identify problems early, before they grow worse and more costly. (A polyp caught early via a colonoscopy can prevent lots of heartache and costs down the road.) Screenings can keep you healthier and living longer and better, while keeping your healthcare costs down.

Here are some of the services that should cost you no additional dollars (though some require doctor’s orders) include: abdominal aortic aneurysm screening, alcohol misuse screening and counseling, bone density measurement, cardiovascular disease screenings, cervical and vaginal cancer screenings, colonoscopies and other colorectal cancer screenings, depression screenings, diabetes screenings, flu shots, hepatitis B shots and hepatitis C screenings, HIV screenings, some home health services, lung cancer screenings, mammograms, nutrition therapy services, obesity screenings and counseling, pneumonia vaccine, prostate cancer screenings, sexually transmitted infection screenings, and smoking and tobacco-use cessation counseling.

Try telehealth services if you can

Many plans these days offer enrollees telehealth services. These permit patients consult with doctors and other healthcare professionals electronically, often via a Skype-like video connection. These consultations can cost less than an in-person visit to your doctor and can be more convenient, too, saving you from having to make an appointment a few days away, travel to your provider, and spend time in a waiting room. You can typically have a consultation immediately or within hours. This can be especially useful if you’re traveling when you need a doctor or medical help.

Telehealth services aren’t available to every original Medicare enrollee, but it’s available to some. And some Medicare Advantage plans offer it, too.
Make the most of wellness benefits

Finally, aim to get well and/or stay well via wellness benefits included in your Medicare coverage. For starters, all enrollees are entitled to one wellness visit annually at no extra cost to them. That’s when you can see your primary care doctor to review your health. Don’t skip this, as it gives your doctor a chance to discuss ways to get you healthier instead of just ways to treat the illness or injury you walked in with. You may have access to other health benefits and perks, too, such as discounts on gym memberships. Find out what your plan offers and make the most of those benefits. When you’re shopping for a Medicare plan, review available wellness perks, too, to see which would serve you best.

To maximize your Medicare, don’t just wait until you’re not feeling well to visit your healthcare provider. Instead, take advantage of all the care you’re entitled to, such as preventive screenings and your annual wellness visit.

Long-Term Care Options

My Comments: Dr. Gloom here again. I suppose there is value in denial. At least I hope so.

However, aging gracefully is not easy. When getting up in the morning is a struggle and you can’t remember if you’ve brushed your teeth, there may be a looming bump in the road.

Couple that with both the staggering cost of professional care if you become goofy, and the mindset in Congress these days that it’s your fault if you haven’t already died, that bump in the road is increasingly difficult to manage. Here are some thoughts to help you overcome your fears.

July 05, 2016

According to the U.S. Department of Health and Human Services, almost 70% of Americans turning 65 today will need some type of long-term care (LTC) as they age. And 20% will likely need care for five or more years. Given that the annual cost of that care can extend into six figures, that’s a daunting prospect for many retirees.

“There’s no way to know for sure whether you’ll need long-term care,” says Carrie Schwab-Pomerantz, CFP®, president of Charles Schwab Foundation. “But if you do, it could jeopardize your retirement savings if you’re not prepared.”

For decades, purchasing a long-term care insurance policy has been a common solution. But many insurers—facing lower interest rates and higher claims payouts—have raised their premiums or stopped offering the policies. Fortunately, the long-term care industry has developed a variety of new options that may provide more appealing coverage, given your needs and overall financial plan.

A new era of long-term care insurance

Traditional LTC policies (in addition to their increasing expense) are typically “use it or lose it” products, similar to homeowner’s insurance. You might pay premiums for years without ever needing coverage—and never get your cash back.

There are newer LTC policies, however, that are different. They’re often combination products that provide either a life insurance or annuity component and may allow premium returns. Here are three common types of newer long-term care policies, with some advantages and drawbacks.

1) Hybrid long-term care policies merge traditional long-term care insurance with life insurance, while offering a return of the premium.

The advantage of a hybrid policy is that it offers a benefit whether you need long-term care, pass away, or discontinue the policy and want your premiums back. That said, this type of policy also comes with drawbacks, including how the premiums are paid, as well as a higher bar to qualify for the coverage.
Hybrid plan premiums are typically paid in a lump sum, or spread out over a short period of time (10 years, for example). And because you’re paying for life insurance as well as LTC coverage, plus the return-of-premium feature, the cost can be prohibitive. Also, because this option bundles two products in one, you’ll need to qualify for both coverage types in order to get a policy.

2) Permanent life insurance policies with long-term care riders enable a percentage of the death benefit to be used for long-term care costs.

These policies can offer some payment flexibility—allowing lump sum premiums or annual payments over a lifetime. And their costs tend to be lower than other types of combined coverage.

The drawbacks? The policies don’t offer the return-of-premium option and the terms of reimbursement can be stringent. For example, with these policies a doctor must attest that your inability to perform basic activities is permanent—which could seriously limit the benefits you receive. For a traditional or hybrid LTC claim to be paid, on the other hand, you typically only need a doctor’s validation that you cannot perform certain activities of daily living (or that you’re cognitively impaired).

Similar to the hybrid policies above, applicants must also qualify for both life insurance and the LTC rider.

3) Annuities with long-term care riders have terms that are similar to those of fixed annuities.
You typically purchase the annuity with a lump sum and receive a monthly benefit. In some cases, no extra cost is incurred for the long-term care component because it’s funded by the annuity premium.

For example, you can buy a deferred long-term care annuity with a lump sum premium. The annuity creates two funds: one for long-term care expenses, the other for whatever you choose. That said, the terms of the annuity dictate how much you can withdraw from each fund, and the tax implications can be complicated.

Given the complex terms of some annuity products, you may want the advice of a tax professional when exploring this option.
What to know, what to ask about LTC coverage

Buying LTC insurance can be an exacting process, but one that’s well worth it.

“Long-term care insurance can be staggeringly expensive, but so is the cost of care itself,” Carrie notes. In addition to examining the payment and coverage features, be sure to evaluate the insurer’s reputation and financial strength. And when comparing options, make sure to ask the following questions:
• What sort of inflation protection does the policy offer?
• Are there limitations on preexisting conditions?
• Is Alzheimer’s disease covered?
• What is the lag time until the benefits kick in, and how long will they last?
• How often has the insurer raised rates?

What you can do next

With the cost of long-term care rising, now is a good time to explore how you can integrate LTC insurance into your financial plan

The Four Phases of Retirement

My Comments: Phases, paths, Journeys, stages? What’s your preference?

I guess we retirement planners are always looking for a way to simplify what is almost always a complicated and sometimes tortuous phase/path/journey on our trip into the sunset. Let me know if you find any more.

Leon C. LaBrecque, CFP®, CFA, CPA \ May 2, 2017

I had the great pleasure of visiting the MIT AgeLab again.The AgeLab was started in 1999 to invent new ideas and creatively translate technologies into practical solutions that improve people’s health and enable them to “do things” throughout their lifespan. With over 45 PhDs and post docs working on everything from fonts on car displays to a robot seal that responds to your touch, it was quite an experience. I thought it would be interesting to share what I heard and saw.

One of the big takeaways is the idea of disruptive demographics. There are more walkers and wheelchairs than baby carriages in parts of Europe. There are more people over age 60 in China than there are people in Russia. Japan’s (which my host called “a nursing home on an island”) population by mid-century may reduce by half, and nearly a third of those left will be over 65. The Baby Boomers in the U.S. (born between 1946 and 1964) now number 77 million, and a Boomer turns 65 every seven seconds. Many Americans today have more people older than them to take care of than younger.

It’s a new world of aging. Our kids are having fewer kids (heck my kids aren’t having kids yet), and people don’t stay in the same place. We have the benefit of better health care (although expensive), and a wide range of things we can do. Getting old today is not the same as it was with mom and dad. We have smartphones, internet, senior living centers with gyms and lectures, and cars that look behind us. We also have kids who get married later, have a cat instead of a kid, and move 900 miles away (OK, that’s just one of mine).

Changes are starting to happen in a lot of areas. New cars will improve our mobility. Someday, we’ll have driverless cars that will take you to the store, the doctor or golf course. Right now you can get a little thingy for your wrist (I have one) that measures your sleep and your pulse, but in the near future it could also remind you to take your meds and tell your daughter if you didn’t. I heard from some folks that built and owned adult care facilities that the latest question they are getting is on how good the wireless network is and how much connectivity the residents can have. Automation won’t just be to cars either. You may have a “smart fridge” that lets your kids know if you haven’t opened it or thrown out the old cold cuts. In Japan, they already have a robot hotel with no people working there, which sounds creepy to me. We even saw a smart toilet that measures the blood sugar in your urine.

The Four Phases of Retirement

The biggest thing I saw was a re-look at the four phases of retirement, which made me rethink how I do retirement planning. Figure we have our lives broken into 8,000 day periods, which equals 22 years each. So your first 8,000 days goes from being born to getting out of college or the military. Your next 8,000 days gets you to your mid-life crisis. The third 8,000 days gets you to retirement, and the last 8,000 days is retirement. For the first three segments, we have a lot of guidance. When you’re a kid, you have lots of folks telling you what to do, learn, wear and how to act (teachers and parents). For the next two, you still have lots of guidance (spouse, boss). The last 8,000 days don’t come with an instruction manual, but, the AgeLab experts tell me there are four phases of retirement.

Phase One: Managing Ambiguity

This is when you are “sorta” retired. You retirement is like a big vacation. Lots of leisure, maybe a part-time job, still hanging out with your old cronies. Think about how most men approach a conversation: Guy one, “How’s it going?” Guy Two, “Good.” Guy One, “So what do you do?” Men in particular define themselves by their work, so phase one for a lot of guys is a halfway house between working and not working. Here we look at money, taxes and spending.

Phase Two: “Should I Stay or Should I Go?”

(If you don’t know this is a rock song, you’re at least five years older than me). Here you decide whether you are really retired or not. Now you might decide to move (not bothering to think about how far you are from health care and what winter will be like). This is where you need to think about things like how many floors you want in your house and how to get rid of all the junk you have accumulated over 60 years.

Phase Three: The Big Lie

Now you think you are retired and going to have fun, but the ugly truth is your body, mind and money haven’t kept up with your intentions. You spend a lot of time going to medical professionals, maybe helping family in phase four and also feeling the effects of inflation on your retirement income.

Phase Four: Somebody Is Alone

Chapter four is not pleasant—this is where one of the two of you passes and the other forges on with all of the maladies of phase three plus less money usually.

What does this morbid observation mean? To me, it means we need longevity planning. What will you do at those different points? What legal documents do you need? What other folks are you going to need (doctors, dentist, home help, financial planner)? Where should you be? Who will you be with? How much money will you need? For me, the AgeLab was an eye-opener. The world has changed and will keep changing. My life, God-willing, will be long and hopefully fruitful. But I learned that I, as a retirement advisor, have to think more about all phases of my people’s lives.