The Wall Street Journal
Weekend Investor – September 17, 2011
Don’t Join the Ostrich Generation
Amid the Choppy Markets, Too Many Soon-to-Be Retirees Have Avoided Making Key Decisions.
Here’s What to Do—Right Now.
By Kelly Greene
Stocks are volatile, the economy is stagnant, and corporate pensions and Social Security seem less viable by the day. One might expect such a dismal confluence of events to jolt aspiring retirees into financial-planning overdrive, furiously making budgets, cutting spending and salting away every spare nickel.
Yet many Americans are responding to the market and economic malaise by putting their heads in the proverbial sand.
Start talking with your husband or wife—now. Couples are having trouble connecting on retirement-planning issues. A May study by mutual fund giant Fidelity Investments found that 62% of couples approaching retirement disagreed about their expected retirement ages, and 47% disagreed on whether they will continue to work in retirement.
If working till you drop is your plan, think again. Half of baby boomers expect to be in their 70s before they fully retire, according to research released last year by First Command Financial Planning. But people laid off in their late 50s and early 60s, often because of their relatively large paychecks and benefit packages, have a hard time getting back to those levels.
Plan for rising health-care costs—especially if you’re healthy now. Most boomers realize that care is pricey, but typically don’t grasp the scale of rising costs.
A private room in a nursing home, which now costs $82,125 a year on average, according to the American Association for Long-Term Care Insurance, could escalate to $190,000 a year by 2030, according to estimates by insurer Sun Life Financial. Yet in a survey of 1,015 people who are 50 or older that Sun Life released earlier this month, the median guess was that costs would go up half that much.
Some 70% of Americans older than age 65 will need long-term care, meaning help with daily activities such as eating and bathing, according to the U.S. Department of Health and Human Services. Yet the same survey found that almost no one had discussed long-term care with a financial adviser or lawyer.
Don’t jump the gun on Social Security. One of the benefits of advance planning is that it can allow you to delay taking Social Security for as long as possible. Depending on your financial situation, life expectancy and other issues, that could be a wise move.
Comments September 17, 2011
When designing a long term care insurance policy use the following guidelines:
1. The Elimination Period. This defines how long you will pay for your own care before the policy begins paying. The longer the elimination period, the lower the cost of the policy.
2. Daily Benefits. This defines how large a benefit will be paid. For example, a $300 daily benefit policy will pay approximately $110,000 per year.
3. Inflation Protection. This is a critical part of any policy. Historically, long term costs have grown at 5% per year – doubling every 15 years. In order to keep up with the rising costs of LTC, most policies provide for 5% compounding of benefits. Without this compounding, your $300 daily benefit would not provide a great deal of coverage when you need it in the future.
4. Length of Coverage. Coverage lengths range from one year to an entire lifetime. A four-year length of coverage, which is common, could cut the policy price by 40 percent versus the cost of lifetime coverage. Importantly, your benefits do not expire at the end of the benefit period; they expire when you exhaust your benefits (pool of money).
5. Shared versus Individual Policy. A shared care benefit policy provides you the ability to utilize your spouse’s or partner’s benefits when your own policy benefits have been exhausted or establishes a third pool of money either of you can access. The mere avoidance of one additional year of care can mean the difference between a secure and an insecure retirement.
Most states allow insurance companies to offer Long Term Care Partnership Program certified policies. Long term care insurance polices that are Partnership certified allow policyholders to protect their assets from Medicaid on a Dollar for Dollar basis – for every dollar your policy pays in benefits, a dollar of assets is ignored by Medicaid. Some states, including New York, offer 100% Medicaid asset protection through Total Asset Protection – an unlimited amount of assets are ignored by Medicaid.
Aaron Skloff, AIF, CFA, MBA
CEO – Skloff Financial Group
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.