Category Archives: Personal Finance

October 31, 2016

The Role of Medicare in Retirement Part 2: Are you prepared?

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How to cover the gaps in Medicare coverage and how much do you need to save for this?

By Shawn J. Walker, Managing Partner, CERTIFIED FINANCIAL PLANNER®, CRPC®Scarborough Capital Management

retirement advisors annapolis

A recent study by the Insured Retirement Institute revealed that about 35 million of the 76 million Baby Boomers “lack any retirement savings today.”1 This equates to about 46% of those between the ages of approximately 52 and 70, which is a staggering and sobering realization.

As the population ages and retires in greater numbers, some of those who call it a career will be faced with some challenging financial hurdles to clear. One of the largest that will be encountered is the cost of healthcare, which is rising at a rapid pace.

“What about Medicare?” you ask. It’s true that Medicare may be available for those who have qualified, however it does have its limitations.

Before you panic though, there are ways to prepare for your future healthcare needs using Medicare as a supplement to your plan.

In this three part series, we’ll take a look at some of the basics of Medicare, what health care costs you’ll need to cover yourself, and how you can best manage this often complex wellness system.

In part one of this series we discussed what exactly Medicare is and what all of its parts mean. In this segment, we’ll explore what to do if you want to cover the gaps in Medicare coverage and how much you’ll need to save, on average, for this care…

It sounds like there are lots of uncovered situations…should I look for more coverage?

Although Medicare will take a good amount of the burden off of your healthcare costs, it doesn’t alleviate all of them. It’s estimated that Medicare will only cover about 60% of your health care needs in retirement, so it’s critical that you have additional coverage and additional savings (which we will cover shortly).

Medigap – On the coverage side, one way to do this is through a Medigap plan. To purchase one of these plans, you must first have Medicare Part A and B plans. Next, you would purchase Medigap through a private insurer, paying them a monthly premium.

These plans can sometimes cover copays, coinsurance, and deductibles that regular Medicare doesn’t. Be aware though, these plans sold after January 1st, 2006 don’t include prescription drug coverage, so you’ll need Part D for that. Also, if you are married, your spouse would need a separate Medigap plan, as they only cover one individual.

Dental & vision – Since Medicare or typically Medigap plans don’t include dental or vision coverage, you’ll need to get those plans separately too. The good news is generally speaking, these plans can be relatively affordable and easy to get.

Long-term care insurance – Another area that may need to be considered is long-term care insurance, which also isn’t covered by Medicare. When an individual reaches a point where they have difficulty living by themselves on a daily basis, long-term care insurance can provide funds that can help that person receive the care they need.

This is insurance that covers the costs for assistance with what’s known as Activities of Daily Living (ADL), such as eating, bathing, and dressing. Additionally, this care may cover assisted living facilities, adult day care, and even at home care.

Be aware though that these plans have benefits and drawbacks, and could be a great fit or pretty useless, depending on your situation. Also, since this coverage costs more to purchase the older that you are, it may be beneficial to look into when you’re younger and healthy. That’s why it’s best to do your homework and talk to financial and health professionals when looking into this type of plan.

How much will I need to save for this coverage?

It’s been estimated by various studies that for the average 65 year old retiring couple, a total of anywhere between $200,000 and $250,000 will be needed for healthcare (and this does not even include the cost of long-term care). This may seem like a daunting figure to prepare for in addition to other costs of retirement.

And what happens if you retire early? Well, your employer may still offer you healthcare coverage in this case, but this benefit is something that’s going away slowly. According to the Employee Benefits Research Institute, in the last nearly 20 years, the percentage of those in the private sector that can retire early and retain benefits from their employers has dropped from 29% to only 18%.

Also, if your employer promises healthcare coverage after you retire, take it with a grain of salt. There have been cases where employers have cut the coverage of retired employees, thus leaving these individuals scrambling for how to pay for care. If you are in this situation, be sure to factor in a contingency plan in the event that the rug gets pulled out from under you.

In part three of this series, we’ll take a look at ways that you can save or reduce your healthcare costs, what happens if you have a gap between retirement and Medicare eligibility, and what steps you should take next.

 

 

Sources

  1. IRI study – http://myirionline.org/docs/default-source/research/boomer-expectations-for-retirement-2016.pdf?sfvrsn=2

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

October 24, 2016

The Role of Medicare in Retirement Part 1: Are you prepared?

401k advisor annapolis in maryland at SCM

What exactly is Medicare, how do I sign up, and what do all of the parts mean?

By Jay F. Sprinkel, Managing Partner, CRPC®, Scarborough Capital Management

medicare and retirement consultants annapolis

A recent study by the Insured Retirement Institute revealed that about 35 million of the 76 million Baby Boomers “lack any retirement savings today.”1 This equates to about 46% of those between the ages of approximately 52 and 70, which is a staggering and sobering realization.

As the population ages and retires in greater numbers, some of those who call it a career will be faced with some challenging financial hurdles to clear. One of the largest that will be encountered is the cost of healthcare, which is rising at a rapid pace.

“What about Medicare?” you ask. It’s true that Medicare may be available for those who have qualified, however it does have its limitations.

Before you panic though, there are ways to prepare for your future healthcare needs using Medicare as a supplement to your plan.

In this three part series, we’ll take a look at some of the basics of Medicare, what health care costs you’ll need to cover yourself, and how you can best manage this often complex wellness system.

What exactly is Medicare, how do I sign up, and what do all of the parts mean?

Medicare is a healthcare insurance program for those over 65 years old or disabled, which is funded through the federal government.

Generally, you are eligible to register during a seven month window around the month that you turn 65. For example, if you turn 65 on July 1st, the window would start three months before July (April through June), and then extend three months after (August through October).

If you miss this window you may still register for Medicare Part A, provided you meet certain requirements. For Part B however, you would have to wait until the open enrollment period, which begins on January 1st and runs through March 31st. Also be careful that if you miss the open enrollment period for Part B, there may be a late enrollment penalty you’d have to pay.

Here are what the four parts mean:

  • Part A – This part will offer coverage if you are hospitalized and comes at no cost, provided you paid Social Security for at least 10 years.
  • Part B – For times you visit the doctor, receive physical therapy, and experience other “outpatient” costs, as well as have some preventative tests and screens, Part B can pick up the tab. This will cost you a premium though, and amounts will vary based on your situation.
  • Part C – The most confusing part, Part C, is also called “Medicare Advantage.” It is a combination of Parts A and B, and comes with lots of rules and regulations. Essentially, Medicare manages private plans and offers coverage that in some cases are superior to Parts A and B.

Now the drawbacks. First, not all coverage is better than what’s available in A or B, and second you’ll also pay a premium based on a variety of factors. Lastly, something very important about Part C is that if you have this coverage and also what’s known as “Medigap” coverage through a private insurer, the Medigap coverage won’t pay anything. In other words, don’t carry both.

  • Part D – Medicare Part D is actually managed by a private insurance company. This plan covers prescription drug needs, and is a bit more straightforward than Part C. With typical Part D coverage, you pay a premium and are then required to meet a small annual deductible before you receive benefits. Once you meet the deductible, your plan will pay some (or even sometimes all) of your costs up to about $2,500.

The confusing part though comes here. Once you reach that, you are responsible for all of your costs until you reach the next level of just over $4,000. At that point, you’re covered again and are only responsible for about 5% of costs from there up.

In part two of this series, we’ll take a look at what other coverage is available to supplement Medicare, and approximately how much you’ll need to save for healthcare.

 

 

Sources

  1. IRI study – http://myirionline.org/docs/default-source/research/boomer-expectations-for-retirement-2016.pdf?sfvrsn=2

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

October 10, 2016

6 Questions to Help You Get Started Saving for Retirement

401k advisor annapolis in maryland at SCM

Six Questions to Help You Get Started Saving for Retirement

By Ryan A. Ansted, Managing Partner, CRPC®, Scarborough Capital Management

investment management md
Important questions to consider if you’re ready to put some money away for retirement.

While they are still offered in some industries, we might not be too far away from the day where the question “what’s a pension?” is as common as someone asking “what’s a pay phone?”.

It used to be that someone worked at one company for four decades, provided for a family, and looked forward to retirement with a great pension…but not anymore.

If you’re new to the workforce, you may have started wondering how you’re going to save for retirement. The below Q&A, while not exhaustive, can still give you some good ideas on what you may want to consider if you’re ready to put some money away for later…

My employer doesn’t offer a pension…what should I do?

If your employer doesn’t offer a pension as part of a benefits package, not to worry. There are a number of different options to consider.

If your employer does have something you can save into, it’s most likely referred to as a traditional 401k (or 403b for those in some non-profit, public education, or similar lines of work). It’s essentially a savings plan for retirement that’s offered through an employer.

An amount of money you decide on is taken out of your paycheck and put into this account tax-deferred. That means that you only get taxed on it when it’s taken out.

My employer doesn’t offer a traditional 401k, can I still save?

Yes, in your case, you may want to look into an IRA, or Individual Retirement Account. A traditional IRA works the same way that a traditional 401k would; that is, you put money into the account tax-deferred. It’s also open to anyone age 70 ½ or younger that earned taxable income.

What makes it slightly different than a 401k is the way your contributions may or may not be tax deductible, which is directly impacted by access to an employer-sponsored plan, marital status and filing status.

Additionally, to gain the benefit of fully or partially deductible contributions Adjusted Gross Income thresholds and income caps must be considered.1

Does the money always have to be taxed when I take it out?

No, in fact there are other options aside from “traditional” 401k and IRA accounts, those being called “Roth” accounts.

Contributing to a Roth 401(k) or Roth IRA means that you fund the account with after-tax dollars, but can take withdrawals tax-free*. So when you’re ready to withdraw these funds for retirement, you get to keep all of it that’s in the account. A Roth 401(k) doesn’t take away the requirement to start withdrawing funds after you turn 70 ½ though.

With a Roth IRA, there are other benefits. If you wanted to, you can withdraw your contributions at any time and not have to worry about paying a penalty (however, there are other guidelines for withdrawing interest you earn on your contributions).3 Also, the age of 70 ½ doesn’t factor in like a traditional IRA, or Roth 401(k), where contributions must stop and you must start taking withdrawals. With a Roth IRA, you don’t have to withdraw and can continue saving.

If I get a new job with a 401k and change jobs again later, would I lose that money?

Some people elect to not get involved with a company-sponsored plan because of the unknown of what would happen if they left the organization. But not to worry, as there are a few ways to go about this.

You could keep the money in your old employer’s account, but this isn’t always possible or advisable.

You could cash out your 401(k) however if you’re not 59 ½ you’ll be penalized 10% of the amount for early withdrawal, plus have to pay income tax on everything regardless of your age.

The better option to consider may be rolling the funds over into an IRA or to the plan your new employer offers.

This all sounds great, how do I get started?

Again, if your employer has a 401k plan start with your human resources office. They will be able to give you the appropriate information and forms and get you started.

If you’re looking for an IRA, there are several options you can consider. These include banks, brokers, mutual fund companies, and other investing services. Since there’s a wide range of services and differences in each, it’s best to do your homework and consult a financial professional if you have questions.

Given your situation, hopefully this helped get you thinking a little more clearly about what to do with your money and understand that having enough for retirement doesn’t have to be some unattainable goal. With a little guidance and some planning you’ll be well on your way to financial security.

 

 

 

*On qualified distributions.2

1 https://www.irs.gov/retirement-plans/ira-deduction-limits

2 https://www.irs.gov/publications/p590b#en_US_2017_publink1000231061

3  https://www.irs.gov/publications/p590b#en_US_2017_publink1000231064

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

October 3, 2016

What retirement might look like for Millennials

401k advisor annapolis in maryland at SCM

What retirement might look like for Millennials.

By Jonathan W. Szostek, Vice President of Investments, CERTIFIED FINANCIAL PLANNER®, CRPC®, Scarborough Capital Management

millennial354It may seem like the sky is falling for Millennials. Not only have individuals from the segment of the population born between approximately 1980 and 2000 had to endure the economic effects of the Great Recession with poor job prospects and lower wages, some also have mountains of student loan debt to deal with. On top of that, pension plans their parents’ and grandparents’ generations had are going away, leaving them to fend for themselves in retirement.

There’s no question that for some, retirement will look different than receiving a gold watch and set of golf clubs on your way out the office door at 62 years old. Some have wondered if they’ll be able to even retire at all.

Fighting this idea however, certain Millennials have shifted the notion of what it means to be retired and are focused on living out their dreams, some sooner than you may think. There’s no longer just one way to retire.

Retirement options

Full retirement is certainly still a choice, but what may be equally as likely are Millennials opting for partial retirement in their later years, eschewing the idea of full retirement. According to a 2014 study by the Transamerica Center for Retirement Studies, “Fifty percent of Millennials plan to work in retirement and, of those, nearly half (47 percent) plan to do so for reasons of enjoyment or staying involved.”1

This generation, maybe more than any other in recent history, values their work in terms of enjoyment and fulfillment, not just a paycheck. Those that find their work rewarding don’t feel like they “have to go to work,” but rather they’re doing something that makes a positive impact on their lives and the lives of others.

Examples may include freelance writing or graphic design for the more creative, or handiwork for those more skilled with carpentry. Teaching a course at a community college could be a fun way to stay engaged on a topic you like to be involved with as well. And platforms like Etsy have made it possible to earn an income from craft work such as knitting and jewelry making.

While you’d still be working, you would have more flexibility to take some time off, and even have the possibility to work from remote locations or during vacations. The benefit to this is you may not have to save as much for retirement, as you’ll still have an income stream. The flip side of this though is you’ll obviously need to continue working in retirement if that’s the savings plan you’ve previously established.

Then there’s early partial retirement. With this concept, individuals scale back the amount of time they work and begin to do more of what they love now before typical retirement age. While this isn’t easy (and may even sound a bit unrealistic to some), it can be done with planning, budgeting, and a reduction in expenses.

It also takes job flexibility. Since you probably couldn’t walk into your boss’ office and get a request to work less and be paid more, you would have to look to various types of freelancing or project work. You’d also have to be really good at what you’re doing to command a higher hourly or project rate.

But if you are able to pull it off, it allows time for travel, family, and any other activity you’d like to pursue while you’re younger. The parents of Millennials waited 40 or 50 years to fully retire, and this group doesn’t want to wait that long.

The last retirement option is early full retirement. Before you laugh at this idea, know that there are people employing this strategy that did not make seven figures during their working years. These individuals are finding they’re comfortable with fewer expenses and a simpler lifestyle if it allows them to enjoy their lives more.

In fact, there are resources and discussion groups available to help you embark on this plan if you so choose. Two of the more renowned are Early Retirement Extreme by Jacob Lund Fisker, and Mr. Money Mustache by Peter Adeney. In one post2 on his site, Adeney breaks down various savings rates and how much longer you’d need to work for given each rate. He presents a very visual and logical case on how to retire early.

The bottom line with this strategy is not so much about making more, but spending less – much less – all the while saving at a much higher rate than normal.

How do you do this?

First, regardless of what work and retirement options you choose, you should have a plan. Those that have a plan often fare far better than those without, and by “having a plan,” I don’t just mean having a 401(k) at work, or a high interest savings account.

Next, once you’ve set your goals and your plan, create and follow a budget. Asking and answering questions about where you’ll live, if you’ll own a home or rent, and what types of insurances you’ll have are a good start to building out your budget. Be sure to allocate funds for unforeseen expenses or trips too. You may have other priorities that arise, such as charity work or caring for a loved one.

Also, you’ll probably want to go into this with the mindset that Social Security should not be your main source of retirement income. Diversify your investments, and allocate funds for non-negotiables like health insurance as well.

In terms of investments, for those that are currently in a position where your employer has a 401(k) plan with a match, make sure you’re getting the match. For those who are already out on their own, setting up an IRA is easy to do and worth it. You won’t get the match, but you’ll get tax-advantaged growth one way or another with either a traditional or Roth option.

The main takeaway here is there’s no one “right” approach for retirement. We no longer have to work at one company for 40 or more years in order to enjoy our golden years (or even before).

And while this gives us more flexibility, it also adds responsibility. Invest consistently, don’t try to time the markets, diversify into a broad range of investments, and assess your risk tolerance with a CERTIFIED FINANICAL PLANNER™ professional. You may be on the road to retirement sooner than you think.

 

Resources

  1. Transamerica study: http://www.transamericacenter.org/docs/default-source/resources/center-research/tcrs2014_factsheet_millennials.pdf
  2. MMM: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

 

 

 

September 12, 2016

Long-Term Care Insurance Part 3: what to know to help protect your wealth

401k advisor annapolis in maryland at SCM

Our three part series will explore what long-term care is, how it works, and what you can do to be ready.

By David A. Herman, Vice President of Investments, CRPC® CCPS™, Scarborough Capital Management

wealth management options annapolis
Focusing on long-term care planning can provide greater peace of mind so you can spend less time worrying about care and more time enjoying yourself.

So far, we’ve discussed what long-term care insurance is and some specifics of one option, traditional long-term care insurance. There are many benefits to selecting this plan, however a large drawback is the fact that you may be paying for a policy you never actually use.

And while this may be a great thing health wise, it doesn’t take away from the fact that you are worse off financially.

But there’s a solution to this, and it’s called universal life insurance with a long-term care benefit.

What is universal life insurance with a long-term care benefit?

These policies, also known as “hybrid” policies, allow you to set money aside and use some for long-term care only if needed.

Here’s an example. Let’s say your retirement income is based on four sources: Investments and/or qualified plans (your 401k or IRA), a pension and/or Social Security, life insurance, and then cash reserves.

How this plan works is that it uses part of your cash reserves and sets them aside in a universal life policy. The main upside here is that this earmarked money often times can result in up to five times your premium dollars to reimburse long-term care costs.

Now, back to the problem with traditional long-term care plans. If you didn’t need the care in those plans, you paid for something that you didn’t use. However, with this hybrid plan, whatever funds you didn’t use for long-term care would be passed on to your heirs on the event of your death in the form of a tax free death benefit. So, while you may not get the amount of coverage of a traditional plan, the money is still being used for something.

We’ve also seen in some cases where an adult child will pay for long-term care insurance for their parent. The reasoning here is that the adult child or children will not be limited by a fixed income as many retired parents are. Additionally, if the child is going to be receiving the tax free death benefit anyway, it is almost an insurance policy as much for them as it is for their parent. If it’s not used, they will get the funds back. If it is used, it’s spent in such a way that it offers care and greater peace of mind for the family, saving high expenses and lots of time for others as well.

Next steps

So you’re thinking more seriously now about long-term care insurance. So what are your next steps and what are some other areas to consider?

  1. Talk to professionals – Lots of different policies are available, so work out scenarios with your financial professional. It also may be a good idea to consult your physician who can help you gauge your health risk factors.
  1. Assess your finances – How much coverage do you feel comfortable purchasing? How much would you have remaining for living expenses or to pass on to your heirs?
  1. Explore services and costs in your area – What are the facilities like? Could your needs be met at a less expensive facility, or would you have more extensive needs?
  1. Talk to your family about your plans – There may be scenarios you haven’t thought of where family members would be willing to help out more than you had expected. Or maybe it’s the opposite. Make sure you have these conversations before an urgent decision needs to be made.
  1. Act on your decision – Your age in underwriting the policy can be key. In other words, if you want to purchase a policy, don’t wait too long. The simple reason here is it costs less to buy a policy when you are younger.

As we’ve seen, this is not a one-size-fits-all type of plan, as everyone’s financial situation and health outlook is going to be different. But there are several options that can be used to alleviate some of the pressures of this stage of life.

So while aging can’t be prevented, focusing on long-term care planning can provide greater peace of mind so you can spend less time worrying about care, and more time asleep in that hammock.

 

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security or insurance product.

Guarantees are based on the claims-paying ability of the underlying insurance company. Additional benefits and riders may increase the cost of the premium. Applicants are subject to underwriting, which may include medical history and current health.

 

,

September 7, 2016

Long-Term Care Insurance Part 2: what to know to help protect your wealth

401k advisor annapolis in maryland at SCM

Our three part series will explore what long-term care is, how it works, and what you can do to be ready.

By David A. Sizemore, Retirement Advisor, CERTIFIED FINANCIAL PLANNER®, Scarborough Capital Management

wealth management advisors annapolis
We have compiled five key features of traditional long-term care insurance to discuss with your financial professional.

Retirement can offer the reward of leisure time for a career well spent. Vacations at the beach with family, trips abroad, and even naps in a shady hammock. These are all parts of the dream of retirement many people have.

What happens though when that dream gets put on hold or worse, completely changed due to the illness of a spouse or loved one? If you’ve suddenly realized that you’re not really sure what long-term care entails, let alone considered preparing for it, not to worry.

In this three part series, we’ll explore what long-term care is, how it works, and what you can do to be ready in the event you need to be.

After learning about what long-term care insurance is and why it’s important in part one of this series, you may be wondering how you can better prepare. In part two, let’s discuss one option you have for coverage, which is traditional long-term care insurance.

What is traditional long-term care insurance?

These are benefits you would receive in the event you have a qualifying life event (which we’ll cover shortly) and need care. Once you start receiving these benefits, they last until you no longer need care or the policy reaches its limit.

First, you should be in reasonably good health to qualify for this type of coverage. If you should develop problems that would require long-term care before you have a policy in place, it becomes much more challenging to qualify for this type of plan.

Next, the premium, or cost of the plan is determined by your age when you purchase it, along with the plan’s features and benefits you’ve selected.

To qualify to begin receiving these benefits you typically need to be chronically ill or cognitively impaired, and need help with two out of six activities of daily living (as outlined in part one). Another point to consider is that this type of plan usually has a kind of deductible. The difference is you don’t pay a predetermined amount, however you are responsible for paying out of pocket costs for about the first 90 days or so after you qualify for benefits. This time period is called an “elimination” period.

Five key features of traditional long-term care insurance

Here are some considerations to discuss with your financial professional when selecting a long-term care policy…

  1. Benefit – This is the amount that your plan will pay each day, and coverage typically will range from $50 to $350 per day.
  1. Benefit period – This is the length of time your policy will pay benefits once you need care. While some plans will offer a lifetime benefit, most plans typically fall within the one to six year coverage range.
  1. Elimination period – Think of this as how high you’d want your deductible to be. Most plans typically allow a 20 to 100 day window where you’ll be responsible for your own care until benefit payments begin. Obviously the longer the window the more out of pocket costs you would incur.
  1. Location of care – While some lower cost plans will cover only nursing home costs, you can purchase some more expensive plans which cover care in assisted living facilities, adult day care centers, and even your own home.
  1. Inflation protection – This can be an add-on to your plan and while it will cause the premium to increase, having inflation protection can help insulate you from some of the rising costs of healthcare by allowing the benefit to increase by a certain percentage each year. A daily benefit of $100 may seem like enough today, but may only get you so far 10 or 15 years from now.

Costs and coverage of traditional long-term care insurance

Here’s an example of how this may work. Let’s say that you spend $2,000 per year on a plan which will yield $54,000 per year in coverage. (This total allows for about $150 per day, just as a point of reference.)

Some may say that $2,000 per year is a lot to spend over the course of 20 years when the likelihood of needing coverage is unknown, especially if we feel relatively healthy. Wouldn’t it be better to simply pay out of pocket with the money you save in the event you do need coverage?

Well, if you did pay $2,000 per year over 20 years, it would only take you about nine months to break even on coverage. That’s not that much time, considering some of these healthcare needs could be over years, not months.

Pros and cons of traditional long-term care insurance

On the plus side, the premiums are generally predictable and this traditional insurance may allow you to stay in your own home longer. It also helps protect your assets and allows your family members greater peace of mind in the event they’re needed to help extensively with medical and daily activity needs.

Additionally, the benefits may grow with inflation (if that plan is selected), and policies may even have some tax benefits (although it’s always recommended to consult your tax professional with your individual situation and needs).

As far as the drawbacks are concerned, these premiums can be expensive, generally you’ll need to pay them for your entire life, and you’ll have to initially be in decent health to qualify. The greatest point against this type of coverage though is the fact that there is a chance you may never actually need it.

There is a way around this problem though, and we’ll explain that in part three, as well as give you some next steps to consider.

 

 

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security or insurance product.

Guarantees are based on the claims-paying ability of the underlying insurance company. Additional benefits and riders may increase the cost of the premium. Applicants are subject to underwriting, which may include medical history and current health.

August 30, 2016

Long-Term Care Insurance Part 1: what to know to help protect your wealth

wealth management options for those in annapolis

Our three part series will explore what long-term care is, how it works, and what you can do to be ready.

By Ryan A. Ansted, CRPC®, Managing Partner Scarborough Capital Management

insurance & investment advisors annapolis
According to the U.S. Department of Health and Human Services 70% of people turning age 65 can expect to use some form of long-term care during their lives.

Retirement can offer the reward of leisure time for a career well spent. Vacations at the beach with family, trips abroad, and even naps in a shady hammock. These are all parts of the dream of retirement many people have.

What happens though when that dream gets put on hold or worse, completely changed due to the illness of a spouse or loved one? If you’ve suddenly realized that you’re not really sure what long-term care entails, let alone considered preparing for it, not to worry.

In this three part series, we’ll explore what long-term care is, how it works, and what you can do to be ready in the event you need to be.

What is long-term care?

As Baby Boomers, the group of the population in their early 50s to late 60s (and now starting to turn 70) are beginning to retire in greater numbers, they are certainly enjoying the benefits of not going into the office every day. However they are also starting to see some of the issues that can arise.

According to the U.S. Department of Health and Human Services, “70% of people turning age 65 can expect to use some form of long-term care during their lives.”1 And this care may not come inexpensively.

Long-term care may include some medical care, however most is found in services that are provided to an individual that help with basic factors of daily life. Examples of what is known as “Activities of Daily Living” (ADL) would be getting dressed, eating, transferring from a bed to a chair, caring for incontinence, bathing, and using the bathroom.

Other activities that don’t quite fall into the ADL category are called “Instrumental Activities of Daily Living” (IADL). These would cover tasks such as taking medication, cooking, cleaning, and managing money. It should also be noted that these tasks are sometimes underestimated when the discussion of caring for someone arises.

For example, after a hospital stay due to a fall, family members will certainly be around to help the individual get dressed, move around their house, and be there for dinner. The question becomes will anyone remember that the electric and cable bills are due and the recycling needs to be put out every other week? Simply overlooking a few simple tasks can add time and stress to a situation, and one that can be solved with the proper planning.

As a Chartered Retirement Planning Counselor and in working as a financial advisor for over 15 years, I’ve seen the child/parent care process take shape in many ways. This experience has provided me with the ability to have a particularly precise view and recommendation when discussing this topic with clients.

There are a few ways long-term care can be paid for, and each comes with benefits and drawbacks. While paying out of pocket or relying on Medicare or Medicaid might be right for some, it’s not the best solution for all. Another alternative is insurance for long-term care, and based on a number of factors can be tailored to fit individual needs and goals.

How does long-term care insurance work?

Essentially, a long-term care policy acts as insurance against paying for large healthcare expenses out of pocket and helps allow your savings and other assets to remain in tact.

Long-term care insurance can cover home care, assisted living centers, adult day care centers, and nursing homes. One major benefit is that no matter what your income level, having a long-term care plan lets you choose where you receive care.

This is especially important if you should require nursing home care, since nursing home facilities many times give preference to those who can pay for their own care as opposed to those who are paying via Medicaid. This means you’ll have a wider array of facilities to choose from and be able to make a selection that best suits the needs of you and your family.

Lastly, a sometimes overlooked benefit is the fact that outsourcing care can be a huge stress relief, even for just a few hours a day. This can free up family members to run errands, catch up on work, and even take some much needed time for themselves. While it won’t solve every problem, having greater peace of mind with your finances and time can help a difficult situation become a little less challenging.

So what types of long-term care plans are there? In part two, we’ll look at traditional long-term care insurance and its features and benefits.

 

 

Sources

  1. http://longtermcare.gov/the-basics/who-needs-care/

 

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security or insurance product.

Guarantees are based on the claims-paying ability of the underlying insurance company. Additional benefits and riders may increase the cost of the premium. Applicants are subject to underwriting, which may include medical history and current health.