Regardless if you believe in Long Term Care (LTC) insurance or not (or your advisor doesn’t) you still need to include the costs related to LTC in your retirement plan, even if you’re able to self-pay. Why? Because the statistics on longevity show that people are living longer and will likely need LTC at some point in their lives. How many years you will need LTC and what it will cost are the unknowns in most financial plans.
High net worth individuals can self-fund their LTC and low-income individuals that receive Medicaid have LTC covered. It’s the middle-income people that have to worry about how LTC will affect them. Seeing the impact of self-funding the cost of LTC at 100% versus the LTC insurance premium outlays will be important for you in order to make an informed decision for yourself.
Financial plans that are missing LTC costs are incomplete and you may want to ask that it be added to your plan. With the cost of LTC increasing year over year, not considering how it will affect your retirement savings can be devastating to you later. Financial advisors have the software to formulate a financial plan with the assumed costs of LTC and how your retirement nest egg may be impacted. After that, it’s up to you to decide if you should consider purchasing LTC insurance or not. Only you can make that determination when presented with your financial plan’s information.
Some surprising LTC statistics provided by Morningstar in August 2018 for you to consider:
52%- Percentage of people turning 65 this year who will need some type of LTC in their lifetime
47%- Estimated percentage of men 65 and older who will need LTC during their lifetimes
58%- Estimated percentage of women 65 and older who will need LTC during their lifetimes
123%- Percentage increase in the number of people who died from Alzheimer’s dementia 2000-2015
$341,840- Estimated lifetime cost of care for someone with dementia
$123,600- The maximum amount of assets that a healthy spouse can retain for the other spouse to be eligible for long-term care benefits provided by Medicaid in 2018. (Actual amounts vary by state.)
Today there are hybrid types of LTC insurance that cover more than just nursing home care; a common complaint from retirees that paid into older policies and never went into a nursing home. Once you have the information from your financial plan, it’s time to research LTC insurance hybrid policies and the companies that provide the insurance for specialized type of care. The decision to private pay your care or purchase LTC insurance is yours to make and will determine how your retirement assets last, if you need care later.
Despite having a high income from owning a business or being an executive, these individuals can experience retirement savings problems. They have missed savings opportunities or put off financial planning. Often they assume that everything will work out with their retirement plan, and it can, but their high-income can hide the reality of a retirement savings deficit when their career ends. They failed in their early working years to consistently save, but why?
Many high-income and self-employed people often focus on the business being their retirement nest egg. The sale of the business being the funding source or an executive benefits package is sometimes an unknown in the early working years. Retirements today are different from the past since retirees desire the flexibility of choosing to work, volunteering, golfing daily, or doing anything they choose. This lifestyle is only possible if they have saved enough for retirement or are financially fortunate when they sell their business.
Consistent financial planning puts the self-employed and high-income executive in a better position to retire on their terms and when they choose. Here are some retirement plan ideas specific to these individuals:
Maximizing a Solo 401(k) or SEP IRA each year allows self-employed earners to save more than in a
traditional 401(k), but with some additional requirements. For the
self-employed or executive, these retirement plan options are the most obvious way to save and should be considered regardless of the financial
status of the business.
Having a Deferred
Comp Plan (DCP) allows larger deferral of compensation to help
supplement other retirement savings plans later on. A strategically planned DCP creates the option to choose an IRS contribution
limit determined by the employer’s corporate lower tax bracket or the employee’s
higher personal tax bracket when determining contributions for each year.
A Defined Benefit Plan (DB) Provides the opportunity to contribute to retirement benefits well ahead of retirement time. A DB plan is a qualified-benefit plan and differs from a pension fund where the payout amounts are often dependent on investment returns. In a DB plan payments are determined by a formula that considers the length of employment, salary history, and other factors. If poor investment returns result in a DB plan funding shortfall, the employer must tap into the company’s earnings to make up the difference.
For those that are self-employed, avoid putting all of your additional revenue back into your business. Choose to contribute to a retirement savings plan and avoid believing you can ‘always make it up later’ when it comes to financial planning and retirement savings. Having a high income enables you to save more, but only if you consistently engage in planning for your retirement.
Couples usually don’t retire at the same time when they have an ‘age gap’ between them. An age gap relationship is one where there is eleven or more year’s age difference between them. Age gap relationships are becoming more common as people are choosing to marry later in life, remarry or start a life-partnership with someone significantly younger.
According to a study from the National Center for Health Studies, the average woman is living 81.1 years compared to 74 years in 1960; the average man is living 76.1 years compared to 67 years in 1960. The increase in life expectancy is helping to change the age differences in many couples, making financial planning even more critical.
In age gap relationships one member continues to work for a decade or longer than the other. The drawing of retirement assets and social security income earlier for one member, coupled with differing longevity factors presents a planning challenge compared to other couples.
Age gap couples may have up to a half-generation between their ages and should consider planning for two different scenarios to reflect their age difference. These couples shouldn’t rely on a financial plan based only on the older member’s financial information and longevity factors. Some things to consider for these couples:
The older member may want to delay taking Social Security benefits until their full retirement age unless they have health issues. Delaying the benefits of the older member will benefit both if the older member was the higher income earner.
Health insurance coverage will be impacted if the older member carried the health insurance and goes on Medicare, requiring the younger one to find new insurance.
Basing the financial plan on the partner with the longer life expectancy will help the combined portfolio last over a longer time horizon. Both expected retirement dates should be included even if they are a decade or more apart.
Considering the tax consequences for drawing down retirement assets at two different starting dates is important. With one member continuing to work, they should maximize their pre-tax retirement account contributions to off-set moving the couple into a higher income tax bracket. Most retirees have a higher income tax consequence the first few years of their retirement.
If you’re in an age-gap relationship and need guidance in planning for your retirement start-date gap, now is a great time to get started on your unique financial plan.
The start of a New Year is the time when most people decide
to implement changes in some areas of their lives. Whether it is health or money related,
starting the New Year off with a plan feels good! According to research from YouGov Omnibus, last year 1 out of every 5 people (20% of the population) that made
resolutions stuck to them, while 63% of the population said they didn’t make
resolutions anyway! Even though 80% of New Year’s Resolutions made by
‘Resolution Makers’ fail by the end of the first quarter, having ‘resolutions’
is a positive thing because keeping them helps you change.
Here are the top financial resolutions that may be on your list for 2019:
Reduce Credit Card Debt- Are you one of the ‘revolver households’ that carries credit card debt month after month? Make 2019 the year you cut up the cards until you stop carrying balances.
Start an Emergency Fund- Start with a minimum of one month’s expenses. A fully funded emergency fund should have six months or more of expenses and should be in an account that you won’t access and one that’s not tied to market performance.
Save for Retirement- Set your retirement savings contributions to ‘auto-pilot’ and if your provider has automated increases, that’s even better! Make an effort to maximize your contributions, if possible. But then again, if you’re doing everything on this list, you can achieve this in 2019.
Reduce Spending- The less you spend, the more you can save. Although this one seems simple, without reviewing your spending at least at the beginning of this year, you have no way of knowing what you can cut out to reduce your spending.
If you feel like you were financially insecure in 2018 or on the brink of it, 2019 is the year to take back control.
It takes a little effort but writing down your financial resolutions and having them in a visible place is crucial to keeping them. Much like a written financial plan, you are more likely to follow your financial resolutions when they are in writing. After you’ve written down your resolutions, share them! Tell others about your plan, your progress, and your failures. Lastly, keep your resolutions simple by taking baby steps and believe that you can achieve your goals in 2019.