Monthly Archives: August 2019

No Long-Term Care policy – It’s not insurance, and one may need to save over and above to ensure their nest egg is large enough to support Long-Term Care needs in the face of rising health care costs.

Many people recognize the rising costs of health care and opt for a traditional LTC insurance policy, which is likely the most cost effective in the long run. Ask your employer about LTC insurance rates. The lowest premiums are available to persons less than age 59. Once you reach age 60 you are in a whole new category and higher rates will apply.

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A Hybrid Long-Term Care Policy –

This is a life insurance policy that lets you use the death benefits for long-term care during life and pays out the remainder to theirs at death. One would have to pay a premium of about $154,000 upfront from a combination of saving and borrowing from retirement accounts. A premium of $2,500 annually. A $120,000 would be covered in LTC payments and $330,000 death benefit.

Pro: There is a values in these benefits even if you don’t use them for care.

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Worrying about Long-Term Care? Should you buy insurance now or roll take your chances?

The traditional approach – take out a conventional LTC policy, paying a premium of about $7,600 a year with money that would otherwise go into their retirement accounts. The policy would provide a $5,000 monthly benefit that would grow by inflation at a rare of 3 percent annually.

Pro: Thanks to the policy’s inflation protection, that $5,000 monthly benefit would reach $10,000 in 25 years.

Con: They’d have to keep paying expensive annual premium until they made a claim. And premiums could rise, as they have historically.

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In retirement, plan for your ongoing expenses to total 80 percent of your preretirement income.

The reasoning – Once the kids are grown and work-related expenses disappear, the annual cost of living could go down. And although in the past you may have set aside a chunk of your income for retirement savings, after you’ve retired, well, that line item will likely disappear.

The revision – When budgeting for retirement, pay attention to your expense, not your income. Identify your specific monthly spending needs, then create a cash flow plan to cover them. And leave some wiggle room for spending spikes. Commuting expenses may be gone, but retirees often drop more on travel or need to hire extra help at home.

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When you buy life insurance, get a policy that will pay seven to 10 times your current annual income upon your death.

The reasoning – If you die early, your partner or family will require lots of cash to compensate for the years of earnings you were expected to provide.

The revision – Rather than using annual income as a guideline, estimate what your survivors need to avoid financial disaster.

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Set aside 1 percent of your home’s value each year for maintenance and repairs.

The reasoning – Big ticket maintenance projects, such as roof replacement or house painting, aren’t annual events, but they’re expensive. To make  sure you’re covered, annually budget 1 percent of your home value for these. That’s $2,500 a year, for a home worth $250,000. If you don’t use it this year, you can use it the next.

The revision – If you have an older home you may have to budget more – 2 percent of your home’s value.

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Subtract your age from 100. That number is the percentage of your investments you should have in stocks or stock funds. The rest should be in bonds.

The reasoning – When you’re young, you have a longer investment horizon and are better able to ride out the ups and downs of the stock market.

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Before retirement, allocate 50 percent of your household’s annual after-tax income for needs, 30 percent for wants and 20 percent for savings.

The reasoning – These ratios help you achieve a three-way balance among everyday essentials, enjoying your life in the present and planning for the future. Fifty percent goes toward things you must have, such as food, housing, and insurance. Other purchases – up to 30 percent of your spending – are wants, whether they’re vacations, meals out, or cable service. The final 20 percent goes toward savings or, if necessary, debt repayment.

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To protect yourself in case of financial emergencies, keep at least six months’ worth of living expenses in the bank. The reasoning – an emergency fund is just-in-case money set aside to cover a job loss, a medical problem, car woes or another costly shock.

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Older working people, who tend to have longer periods of unemployment after a job loss, may want to stash away 12 months of living expenses, if possible. The same goes for retirees who depend in money pulled from their retirement accounts.

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Has social media affected your own spending in any of these ways? The annual Schwab 2010 Modern Wealth Index Survey. One thousand persons were surveyed from ages 21 to 75 think about their saving, spending, investing and wealth. Here are three ways social media is affecting Americans’ finances:

1. Keeping up with the Joneses
2. Spending beyond their means
3. Focusing on spending over saving

• 59% live paycheck to paycheck
• 44% typically carry a credit card balance
• Only 38% have an emergency fund
• They also spend close to $500 per month on “non-essential items,” on average.

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