Taking the Really Long View on Long-Term Care Insurance

Long-Term Care Insurance PolicyNEW YORK — As a financial planner who also sells long-term care insurance, Regi Armstrong always planned to buy a policy at some point. The only question was when.

The Florence, South Carolina, resident and his wife made the leap early, when they were still in their 40s, and today he is glad they did. Three years into paying premiums of $3,800 a year, his wife, now 49, got diagnosed with a serious auto-immune disorder that would have disqualified her.

Life is fickle. You don’t know when you are going to get sick.

“Life is fickle,” says Armstrong, who is 50. “You don’t know when you are going to get sick.”

Of the 4.8 million people who have long-term care insurance, the average age to purchase it is 57. More than 80 percent of buyers are 50 or older, according to financial services research group LIMRA.

Among the chief arguments for buying long-term care insurance early is that you could, at any time, develop an illness that would disqualify you while forcing you to incur tremendous expenses.

Care costs an average of $46,000 a year in the home and $80,000 in a nursing home, according to a survey from Genworth (GNW), one of the largest long-term care insurers.

The danger in waiting jumps by age, said Jesse Slome, president of the American Association for Long-Term Care Insurance, a trade group.

Between ages 60 and 69, 27 percent of individuals who applied were rejected for health reasons. Go up a decade, and the decline rate is 45 percent. But below 50, it is just 14 percent.

Comparing Costs

The other main concern is price. The earlier you sign up, the less you pay.

A 45-old-woman would pay on the order of $215 a month for a fairly typical policy from Genworth. A 55-year-old would pay $250.

But wait a few years and the numbers multiply. Armstrong regularly prices coverage for clients who are trying to see if they can get better deals. His rule of thumb is that if a policy is older than two years, it is hard to improve on it.

One client, who is now 66, is paying about $1,000 a year for a policy he got about 15 years ago. “He’s paying half of what I’m paying, and he’s 16 years older,” Armstrong said.

According to a study by insurance carrier John Hancock, a 50-year-old would pay 15 percent less over a lifetime of premiums than a person who started a policy at age 55, while a 40-year-old would pay 40 percent less than that 55-year-old.

Group policies can offer more savings. Most carriers have stopped offering them, although Genworth is starting to expand in that area again, said Chris Conklin, senior vice president of product development.

(The premium on my own group policy, which I bought into a few jobs ago when I was in my 30s, hasn’t yet cracked $25 a month after 10 years.)

Benefit of Planning

The argument to buy early isn’t likely to sway most people because long-term care insurance itself is pretty much a non-starter for non-planners, says Robert Applebaum, professor of Gerontology at Miami University in Oxford, Ohio.

For one thing, it is a costly monthly reminder of all the bad things that can befall you before you die — even more of a downer than thinking about life insurance.

Also, policy parameters and the companies offering them change often, so it isn’t always easy to compare deals. Some carriers are now bundling long-term care insurance features with life insurance or annuities, Applebaum said.

These are increasing in popularity, according to LIMRA, while stand-alone long-term care policies are declining.

Many people don’t like the idea of paying premiums for years and never getting the benefit, either because they won’t need it or because they won’t be able to keep up payments.

Slome’s suggestion for managing costs: Buy a policy that is expandable. Start with a limited benefit when you are young to keep premiums low, and then pay up as you age.

Ask a CFP: ‘Is Anyone Ever Done Saving for Retirement?’

Pink piggy bank on wood tableIn our “Ask a CFP” Q&A series, we cede the floor to a certified financial planner who will address what we think are some of the trickiest money topics out there.

Today, Matt Shapiro, a certified financial planner with LearnVest Planning Services, delves into whether there’s ever a point when you can comfortably consider yourself finished with building your nest egg.

“From the time you earned your first paycheck, you likely heard the same advice over and over: Start putting away for retirement — now!

And it is sage advice to consider, especially when you look at the stats: The median nest-egg balance for American households last year was a mere $2,500, according to the National Institute on Retirement Security.

Data like this shows just how imperative it is to make your golden years a priority — and may lead you to believe there’s no such thing as saving too much for retirement.

That’s why I sometimes get asked:

Why So Many People Ask This Question Few of today’s workers have access to pensions, and the future of Social Security remains uncertain — leaving the onus of planning and saving for retirement largely in your own hands.

Plus, when you see headlines about how Americans aren’t saving enough for retirement, it’s only natural to feel stressed about making sure you’re setting aside enough in your 401(k) or IRA.

What I Tell Them From time to time, I do see people in their 30s or 40s who may be able to stop saving for retirement early — the ones who receive a large inheritance.

For the rest of us, figuring out when exactly we could be ‘done’ is hard to do without first doing a reverse calculation, based on your target retirement number.

To get to your number, you need to determine how much income you think you’ll need to live on each year, based on your retirement lifestyle goals, then multiply that by the number of years you expect to be retired.

And if you don’t yet know how you envision your future retirement lifestyle, consider basing your calculations on the assumption that you’ll need to replace 85 percent of your income in your golden years.

So let’s say you think you’ll need $4 million to retire comfortably at age 67. Assuming a hypothetical 7 percent annual return on your retirement investments, you could, in theory, stop contributing to retirement if you had close to $500,000 in your nest egg by 35.

Realistically, few of us reach that level of retirement savings so early in life — most of us will likely have to keep contributing up until close to the age we intend to retire.

So the question you probably should be asking yourself instead: ‘Am I saving enough now to retire by my desired timeline?’

Of course, the answer to that will vary by individual, but generally the younger you are when you start saving, the sooner you’ll likely be to reach your goals — thanks to the longer amount of time you have to take advantage of compound growth.

Let’s look at another example: Say a 25-year-old man wants to save $1 million to retire by age 67. If he starts to set aside $500 a month right away in a 401(k) that returns a hypothetical 7 percent a year, he could surpass the $1 million mark by 63. If he keeps saving for another four years, he could reach $1.4 million — and that’s not even taking into account any company match.

However, if he waits until 40 to start saving but doubles that contribution to $1,000 a month, he’ll only have earned about $927,000 at 67 — $73,000 shy of his initial goal.

So by starting early, the man is able to surpass his goal without having to raise his retirement contribution over time — and making it potentially easier to devote increases in income toward other goals, like contributing to a kid’s college fund.

By starting later, he may have to decide if he’ll retire later — or choose to live off a smaller retirement number.

The Bottom Line There’s no hard-and-fast rule when it comes to knowing when you can consider yourself ‘finished’ with saving for retirement — it all depends on the progress you’re making toward your retirement number.

So consider doing the calculations now to see whether you’re a few years ahead of schedule — or need to step up your savings game.”

Why the Holidays Make Us Dumb About Spending

Shopaholic overspending
NEW YORK — Financial planner Barry Eckstein has heard a lot of extravagant spending stories. But when clients were chatting with him about the holidays a couple of years ago, he couldn’t believe his ears.

The couple had bought a mink coat. Not just any mink coat, mind you — a mink coat for the their precious little Yorkie.

“It was custom-made, white and cost a couple thousand dollars,” said Eckstein, of Wantagh, New York. “My initial reaction was: ‘Oh boy.’ ”

Canine couture might not be on everybody’s shopping list for holiday gifts. But the Furry Furrier is just one end of a spectrum. For the rest of us, even when we know we shouldn’t be spending so freely, we do it anyway. It is as if we turn our brains off in November, and then switch them back on in the New Year.

Indeed, nearly 4 in 10 people say they spend more money than expected for holiday gifts, according to a new shopping survey by credit agency Experian. That makes for a whopping $806 a person this holiday season, up from $758 last year.

To finance the spending flurry, 12 percent of people are planning to open up new credit cards for the holiday season — and 9 percent predict that they will be paying off those charges late.

“The majority don’t even have a holiday spending budget in place — and it makes it very hard to plan if you don’t have a budget,” said Rod Griffin, Experian’s director of public education.

The two biggest culprits for this holiday brain freeze, according to personal-finance expert Bruce Sellery, author of “Moolala: Why Smart People Do Dumb Things with Their Money“: Tradition and guilt.

“Tradition because people think, ‘This is the way it’s always been done, and there is no other way to do it,’ ” said Sellery. “And guilt because people feel they have to buy more and more things that nobody really needs.”

Avoid the Madness

Since gift-giving is an exchange, you can help both sides avoid what Experian’s Griffin calls “Dark January.” Simply come to an agreement beforehand with the various friends and family members in your life about who will exchange gifts and a price threshold, and save everyone a ton of money in the process.

Otherwise you could fall into holiday horror stories like Brooklyn-based author and comedian Sara Benincasa. She was once given membership to an “incredibly posh” gym which cost around $3,000, she estimates.

“The person was not so subtly trying to tell me to lose weight,” remembers Benincasa, author of the new book “DC Trip.” “It felt like a pretty demeaning gift. Unsurprisingly I used the gym twice — both times just to sit in the sauna.”

To avoid similar disasters, remember that you have a choice in how your holidays are designed. Bruce Sellery, for instance, arrived at an elegant solution with his many siblings and cousins: They stopped giving gifts. This was the suggestion of his sister, a stressed-out mom of three. “She just said one year, ‘Can we stop doing this?’ It’s been so great for everyone’s stress reduction,” he said.

Of course you do not have to go quite that far, and completely eliminate all gift-giving from your life. You can simply set an artificially low limit, and have a $5 gift-exchange among a group of friends or relatives, which are “hysterical,” says Sellery. (His own contribution to his family’s exchange one year: A collection of miniature soaps he acquired from luxury hotels.)

You can also call off the Holiday Arms Race by setting a hard cap: Agree that every family member only gives one gift to one person, in a Secret Santa-type exchange. Or take what you would have blown on gifts and select a charity together — sponsoring a child in poverty overseas, for instance, whose story and progress you could follow together as a family.

A final tip, from planner Barry Eckstein: Set a budget and do all of your holiday saving for the set amount throughout the year, in a dedicated account. Then force yourself to stick to that amount. That will likely eliminate most big-ticket impulse purchases — such as doggy mink coats.

You’re Running Out of Time for Your 2015 Tax Planning

Person filling tax returns before deadlineA few months ago, we suggested getting your tax strategy together before it was time to panic.

Well, it’s time to panic.

We’re less than a month to the end of 2015 and any plans you have to lessen your tax hit by the end of the year should probably be implemented now. Rebecca Pavese, a certified public accountant, financial planner and portfolio manager with Palisades Hudson Financial Group’s office in Atlanta says that, at the very least, you should be calculating your income, tax payments and deductions to date, and estimating your totals for 2015.

“You need this baseline information before making any moves,” she says.

Once you’ve done that, the easiest way to save is by reducing your taxable income. Bankrate’s (RATE) Kay Bell notes that boosting your retirement savings can be particularly helpful. If you haven’t made your maximum $18,000 contribution 401(k) ($24,000 for people age 50 or older) or $5,500 contribution for an IRA ($6,500 for people age 50-plus), now is the time.

“If your employer permits you to make extra contributions to your 401(k), put in as much as you can afford.

“If your employer permits you to make extra contributions to your 401(k), put in as much as you can afford,” says Bill Ringham, vice president and senior wealth strategist at RBC Wealth Management. “You typically contribute pretax dollars, so the more you invest, the lower your taxable income. Your earnings also grow on a tax-deferred basis.”

Ringham also notes that 529 plan contributions are tax deductible in several states, so contributing to your kid’s college fund will allow your earnings grow tax-free, provided they are used for qualified higher education expenses. Just make sure it’s going toward college, however, as distributions not used for qualified expenses may be subject to income tax and a 10 percent penalty. Meanwhile, it’s also time to take inventory of your other investments in 2015 … and root for the losers.”Tax-loss selling can minimize or eliminate capital gains on one asset by realizing a loss to offset it,” Pavese says. “There’s dollar-to-dollar offset. If for instance you’ve had $5,000 of capital gains, you can offset them completely with $5,000 of capital losses.”

The best part is that you can carry those tax losses forward indefinitely. If you don’t need those losses to offset capital gains right away, you can use the excess loss to offset gains in a future year. That’s particularly helpful since net capital losses (capital losses minus capital gains) can only be deducted up to a maximum of $3,000 in a given tax year. Any losses beyond $3,000 must be carried over, which also makes it worth your while to consider putting off selling some of your “winners” until next year.”

“Capital gains can increase your adjusted gross income — and, consequently, your tax bill,” Ringham says. “So if you are considering selling an asset that has increased in value, such as a stock, you may want to wait until January so the gain will be realized next year.”

If you’re in a really desperate situation, there’s also a chance you can just give some of those investments away. Highly appreciated stocks or mutual funds you’ve owned for more than one year can go directly to a charity, so if you’ve purchased shares for $1,000 and they are now worth $10,000, giving those share to a qualified charity would give someone in the 28 percent tax bracket a $2,800 tax deduction, based on the current market value of the donated shares.

“You benefit three ways,” Pavese says. “First, you’re doing good. Second, you won’t pay the capital gains tax you’d owe if you sold the security instead. And third, you’ll get a deduction if you itemize.”

Once all of that is complete, you’ll want to consider doing some housekeeping.

Bankrate’s Bell suggests homeowners submit January mortgage payment and property taxes by Dec. 31 so they can deduct the interest for 2015. Also, if you haven’t taken advantage of your flexible spending account for health care, now is a great time to schedule doctor’s appointments or buy eligible supplies ranging from glasses to knee braces to cold medicine. Pavese, meanwhile, suggests filing a new W-4 form with your employer and adjusting your December tax withholding just to keep from running afoul of penalties and interest. However, just about anything you can do to lower your adjusted gross income is helpful.

“Lowering your income has many potential benefits,” she says. “If you can lower your taxable income to below $74,900 for a married couple filing jointly or $37,450 for a single filer, you will pay zero percent federal tax on sales of assets you’ve held longer than one year and zero percent on dividends. Even if you can’t get your taxable income quite so low, you may be able to lower it enough to step down to the next lowest capital gains tax rate.”

Lowering income can also lower deduction hurdles that are calculated as a percentage of that income. For example, unreimbursed medical expenses can only be deducted if they exceed 10 percent of adjusted gross income, and investment expenses must exceed 2 percent. However, if you can’t adjust to a desirable level for 2015, now is the time to start banking deductions for 2016. Pavese suggests that, instead of paying your estimated quarterly state income tax by Dec. 31 and deducting it on your 2015 return, you can pay it Jan. 1-15 and get a 2016 deduction. Also, if an additional deduction would trigger alternative minimum tax, pay your fourth-quarter state income tax and real estate tax installment in January.

“If your bracket will go up next year, consider deferring certain deductions, such as state taxes and real estate taxes, so you can claim them on your 2016 return,” Pavese says. “The higher your bracket, the more the same deduction can save you.”