Strategic Financial Planning

April 26, 2011

Retirement health costs stabilize – for now

Perhaps one of the most difficult financial situations to plan for is medical expenses in retirement. It’s an expense we can’t predict, because we don’t know what health conditions we will have in retirement. But for those trying to plan, there is good news.

The latest estimate for the cost of health care in retirement is less than it was a year ago. According to Fidelity Investments, a 65-year-old couple retiring this year will need $230,000 to pay for medical expenses throughout retirement, not including nursing home care. That’s an 8 percent decline from last year’s $250,000 estimate.

The decline is attributed to Medicare changes under recent health care reform. The change reduced expenses for prescription drugs.

“While the savings generated through the health care reform laws is a welcome relief to many seniors, it should be considered a one-time adjustment, at least for the time being,” Brad Kimler, executive vice president of Fidelity’s Benefits Consulting business, said in a news release. “Today’s workers still face the prospect of significant medical expenses in retirement and must begin to include those costs in their retirement plan strategies.”

Kimler added that we should expect health care expenses to continue to rise as medical services continue to see price increases.

In the meantime, seniors now can enjoy those drug savings. Beginning this year, the law offers a 50 percent discount on brand name drugs that fall into the “donut hole” — the gap in Medicare between $2,840 and $4,550. This gap will further be reduced until eliminated in 2020.

The concept of the government helping to reduce medical costs isn’t extending to nursing-home expenses, however. This is a big misconception among Americans, who often mix long-term care with medical care. They are not the same. Still, 45 percent of those between 40 and 64 expect the government to pay their long-term care costs, according to a recent Thrivent Financial survey of 2,000 adult Americans (including 745 pre-retirees).

“Many who expect that government will foot the bill for their future long-term care may be unpleasantly surprised,” Mona Diebold, manager of long-term care solutions at Thrivent Financial for Lutherans, said in a news release. “While federal and state governments share responsibility for running Medicaid and Medicare programs that may pay for long-term care, restrictions limit who may qualify and when. Often, for example, individuals with personal financial resources first must substantially ‘spend down’ those resources before government programs will aid them.”

An estimated 70 percent of individuals over age 65 will require long-term care services at some point in their lives, according to the National Clearinghouse for Long-Term Care Information.

Filed under: Planning News & Ideas — strategicfp @ 8:33 pm

March 21, 2011

Planning for weddings – and finances

With the spring wedding season approaching, many couples are busy planning for the big day. Part of the planning that may be left out is financial planning as a couple. Because the divorce rate is still close to 50 percent, leaving out financial planning can cause heartaches down the road.

Part of the planning may be a pre-marital contract. This makes sense not only to show who owns what, but can protect either spouse’s business from being caught in a divorce. It also helps each other avoid assuming debts of the other. Overall, the pre-marital contract can prevent a bad divorce experience.

In most states, what an individual brings into the marriage can remain his or her separate property, as long as it is not mixed with shared property, such as a joint checking or investment account. Also, property inherited or gifted during a marriage to one spouse may remain that spouse’s separate property.

While property owned at the time of marriage can be kept separate, property obtained or earned during a marriage may not be separate. For example, if the husband buys a car in his name, legally it is likely half the wife’s. The debt can be half the wife’s too. That’s because it is seen as being purchased with income earned during a marriage. This can even be the case for growth of separate property. If the wife has an IRA at the time of marriage and it grows by $50,000, then $25,000 of the growth can be the husband’s because it was earned while married.

If both spouses agree to separate property, it is important to speak to an attorney about a written agreement and proof that the property is separate. If a marriage ends in divorce, the court is going to want proof it is separate property.

In some states like Texas, marriage is not the only act that can create joint property. Just being in a relationship where two individuals are holding themselves out as husband and wife and are living together may trigger a ruling of joint property by a court for property obtained during this relationship. This could be detrimental to an individual who uses his or her money for a major purchase only to see half of it taken away when the relationship ends.

If this is the case in your state, a co-habitation agreement may be a good idea. This is like a pre-marital agreement for singles. Any individual with substantial wealth or property should consult an attorney before entering a serious relationship.

Filed under: FYI For Your Finances — strategicfp @ 9:12 pm

February 14, 2011

Love and Money: Couples planning tips

February is the month of love, when couples renew their commitment to each other by buying chocolate hearts and flower bouquets. But spending money is not the answer to a long relationship. In fact, not being able to spending a lot of money could help a relationship grow stronger.

Couples who develop a budget together and agree on how the money is spent are more likely to understand that love comes from the heart, not the wallet. These couples understand that time together is what is most important.

Other couples who are suffering through tough financial times also grow stronger by working together to survive. A recent survey found 38 percent of couples said recessionary times can prevent a divorce or separation, according to the National Marriage Project at the University of Virginia. And 29 percent said the recent recession deepened their commitment.

It is unfortunate that it takes a recession to make couples realize how important it is to work together toward successful financial planning. Acting as a team, a couple should plan on how to handle both prosperous economic times and deteriorating financial conditions. This way, the couple knows ahead of time what to expect when things aren’t going right, and more importantly how not to get carried away and forget about saving for the bad times when the money is flowing.

Key points that couples should plan ahead of time include:

  1. Whether to keep separate bank accounts or merge into a joint account;
  2. How to pay off debt and avoid debt;
  3. How to avoid overspending and how to discuss how to avoid surprising each other with expenses;
  4. How to discuss money secrets so that the other half can help solve issues or avoid disputes;
  5. How much to save for emergencies and what those emergencies could be.

Working together as a couple not only bodes well for the relationship, but the nation.

“Research shows that marriage makes people happier, live longer, and build more economic security. Children with married parents perform better in school (and) have less trouble with the law, less teen pregnancy and fewer issues with addiction,” said Sheila Weber, executive director of National Marriage Week USA, an effort to promote the benefits of marriage.

Filed under: Planning News & Ideas — strategicfp @ 9:54 pm

January 14, 2011

Start new year budget off right

The new year brings new goals, and those goals often include financial ones. Saving money is the third most popular goal, according to a survey of 5,000 people by And the way to save money is to either make more or spend less. For most of us, the latter is the most realistic option.

But that doesn’t mean it’s not challenging. Budgeting often fails for many people because our brains are not wired to maintain a spending consistency. Part of that blame has to be because we have become a cashless society with the proliferation of credit cards. We don’t think about our spending when we can flash credit cards. According to an M.I.T. researcher, this is one of the reasons people fail in budgeting. Spending with cash is more painful and results in spending less.

So if we fail at budgeting, what can be done to improve the odds of success? If you believe M.I.T., the first thing to do is get rid of the credit cards.

Closing them all may not be the best option because they might be needed someday and they can help your credit score. Instead, why not do your own “credit freeze” and put them in a bowl of water and place it in the freezer. That way, when temptation is calling, by the time the ice melts, the temptation may pass.

A psychological tactic to help in sticking to budgets is challenging a spouse or friend on who can spend less. The one who spends more than the other must buy the winner a gift or put a certain amount in the winner’s savings account. People often become more serious with spending when there is a consequence of losing money.

Another strategy is not to keep a budget at all, but keep a savings plan. Determine an amount to save each month, usually 5 percent to 15 percent a month, and don’t worry how the rest of the monthly income is spent. Save that amount the first of every month. This way, it meets a goal of building savings or retirement accounts for the future without having to worry if there is any money left at the end of the month to save.

Thinking differently can give anyone an advantage in managing money.

Filed under: FYI For Your Finances — strategicfp @ 7:41 pm

December 15, 2010

Make a plan for long-term care

The best financial plans can guide retirees through the rest of their lives except for one stage of life — their final days. Retirees who becomes unable to care for themselves face daunting costs in the final stage of life that many times can leave them penniless.

One way many people protect themselves from this is buying long-term care insurance. But the costs make it difficult for many in the working class. A couple around age 50 can expect to pay around $4,000 a year for the insurance. And that premium doesn’t always stay the same. This year, some insurers raised premiums as much as 40 percent. The good news is that up to a certain limits, long-term care premiums are eligible for a tax deduction.

Many who can afford it are looking at a one-time premium for long-term care insurance. Making a lump sum payment of premiums, about $50,000, can avoid those premium increases over time. New policies can provide death benefits in case the retiree dies before needing care. The only other option is to save in an individual investment account.

However it’s done, neglecting planning for this potential budget killer can cause financial pain. From 2009 to 2010, nursing home room rates rose 4.6 percent to $83,585 a year, according to the Market Survey of Long-Term Care Costs by MetLife Insurance Co. Assisted living centers saw room rates rise 5.2 percent to $39,516 a year. And that’s one expense Medicare doesn’t cover.

The typical patient in these elder homes is a woman, age 83 years old, the survey found. With the average life expectancy of a woman today at 81 years old, about half of women alive today would fit the profile of needing long-term care.

This allows a perspective on who should be planning for this expense. A woman whose parents have lived a long healthy life are more likely to need insurance or a savings plan to pay for care costs.

If paying the cost of a premium to provide protection up to the current costs is too much, buying a policy that offers partial protection, such as $100 a day instead of a $200 a day benefit, can at least help offset the cost. The same goes for investing in a personal account — save what you can. For those who reach age 50 and are in good health, the message is clear: Make a plan to pay for medical care in retirement.

Filed under: Planning News & Ideas — strategicfp @ 9:09 pm
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