Retiring with a Plan: 2007

Monday, December 17, 2007

Retirement Planning and the PBGC

As we approach the new year, we will no doubt hear the verse “auld lang syne”. The reference to the phrase, thought to have first been coined by Robert Burns (1759-1796), actually translates into “once upon a time”. When we begin the discussion on pensions in the book, we look thoughtfully back to an era when the obligation to employee was more than simply wage-based, it was a lifelong agreement with the firm.

Guy Lombardo played this song on a 1929 radio broadcast forever associating it with the passing of the New Year.

David McCarthy, author of numerous papers and as the book notes, a lecturer at the Oxford Institute of Ageing, at Oxford University (what the book doesn’t say is that he has since changed that position and is now a lecturer in the Finance group at the Tanaka Business School) studies the role of pensions in business.

His belief that pensions have an important life cycle is the cornerstone for much of his work. When the Employee Retirement Income Security Act of 1974 altered the way companies treated pensions – which are not an obligation under the law, the interaction, not to mention the relationship the employee may have had with the employer, changed forever as well.

The life cycle Dr McCarthy wrote of saw workers entering into an agreement with their employer when they were the most vulnerable cash-wise but had the most to offer from a human capital point of view. Pensions, through their conservative nature offered these employees a beginning at a future they might have ignored otherwise. When the human capital was at its lowest point, the pension was there to help.

Pensions unfortunately do not come with property rights. If a company is sold, dissolved through bankruptcy, or simply goes out of business, the employee can run the risk of losing most of their pension. This was the argument made for the 401(k) plan and was used by President Bush as the basis for his privatization of Social Security.

There are some safe guards in place. The PBGC, or Pension Benefit Guaranty Corporation insures against total loss but has not only a limited reach (companies need to participate in the program by paying premiums for the insurance guarantees.)

Here’s a recent example of how the PBGC works with smaller, lesser know companies.

Steven Taub

How much pension you receive should your former employer face such events depends on when you retire. Recently, the PBGC, which was created by ERISA, raised its maximum pension payout for those retiring at 65 years old in 2008 to $51,750 (that is a 4% increase over the previous limit of $49,500 for plans ending in 2007.)

The maximum amount of payout for an individual who retires at 75 is $157,320 with a guaranteed benefit of $12,938 for those who retire at 45.

There are ways to check to see if your pension is at risk of being under funded. One is to ask for a health record of your plan. Troubled plans usually rely on optimistic projections of the underlying investments or worse and secondly, because of poor performance of the company leaving the plan with no funding to meet its obligations. Those obligations by the way are a result of actuarial tables used to determine the life span of the workers. If you sense your company is in trouble, plan for the worst – even if your pension payout is guaranteed.

Monday, December 10, 2007

Retirement Planning and Income Inequality

Let’s spend a moment looking at income inequality and the idea of retirement. This, whether you are aware of it or not, works against the notion of how you view some of the social programs you may have been counting on in your retirement years.

One of the most popular measures of this was developed by almost a century ago. The Gini index was developed by the Italian statistician Corrado Gini and published in his 1912 paper "Variabilità e mutabilità" ("Variability and Mutability).

There are several ways to express the degree of income inequality in a society. The simplest way is to arrange whatever units you choose persons, families, or households in rank order, from poorest to richest; divide the hierarchy into fifths (quintiles) or tenths (deciles); and compute either the average income by decile or quintile or the share that each grouping has of the society's total income. Then, the shares or averages of rich and poor can be compared.

The chart above puts the poorest person at zero and the richest at one. The curved line represents all of those who fall in-between those two points

A low Gini index suggests that there is a great deal of income equality while a high number would show a society that has great disparity in income distribution. This is expressed as a number from zero to one.

But like all attempts to measure the economy and the persons who live in it, the Gini index has both its pluses and minuses. Let’s first consider why it works.

The Gini index does not consider the “who earns what” in its calculations nor does it take into consideration the size of the economy. The population of an entire country being measured is not accounted for in the index. The transfer of wealth, as would happen from the rich to the poor is measured in the changes of inequality over a period of time.

But the Gini index is a general measure that does not hold up well when the attempt to drill these numbers down to regional observations. This would force the index to compensate for purchasing power, which might be better for some in areas of the country that were more developed as opposed to other regions where the ability to spend wealth may be hampered.

Efficiency is also a consideration. Generally speaking, wealthier households use money better than those who must make living standard decisions about each dollar available to spend. In other words, one household could own half of all the available wealth and the country might have the same index reading as one where distributions were divided equally – one household with no income compared to one household with.

How does this measurement, which often does not take into consideration how much social assistance a household might receive, affect retirement planning.

Consider a study made by Harvard and Berkeley, done separately but with the same attempted goals. Absolute standard of living, a measure of how well you do as it corresponds with death rates found that income distribution did have an effect on not only how well you live, but how long and what social services you might need as a result of your shorter life span and the causes.

At the heart of what many of us expect, is the presence of some social support. Janet Yellen, president and chief executive officer of the Twelfth District Federal Reserve Bank, at San Francisco believes that support comes with a paradox. You can have generous social insurance programs and employment protections, much as they do in Europe, but are they efficient or equitable? In order for these types of programs to be equitable, they would need to be good for everyone. Efficiency suggests programs that take the nation as a whole into consideration.

Why is this important to retirement planning? Two reasons come to mind. First, the US is seen as highly productive, social mobile, and economically innovative. On the flip side of that coin is Europe. Because of its guarantees to its workers, many companies have stagnated creating higher-than-necessary unemployment. This restricts growth.

The second reason we should all consider is referred to as the American Business Model, which does not treat companies as living entities but as tradable and expendable. In some ways, the employee can get caught up in this kind of thinking making retirement planning more of a personal endeavor rather than a state sponsored or even company sponsored reward for long years of toil.

While Europe may be criticized by America business and folks like Ms. Yellen for what it does for its workers, there has to be a happy medium that allows for both equity and efficiency. Unfortunately, that is not likely to happen.

To see how the Europe (currently) supports its citizenry through its social programs, here is a list:

Country Summaries

Thursday, December 6, 2007

Retirement Planning, Long-Term Care Insurance and Lying

Carl Sagan once said: “One of the saddest lessons of history is this: If we've been bamboozled long enough, we tend to reject any evidence of the bamboozle. The bamboozle has captured us. Once you give a charlatan power over you, you almost never get it back.”

The lie. As we continued our discussion about insurance and retirement planning, we are faced with falsehood. In all fairness, insurance companies are not necessarily liars but without a good indication of what the truth is, you have little hope in distinguishing whether or not what you are being told is true.

Oddly, the insurance industry feels just as strongly about you. Long-term care insurance, a policy that is bought well in advance of actual use, and sometimes by folks who trust that the policy they purchase is the right one for them, are often denied the claims they make and for reasons that seem to the average eye, simply minutiae.

“Nothing is easier than self-deceit. For what each man wishes, that he also believes to be true.” Demosthenes

In the book I wanted to emphasize the possibility that LTC insurance sales people were not as truthful about the product they are selling. I wrote “Back in 1965, noted psychologist/anthropologist Paul Ekman believed that human facial expressions were individual and not the result of some sort of evolutionary step that made the message we portray on our faces somehow universal.

Darwin published his work “The Expression of Emotion in Man and Animals” in 1872. The work suggested that particular emotions are attached to particular expressions in humans and in principle, to animals. What Darwin failed to understand was the nature of the falsehood. In fact, Darwin gave but one reference to the subtle art of deception when he wrote: “They [the movements of expression] reveal the thoughts and intentions of others more truly than do words, which may be falsified”.

Margaret Mead disagreed with Darwin suggesting that expressions were a result of culture not some universally inherited trait. This led Mr. Ekman on a worldwide journey to find the truth about what would later be a blueprint for falsehood. He showed pictures of faces experiencing a variety of emotions to a wide variety of people around the world and recorded their reactions.

But the experiment, he realized after a time was flawed. The people he had hoped would show some sort of innate reaction, one that was universal had been tainted by their contact with the outside world. Because, even in 1965, the world had shrunk considerably, many of his test subjects had seen Charlie Chaplin or John Wayne and understood what those faces meant. He needed to find subjects who were untouched by outside influences, a peoples who were technologically remote. He found just such a group in Papua, New Guinea.

Mr. Ekman found that there was a certain universality to how we express ourselves, confirming what Darwin suggested. From his study this remote tribe, he found that anger, disgust, fear, joy, sadness and surprise were universal expressions developed without outside influences. The ultimate goal: how to find out if someone was lying. He never, at least to my knowledge, applied his study of those 43 facial muscles, the ones that offer telltale glimpses into truth and lies to that of the insurance industry.

“Falsehood is easy, truth so difficult.” George Eliot

The reason you should be as skeptical as I am of this particular corner of the insurance industry has less to do with its relative newness as a product but rather with its aggressive selling by the industry. When a product comes to market, it is always promoted to the widest audience available. It is not different with insurance.

Trouble is, we only come face-to-face with an agent who represents a company and a product and that product is something we might not need in the near future. Long-term Care insurance is bought on good faith, research and soul-searching” and because of the time an effort most of us put into the purchase, we expect it perform flawlessly.

A large number of the claims the companies denied were due to paperwork not filled out properly or the right forms were not submitted. They also cited denial of claims were a result of the facilities the clients chose for care were not appropriate or acceptable for nursing care – although all of the people who had filed complaints had used state licensed facilities.

This is cause for concern among current and future policyholders. If Congress can offer incentives such as tax breaks to the industry to encourage people to buy the product, federal oversight may be necessary. This would take the industry’s current overseer, the state, out of the regulation game.

Even as states begin their own market investigations into the practice of long-term care, it adds another layer of concern about whether this industry is too young to be an important part of your retirement planning.

“Always tell the truth. That way, you don't have to remember what you said.” Mark Twain

Wednesday, November 28, 2007

Retirement Planning and Bernard Baruch

I will admit that when I chose a quote for the book by Bernard M. Baruch, I did so with numerous possibilities in mind. The American financier, economist, advisor to US presidents had a treasure trove of quips and notable quotes that would apply to just about any situation.

Video

I could have used “A speculator is a man who observes the future, and acts before it occurs.” Or perhaps “During my eighty-seven years I have witnessed a whole succession of technological revolutions. But none of them has done away with the need for character in the individual or the ability to think.” Might have served its purpose, allowing me to twist towards the ultimate goal of explaining how important what you do today is on how you will live tomorrow.

Mr. Baruch was a speculator who also said: “I made my money by selling too soon” and “I never lost money by turning a profit.” His thinking on how this was done is best explained in his wry observation of himself.

“If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong.”

Aside from the speculative nature of investing in the stock market – I do not pursue this as a method to good retirement planning except when the investment used is the mutual fund, he did believe that a good understanding of who you are and why you do things helps in your decision making process.

Asking yourself why could be at the center of how you approach your plan. Mr. Baruch suggested, “Millions saw the apple fall, but Newton was the one who asked why.” Do you ask why you continue to put off beginning your plan or do you ask yourself why you have under funded it? Chances are, you haven’t.

For this he observed, “In the last analysis, our only freedom is the freedom to discipline ourselves.” This will take some doing. At the key to all of our successes has been the ability to push ourselves forward, possibly even testing our boundaries.

“Only as you do know yourself can your brain serve you as a sharp and efficient tool. Know your own failings, passions, and prejudices so you can separate them from what you see.” That said, how do we do that? Nothing presents itself in stark contrast to what we perceive and what reality is than the task of creating a budget.

A budget outlines our failings, our passions and our prejudices in sharp detail. And in doing so, it allows us to see what our financial life looks like as compared to our financial futures.

Change is difficult. No one would ever argue that point. But it is important to make the change while you still can. Because there is always this prospect: “We grow neither better or worse as we get old, but more like ourselves.”

Tuesday, November 27, 2007

Retirement Planning and Divorce

“After a divorce”, writes E. Mavis Hetherington, author of “For Better or Worse: Divorce Reconsidered” at the beginning of chapter two, “people often imagine that if only they could go back and make a tiny adjustment here of there in the past – not answering a particular phone call, say, or displaying an ounce more resolve in a weak moment – life would have turned out differently for them.”

The reason Ms. Hetherington gets a mention in the book is because of the way she categorizes people into six groups.

The enhancers are who we would all like to be: upbeat, learning from each mistake and turning it to our benefit. In a divorce this would be someone who feels release without regret. In retirement planning, this is someone who understands that things may not be exactly how they envision it but they are nonetheless excited about the prospects of entering a new and mysterious time. This person or couple would gladly downsize and do so without so much as a re-consideration. Free from the confines of work, this person(s) will explore art and gardening with a new or renewed passion. They will volunteer and become vibrant and active members of their community.

And yes, they will have managed this because they saved as much as possible, stuck to a plan and practiced retirement often while they were working. They did not live large even when they had the cash to do so. They did not take unnecessary financial or health risks and pretty much had that single goal in mind for quite a long time.

An enhancer could also be a competent loner. This person was never meant to be confined by marriage and probably will not allow retirement to hold them as well. They forge on without the help or encouragement of others. As the name implies, they do this with some skill.

The good enoughs are like most of us. We take a beating and step right back in, often making the same mistakes as we did previously. In a retirement plan, you will be the one who will be haunted by the missed or mishandled opportunities that may have come your way.

Regret is a mighty potent weight especially as you approach retirement age. Yet, while there is time, and it could take as little as ten years, any retirement plan can be turned around. To become an enhancer, you will need to embrace a sort of lifestyle change.

How little can you live on and not be completely miserable? Not an easy question to ask but look around the dinner table one night and picture yourself asking those kids of yours for a small loan to get by. You may love them but can you rely on them to do well enough to fund their own lives while helping you out as well?

The other direction for the good enoughs is less appealing. Perhaps you would become a seeker. This person stumbles along for most of their working lives and finds that when they no longer want to work, they can not stop. They may have gathered a small pension or tapped their Social Security benefit, but they are finding that life after work may be too expensive. These unprepared souls quickly become depressed.

The libertines actually make a brief appearance in the book as the couple that sold everything for the RV life only to be waylaid by a medical condition that forced them to return to their hometown. Without house and lacking the right kind of coverage (insurance) for the wife’s problem, they were forced to live a wholly different existence than they did when they were working.

In fact, looking back, the libertine might even find work a more desirable place to be. In Ms. Hetherington’s book – and I failed to give credit to her co-author John Kelly and do so here – the libertine rejoices at the idea of finally being free of the confines of a marriage only to find that the experience is fleeting.

And finally, the defeated. These are the hapless workers who labored at the bottom of the wrung and can expect a life of hardship for the foreseeable future. These are not just the hardscrabble people you might expect who end up among the ranks, but those who have had a simple turn of luck, a misfortune, and an I-didn’t-see-that-coming moment.

Can we learn something from divorce? Absolutely. It, all by its lonesome can derail a perfectly good retirement plan. For the woman, statistics prove that you will take the longest time to financially recover. For the man, the cost of recovering can be just as difficult on your health as your wallet. Avoiding a divorce would be the best method of retirement survival.

But the separation events described above apply nicely to the state of retirement. Will you blossom or wither? Will you become regretful or will your ability to survive be enhanced by your newfound lifestyle? You are making the choice right now.

Tuesday, November 13, 2007

Retirement Planning and Louis Pasteur

I use a well-known quote from Louis Pasteur in the book: “Chance favors only the prepared mind.” Essentially, the man who debunked spontaneous regeneration, a belief in the notion that some things could automatically be created from inanimate objects, understood the importance of the experimental process. It is what he brought to that process that separated him from his fellow experimenters.

(For those of you who may not be aware of what spontaneous regeneration is, you can try this simple experiment at home: Take one large jar. Place one pair of sweaty underwear and some husks of wheat and if you did everything correctly, you will have a mouse in twenty-one days. Even when Italian physician Francesco Redi, using the first controlled experiment to debunk the myth in 1668, the general populous was not swayed.)

Pasteur (1822 – 1895), a chemist who was born in Dole, in the region of Jura, France said, "Imagination should give wings to our thoughts but we always need decisive experimental proof, and when the moment comes to draw conclusions and to interpret the gathered observations, imagination must be checked and documented by the factual results of the experiment."

Philosopher Ernest Renan described Pasteur's method of research as a “marvelous experimental method eliminates certain facts, brings forth others, interrogates nature, compels it to reply and stops only when the mind is fully satisfied. The charm of our studies, the enchantment of science, is that, everywhere and always, we can give the justification of our principles and the proof of our discoveries."

Should our approach to retirement planning be any different? I don’t believe it should. Although I do lay some specific guidelines for how you should question your retirement plans, each individual query will be different for each of us. We have different experiences and obstacles, many of which are not of our making. While you can control some of the roadblocks that life places squarely in your path – such as debt, your own health – many are unforeseen.

Each event requires us to interrogate the nature of the obstacle. Can it be overcome? How long will it take? Is there a way to absorb the change into my retirement plan with out jeopardizing the goal? And if the setback is major, how will I adjust my plan to compensate?

Monday, November 5, 2007

Questions: 11-18: Retirement Planning and Long Term Care: Eighteen Questions

Many policies have their own set of requirements. It is important to know when and how these criteria will be enforced. I’m skeptical of many of these qualifications. Policies issued now may have a wholly new set of hoops to jump through when the actual time you make a claim comes around. But asking the question now and including your agents (signed answers) can be helpful when you do make a claim twenty years from now.

11. Ask your agent if this policy requires the following questions to be asked if you put a claim in for nursing home care:
* An assessment of activities of daily living?
* An assessment of cognitive impairment?
* Physician certification of need?
* A prior hospital stay?
Other?
How will your potential policy cover the need for home health care:
* An assessment of activities of daily living?
* An assessment of cognitive impairment?
* Physician certification of need?
* A prior hospital stay?
* Other?

12. Surprisingly, or maybe not, insurance companies may have a small loophole built into the policy that you may not be aware of when doing your comparisons. For instance, does this policy require a prior nursing home stay for home health care coverage?
* Yes
* No

13. Once the policy is written and signed, it cannot be changed. The language is set in stone so to speak. This also should apply to the cancellation policy. If you are on good terms with the insurer, your policy should be guaranteed renewable. It may be, but ask anyway. Is the policy guaranteed renewable?
* Yes
* No

14. We have discussed some of the optimum years for getting these policies. Do it before your birthday and if possible, do it during your fifties or earlier. Here is an example of several policy quotes I received from the Federal Long term Insurance Program.

Because I am not eligible (I am not, as the site says, a Federal family), I used their calculator to determine several options. All of the policy quotes I received were based on three years of coverage, a ninety day waiting period, a daily benefit of $100, $200, and $300, comprehensive coverage (which includes both nursing and home care) and inflation protection. Here is what I found out based on my age (49 at the time of this writing), one year later, and if I had applied ten years later.

On the $100 benefit at age 49, I would pay $60.01 a month and receive a lifetime benefit of $109,500, at a daily benefit of $200, my premium and my maximum benefit would increase by twice; at a $300 daily benefit, I would pay $180.

Waiting a year until after my fiftieth birthday, I would be making slightly higher premium payments of about $4 – 8 a month. But if I waited until I was 59 to purchase the policy, the policy premium on a $100 daily benefit would increase to $89.47, at $200, it would double and if I wanted a $300 day benefit coverage, my monthly outlay would be over $265.

Ask your insurer for their insurable age ranges. It is important to understand what kind of insurance pool you are jumping into. If there is a cut-off date, this might be prove to be beneficial in terms of what kind of people are participating. If they offer a lengthy cut-off date, they may be filling the coffers with policies, many of which they will paying out on soon.
What is the age range for enrollment?

15. It is possible that your policy will no longer require you to pay the premium once the policy is activated. Find out if there is there a waiver-of-premium provision and how long must you be confined before the waiver begins?
For nursing home care
For home health care

16. The inflation portion of the policy is important and may cost you extra. Does the policy offer an inflation adjustment feature as a regular part of the policy or as a rider? And if they do:
What is the rate of increase? $ _________
How often is it applied? $ _________
For how long?
Is there an additional cost? $ _________

17. Policies can offer discounts depending on how you pay your premiums. Often, there is as much as nine percent discount if you pay the premium in full on an annual basis. Be sure to ask if you can receive any additional discounts if the money is electronically transferred. Once all of these things are asked of the insurance company, don’t expect a clear-cut view of all of the costs. But you will be able to get a general idea of what the policy will cost you and whether you can afford it.

What does the policy cost?
Per year $ _________
With inflation feature: $ _________
Without inflation feature: $ _________
(get it regardless of the cost savings that might be shown)

Per month $ _________
With inflation feature: $ _________
Without inflation feature: $ _________

18. Most policies come with a period of cancellation. You may have second thoughts. You may find, if you read further in the book, that there may be another option available for those who are diligent enough to pursue the alternative. Ask your agent if there is there a 30-day free look?
* Yes
* No

Questions: 4-10: Retirement Planning and Long Term Care: Eighteen Questions

As we continue our discussion about LTC coverage and what it covers, comparisons become more difficult. The next six questions will help you compare the types of coverage available

Compare how long your policy will cover the following:

A stay in a nursing home
If you need care at home

4. To determine what you maximum lifetime benefit is, simply multiply your daily benefit times the number of days you are covered. For instance, in the chart below, a policy with a daily benefit of $100 payable for three years will pay out $109,500 in benefits ($100 x 3years=$109,500 – this lifetime benefit is not reflective of inflation increases). Once again, the length of time you choose for your policy and the waiting period have an effect on your maximum lifetime benefit.

What does your policy offer?
For nursing home care $ _________
For home health care $ _________

5. Does the policy have a maximum length of coverage for each period
of confinement?
For nursing home care
For home health care

6. Like many policies that have a wide swath of unknown territory to deal with, such as LTC policies, there is generally a waiting period before the policy kicks in. Because Medicare covers the first one hundred days, many LTC policies do not begin before 90 days. You can request a shorter waiting period but the monthly premium is often prohibitively higher. Ask your agent how long you must wait before a preexisting condition is covered?

7. How long must I wait before benefits begin?
For nursing home care
For home health care

8. In almost all standard policies, Alzheimer's disease and other organic mental and nervous disorders are not covered. That’s not to say you cannot get these coverages added. One of the most difficult aspects of comparing any type of insurance is gathering all of the information about what you require and allowing each policy to stand side-by-side.

Some policies have ingredients that met most but not all of your requirements while some are basic shells that can be added to based on your needs. The later types of policy type additions are called riders. Riders, in insurance parlance, add benefits at an additional cost. Among the most important aspect in an LTC policy is coverage for home health care.

When comparing policies, this should be a standard item unless of course, you live in an area where home health care may not be readily available. In such instances, a home health care option would be the standard by which to judge policies. It can be added later if your circumstances change.

Some policies will offer non-forfeiture benefits – decline them. This type of benefit is costly and unnecessary. It is offered as a rider and will be sold as something that should have been included in the policy. The non-forfeiture rider usually pays some or all of your benefits even if you no longer make premium payments. A certain amount of time must have elapsed first.

Another type of non-forfeiture rider is disguised as a return of premium. This allows you to cancel your policy and receive some of your premium payments back. Disregard such a rider or offers to add it after you have had the policy for a number of years. Often this seems enticing when estate planning is taken into consideration. You may reason that your heirs would get a return on your policy if you never used it or canceled it after a certain amount of time. The unfortunate aspect of this rider is the temptation to cancel the policy at exactly the time in your life when you are most likely to use it.

The last and probably the best rider accounts for inflation. Because the value of today’s dollars will be vastly different than dollars calculated in the future, getting some sort of inflation protection is always a good option. Try to choose an option where this protection is imbedded in the policy. If not, add it.

The question here should be, does your policy cover things like Alzheimer’s or other organic mental diseases?
* Yes
* No

9. Does your policy include inflation protection?
* Yes
* No

10. When you do your side-by-side comparison, have you included all of the possible riders and their cost to the policy?
* Yes
* No

Retirement Planning and Long Term Care: Eighteen Questions

As we continue to look at the possibility that retirement may not be what we envision, the conversation takes a turn to caring for that unforeseen need. Over the next three posted offerings, we will look at some important question to ask your potential insurer before you sign yourself or a loved one up for a long-term care policy of LTC.

Please note that I do discuss, at length in the book, what Medicare and Medicaid will and will not pay for and what kind of assets (or lack thereof) those programs will allow. That said, Short-term care as spelled out by Medicare requires that the following conditions must be met:

The search for LTC policies can be long and confusing. I’ve put together a small checklist of things to ask your potential agent or the one you already have. LTC policies should be compared against each other with a minimum of three side-by-side evaluations.

Here are the first of eighteen questions on the subject of Long-Term care Insurance. Additional information can be found in the book and at BlueCollarDollar.com

1. Does your policy cover the following:
* Nursing home care
* Home health care
* Adult day care
* Alternate care
* Respite care
* Other

2. Each policy differs on a pay per day basis that can make it difficult to choose. Primarily we are concerning ourselves with nursing home care. There may be other opportunities to finance some aspects of in-home care that we have yet to discuss or have only briefly touched upon (HSAs).

The policy should clearly state how much each item is paid for and whether these numbers are indexed for inflation. For the inflation number, a modest percentage of inflationary risk would be 3% year-over-year. That is however not guaranteed so, in a worst-case scenario, expect inflation to be higher, not lower twenty-years or more from now.

How much does you potential insurer pay for the following services:
For nursing home care? $ _________
For home health care? $ _________
For adult day care? $ _________
For alternate care? $ _________
For respite care? $ _________
Other? $ _________

3. How long the benefits last is an important question indeed. Medicare, as we discussed earlier, does not pay for long-term care expenses. It does cover some limited convalescent skilled nursing care and some limited home health care under restrictive, short-term conditions (see the previous chapter). One hundred days is considered the limit for this social insurance program.

The Long Term Care Insurance industry breaks down the level of care into three distinct categories. So in fact, does Medicare.

It covers only skilled nursing care. This leaves those in need of coverage for intermediate or custodial care at risk to pay out-of-pocket. This is also the most financially draining aspect of recovery for the family members, many of whom must take time off from work to take care of the recuperative patient who may not be able to complete many daily activities or ADLs.

Although there is no limit to the amount of one hundred day stays you may have at a skilled nursing facility, you must meet the criteria set forth by the Health Care and Financial Administration or HCFA, now known by its fuzzier name, The Centers for Medicare and Medicaid Services or CMS. In the fine print, you will find the exclusion of Alzheimer's or Parkinson's and the fact that Medicare, HMO's, Major Medical and Medigap insurance policies do not pay for long-term nursing home care stays.

Generally, these LTC policies last for three years. Keep in mind the “look back” period and see if your policy offering jived with the new rules of five years.

Friday, October 26, 2007

Retirement Planning and Woulda, Coulda, Shoulda (or Old Age and Health, Part Two)

The poem below, because of copyright restrictions and the fact the Shel Silverstein’s people never got back to me after I requested permission to include it in the book goes something like this:

Woulda-Coulda-Shoulda
By Shel Silverstein

While the previous post here outlined some of the serious health risks that are under-realized and little acknowledged in most retirement plans, I wanted to spend a moment explaining some of the references that I used for this section.

We will not be the retirees in the commercials. This is bad news for some us and a grim reality for others. The idea that we will enter old age in a different physical condition than we are currenlty in is highly likely. For most of us, that condition will not mean an improved state but rather one that is in need of repair.

We are the woulda-coulda-shouldas that scrimped and saved, lost sleep over money, worked too, too hard, and lived perhaps a bit too well. But living well will present its problems sometime in the future as our bodies will ask us, “what exactly did you do?”

Consider Ellie Metchnikoff (1845-1916), a Russian biologist who studied in Russia and Germany, and after working with Pasteur in Paris, became deputy director of the Pasteur Institute in 1904. He also won the Nobel prize in 1908 for medicine for his work in immunology.

As a biologist, he noticed that his advancing age was bound to complicate things for him. In the preface of his book The Prolongation of Life: Optimistic Studies also written by Ilya Ilyich Metchnikoff and Peter Chalmers Mitchell he wrote: “It is, of course, quite natural that a biologist whose attention has been aroused by noticing in his own case the phenomena of precocious old age should turn to the study of it. Because it is equally plain that such a study could give hope of resisting the decay of an organism which had already for many years been growing old.”

As a scientist, he began his research by looking at the historical and cultural ways peoples around the world treated their elderly members. He was well aware of how the old were thought of in Europe during his time. The sight of these people with the ravages that time took on the body concerned him. What Metchnikoff found made him pause asking why those cultures developed the attitudes toward the elderly and the way they treated their old.

The Melanesian islanders buried their old tribe members alive when they reached a point of uselessness. Natives of Tierra del Fuego would eat an elderly woman in times of famine, he wrote in cool style of an academic, because “dogs could catch seals, whilst old women could not do so.”

But we are civilized now. Right? At the time Metchnikoff wrote his book, a follow-up to his book Nature of Man, old age was nothing to look forward to. Suicide was rampant among the elderly of Metchnikoff’s era, with rates running almost twice that of any other age group. Murder of the old, as was discussed in Dostoyevsky’s “Crime and Punishment” seemed to be justified because of the childlessness, worthlessness, ill-temperedness and poor health of an old woman one might encounter was thought to be “a nuisance to everyone. She does not even now why she should live”.

A Danish law passed in 1891 began what could have been the first governmental type intervention into the deteriorating circumstances of the elderly. Metchnikoff was a biologist and his primary concern was how we age, why we do so in such different degrees and what if anything can be done to cease or at least slow the process. He looked at numerous sources for his answer from the cellular level to the giant Dragon Tree, the baobab, the cypress and of course, the one we are most familiar with, the sequoia of California.

I do however mention Sanford Bennett in the book and mostly to encourage those of use who have abused our bodies more than just a tad over our lifetimes. He found himself, as he writes in his 1912 edition of Old Age: Its Cause and Prevention: The Story of an Old Body and Face Made Young., republished in 2003 by Kessinger Press, “At fifty, I was a physically old man. Many years of a too active business career had resulted in a general physical breakdown.” He continues by describing his state as “wrinkled, partially bald, cheeks sunken, face drawn and haggard, muscles atrophied and thirty years of chronic dyspepsia.” For those of you who may not know what dyspepsia is, the word was and still is a more medical term for upset stomach and acid indigestion. That, he says later caused him to develop a “catarrh” (kind of like a running nose in your gut – it just doesn’t sound very pleasant) “of the stomach”.

Bennett at age 50

But Bennett turned that physical deterioration around as he developed an exercise routine, researched dietary guidelines and wrote his experiences down if only to authenticate his health reversal. Like Metchnikoff, he spent a good deal of time studying the ill effects of aging and developed a way to fix what nature had wronged.

Bennett at age 72

He writes that he was unable to find adequate information about the subject largely because no one prior to him had experienced what he had. So he offered to the public what may have been the first self help book for health designed for the layman.

Retirement planning, like the claim made by Bennett, is not something that you have to accept at face value for what it is. If you focus on your health as an important attribute to a successful plan, the financial end of the equation may just fall right into place.

To answer your question: No. Being healthy will not make you financially savvy. That’s why you have me. But you cannot ignore the cost of poor health on your retirement. We are all aware of the pressures already being exerted on our health system and movement to push more and more of those costs and as well as the decisions of how that care should transpire back to the private citizen.

This will not be the last time we touch on the topic of health and the cost it tallies against your best retirement goals. Poor health almost acts like a tax on those savings, which is yet another important topic we will consider further along.

Thursday, October 25, 2007

Retirement Planning and Your Health

Few of us factor in the cost of our health on our retirement. We live with great gusto when we are young, never thinking of the possible implications those risky behaviors can have later in life.

We often discuss risk in financial terms but that discussion is often focused on the risk of an investment. But risk can be controlled in the world of investing just as it can be controlled when it comes to your health. Opting for less risky investments however can lead to smaller returns on that investment dollar. The opposite is true for your health.

When it comes to your health, this one area that requires you to review how much risk you have taken and what that risk will affect. Health risks demand conservative investing.

Those risky behaviors can have daunting costs later in life that can serve to undermine the best-laid plans. While incidents of cancer actually decreasing somewhat and most of the credit for that is due to earlier detection, it still remains a menace that is, in many cases preventable.

At Harvard University’s Cancer Prevention Center, they list ten controllable risks and habits, each of which has additional side benefits across your entire health picture.

Those risk factors are:
Maintaining a Healthy Weight

Weight-control Information Network

Getting Started

Nutrition Navigator

Energize Yourself! Stay Physically Active

The Nutrition Source

Weight Management

Physical Activity

There is growing proof that physical exercise can prolong your life and ultimately lower your risk for disease. Remember, it isn’t too late to start and when you do, do so regularly. But if you haven’t done much more than remote control calisthenics, it would probably be best to talk with you doctor prior to getting started.

Tobacco Use

Tobacco use is the leading preventable cause of death worldwide. Aside from causing 90 percent of all lung cancer, cigarette use is related to the risk of cancers of the bladder, kidney, pancreas, lip, mouth, tongue, larynx, throat, and esophagus, among other chronic diseases.

Although the X Pack is primarily designed for those who have begun smoking at an early age, the product, the brainchild of Dr. Lorien Abroms, who won the Gareth Green Award for Public Health Practice is suitable for any age group.

Additional links:

American Cancer Society – 800 ACS-2345

American Heart Association – (800) 242-8721

American Lung Association – (800) 586- 4872

Centers for Disease Control

Diet, Multivitamins, Alcohol Use The HCCP is quick to point out that just because you may have received numerous and often conflicting reports about what you should and should not eat, that you should not be discouraged. The science behind diet is evolving but one thing can be said for certain, fruits and vegetables, less meat and generally avoiding unnecessary fats will help you reduce your risks for many health problems. Alcohol should be drunk in moderation if at all. Once again the science is still finding its footing on this subject but most studies agree, too much of anything is bad for your delicate system.

Additional resources

Nutrition.gov

Harvard School of Public Health: Department of Nutrition
The Nutrition Source offers basic but detailed nutrition and healthy eating information, as well as the latest in nutrition news.

American Institute for Cancer Research

New American Plate series

Sun Exposure The science on this category is pretty straightforward. Sunlight is not a good thing for most of us and for those of us who think we can tan, it can be deceivingly bad. The proportion of major cancers due to sunlight is startling: Melanoma (over 90%) ,Basal cell carcinoma (over 90%), and
Squamous cell carcinoma (over 90%) This is a risk factor that is easily controlled.

Here are some suggestions:

Sexually Transmitted Infections Few if any of us consider infections as a risk for more serious diseases.

And even fewer, consider the risk of any sexually transmitted disease as having long-term, often cancerous results.

INFECTIOUS AGENTS ASSOCIATED WITH CANCER
Agent	Type of cancer
Human papillomavirus (HPV)	Cervix, vulva, anus, penis, head and neck
Hepatitis B virus (HBV)	Liver
Hepatitis C virus (HCV)	Liver
Helicobacter pylori	Stomach
Epstein-Barr virus (EBV)	Nasopharynx, Hodgkin’s disease, non-Hodgkin’s lymphoma
Human herpesvirus type 8 (HHV-8)	Kaposi’s sarcoma
Human immunodeficiency virus type 1 (HIV-1)	Kaposi’s sarcoma, lymphoma
Human T-cell lymphotrophic virus type I (HTLV-I)	Leukemia/lymphoma
Schistosomes	Bladder
Liver flukes	Bile duct

Screening and Family History & Genetics

And lastly, frequent screening for such treatable and often preventable diseases such as breast cancer, cervical cancer, colon cancer and melanoma all help to reduce your risk later in life. And while genetics is still in its infancy, the communication you have with your doctor, especially when it comes to family history of illness is extremely important.

So if you are focused solely on the monetary value of your retirement plan, it would be wise to take into consideration some of the additional factors that are well within your control and most importantly, can end up thwarting all your well-intentioned efforts.

Retirement Planning and Your Health

Weight-control Information Network

Getting Started

Nutrition Navigator

Energize Yourself! Stay Physically Active

The Nutrition Source

Weight Management

Additional links:

American Cancer Society – 800 ACS-2345

American Heart Association – (800) 242-8721

American Lung Association – (800) 586- 4872

Centers for Disease Control

Additional resources

Nutrition.gov

New American Plate series

Here are some suggestions:

Sexually Transmitted Infections Few if any of us consider infections as a risk for more serious diseases.

And even fewer, consider the risk of any sexually transmitted disease as having long-term, often cancerous results.

INFECTIOUS AGENTS ASSOCIATED WITH CANCER
Agent	Type of cancer
Human papillomavirus (HPV)	Cervix, vulva, anus, penis, head and neck
Hepatitis B virus (HBV)	Liver
Hepatitis C virus (HCV)	Liver
Helicobacter pylori	Stomach
Epstein-Barr virus (EBV)	Nasopharynx, Hodgkin’s disease, non-Hodgkin’s lymphoma
Human herpesvirus type 8 (HHV-8)	Kaposi’s sarcoma
Human immunodeficiency virus type 1 (HIV-1)	Kaposi’s sarcoma, lymphoma
Human T-cell lymphotrophic virus type I (HTLV-I)	Leukemia/lymphoma
Schistosomes	Bladder
Liver flukes	Bile duct

Screening and Family History & Genetics

Monday, October 22, 2007

Retirement Planning and Another Rainy Monday Morning

Although there is no scientific proof that we think about retirement most often on a rainy Monday morning, it would have to rank high among the reasons of why folks focus their hard earned cash on reaching those final days. The idea of dragging ourselves out of bed to go off and do a job we may or may not be necessarily enamored with doing, can seem especially hard as the list of things we would rather be doing grows.

But few of us use work and the paycheck that comes from the job you do in a way that would limit the number of Monday mornings you have yet to face.

Consider the employee who participates in a 401(k) plan. She or he is probably contributing the same amount to their tax deferred plan as they did when they first signed up for the program.

In the mean time, the nature of your job has changed. If you haven’t left for greener pastures at another company, you may have received some time based or merit raises. Bonuses aside, the increase in pay was probably quickly, even seamlessly absorbed into your daily budget. And there is your retirement plan, the one you set up all those years ago, languishing.

But wait, you might say. As your pay increases, so does the amount taken out of your check if you have set yourself up to have a certain percentage removed. But it is not enough to take a percentage of a percentage. If you receive a 2% raise, a $1,000 a week paycheck would increase by $20. A 5% deduction of pre-tax income would see an increase of exactly one dollar a week or $52 a year.

You have basically two choices. Dave Barry, humorist and author who at one time suggested investing in tiger poo instead of mutual funds said, "You still have time to salvage your retirement! All you need to do is develop some financial discipline, develop a realistic budget, avoid frivolous spending, pay off your debts and start putting away a meaningful amount of money each month for the future. Don't be discouraged! You really can do it, if you put your mind to it and use your magic time-travel ring!"

Or you can funnel a percentage of that raise (or all of it) into your 401(k). Suppose the increase in pay you receive takes place on a annual basis. Suppose that you take that modest cost of living adjustment of just 2% we mentioned above. This is almost a negligible amount when you look at it on a week-to-week basis on a $52,000 yearly income to about $20. This may not seem like much except when you apply it to your future. That $1,040 extra bucks is huge to your retirement plan.

In the book, I ask you to look at work from your current point of view. You may enjoy your work. The vibrancy and daily rigor a great job can give you are hard to replace during retirement.

The Bureau of Labor Statistics publishes a monthly report on employment. This report can be an indicator of economic strength or weakness and depending on who you are – average Joe or a Wall Street investment type, it can mean nothing or everything. What we miss in those numbers, which for the most recently published unemployment rate in September was 4.7%, is what they tell us about the future. This number comes with all sorts of caveats and often is re-adjusted for one reason or another.

One other number we should look at is the Civilian Labor Force Participation Rate. For September, it was estimated that 66.0% of the population was working.

Yet, according to National Atlas, a government mapping site, the growth of the population, especially among those who are aging, could spell disaster.

The site reports that “for the population 65 years and over, the growth rate in the South (16 percent) was nearly three times the growth rate in the Northeast. And the growth rate in the West (20 percent) was more than three times that of both the Northeast and the Midwest for this age group.

“The 50-to-54-year age group experienced the largest percentage growth. Of the 5-year age groups, 50-to-54 year olds experienced the largest percentage growth in population over the past decade, 55 percent. The second fastest-growing group was the age group 45 to 49.

“The baby-boom cohort entered these two age groups during the past decade. The third fastest-growing group in the past decade was 90-to-94 year olds, which increased by 45 percent.”

To me, this signals some tough competition for fewer jobs. If you had planned on working in your later years and you haven’t decided what that some other job will be. You had better ramp up those savings while you have a chance.

If you did plan on working well into what would normally be considered retirement age, now is the time to cultivate a new career.

Pages

Monday, December 17, 2007

Monday, December 10, 2007

Thursday, December 6, 2007

Wednesday, November 28, 2007

Tuesday, November 27, 2007

Tuesday, November 13, 2007

Monday, November 5, 2007

Friday, October 26, 2007

Retirement Planning and Woulda, Coulda, Shoulda (or Old Age and Health, Part Two)

Thursday, October 25, 2007

Retirement Planning and Your Health

Retirement Planning and Your Health

Monday, October 22, 2007

Retirement Planning and Another Rainy Monday Morning