Articles

Hybrid Long-term Care Policies: A Flexible Alternative

Hybrid Long-term Care Policies: A Flexible Alternative

Apr 2021

What if, one day, you can no longer dress yourself or tie your shoes? Someone turning 65 today has an almost 70% chance of needing some form of long-term care (LTC) sometime in the future. And while many receive in-home care from relatives, that’s not feasible for others. They may not have someone who’s able to help, or they may need more care than can be provided at home.

Finding long-term care is hard enough; paying for it can be an even bigger hurdle. Some elect to pay out of their savings. Others rely on a traditional LTC insurance policy; they pay a premium, and the policy pays a defined amount toward eligible in-home care, adult daycare, or Alzheimer’s support if they need it.

One downside of traditional, stand-alone LTC insurance is that, if the policy does not provide a fixed premium, the cost can escalate, sometimes exorbitantly, over time. And that time could be when you’re living on a fixed income and need the benefits.

Recently, a third option has emerged: the hybrid LTC policy, which combines life insurance or an annuity with long-term care. You can pay a lump sum upfront or a fixed premium over time, and you can receive one or the other benefit in return, depending on the policy you purchase. If you never need LTC, the policy can pay income like a traditional annuity or a death benefit like a traditional life insurance policy. If you do need LTC, the policy pays toward those costs in an amount you choose when you buy it. Depending on the policy, money provided for LTC would reduce the annuity or death benefits that you’d otherwise receive.

Return of premium riders on hybrid policies can also return most, if not all, of the premium cost in the death benefit or annuity. At the same time, the total available for LTC might be several times higher than the premium amount, offering additional value.

Hybrid LTC policies are also often purchasable with a lump sum of cash — something less available for traditional LTC insurance — and medical underwriting requirements may be less stringent.

But there are downsides to consider. Lump sum premiums that can run upwards of $50,000 to $100,000 are inaccessible for many individuals, and LTC policy payouts will reduce the cash value of a life insurance policy or the benefits paid to the beneficiary. In addition, with both traditional and hybrid LTC policies, you’re putting your future in the hands of an insurer — are you confident they’ll still be in business when you need them? Check their rating with AM Best, a credit-rating agency that evaluates insurers, before signing on the dotted line.

Sources:

1. https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

2. https://www.kiplinger.com/article/retirement/T036-C032-S014-should-you-buy-hybrid-long-term-care-insurance.html

Short-Term and Long-Term Disability Insurance

Short-Term and Long-Term Disability Insurance

Apr 2021

Most of us expect to work until we voluntarily retire from the workforce. But there are any number of things that can and do prevent people from working: severe accidents, life-threatening illnesses like cancer, or memory loss from Alzheimer’s disease. It’s a long list that’s not fun to think about. Fortunately, there are both short-term and long-term disability insurance policies that can help protect you financially.

What Does “Disabled” Mean?

A wide range of conditions might qualify you for disability benefits. If you’re unable to perform your regular duties more than 15% of the time you’re at work, or you must miss more than 10% of your scheduled work time, you may qualify for disability support. In most cases, you must have solid medical evidence to prove your disability before collecting benefits.

Short Term vs. Long Term

If it’s expected that you’ll recover from your condition within a year or two, that’s generally considered a short-term disability. However, if doctors believe your disability will last longer or is permanent, that may be considered a long-term disability. Short-term policies typically start paying benefits faster — roughly 0-14 days after approval — and benefits might continue for up to two years. Long-term disability policies often have a longer waiting period, but the payments usually cover a more extended period of time.

SSI and SSDI

There are two Social Security programs that provide disability benefits: SSI and SSDI. SSI is a needs-based program for those with lower incomes that the Social Security Administration manages, but its funding is not from the Social Security Trust Fund. Applicants need not have worked or paid Social Security taxes, but they must not have assets worth more than $2,000 ($3,000 for a couple) and earn below a certain threshold of income.

SSDI is a program for those who have a work history that includes paying Social Security (FICA) taxes and generally offers higher benefits than SSI. The longer you work and the more FICA taxes you pay, the higher your benefits can be. However, applicants can’t collect benefits until after a five-month waiting period.

Private Insurance

If you’re employed full time, you may have disability benefits provided by your employer. In California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico, employers must provide short-term disability insurance. Even if you’re in one of those states, however, you may want to purchase supplemental insurance. Check with your human resources department and make sure you understand your costs, the level of benefits promised, the waiting period before you can claim benefits, and the length of time you can receive benefits.

If your employer doesn’t provide disability insurance, consider purchasing a private policy. Ask the same questions as above. In addition, you want to know the strength of the insurance company (AM Best rates the health of insurance companies) and the conditions that govern the policy. Know whether your policy is non-cancelable (renews at the same price each year and can only be terminated if you don’t pay your premiums) — or whether it is guaranteed renewable (can’t be cancelled but can go up in price). Also ask whether the benefits are guaranteed for some limited number of years, or until your retirement age, or for life.

Is Disability Insurance Right For Me?

Like all insurance, you’re making a wager. You’re betting that, at some point, you might be out of work long enough to need financial help. The insurance company is betting that you won’t. The cost of the policy depends on how the insurance company views those chances and the options you select. Higher benefit levels and longer coverage raise the price.

For help deciding what kind of coverage you might need, set up an appointment with your financial advisor. Have a list of questions, such as how likely you think it is you’ll need disability payments, how much income you’d need and the coverage period you desire. Understanding your options now can help prevent panic decisions later.

Sources:

1. https://www.disabilitysecrets.com/page7-10.html

2. https://www.iii.org/article/what-are-types-disability-insurance

3. https://www.disabilitysecrets.com/page5-13.html

4. https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/stateswithstd.aspx

How to Save for a House?

How to Save for a House?

Apr 2021

It's the biggest purchase most people ever make, and with good planning and some preparation, it can be a solid financial move.

If you don't already own a home, the idea of affording one can seem daunting. And with the national median house price expected to top $270,000 in 2020, just saving for the down payment can be a challenge(1). But it's one you can meet with a good plan and some discipline.

While there are various ways to buy a home with less than 20% down payment, many experts don't recommend doing so. You may be required by your lender to take out Private Mortgage Insurance (PMI) to ensure that they get paid back if you default on your loan(2). On an average home loan, that 20% down payment equals $54,000. Since the average household has about $8,800 in savings, that's a big gap to bridge(3).

1. https://www.washingtonpost.com/business/2020/01/06/experts-predict-what-housing-market-will-bring/

2. https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/

Begin planning before you buy - several years before, if possible. Start by researching neighborhoods to find ones you like that are in your price range. Check statistics that can indicate greater stability: Crime rates, turnover, school performance and activity of religious and charitable organizations. Educate yourself about the home buying process. Real estate agents are generally anxious to sell you a house immediately, but find one who's willing to share what they know about neighborhoods, values and trends. Don't let them talk you into buying a "bargain" fixer-upper either unless you have some serious DIY expertise. Getting trapped in a broken house with problems you didn't anticipate - after spending your savings on a down payment - can be a nightmare.

This is also the time to start saving. You're probably not going to scrounge up $54,000 in a year, but look at your budget and see how much you can save each month. Some financial experts recommend the 50/30/20 rule:(4) Spend half your take-home pay on essentials such as housing, transportation and food. Allocate 30% on things you "want" but don't need - an occasional night out or vacation. Then save 20%. If your take-home pay is $3,000 a month, that would put $600 a month into savings. Not considering any interest earned, you'd have your down payment in seven and a half years. Reverse the rule - save 30% and spend 20% - and you'd cut that to five years.

Here are some ways to reach that 30%, or more:

  • Earmark yearly income tax refunds for the down payment fund. The average refund is about $3,000.(5) Do that four years in a row in conjunction with your $900 monthly savings, and you'll be close to your goal.
  • Cut expenses. Do you really need that supermax cable TV package? Can you delay buying new cars? Do you have to have a Hazelnut Mocha Coconut Milk Macchiato each and every morning? That alone could save $100 a month.(6)
  • Re-evaluate all of the recurring online purchases in your household. You may be surprised by the number of "vampire" charges - such as $3 for cloud storage or $10 for a streaming service - lurking on your credit cards.

3. https://www.cnbc.com/2019/03/11/how-much-money-americans-have-in-their-savings-accounts-at-every-age.html

4. https://www.investopedia.com/ask/answers/022916/what-502030-budget-rule.asp

5. https://www.cnbc.com/2020/02/14/how-to-use-2020-income-tax-refund-check-from-irs-to-spend-and-save.html+tax+refund+2020&ie=UTF-8&oe=UTF-8

6. https://www.cnbc.com/2020/02/14/how-to-use-2020-income-tax-refund-check-from-irs-to-spend-and-save.html+tax+refund+2020&ie=UTF-8&oe=UTF-8

Make a point to talk about your plans with your financial advisor. They can help you with tips, savings advice and maybe some ideas you haven't already thought of to reach your goal - and you just might be having that housewarming party sooner than you think!

#save #largepurchase #home #house #buying #wellcents


ACR# 342327 02/20
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Family Finances: Saving to Have Children

Family Finances: Saving to Have Children

Apr 2021

What do you do when your heart demands something, but your bank account says no? That's the dilemma that many, especially Millennials, find themselves in when they think about having a family.

Even if your idea of a happy family isn't necessarily 2.5 kids, a dog and a house with a picket fence, financial realities are making it hard for many Americans to envision having any kind of family at all. When a New York Times/Morning Consult survey asked men and women aged 20-to-45 about their plans for having children, 64% said they were not planning to have children soon because childcare is too expensive, 43% said financial instability was holding them back, and 44% said children were just too expensive.(1)

According to the U.S. Department of Agriculture, the average cost of raising a child to age 17 has ballooned to over $230,000.(2) For a generation saddled with student debt,

job insecurity and slow growth of real wages, waiting to start a family is a pragmatic - if unsatisfying - response. But like other financial goals, having a family is achievable if you have a plan and stick to it.

If having a happy - and financially secure - family is in your future, here are some ways you can start planning and saving now:

  • Start a savings account earmarked for family expenses and, if possible, have money from each paycheck diverted into that account automatically. If you receive your income by direct deposit, your bank should be able to do this.
  • When picking a house, a smaller-than-ideal house in a better school district may be a better choice than a sprawling ranch in an area where public schools are weaker. If you're in an underperforming district, you may feel the need to send your kids to private school, which can be an additional major expense.
  • Start accumulating baby gear now. Tell your family and friends what you're doing and start a baby registry at Target or an online source like Amazon or babylist.com. This can significantly cut into the first-year budget hit.
  • Plan for the unexpected. Think through how you'd handle it financially if one of your children is born with a disability. Even a relatively mild disability can impact the parents' earning ability. And does either parent have a family history of twins? While having two doesn't double all of the costs (a two-seat stroller isn't much more than a single-seater), it definitely increases the workload for both parents. And until there's a two-for-one college plan, that cost will be significantly higher.
  • Maybe pick up a side hustle to help boost savings before you have additional parenting responsibilities. As you're thinking that through, look for one that could produce more than supplemental income if one parent needs - or wants - to stay home with a child for an extended period of time.
  • Start a 529 college savings plan early. Under current law, the regulations are far less restrictive than what they used to be. Perhaps ask if the children's future grandparents would consider starting a 529 for their benefit(3).
  • Talk with your financial advisor about your family plans and how they may impact your short- and long-term goals.

It's tough to think dispassionately about such a deep-rooted emotional issue. But if you do - and take steps to prepare - you'll be in a better position to have the financial resources necessary to raise the happy family of your dreams.

Sources:

1. https://www.bizjournals.com/bizwomen/news/latest-news/2018/07/why-the-birth-rate-is-declining.html?page=all

2. https://www.usda.gov/media/blog/2017/01/13/cost-raising-child

3. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-11

ACR# 342328 02/20
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Marrying and Money: How to Save for a Wedding

Marrying and Money: How to Save for a Wedding

Apr 2021

While the cost of nuptials has held steady over the past few years, too many couples are planning to borrow to cover the cost. Here's how to avoid the debt trap.

A wedding ceremony can range from picking out some nice suits and heading over to city hall to reserving a 200-guest blowout, with varying costs. But according to a survey by wedding website The Knot, the average cost of a wedding in the U.S. was $33,900 in 2019.(1)

All too often, young couples are planning to borrow in order to pay for their weddings. A Student Loan Hero survey found that 74% of respondents said they planned to take on debt to cover the costs.(2)

Having that perfect day is important, but carefully consider the ramifications if it creates financial burdens you'll have to carry while you're adjusting to married life. Not to mention how that much debt could impact your retirement savings or any plans to start a family.

The two ways to get to your goal sooner are to reduce costs and save more. Here are a few tips:

  • Think about the balance between spending on the ceremony and spending on your honeymoon - consider splurging on one and not the other.
  • Consider location, location, location: According to Investopedia.com, the average wedding in Mississippi costs around $13,000, while tying the knot in New York can easily top $88,000. A destination wedding - which wraps wedding and honeymoon together - is somewhere in the middle at about $27,000. (3)
  • The biggest drivers of wedding costs are the size of the guest list, the venue (whether it's at your backyard or the Four Seasons) and the style (tiaras or blue jeans). You might be able to plan an elegant wedding for 20 guests or a barbecue for 200 for around the same price. Decide on your wedding style and the size of the guest list, then stick to them.
  • If you must get married in a big city, think about hiring a caterer from a less expensive suburb who'd be willing to drive in. Also, venues tend to charge less on Fridays and Sundays.
  • If parents or others are helping with the expenses, find out how much they intend to contribute?
  • Deduct contributions from your budget to see what you need to save, then divide that by the number of months between now and the big day. That's how much you need to save each month to make this happen without borrowing. If that number is overwhelming, think about pushing back the date to give you more time to save.
  • Automate your savings by setting up a separate savings account and have part of your paychecks deposited there.
  • Get a side hustle. Maybe sell some stuff on LetGo or Craigslist. Consider postponing other big purchases (car, house) until after the wedding.
  • Don't drink so much Starbucks! Seriously, cut down on out-of-home food and beverage and put that money in the savings account. It'll add up faster than you think.

Finally, while talking with your financial advisor isn't on many pre-wedding checklists, it should be. Your advisor can help you evaluate your current situation as well as your vision for the future.

1. https://www.theknot.com/content/average-wedding-cost

2. https://www.cnbc.com/2018/03/13/wedding-debt-can-hurt-a-couples-financial-future.html

3. https://www.investopedia.com/financial-edge/0212/how-to-save-for-a-wedding.aspx

#wedding #save #largepurchase #wellcents


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