Just how smart are you with your money?

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The Future is coming, whether you like it or not. In fact, some parts are going to be very ben_franklinpositive, and some aren’t. You have to be prepared to deal with both. The sooner you start to prepare, the lower your costs will be!

We like to think about buying a house, buying a car, fancy weddings, babies and graduations. We don’t like to think about down payments, maternity costs or paying for college. However, as economist Milton Friedman famously wrote, “there’s no such thing as a free lunch.”

The statistics are simple.

  • The average life expectancy (LE) in the US is 78.8 years (1) — shorter for the poor and Southerners; longer for women and the affluent.
  • The healthy life expectancy (HLE) in the US is 68.1 years. By comparison, the HLE for Bosnia is 68.8 years and for Canada it’s 72.3 years. (3) HLE in the US varies by state and is shorter for Southerners. (2)
  • The difference between LE and HLE is the amount of time you can expect to have to deal with some kind of physical impairment. In the US, that amounts to a decade of trouble on average.

A new study confirms what people with elder parents already knew: older people need help with daily living. Even if they are fairly independent, both finances and medications can get out of control. They may not have or want to be dependent on family members to manage either.

Over 10 years, 10.3% of those aged 65 to 69 needed help managing medications and 23.1% needed help managing finances. These rates rose with age, to 38.2% and 69%, respectively, in those over age 85. Women had a higher risk than men, especially with advancing age. Additional factors linked with an increased risk for both outcomes included a history of stroke, low cognitive functioning, and difficulty with activities of daily living. (4/5)

There are resources, but they aren’t free.

  • The average cost of in-home healthcare in the US is $3,600 per month, as I mentioned in a prior blog. The average cost of a nursing home is $9,200 per month. Medicare can pick up the first 100 days. One of the Trump proposals for Medicaid reform involves eliminating Medicaid as a way to deal with these expenses.
  • There is a  category of professional, “daily money managers.” These aren’t financial planners, but they deal with records management, budgeting, checking the validity of expenditures, and bill payment. Costs for these services vary but can start at around $450 per month. (6) Not only do they keep things together for their clients, they are an important line of defense against scammers preying on seniors.

So, how are your parents going to deal with this? How are you going to deal with this when it’s your turn?

These problems are  best addressed when you do what most people don’t — act early on them.

  • Set aside dedicated savings for retirement.
  • Purchase permanent life insurance with a rider that allows you to take up to 50% of the face value of the policy for disability and long term care expenses. (7)

Both of these actions are best done earlier in life rather than later

  • Starting savings early allows the most time for compounding of interest.
  • Starting life insurance early minimizes cost. Insurance premiums are directly related to the length of time the carrier expects to have your money before they have to pay out. The earlier you buy, the less it will cost and the more you can afford. For example —
    • In NJ, for a woman age 24 non-smoker, a new $200,000 whole life policy might cost $113.68 per month.
    • In NJ, for a woman age 44 non-smoker, the same policy would cost $365.08 per month.
    • In NJ, for a woman age 59 non-smoker, a new $100,000 policy would cost $395.08. From the carrier used to quote these examples, a $200,000 whole life policy would not be available for someone that age.

With age, the price goes up and what you can buy goes down.

Procrastination costs you money. Don’t put this off.

If you practice a healthy life style, you can try to minimize the gap between LE and HLE, but you can’t count on eliminating it. There are just too many factors outside of your control (e.g., ice, drunk drivers, pollution, etc.).

 


Sources:

  1. Centers for Disease Control and Prevention, “FastStats,” 17 March 2017. https://www.cdc.gov/nchs/fastats/life-expectancy.htm
  2. Centers for Disease Control and Prevention, “State-Specific Healthy Life Expectancy at Age 65 Years — United States, 2007–2009,” 19 July 2013. https://www.cdc.gov/mmwr/preview/mmwrhtml/mm6228a1.htm#fig1
  3. World Health Organization, “Healthy Life Expectancy at Birth — 2000 to 2015,” http://gamapserver.who.int/gho/interactive_charts/mbd/hale_1/atlas.html
  4. Nienke Bleijenberg, Alexander K. Smith, Sei J. Lee, Irena Stijacic Cenzer, John W. Boscardin, Kenneth E. Covinsky. Difficulty Managing Medications and Finances in Older Adults: A 10-year Cohort Study. Journal of the American Geriatrics Society, 2017; DOI: 10.1111/jgs.14819
  5. Wiley. “Many older adults will need help with managing their medicines and money.” ScienceDaily. ScienceDaily, 7 April 2017. <www.sciencedaily.com/releases/2017/04/170407113035.htm.
  6. For those in the NJ area, I have a friend, Nancy Sobin, who offers these services. Please see her at http://paperwork-services.com/. She belongs to the American Association of Daily Money Managers, http://www.aadmm.com/.
  7. There are some companies that offer these riders for term insurance, which is much less expensive than permanent. The problem is that term insurance typically terminates by age 65, and home or nursing home care expenses typically start after that age. There’s no point having a rider that’s not going to be in force when you need it.

Healthcare Changes — Updates

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There were some ideas floated yesterday by GOP Congressional leadership, but nothing definite.  While Paul Ryan is expressing optimism that there will be a concrete proposal by17456_1269532813224_1076952025_30803996_7657050_n the end of February, others in the GOP are saying that it won’t happen “overnight” or are waiting for cost estimates from the Congressional Budget Office (CBO).

 

The ideas being discussed include:

  • Paying for repeal of the Affordable Care Act by levying a tax on healthcare insurance offered by employers.  Some versions of this proposal would limit the tax to higher end plans (gold, platinum or concierge plans), but that would go against Trump’s stated intention of giving tax breaks to the wealthy.
  • Subsidies for healthcare would be eliminated, and replaced by tax credits for people who don’t have employer provided care.
  • Elimination of some business taxes used to support the Affordable Care Act.
  • Expansion of Medicaid to more of the poor would be withdrawn.  Federal funding for expansion of Medicaid benefits would be eliminated.
  • Penalties for not having insurance will be eliminated.

The withdrawal of subsidies and removal of penalties will drive up the cost of health insurance for individuals who need insurance.  You should expect increases for 2018 that may be in the range of 20% or higher.

Removal of subsidies (for most people, an advance on a tax credit) means that more people will not be able to afford health insurance.  However, some in the GOP would prepay these tax credits — basically keeping much of the current system under a different name.

But Kenneth E. Raske, the president of the Greater New York Hospital Association, expressed alarm, saying the proposals would “put a huge amount of pressure on state budgets and put many Americans at risk of losing health care coverage.”(3)

The Medicaid change might be the most important of all of these provisions.  Many middle class Americans depend on Medicaid now to pay for nursing home care when that time comes.  At a national average of more than $92,000 per year, most people don’t have the savings to cover that.  The proposed revisions would “put Medicaid on a budget” and allow states to eliminate payments to nursing homes.

Of course, if the cost of ACA repeal is too high, none of this may go anywhere.

So the next step is to see what the CBO projections are.  We wait.


Sources:

  1. Alan Fram, “GOP leaders unveil new health law outline, divisions remain,” Associated Press, 17 February 2017.  https://www.yahoo.com/finance/news/house-gop-batting-around-options-080740612.html
  2. Ana Radelat, “GOP gives House members proposal to repeal, replace the ACA,” The Connecticut Mirror, 16 February 2017.  http://ctmirror.org/2017/02/16/gop-gives-house-members-proposal-to-repeal-replace-the-aca/
  3. Robert Pear and Thomas Kaplan, “House G.O.P. Leaders Outline Plan to Replace Obama Health Care Act,” The New York Times, 16 February 2017.

The Cost of Aging

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Most people in the US simply aren’t ready to grow old. I know one person who has told me 17456_1269532813224_1076952025_30803996_7657050_nthat his retirement plan is a gun, but is that really what most of us want?

In fairness, the suicide rate is increasing in every age group except those age 75 and older. Maybe that’s what we do want.

In the US, consumers don’t really start thinking about old age until after they turn 40. Unfortunately, that’s the age in which, if they have kids, they are saving for college and paying rather high housing costs. That makes putting anything aside for retirement a difficult proposition for all but the very rich or very lucky.

The problem is that the financial challenges of retirement are worse than most people think. Let’s break it down:

  • Living expenses after one is unable to work.  That’s food and housing, and Social Security doesn’t pay enough to most people to cover these bills.
  • Home health care, if you have to have someone come to the home to provide service.  That’s over $3,800 per month.
  • Assisted living facilities:  Over $3,600 per month.
  • Nursing home facilities:  The national average for a semi-private room is $6,844 per month, but it is as much as $13,000 per month in places like New Jersey. [Genworth]

On average, people require 2.4 years of assisted living or nursing home care. A rough estimate puts that cost at $126,000 if you don’t live in a high-priced area. Even better, Medicare currently picks up only a small fraction of this expense.

These costs are per person.  If you are part of a couple, you need to double the amount.

One way to cover these long-term care expenses in the US is through insurance — either a stand-alone Long Term Care (LTC) policy, or more cost effectively, an LTC rider on a life insurance policy. The other choices are to move to another country, move in with the kids, or deplete all of your assets and go on Medicaid. However, with the Medicaid option, you can forget about everything you ever dreamt of doing in your old age.

Other countries handle elder care more sensibly.  For example, Germany pushed through a reform package in 2014 improving government funding for home health services.  Foreign nationals living in UK can receive elder care through the National Health Service at no charge.

Why is the US so far behind?


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Social Security “Reform” — the opening guns

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We’re off to a fast start.  Representative Sam Johnson (R, Texas, 3rd District) has introduced a bill to reform Social Security.  The bill has some of the usual characteristics we have come to expect from reform legislation:

 

  • The impact is pushed into the future, in this case, 2023.
  • The bill won’t impact anyone age 60 and over (and since Congress knows that most people under age 40 don’t think about retirement and don’t vote, that’s relatively safe).
  • The bill deals with a potential need to cut benefits  by 21% to keep the Social Security fund going by preemptively cutting benefits by from 11% to 35%.
  • The bill provides incentives to seniors to keep working.   (Although at what is an interesting question, especially if one of the largest types of jobs in the US disappears — cashiers.)
  • The bill contains a Christmas tree of provisions, some of which will benefit the people being gored.
  • The bill delays full retirement age (again).

Like the Affordable Care Act, this bill has no chance of passage as it is written.  It will be revised extensively and provisions unrelated to Social Security will be appended to it.  That’s how Congress works (or doesn’t work, depending on your point of view).

The introduction of the bill simply signifies “Game On.”

It’s the call for the various warring parties (lobbyists) to muster their resources and have at it.  If you look at the sources below, the spin doctors are already hard at work.  It’s actually hard to tell that they are writing about the same topic.

Keep your eyes open, and  watch this space.  If and as meaningful things happen, I’ll write about them here.

Or, if Congress does nothing, I’ll write about other things that matter.


Sources: