retirement plan

Retirement Crisis?

The retirement crises debate.  A recent Wall Street Journal article pitted opposing parties in a debate as to whether America has a retirement crisis.  Obviously one side said we do have a retirement crisis as too many people save too little money, and the counterpoint indicated that we don’t have such a crisis because older individuals spend less money than while they are working and raising children.  The implication being that people won’t actually need more money in retirement.

retirement planOne aspect that neither party discussed in the debate was the cost of long term care.  While acknowledging that we are generally living longer lives, there was no discussion of covering the cost of residing at an assisted living facility, an adult family home or paying for in home care.  This would seem to be a significant oversight as studies show that one in four individuals over age 65 will develop some form of dementia related ailment.  Those number rise to one out of every two individuals over age 85.

The reality would seem to be there is no retirement crisis, until there is one.  If you live at home and the mortgage is paid, the car is paid, your debts are minimal and kids are gone, a monthly Social Security check of $2,000 and an extra $1,000 of IRA or annuity income is probably sufficient.  However, when you all of a sudden have to move to assisted living or an adult family home at monthly costs ranging between $3,000 and $10,000 per month, you see there is a scary income shortfall.

Many people will look to a reverse mortgage to solve their problem.  That may be fine, but you have to reside in your home.  If that is not possible the reverse mortgage is not a viable option.  The next step is usually to sell the house and hope the money lasts.  There are better ways to address this all-to-common situation.  Advance planning that fuses legal asset protection with straight-forward financial strategies can provide the answers that every family desires when planning for retirement.

retirement plan

Some New Long-Term Care Insurance Premium Rise

 compared to a year ago.  However, rates for single men and women remained fairly level or, in some instances, actually declined compared to 2016.

A married couple both age 60 would pay $2,200 a year combined for a total of $328,000 of long-term care insurance coverage.  This represents a 9 percent increase from 2016, when the association reported that a couple could expect to pay $2,010.  Adding an inflation growth option that builds the couple’s benefit pool to a combined $660,000 by age 85 would cost an average of $3,790 a year, or 6 percent higher than last year.

Rates for single men and women remained fairly level or, in some instances, went down from the prior year.  A single man can expect to pay an average of $1,050 a year for $164,000 worth of coverage, a 3 percent increase over last year, although the same policy with inflation protection is now actually 20 percent cheaper, at $1,665 a year.  The same two policies for single women average $1,600 and $2,600 a year, respectively, essentially the same as 2016.

The cost for virtually identical policy coverage varies significantly from one insurer to the next. Rates may vary by as much as 70 percent for the same coverage.  For example, a 55-year-old single woman could pay as little as $1,450 a year or as much as $2,650, depending on which insurer she buys from.  It’s important to shop around and do your research before you buy.


retirement plan

Tax On My IRA? OMG!

Tax on my IRA?  Say what?! The Wall Street Journal recently told the story of Fanny Handel, a retiree who was floored when she received a notice from the IRS that she owed $92,000 in taxes on her traditional IRA. As many do, she assumed what she earned in her IRA was tax free. But that is not always the case. While gains from the sale of stocks, dividends, and bond interest all accrue tax free (only taxed when the money is withdrawn from the IRA), returns from other types of investments are taxed to the IRA when they are earned.

What types of investments can cause so much trouble in an IRA? Investments in ‘alternative’ assets such as hedge funds, private-equity funds, limited partnerships, operating businesses and real estate can carry a nasty tax burden. Of those, perhaps the biggest risk is limited partnerships. That’s because a very common type of investment these days is a Master Limited Partnership or MLP. MLP’s are very common investment vehicles in the oil and gas arena. And, it’s what got Ms. Handel into trouble. She apparently owned thousands of “units” of Kinder Morgan, Inc., a popular MLP.

So what the heck is the deal, you ask? Haven’t we all been told for decades that investing in an IRA is one of the best ways to save for retirement because you DON’T pay taxes until you have to begin withdrawing the money at age 70 1/2? We have been and that’s all true. With one odd little exception – Unrelated Business Taxable Income.

What on earth is that? And why does it affect you? Well apparently our Congress decades ago decided that this concept, that originally arose to apply to non-profit entities, should apply to IRAs. Unrelated Business Taxable Income or UBTI is meant to level the playing field between for-profit and non-profit businesses. So if a non-profit makes money from donations or from fees in exchange for its core services, no problem. But if a non-profit, like the YMCA, owns and operates a separate noodle business, it must pay tax on that income because it is “unrelated” to the core mission and operation of the YMCA. If the non-profit doesn’t have to pay tax like a for-profit business it would have an unfair advantage with its noodle business.

What all this means for IRA owners is that money from certain alternative investments – MLPs, hedge funds, real estate, operating businesses, etc. – gets taxed as UBTI. To make matters worse, UBTI is taxed at very compressed rates, meaning the top tax rate applies when you reach just $12,000 of UBTI. That can make for a nasty tax bill.

In short, most people should probably stick with stocks, bonds, ETFs, and mutual funds in their IRAs. For anything other than those, you would be wise to consult your tax advisor before you buy.

retirement plan

Home Care Cost: Are You Prepared?

Home care can be very beneficial for family caregivers who need help providing care for an aging loved one.  These services also allow many seniors who want to age in place to remain in their homes.

Professional in-home caregivers – whether through an agency or independent operators – typically provide assistance with activities of daily living such as dressing, bathing, medication management, light housework and running errands.

For those who need medical care at home, home health care nurses or trained health professionals are available.  Home care can be pricey, and in some cases costs more than care in an assisted living community.  As with other types of senior care, in-home care rates vary by state and region.

The following rates represent average daily, monthly and yearly in-home care costs for seniors in each of the 50 states.  The yearly rates are based on 44 hours of care per week, multiplied by 52 weeks.  It’s important to keep in mind that the cost of in-home care in different areas can vary more widely within larger states.

State Daily Monthly Yearly
Alabama $100 $3,051 $36,608
Alaska $163 $4,967 $59,488
Arizona $125 $3,813 $45,760
Arkansas $113 $3,432 $41,184
California $144 $4,385 $52,624
Colorado $141 $4,290 $51,480
Connecticut $125 $3,813 $45,760
Delaware $138 $4,195 $50,336
District of Columbia $100 $3,051 $36,608
Florida $116 $3,527 $42,328
Georgia $113 $3,432 $41,184
Hawaii $150 $4,576 $54,912
Idaho $125 $3,813 $45,760
Illinois $132 $4,029 $48,345
Indiana $122 $3,718 $42,330
Iowa $132 $4,004 $40,048
Kansas $125 $3,813 $45,760
Kentucky $113 $3,432 $41,184
Louisiana $96 $2,908 $34,892
Maine $138 $4,195 $50,336
Maryland $125 $3,790 $45,485
Massachusetts $156 $4,738 $56,857
Michigan $127 $3,861 $46,332
Minnesota $150 $4,576 $54,912
Mississippi $107 $3,241 $38,896
Missouri $117 $3,550 $42,603
Montana $144 $4,385 $52,624
Nebraska $144 $4,385 $54,912
Nevada $133 $4,052 $48,620
New Hampshire $150 $4,576 $54,912
New Jersey $32 $4,004 $48,048
New Mexico $130 $3,954 $47,453
New York $138 $4,195 $50,336
North Carolina $111 $3,384 $40,612
North Dakota $175 $5,331 $63,972
Ohio $122 $3,718 $44,616
Oklahoma $135 $3,813 $45,760
Oregon $144 $4,385 $52,624
Pennsylvania $135 $4,099 $52,624
Rhode Island $144 $4,385 $59,161
South Carolina $113 $3,432 $41,184
South Dakota $144 $4,387 $52,647
Tennessee $113 $3,432 $41,184
Texas $119 $3,613 $43,358
Utah $132 $4,004 $48,048
Vermont $138 $4,195 $50,336
Virginia $119 $3,623 $43,472
Washington $156 $4,736 $56,834
West Virginia $100 $3,028 $36,333
Wisconsin $141 $4,290 $51,480
Wyoming $163 $4,957 $59,488

Source: 2016 Cost of Care Survey, Genworth

In 2016, the national average cost for in-home care was $45,760 per year, Genworth found.  The states with the highest median monthly rates for in-home care were:

  1. North Dakota– $5,331
  2. Alaska and Wyoming — $4,957
  3. Massachusetts – $4,738
  4. Washington — $4,736

And those with the lowest average monthly rates were:

  1. Louisiana — $2,908
  2. West Virginia — $3,028
  3. Alabama and District of Columbia — $3,051
  4. Mississippi– $3,241

Clearly, no matter where you reside the cost of care for older individuals is not cheap.  However, the key to a secure and comfortable retirement is to put a legal and financial plan in place early.

retirement plan

More Than Half of American Adults Don’t Have a Will

We’ve seen this before and I’m sure we’ll see it again, but a new study shows that nearly 6 out of 10 Americans do not have a Will or other estate planning documents.  Even more distressing is the same study shows that just 36 percent of adults with children under the age of 18 have an end-of-life plan in place.

In general, I believe there a three things that keep people from setting up an estate plan:  first, most people only deal with things when they become a top priority.  Since most people do not believe they will die anytime soon estate planning is rarely a priority; second, most people do not want to think about death and certainly don’t want to plan for it; and third, there are many, many other things people would rather spend their money on than working with a lawyer to plan their death.   I mean really, can it get much worse than that?  However, having an estate plan not only takes care of your loved ones financially, it can save them a lot of emotional stress both while you are alive and after you’re gone.

The study, which supports some of my beliefs, was conducted in January 2017 by Princeton Survey Research Associates International.  They asked 1,003 adults whether they currently have estate-planning documents in case of their death, as well as the reason why not (if applicable).

Forty-seven percent of survey respondents without estate documents said, “I just haven’t gotten around to it.” This is unsurprising to experts, who say an aversion to end-of-life planning is not only rooted in fear but also procrastination.

“This is the ‘I’m going to live forever’ theory.  No one literally thinks that, but we all want to believe we are going to live until our 80s or 90s so we don’t think we need a will right now,” says Debbi King, author of “The ABC’s of Personal Finance”.  This isn’t true, of course, and no one knows exactly when they will die.

As one might expect, older Americans are the most likely demographic to have an estate plan in place.  According to the survey, 81 percent of those age 72 or older have a will or living trust. However, that percentage declines significantly with younger people.

A staggering 78 percent of millennials (ages 18-36) do not have a will.  Even more surprising is that 64 percent of Generation X (ages 37 to 52) doesn’t have a will, and nearly half of respondents in the 53 to 71-year-old age group (40 percent) said they don’t have one.

Overall, baby boomers are aware that they should have a will in place, but planning for a possible tragedy is an uncomfortable process that forces people to answer some tough questions.  Even in your 50’s you still don’t envision the end of your life, so most continue to put off the process as long as possible.

Also, younger Americans tend to have fewer assets than their older counterparts, which feeds into a false impression that a will is only needed for people with substantial wealth or complex finances.  In fact, the survey found that 29 percent of those without a will said it was because they “don’t have enough assets to leave anyone.”

One purpose of a will is to tell a court how to distribute your assets in a special proceeding called probate.  The purpose of probate is to give a public notice of death and allow creditors to file claims against the estate.  Whatever is left after the creditors are paid goes to the beneficiaries.  In the absence of a will, the particular state’s laws of succession direct how property gets distributed.  If you don’t have a will, the state has one for you. Would you rather have government officials dictate where your property goes or would you rather decide that for yourself?”