The year is 1946. It is a very special year. The President declares the end of World War II. The U.N. meets for the first time. The President sets up the Central Intelligence Agency. The US Supreme court rules race separation on buses is unconstitutional. Congress passes a law to promote maximum employment and production which is supposed to be a continuing policy and responsibility of the Federal Government. Seems a long way from what Congress is doing these days!
Some guy named Frank Sinatra releases his first album, and this is the beginning of the birth cycle of the biggest group of citizens to ever be known in the U.S., namely, the Baby Boomers!
In our last blog, we told you Congress was looking to find ways to tax the multi-billion dollar 401(k) market, and it seems to be with Wall Street's help. Those that have employer sponsored 401K retirement plans or a pension plan from their employer are not always being told the truth about their funds. There is an ongoing movement in Wall Street to help the large companies with these plans to modify payment structures so that pension plans become piggy banks, tax shelters, and profit centers for the companies through exploiting loopholes, ambiguous regulations, and new accounting rules. In her book Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers, Pulitzer Prize author Ellen Schultz documents exactly how Wall Street is doing this to Main Street.
The Wall Street Journal recently reported that those with 401(k) plans lost an average of $41,000.00 from those plans over a 6-8 week period. What the article didn't tell you is that the growth percentage needed to recover the lost funds can be over 38%! Many baby boomers don't have that much time to make up losses like that. (Brokers don't tell you this!)
In a recent report by Diane Sawyer of ABC News, it was reported that the day's average one (1) day 401(k) loss was $4,000.00.
When a Wall Street broker is asking you "What is your risk tolerance," you should replace "risk" with "loss;" he is asking you: "How much money are you willing to lose?" These days you'd have more fun going to Vegas.
According to a recent survey by Sun Life Financial Inc, "Although the recession officially ended in 2009, average Americans feel that the downturn has not ended for them, which is substantially eroding their trust in their retirement future." Further, the October 20, 2011 survey said that one in five working Americans plan to never retire because they don't feel they can afford it. On the other hand, we see owners of annuities and long-term care insurance who feel more confident about their ability to retire. They have more confidence because they know they can't lose their savings to the whim of the stock market. Neither will they have to foot the whole bill if they wind up needing care for a chronic condition that can cost upwards of $6000 a month.
We know that these days the biggest concern is stability and safety, as well as having enough income during retirement so we don't outlive our funds. The answer may not be the same for everyone, but a fixed or indexed annuity can be the solution. These financial products do not lose money. For a long time, the Wall Street brokers told their clients this product was inferior because it would not make a lot of money. Since the GAO report of June 2011 stating these annuities are a safe financial tool to have in one's portfolio, some brokers started recommending them. What happened? They realized that these annuities are strong financial tools to make sure you don't lose your hard-earned funds that have taken you a lifetime to put in place.
However, even if you have your life savings in a financial vehicle that can't lose money, a chronic condition that requires years of care can wipe them out. No matter who you are, a doctor, in the entertainment business, a bus driver, or just regular folk, these events are not covered by regular health insurance, or if your are old enough, not by Medicare either. If you had an accident or stroke that required you to need care in your home or in a facility for several months or years that your existing insurance didn't cover, what would you do? How would this sudden expense affect your lifestyle? Eight to ten hours a day of home care can easily cost $6000 a month, and a MetLife survey said long-term care costs are continuing to rise faster than the medical inflation rate.
There was a program called "CLASS ACT" in the new health care reform act which was supposed to cover these costs, but only for working people. Non-working spouses were not covered. This program didn't receive funding in the 2012 budget and is officially closed. Thankfully, there is insurance that will cover this. In fact, there are state-approved long-term care insurance policies that allow Americans to protect some or all of their assets if they have to turn to Medicaid to pay for extended care after using the insurance to pay first. Most states have this public-private partnership which allows dollars to stay in the state budget for education, public works and to lower taxes by providing an incentive for Medicaid to pay last for long-term care, not first.
Can we help you put a program together that rescues your savings from the stock market and protects them from extended chronic care? Absolutely! All you have to do is ask. In some cases, this insurance program can be free!
Occasionally we encounter men, in particular, who feel strongly they don't need to insure for this expensive care and figure they can take care of everything. They don't think ahead to the lifestyle changes they are forcing the rest of the family to endure if they do need extended care. Here is an example of what we are talking about:
Ralph Smith felt that way. He owned a successful insurance agency for many years that sold a lot of long-term care insurance through Phyllis Shelton. His son and daughter both worked in the agency. Whenever his son would ask when his dad was going to buy the product, Ralph just said "I don't need it, David. I will always take care of your mother."
Today both Ralph and his wife have advanced Alzheimer's. David's sister moved in with them to be the caregiver, leaving her job at the agency and her husband Bill to manage their home. She and David haven't spoken for over a year due to severe disagreements about how to handle the situation.*
The only way to control the outcome of a long-term care event is to plan ahead. If you wait until it happens, you will likely not have the mental or physical capacity to call the shots, and someone else has to painfully call them for you. The younger you are when you plan, the more choices you will have.
*Names changed to protect anonymity
Sandy Harris is the President of The Harris Group, a national insurance services company, specializing in Long-Term Care insurance and financial security retirement planning. His website is TheHarrisInsuranceGroup.com
Phyllis Shelton is the President of LTC Consultants, a 20 year old Nashville-based consulting company specializing in long-term care insurance consumer education and agent training. She is the author of The ABC's of Long-Term Care Insurance and her website is GotLTCi.com