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Long-Term Care Positioning |
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A Bright Solution for a Rainy Day: Repositioning Assets for Long-Term Care
By Peter F. Bono, Wealth Planning Solutions, Inc.
The paralyzing fear of long-term care health costs sends mature Americans into confusion and often denial. Many individuals and couples enter retirement with fingers crossed, unprepared to deal with the biggest potential risk to their savings. Numerous people choose not to purchase long-term care insurance because of having to pay costly premiums for the rest of their lives, increasing premiums, and if they never need long-term care all the premiums they have paid are forfeited to the insurance company. Thereby, choosing to self-insure.
There is an alternative way to self-insure, and protect your assets from long-term care expenses without paying annual premiums to an insurance company. Therefore, not worrying about increasing premiums, and forfeiting premiums to an insurance company, instead passing all unused benefits to your heirs income tax-free.
This can be accomplished by repositioning a portion of your assets into a specially design life/long-term care policy. In addition, you may earn more interest than at a bank without paying current income tax on the interest.
Just like other life insurance plans, this policy pays a death benefit when you die. It also allows you to spend the death benefit, not the lower cash surrender value, but the higher death benefit for long-term care expenses. This policy will provide comprehensive long-term care benefits for qualified care, such as, expenses at home, in adult day care, at an assisted living facility, and in a nursing home. The policy can be bought on one life or on two lives. The long-term care benefits allow you to withdraw 2% of the death benefit each month per person toward, home care, nursing home care or assisted living facility, after a 60 day elimination period. Furthermore, this 2% per month comes out totally tax-free. Adult day care is covered at 1.5% of the death benefit each month per person.
Here’s an example: a husband and wife, 65 years old, both in good health, reposition $150,000 into a specially designed life/long-term care policy. They get an immediate death/long-term care benefit of $325,761, which will grow over time. If either one or both enter a nursing home, or need home healthcare, each can withdraw up to $6,515 per month tax-free. Any unused benefits will pass on to their heir’s income tax-free.
This specially designed life/long-term care policy can help to safeguard the rest of your estate by providing benefits for qualifying long-term care expenses. It allows you to retain an asset, and avoid the ongoing liability of annual premiums usually required by other forms of long-term care insurance. So if you don’t use it, you don’t lose it. You can reposition readily accessible money from CD’s, savings and annuities, even IRA’s. One person’s IRA can provide long-term care protection for both spouses, and help to meet any necessary required minimum distributions, at the same time turning income tax dollars into income tax-free dollars for your beneficiaries. This way, your “rainy day” funds can work more effectively for you in case of long-term care needs, and more effectively transfer your wealth to your beneficiaries. This type of long-term care planning has appealed to thousands of people since it was first introduced in 1989. Its advantages can help make the assets you have spent a lifetime to build, last a lifetime. |
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ARE YOU PREPARED TO PAY FOR long-term care? In the coming years, many Americans will face the challenge.
70% of people currently over age 65 will require some long-term care someday. That is the estimate of the U.S. Administration on Aging, a division of the U.S. Department of Health & Human Services. Will Medicare or private health insurance pay for it? The short answer is “no”. In the decades ahead, baby boomers will reach their seventies, eighties and nineties. With aging parents of their own, some are learning how much long-term care really costs. Some are still unaware. How many of us are financially prepared for the possibility? Here are a couple of “averages” to consider from MetLife’s 2009 survey of LTC costs. The average annual cost of nursing home care is now $79,935 or $219 per day. That’s up 3.3% from 2008. The average nursing home stay is about 2.5 years, which means you would need roughly $200,000 to pay those bills. Can you imagine paying it out of pocket? Taking out a reverse mortgage to do it? Using Medicaid because you have nothing left? No one wants these financial circumstances. The clear answer is long-term care insurance coverage. How expensive is LTC coverage? Annually, it typically costs about as much as a cheap used car. MarketWatch cited an example from the MetLife survey: in 2009, a 52-year-old federal employee could pay $1,524 annually for an LTC policy with a $200-per-day benefit for three years and a maximum lifetime benefit of about $200,000. Does $1,500 or $1,800 or $2,100 annually (just to throw out a few numbers) sound expensive? These premiums are certainly inexpensive compared to the staggering bills you may face if the need for LTC enters your life. Yes, there is a chance that you may never need LTC coverage. However, with advances in medicine and healthcare, we may live much longer than we anticipate before we leave this world. Factor in diseases such as Alzheimer’s and Parkinson’s and other gradually disabling disorders, consider the population wave of baby boomers maturing, and you see why this coverage makes so much sense for so many. Partnerships to make paying for it easier. Many states have created partnership programs to encourage people to buy LTC coverage. Essentially, these plans provide dollar-for-dollar asset protection when you buy an LTC policy. So for every dollar the policy pays out in benefits, you get an equal dollar amount in asset protection under a state’s Medicaid spend-down regulations. For example, let’s look at Ohio. Let’s presume a couple have a $100,000 LTC policy. If they use up the whole $100,000 to pay for LTC, they would have to spend down their assets to $2,250 to qualify for state Medicaid benefits. But … if they exhaust a $100,000 partnership policy, they can potentially qualify for Medicaid coverage and still retain $101,500 of their assets. State governments are increasingly offering to partner with LTC policyholders with inflation-adjusted policies. A new option (and a nice tax break). There are now whole life insurance policies and annuities structured to provide either a long-term care benefit or a death benefit – and thanks to the Pension Protection Act, starting on 1/1/10 the interest deducted to pay premiums and benefits from tax-qualified LTC coverage will no longer be taxed. (This applies to combination whole life/LTC policy plans and combination annuity/LTC policy plans; premiums for traditional LTC insurance policies will still be paid with after-tax dollars. So with these new combination whole life/LTC and annuity/LTC policies, you will now have tax-free premiums and tax-free benefits.)59% of Americans are wrong when it comes to long term care. AARP conducted a survey in 2006 and found that 59% of respondents believed Medicare would pay for extended nursing home care. Another 52% incorrectly thought that Medicare would cover assisted living costs. In 2009, AARP found that 44% of Americans were “not very prepared” or “not at all prepared” to bear sudden long-term care expenses. I urge you to join the ranks of the prepared and look at ways to plan for long-term care needs. Now is the time to confer with Gary Dossick & Associates to learn more about your options.
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How Spouses Can Maximize Social Security Benefits |
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By Kelly Greene, Wall Street Journal My wife and I will soon be eligible for our full Social Security benefits, but each operates our won consulting practice, and we don’t need the income now. Are there implications in the size of payments if only one of us takes Social Security and the other delays until age 70? Does it make any difference which one of us takes it? I have higher earnings and more years of eligible service. Mark Hoover, New York
How does the spousal benefit for Social Security work? It is my understanding that the spousal benefit is 50% of my benefit. This would seem straight forward if my wife and I were the same age and applied for benefits at the same time. But I’m 62 and my wife is 58. Say I started taking benefits at my full retirement age – 66. If my wife, who would then be 62, took her spousal benefit at that point, would she get half of my benefit, or less than that? If she waited until age 66, would she get half of my benefit at that point, or half of my benefit dating back to when I was 66? Drew Smith, Kalispell, MT Figuring out the best way to take Social Security is tricky for married couples.
In the first situation, where both the husband and wife are working, having one spouse wait until age 70 would increase that individual’s Social Security benefit. If you were born in or after 1943, for example, postponing your benefits past your full retirement age would increase them by 8% a year. Wait to start your checks until 70, and you’ve given yourself a 32% raise, says Dorothy Clark, spokeswoman for the Social Security Administration in Baltimore. So, for example, if you were entitled to $1000 a month in benefits at age 66, you would get 1320 a month by waiting until age 70. (A chart at www.ssa.bov/retire2/delayret.htm shows how this works.)
You should be able to see what you would get at age 70 on the statement that Social Security mails you each year, adds Mary Jane Yarrington, a senior policy analyst for the National Committee to Preserve Social Security and Medicare, a Washington advocacy group, who answers questions online at www.ncpssm.org/maryjane.
It does make a difference which spouse takes the benefit at full retirement and which one postpones until age 70 – but not until one of you dies. At that point, you’re better off if the higher-earning spouse waited until age 70, because the surviving spouse is entitled to the larger of the two spouses’ benefits.
The situation in the second question is a common one: A married person (usually the wife) collects Social Security based on her husband’s earnings record when her own Social Security benefit wouldn’t equal or exceed 50% of her husband’s.
For example, if the wife’s full retirement age is 66, but she opts to start receiving Social Security checks at age 62, she would get 35% of her husband’s full benefit amount; by waiting until her full retirement age, she would get 50%, Ms. Clark says. So for instance, if the husband were collecting $1,000 a month, the wife would get $350 a month at age 62 – or $500 a month if she started her benefit at her full retirement age, 66.
Keep in mind that the wife(in this example) can’t collect Social Security based on her husband’s record until the husband files for benefits, as well. And even if the husband starts his benefits as early as age 62, the wife’s benefits would be based on the amount he would be entitled to at his full retirement age, Ms. Clark says.
What if the husband already has been collecting his full retirement benefit for a few years? The wife’s benefit would be based on his current payment amount.
The Social Security Administration Web site has a quick calculator to help you determine your individual benefit amount at www.ssa.gov/OACT/quickcalc. You also can call Social Security at 800-772-1213 or find a local office using the “Social Security Office Locator” by going to www.ssa.gov, and clicking on “Find a Social Security office” in the left-hand column. |
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It’s no secret that the stock market has been exceedingly volatile lately. You may be wondering how this volatility could affect you. Should you sell? Buy? Worry? Wait?
The best advice I can give you right now is this … don’t panic.
Hasty, speculative decisions aren’t advisable in any market. While I am not able to predict the future, I am able to look back carefully at the history of Wall Street … and judging by that history, I expect the market is likely to rebound as it has so often in the past.
The market has certainly seen its share of turbulence through the years, and it often discovers its own remedy. If you were around for Black Monday in 1987, you probably recall the widespread panic that followed. But, you may also recall that in less than two years the market had sprung back, fully regaining the value it had lost by September of 1989.
Do you remember where the Dow was in 1982? It was in the high 700s. By the start of 2000, it had grown more than 1,500% to sit well above 11,000. In 2003, the Dow was below 9,000; it is still well above that today.
Fluctuations and corrections happen, but the key is to retain long-term faith and stay invested through the turbulence.
Human nature often leads us to be slightly pessimistic, and when that happens, your instinct may be to go into self-preservation mode. But consider your decisions before you act. Will they actually help you to grow or preserve wealth? Or could they someday work against you?
Consider this … while the market may be far down now, do you remember when it reached its all-time high? You should – it was only a few weeks ago. While the market dropped more than 340 points Thursday, it made almost all of it back in a couple of hours of late-afternoon trading to finish down by only 13 points.
This is the new Wall Street: the markets are capable of amazing rebounds, and amazing gains.
I tend to encourage long-term investment strategies in order to help my clients achieve their goals. When I say “long-term” I don’t mean just a few months, I mean several years. So, if the market corrects itself within the next year or so, those who make hasty decisions to sell now may not fare as well as those with patience.
After all, more often than not it tends to be the long-term investor who sees the greatest accumulation of wealth in the long-run. History has shown that timing the market is not the recipe for growth. Instead, it is the time you spend in the market.
Since the mid-1920s, the stock market has posted annual gains about 70% of the time (58 out of the last 81 years). In fact, as is often noted, if you had been out of the market on the S&P 500’s top five best-performing days since 1980, you would have a portfolio worth about 25% less than if you had stayed fully invested, and if you had missed the S&P 500’s best 30 days, you would have a portfolio worth nearly 75% less.
Returning once more to the teachings of Benjamin Graham as he recounted how the sages of old had boiled down the history of mortal affairs into a single phrase, we too have found solace in continually reminding ourselves that “this too shall pass.” We are optimistic that the promise of change called for by our new leaders will manifest itself in, among many things, a renewed faith that our economic system and its creative expressions of human achievement that once made us the envy of the world.
Stay the course.
Second-guessing your financial plan now might not be advisable. And while I wholly support my clients keeping an eye on the market, it’s important to fully understand the news and information before acting on it.
Gaining perspective during these uncertain times helps to rebuild our confidence. |
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