Nurse with patient

Long-term Care Insurance Goes Uptown

Is long-term care insurance a luxury product?

Today, most policies covering home care and assisted living and nursing care facilities for the elderly are purchased by people with relatively high earnings, according to a new survey.

Bar chart showing people envisioning needing a nursing home in the futureLong-term care used to be insurance that the middle class would buy – either individually or through an employer, union, or affinity group – when it was more affordable. But the market, which has contracted dramatically, also seems to be shifting, according to retirement experts and new data from LifePlans, a long-term care research firm.

In LifePlans’ survey, 82 percent of the people who purchased long-term care policies in 2015 earned more than $50,000 per year. In comparison, only half of the general older population surveyed separately by LifePlans falls into this income bracket. An Urban Institute study supports this too, finding that the market is dominated by households with more than $500,000 in net wealth.

Eileen J. Tell, who consults on aging and long-term care issues, said the slant toward the higher end reflects the fact that the coverage being sold is more comprehensive – and more costly. Most policies purchased now cover all levels of care, from home care to assisted living and long-term care facilities. This reflects a desire for people to age in their homes, Tell said.  Back in 1995, just two out of three policies had this comprehensive coverage. Another feature that’s more common – and costs more – is inflation protection. …Learn More

Rewriting Retirement Header Illustration

A Californian’s ‘Retirement’ is Part-Time

Rob Peters during a trip East last summer.

Rob Peters during a trip East last summer.

Rob Peters’ approach to retiring wasn’t much different from hitting the road in 1975 to help drive a college friend from New York to California. He didn’t really know where he was going.

When he first laid eyes on California, he was captivated by its beauty, as well as the left-leaning politics absent in the conservative Long Island community he grew up in. But Peters, equipped only with an English degree from the State University of New York at Buffalo, bounced around for years among the various part-time and full-time counseling jobs available to him in his new paradise.

Not until age 38, after earning a master’s degree in counseling and 13 job interviews, did he land his dream job at Diablo Valley College, a community college serving mostly low-income and minority students. He stayed more than 26 years, as a student adviser, program facilitator, and instructor.

He took a blind leap into retirement, too. Again, finding his place was a process. Within four months of retiring, at the end of 2014, he contacted Diablo Valley College.  Yes, they would welcome him back as a counselor for four hours in the morning, two days per week in the spring and three days in the fall.

He returned in June 2015 and again enjoys “the acknowledgment that your work is valuable,” said Peters, 65, who lives with his wife, Suzanne James-Peters, in their home in Benicia with a view of the Carquinez Strait that lies east of San Francisco.

A new body of research indicates that continuing to work but gearing down to a lower-intensity job is often good for older Americans, because it reduces their stress, increases their job satisfaction, and is an encouragement to continue working and preparing financially for retirement.

It’s not all that surprising that Peters “un-retired,” considering how much and how long (10 years) he’d wrestled with the retirement decision.

Yes, the technological demands of working full time became harder to keep up with, the demands of being an older parent with teenage twins (a girl and a boy) consumed him, and coworkers his age were peeling off.  However, he was constantly torn about letting go of a job just when he felt that, as an older counselor, he had even more to give students. As a decision loomed, he attended yet another retirement seminar.  “I began to anticipate that leaving [academia] would take some adjustment.”

He retired reluctantly and weeded out his file cabinet full of work materials even more reluctantly. …Learn More

hispanic workers

Hispanic Retirees: Low Saving, Long Life

Just one in three native-born and immigrant Hispanics working in this country has a retirement plan through their employers. If they do have one, three out of four save money in their plans, which is somewhat less than their coworkers.

One reason for the first abysmal statistic is that many Hispanics and Latinos, recent immigrants in particular, hold down part-time restaurant or hotel jobs at very low wages. But even among Hispanics working full-time, access to an employer savings plan is still much lower (44 percent) than it is for their white and black counterparts (more than 60 percent).

Low rates of saving are compounded by the fact that elderly Hispanics and Latinos will need more money over their longer-than-average retirements.  A 65-year-old Hispanic man can expect to live 16 months longer than a white, non-Hispanic man in this country, and Hispanic women live 11 months longer. [One theory is that less healthy immigrants are more likely to return to their home countries, so the U.S. immigrant population that remains is healthier.]

“Longevity is a big issue, but there is little awareness of this” in the Hispanic population, said retirement consultant Manuel Carvallo, a Chilean immigrant to the United States. …Learn More

Retirees Don’t Touch Home Equity

FigureRemarkably, middle-class Americans have at least as much money tied up in their homes as they have in all their retirement plans, bank accounts, and other financial assets combined.

A hefty share of older U.S. homeowners are even better off: 41 percent between ages 65-74, and 63 percent over 74, have paid off their mortgages and own their homes free and clear.

But only one in five retirees would be willing to use their home equity to generate income in a new survey by the National Council on Aging (NCOA). This reluctance seems to be on a collision course with financial reality for working baby boomers, when so many are at risk that they won’t be able to maintain their living standards when they retire.

Retirees can get at their home equity to improve their finances a couple of ways.  One is to sell, say, the three-bedroom family home on Long Island for a pretty penny and buy a condo on Long Island or a cheaper house in Florida.  Yet only a tiny sliver of older Americans actually downsize to reduce their living expenses, according to a new report by the Center for Retirement Research at Boston College, “Is Home Equity an Underutilized Retirement Asset?”

Another avenue is available to people over 62 who don’t want to move: a reverse mortgage. While these loans against home equity are not for everybody, they’re one option if retirees want to pay off the original mortgage or withdraw funds when they’re needed. But only about 58,000 homeowners took out federally insured Home Equity Conversation Mortgage (HECMs) in 2015, according to the U.S. Department of Housing and Urban Development.

The NCOA’s survey, which was funded by Reverse Mortgage Funding, a lender, uncovered one reason for the lack of interest: retirees are not clear about how reverse mortgages work and how they differ from a standard home equity line of credit. …Learn More

Why Parents’ Home is the Millennial Crib

Older children living at home cartoonA couple years ago, Daniel Cooper noticed something at the commuter rail station near his home in suburban Boston.   A lot of parents were dropping off their adult children every morning to catch the train into the city.

This fit with something he’d been thinking about as a Federal Reserve senior economist and policy adviser interested in macroeconomic issues like the housing market.  Are millennials living with their parents longer than previous generations?  And, if so, why?

His suspicion was confirmed in recent research with his colleague at the Boston Federal Reserve, María Luengo-Prado. They found that, on average, 16 percent of baby boomers born in the late 1950s and early 1960s lived with their parents when they were between 23 and 33 years old. That jumps to 23 percent of the millennial generation born in the 1980s.  These young adults are also more likely to return home after living independently for a spell.

The economists landed on two primary explanations for the big shift. One is that young adults today earn less relative to rents in their area. Second, higher state unemployment rates impact millennials more. In short, young adults often live with their parents for the simple reason they can’t afford to live on their own. …Learn More

Dark tunnel

In the Dark about Retirement?

There’s new evidence to remind us that nothing much changes: we are still baffled by our DIY retirement system.

And no wonder!

First, saving must start at a young age, when retirement is an abstraction. Saving is further stymied by two big questions: how much to save and how to invest it?  It’s also smart to anticipate how one’s compensation arc might affect Social Security – taking into account, for example, that women withdraw temporarily from the labor force to have children and that earnings can decline when workers hit their 50s.  As we fly past middle age and retirement appears on the horizon, it’s a little late to figure this retirement thing out.  And there’s no plan for long-term care when we’re very old.

The evidence: Start with Merrill Lynch’s new survey in which 81 percent of Americans do not know how much money they’ll need in retirement.  This makes it very difficult to know how much to deduct from one’s paycheck for retirement savings. Employers, frankly, could do more to help us figure this out. (Some answers appear at the end of this blog.)

Being in the dark now about how much to save is a cousin of being afraid of running out of money later, in retirement. More than 70 percent of accountants say this fear of running out is their clients’ top concern – followed by whether they can maintain their current lifestyle and afford medical care in retirement – according to the American Institute of Certified Public Accountants.

Our inclination to avoid difficult issues does not go away with age.  Yes, we’ve gotten wiser, but advanced old age means death, and who wants to think about that?

The upshot: seven in 10 adults have not planned for their own long-term care needs in the future, Northwestern Mutual reports.  Even among a smaller group who anticipate having to take care of an elderly parent, one in three of them “have taken no steps to plan” for their own care.

“You would think that would prompt them to action,” said Kamilah Williams-Kemp, Northwestern’s vice president of long-term care. And while the constant barrage of news and statistics is making Americans more aware of their rising longevity, Williams-Kemp said, caregivers are often more interested in talking about their emotional and physical challenges and the rewards of caregiving than about its substantial financial toll.

There is a “disconnect between general awareness and prompting people to take action,” she said.

The potential for dementia or diminished capacity late in life isn’t on our radar either, the survey of CPAs found: the vast majority of people either choose to ignore the issue, wait and react to it, or are confused.

Squared Away exists in part to educate people about retirement essentials, based on facts and high-quality research. The following blogs might help you:

How Much for the 401(k)? Depends. …Learn More

Man caught in web

Wrong People Seek Financial Info, Help

Most of the 1,000 people who took the financial well-being quiz posted here last year felt content with their situations. Their well-being score averaged 16.4 out of 20 points possible on the quiz.

This happy response completely conflicts with a statistically more reliable survey showing that three out of four Americans report feeling “financially stressed.” Our quiz makes no claim of representing the adult U.S. population and was taken by a hodgepodge of regular readers, Twitter followers and Facebook friends.

So why are Squared Away loyalists so content with their finances?

The blog is “attracting people who are in the action phase. I’m guessing they’re motivated and ready to move,” said Brad Klontz, a financial psychologist in Hawaii – he is both a certified financial planner and trained psychologist.

But the flip side of this is that those who do not seek out financial information and advice – and don’t take blog quizzes – are often “in total denial, and you’re probably not going to catch them,” he said.

Indeed, Klontz’s research has identified avoiding dealing with difficult money issues as among the unconscious behaviors that ensnare people who are in poor financial health, measured by being overloaded with debt or not saving for retirement.

For the avoiders, the psychology is that they know their behavior hurts them but feel it’s due to a character defect – “lazy, crazy, or stupid” – he said. “Shame keeps you stuck. If I’m such a terrible person, why should I try?  I’m not going to ask anyone for help.”

When people with money problems recognize the psychological underpinnings, he said, it can lead to changes that can end the pain.

The question for personal finance bloggers and financial advisers remains: how do we reach the people who can’t be reached? …Learn More

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