Category Archives: Retirement

Concerned About Burdening Your Loved Ones as You Age? Start Planning for Long-Term Care Now


As we age, it becomes more likely that some sort of long-term illness or disability will force us to seek long-term care.  You might think of long-term care as this big, harry, expensive thing that you don’t have to worry about until you’re really, really old.  But, lot’s of people do worry about it.  A survey conducted by Age Wave/Harris Interactive found that adults are five times more worried about being a burden on their family than dying when it comes to having a long-term illness.

Will I really need long term care?

According to the Associated Press-NORC Center for Public Affairs Research, 70% of Americans aged 65 and older will need some form of long-term care.  Not to depress anybody, but these are the facts.

What are my options?

  1. Rely on family. This is actually what usually ends up happening.  It’s an older statistic, but as of 1999, 66% of adults aged 65 and older relied strictly on informal care (a family member, friend or neighbor).  This number is expected to have grown since 1999.
  2. Move to an assisted-living facility.  AKA, the college dorm for old people.  There are different levels of assisted living depending on how much assistance you require.  But, generally speaking there is no medical assistance offered at these types of places.
  3. Nursing home care. This is probably the option people think of most when they think of long-term care.  It’s 24/7 medical attention, plain and simple.
  4. In-home care.  This is probably the gold-standard of long-term care options.  If money were no object, most people would choose to stay in their own house and have a care-taker either stop by for a daily visit or live with them.

How long will I stay?

The average length of stay in some sort of long-term care facility is 2.5 years.

How much will it cost?

The Federal Long Term Care Insurance Program has a great side-by-side cost-comparison of the average annual cost of each option:

  1. Nursing home, semiprivate room – $82,855.
  2. Assisted living facility – $41,124.
  3. In-home care – $29,640

Keep in mind these are national averages.  Prices may be higher or lower depending on where you live.

How do I pay for all this?

  1. Out of your own pocket.  If you’ve saved and invested wisely, you should have enough to cover your long-term care expenses out of your own pocket.
  2. Long-term care insurance.  If you’re in your 50’s, or maybe even in your early 60’s, you might consider purchasing long-term care insurance.  The American Association for Long-Term Care Insurance says the average cost is $2,007 per year for a single adult at age 55, $2,466 per year for a couple, both age 55.  As you get older, the cost goes up.
  3. Medicare – not an option.  Many people are under the assumption that Medicare will help with long-term care.  However, Medicare is strictly health insurance.  It does not cover assisted living, long term stays are nursing homes, or in-home care.
  4. Medicaid.  Unlike Medicare, Medicaid does cover long-term care, but there are strict income eligibility requirements.
  5. VA Benefits.  If you or your spouse is a military veteran, VA benefits can also be used to help pay for care.

The biggest drawback of relying on either Medicaid or VA benefits is the complexity of these programs.  It’s unfortunate that the same people who need these benefits may already be declining mentally or physically and aren’t always equipped to run through these bureaucratic gauntlets.  Thankfully, there are many companies and organizations out there that can help you navigate the bewildering world of government benefits.  Your family or friends may also be able to help.

The best way you can avoid being a burden on your loved ones, is to have a plan in place for your long-term care.  That includes a way to pay for that plan.  The more money you can save and invest, the more options you will have.  In fact, one of the best reasons to build wealth is so you’ll have choices when you’re ready to enter long-term care.  Don’t procrastinate!  The sooner you start, the better!

Do you have a long-term care plan in place?

Clean up Your Entire Financial House Before You Retire

Financial House

An article by Sharon Epperson from CNBC caught my attention the other day.  The title: Why You Shouldn’t Pay Off Your Mortgage Before You Retire.  That’s crazy talk!  I mean, if you’re still making payments on a mortgage, keep working!  But, then I read the rest of the article.  It turns out the title doesn’t quite represent what the author is trying to convey: if you’re getting ready to retire, cleanup the rest of your finances before worrying about the mortgage.  This actually makes sense.  However, I think your mortgage should also be thrown into the pre-retirement cleanup mix.

If I wrote the article, I would call it: Why You Shouldn’t Retire Before You Pay Off Your Mortgage.  Or maybe: Why You Should Clean up Your Entire Financial House Before You Retire.  If you’re getting ready to retire and you’re babysitting any debt, including a mortgage, keep working.  Clean the whole mess up first, before you retire and you’ll have a lot more freedom.

A mortgage can be a huge amount of money.  So, how do you pay down what’s likely your largest single piece of outstanding debt?  More cash.  And how do you get more cash?  By cleaning up your financial house – pay down your other debts and save for an emergency.  The money you no longer send to your credit card, your car, or student loan, can be used to accelerate your mortgage paydown.  To keep you from taking on more debt during an emergency, say when the furnace goes out or you lose your job, save up an emergency fund and be your own credit card.

Cleaning up your financial house isn’t complicated, but it can be challenging.   Here are the steps to follow:

1. Create a monthly budget 

Brew up a basic budget.

2. Start a small emergency fund

Let’s say around one month’s worth of expenses.

3. Pay off all consumer debt

This includes credit cards, car loans, student loans, and lines of credit.

4. Bulk up that emergency fund

Up to six months of expenses.  What would you need to survive for six months if you had zero income?

5. Save for retirement 

Don’t even think about saving for retirement until the first four steps are complete.  Then start chucking 10-15% of your income into various investment accounts.

6. Pay off your mortgage

You can do other wealth-building things with your money, too.  But, if you’re closing in on retirement, focus on the mortgage.

Financial house cleaning is not a temporary thing like some crash diet you might go on to lose 50 pounds by summer, so your high-school jeans will fit again.  It requires a life change.  You’re not cutting out all debt for six months to get into retirement shape, just so you can put the debt weight right back on.  You have to completely change how you look at debt and your overall financial health.  Once you do that, how you view money will be forever changed.

Keep Your 401k and Your Pension Separate

Do you have a pension?  Well, according to this article by John Waggoner at USA Today, the government says you can now roll your 401k over to your pension.  Is this a good idea?  To answer this question, we first need to take a closer look at pensions.

A pension is an investment account maintained by an employer.  Typically, regular payments are made into this account on behalf of an employee while he or she is working.  Once this employee retires, he or she is promised a fixed payout from this account for life.  On the surface, there’s lots to like about a pension.  You don’t have to worry about the details of how your money is invested – your employer handles that.  And after you retire, you’ve won the lottery – you get a check for the rest of your life.  However, if we dig deeper, the a few flaws become apparent:

1. Pensions payments stop after you die.  This means your heirs don’t get any money.

2. Pensions are often mismanaged.  This means that money invested in the fund could be incorrectly invested or even stolen, leading to lower returns or even a collapse of the fund.  Because of this mismanagement, pensions generally don’t have great returns.  Most public pensions invest heavily in hedge funds, which have a terrible record when compared to the S&P 500.

3. If a company or government entity (Detroit for example) go bankrupt, the pension can potentially be wiped out and even current retirees could be cut-off.  Now PBGC says it will guarantee pensions payouts, but what happens if too many pensions collapse at once?  PBGC may not have the resources to really guarantee payouts.

Given these pitfalls and the fact that pension are expensive to operate, it’s no surprise that the number of companies and government entities that offer pensions is dwindling.

So, the answer to our original question is no, you should not roll your 401k over to your pension.  If you’re fortunate enough to work for an employer that offers both a pension and a 401k, consider diversifying your investments by keeping your 401k separate.  In fact, I would take it a step further and pretend you don’t have a pension at all.  Invest 10-20% of your income in some combination of 401k’s, Roth IRA’s, and taxable brokerage accounts, so if your pension collapses, you’ll still be able to retire comfortably.  And, if your pension manages to stand the test of time, you’ll be able to retire really comfortably.

Square Five – Get Ready For Retirement

Last time we talked about squares, it was all about building up that emergency fund.  Now that you’re done with that, it’s time to get ready for retirement.  For some of you (myself included) that could be decades away.  But, in order to take full advantage of compound interest, you have to start saving yesterday.

If you stopped your retirement contributions to give yourself a boost paying off your debts or piling up cash, now is the time to restart them.  To retire comfortably, you should be putting away somewhere between 10 and 20% of your income.  I know it’s a lot, but trust me, you’ll thank me later.

There are three steps to a successful retirement contribution plan:

1) 401k up to your company match.  If your company matches a percentage of your 401k contributions, start by signing up for the full match amount.  You don’t want to turn down free money, do you?  If your company doesn’t offer a 401k or a match, skip step one and move on to step two.

2) Roth IRAs up to the max.  If you qualify (the IRS sets certain income minimums and maximums), start putting away the maximum allowable amount into a Roth IRA account.  If you’re married with dual incomes like me, you can typically open two Roth accounts, one for yourself and one for your spouse.  The nice part about Roths is, after age 59 1/2, you can either leave your investments alone or withdrawal any amount of money tax-free.  You can also pass a Roth on to your heirs after you die and they can withdrawal money tax-free – provided they meet certain IRS guidelines.

3) Max out your 401k and/or start a standard brokerage account.  Finally, if you still have more money to give to retirement, you can either max-out your company 401k, or simply buy index funds in a standard brokerage account.  With a 401k you get an instant tax break on your contributions.  With both a 401k and a standard brokerage account, you’ll have to pay taxes when you start withdrawing your money, which hopefully won’t be until after retirement.  The one thing I don’t like about a 401k is you have to start taking minimum distributions once you reach age 70 1/2.  The IRS won’t let you just leave your investments alone for the rest of your life.

I strongly encourage putting all of your retirement accounts on an automatic investment schedule and then promptly forgetting they exist.  That way, your investments can be left alone to do what they do best – grow.

The President May Change the Rules for Your Roth in 2015

Do you have a Roth IRA?  If you do, you probably already know a Roth is a retirement savings tool that lets you withdrawal your savings tax-free…as long as you follow a set of rules laid out by the IRS.  For example, you can only contribute to a Roth if you’re married and make less than $191k per year (less than $129k per year if you’re single).  You also may only withdrawal money from your account if you’re older than 59 1/2 (with a few exceptions).

Not too bad, right?  Well, now there could be a couple new gotchas to be aware of.  According to this MarketWatch article by Andrea Coombes, there are two new proposals President Obama could soon sign into law.  The first would require Roth owners to take what’s called a Required Minimum Distribution.  Basically, every year after you reach age 70 1/2, the IRS requires you to withdrawal an increasing percentage of your account balance.  Take a look at this calculator to see what your RMD would be at any particular age.  If you don’t take the required minimum distribution, the IRS can hit you with a 50% excise tax on the amount you failed to withdrawal.  By the way, this rule already exists for traditional IRAs and 401ks.

The second proposal ready to be signed into law would require your heirs, upon your death, to completely empty your Roth IRA account within five years.  Currently, your heirs can extend their withdrawals over their entire lives.

So, what does all this mean for you?  Well if you’re not contributing to a Roth IRA and never plan to in the future, not much.  But, if you’re an avid Rother like me, you may have to tweak your retirement plans.  A Roth may no longer be the right choice for leaving an inheritance and you may have to withdrawal more money in retirement than you originally anticipated.

Roth IRAs are a great savings tool, but be aware that the rules to play the Roth game aren’t set in stone.  They can change with the flick of a politician’s pen.  Consider keeping a tax account handy to help you keep up with it all.

If You Want to be Rich, Find Something You Love to do and Keep Doing it

When I say, “wealthy retiree,” what picture pops into your head?  Maybe a gentleman sporting a skipper’s hat and deck shoes, cruising around Martha’s Vineyard in his yacht.  Perhaps a lady in a floppy sun hat lounging on the white-sand beach of her private island.  Speaking of islands, the wealthy retirees that appear in my head resemble Thurston and Lovey Howell from Gilligan’s Island.

But, maybe millionaire retirees aren’t living the life of leisure we’re envisioning.  According to this article by Robert Frank from CNBC, the wealthy don’t completely stop working after retirement.  In fact, they are twice as likely to keep working through retirement than the average person.  There are a couple reasons for this.

One is they enjoy their work.  Millionaires either love their current job and want to keep working at it as long as possible, or they use retirement as opportunity to change career paths and do something they love.

Two is they want to stay mentally active.  The rich feel younger and more alert if they keep working, which may lead to a longer life.  This article by Will Oremus from Slate sites several studies that conclude completely stopping work can lead to an early death.

My take away from all this is, if you want to be wealthy, don’t retire and move to Florida to play shuffleboard.  Instead, find something you enjoy doing and do it for as long as you can.  If you currently work at a job you don’t like, consider retiring early from that job and find a career you do like.  You might also live longer.