Will you and Your Spouse Need Long Term Care as you Age?

The shaken 8 ball says…………………”probably”
According to government statistics if you live to age 65 there is a 70% chance that you will need Long Term Care of some kind after that point.  According to research by the Office of Health and Human Services, the average person turning 65 will incur $138,000 in future LTC services. This could be anything from a family member helping you day to day at home, a nurse professional at home, all the way to full time care needed at a long term care facility.

This is not an easy topic to think about or discuss but with tens of millions of people who will find themselves in that position in the upcoming years it is mandatory to get over the uncomfortable nature of the topic and discuss options.  You basically have 3 options at your disposal:

  1. Do nothing and hope you are in the 30% that needs nothing of the sort or pray that if you are one of the 70% you won’t need “much” care and maybe a family member could help when the time comes
  2. Plan ahead and purchase a long term care insurance policy for you and your spouse and pay monthly premiums that would cover you both (to what degree is very much individual company and policy driven)
  3. Structure your existing assets to create a “hedge” or “cushion” that could pay for long term care or home health care expenses and possibly without any monthly premiums payable. Typically referred to as “Asset based long term care”

The first option is what most people choose and it’s hard to blame them because it’s without a doubt the easiest (currently) decision to make.  Most people decide by not deciding or being properly educated about the other two options that are available.  Surely, you and your spouse will fall into the minority group of 30% or into the “Not too expensive or long” group of people in the 70% majority that will need some type of care; right?

If you are correct with your hope and wish, and both you and your spouse don’t need long term care help in your later years, than you have dodged the proverbial bullet.  If, however, your bet is a loser then you run the real possibility of not receiving the care you need or receiving the care you need but at cost of draining all the assets you have worked so hard to accumulate during your lifetime.  You run the risk of leaving behind little to no estate for your family or cherished causes.

Many people who find themselves needing long term care, but haven’t planned for the possibility, end up attempting to transfer assets out of their names into family member’s names or trusts to appear poor so they can have their care paid for by the government.  This strategy is wrong on many levels.  First there are very specific time tables when those transfers will have had to occur BEFORE you knew you needed long term care (usually years before) and most people fall well short of meeting these time tables.  This will mean you will have to exhaust almost all your assets before any help from Uncle Sam kicks in to help.

If the government is involved and paying for your care, do you think you will get the best care available allowing you to extend your life; in time and in terms of quality of life?  Just look at the VA health system and realize you will likely be getting the same sub-standard care.

Also, I have always wondered why the government should have to pay for someone’s long term care? I am not talking about the truly poor and needy as I think we have enough wealth to provide needed safety nets to that group of people.  I am talking about people who have worked their entire lives and built up assets.  Those assets are meant to be used to make your life better and if you leave money behind to your family that is an added bonus.  We are not supposed to fleece the system because we refused to plan accordingly when we had the means and ability to do so just so we can leave our family behind a chunk of money.  If you want to pay for your care and leave money behind to your family then this will require knowledge and planning.

The second option is to take out long term care insurance policies for you and your spouse.  This can be a great way to plan ahead for the possibility of needing long term care in the future.  These premiums will not be inexpensive but neither is long term care or eventual poverty.  There are many variables to these plans based on the kind of coverage you’re looking to obtain.  The upside is you will have an insurance policy that will pay out monthly to help you and your spouse pay for long term care expenses (make sure you can use the policy for home health care as well as actual long term care facilities) should they occur.  Terms and amounts will vary widely so if this is the way you decide to plan for these expenses find an agent who has much experience and knowledge about these kinds of policies and has access to several of the top carriers in this arena.

The downside of this option is that many people can’t afford the premiums and even if they can afford them, if they never use the policy they don’t get the money back (in almost all cases) just like your car insurance.  If you don’t file a claim on a car they don’t send you back all your premiums because if they did the entire system would become insolvent.  It is very possible that you could pay tens and even hundreds of thousands in premiums and yet never need the coverage.  This is a thought that drives many crazy and causes some not to decide to use this option.

(If you would like more information on this topic visit www.perpetualltc.com for a short video presentation.)

The third option is called “Asset based long term care” and it has several variations.  Let’s talk about the most common use of this strategy.  A person might opt to take a sum of money and open up a specifically designed life insurance policy.  Most of these policies are opened up with a very specific goal of generating a death benefit but that “death benefit” can be accessed during the applicant’s lifetime to pay for long term care expenses.  The applicant put in a certain amount of money (could range from $50,000 to $200,000 per applicant) and buys a life insurance policy on themselves.  Let’s use $50,000 one time single premium into the policy that buys a $200,000 death benefit and that death benefit is guaranteed not to go away after that single premium.

This is not done to have the $50,000 premium actually perform and do anything except generate the bigger death benefit.  However, there will also be cash value generated that can be accessed should the policy owner choose to in the future.  Any loans taken from the policy will reduce the eventual long term care payout.   There is a rider built into this type of policy that allows you to access your death benefit early should you need long term care. (Make sure the policy will allow you to use the benefit for home health care as well as going to a facility)  So in this case you could draw up to $200,000 to pay for long term care expenses.  If you went into a facility this would be enough to pay for about 3 years of care (depending upon where you live and what kind of facility you enter) and if you can stay at home your money would typically last longer assuming it is part time nursing or family members coming in to help you live.

What happens if I live longer than the benefit?  You will then start using other assets or consider putting in more money up front to generate a bigger death benefit.  Maybe $100,000 would generate $350,000 worth of death benefit that could be drawn on later for long term care.  There are also certain policies that might have a “lifetime long term care benefit” after that initial period of coverage is spent you might be able to pay some nominal annual premium on top of the upfront premium already paid years beforehand.  There are many options depending on the company and product chosen.

What happens if I die and never need the long term care benefit?  Simple, this is a life insurance policy so the $200,000 death benefit is paid out tax free to your heirs.  So with that up front premium you either get a higher multiple to use for your eventual long term care or you leave that amount behind for your family.

We hope this article helps shine some light and makes you aware of the options for you and your family. If you would like more information on asset based long term care please visit www.perpetualltc.com for a short video presentation.

Lock in your recent profits now

Since the election of Donald Trump the stock market has had an incredible run up.  Regardless of your political views the facts are the facts and your money and wealth don’t really care who is president.  Our job is to play the cards as they are dealt regardless of who is in charge at the White House.

The old saying is in play, “what goes up is sure to come down” unless we take steps to lock in our gains and protect against future loss.  If you are in mutual funds you have no doubt experienced the ups and downs of the market.  Many people think that’s just the way it is, and to some extent they are correct.  However, there is no law that says you have to play by those rules with your money.

There are strategies that allow you to participate in most of any market gains but none of the market losses.   You can accomplish this through a strategy called indexing.  One of the most popular ways to practice indexing is through the product of a fixed indexed annuity.  This is one of three major classes of annuities (with thousands of products between hundreds of companies available) with the other two classes being a fixed annuity and a variable annuity.

A fixed annuity will guarantee your money against any downside and promise to pay you more than you will be able to get at a bank.  Now many fixed annuities are paying 2.75% to 3.25% depending on the actual terms and carrier offering the annuity.  The upside is you know you will never lose money and that your money will grow every year regardless of what the stock market does.  The downside is that during large run ups, like we are currently experiencing, your account will not experience the big run ups but rather a much smaller gain.  There are also early withdrawal fees for pulling money out of the annuity early (this will be true for every class of annuity so be sure that you understand how much and how long those penalties exist).  Fixed annuities can be a great play for very conservative investors who want protections but need more return than a savings account or CD’s at the bank.

A variable annuity will track the stock market and its ups and downs.  Many will have floors and ceilings as far as how much you can lose or how much you can make.   Being as these are generally heavily traded accounts the fees associated to variable annuities are usually greatest of the three classes of annuities.  The variable annuities are for more aggressive investors who believe the carrier can do better with their money than they can personally and are aware of the fees and penalties for early withdrawal.

A fixed indexed annuity will be a kind of hybrid between the other two classes.  Your principal balance will be protected against any downside loss and your upside will be determined by tracking of an index. (Many indexes are available but most are tied to the stock market performance in some way)  When the indexes go up your account will be credited accordingly and many accounts have caps for how much you can make in a year and others don’t have caps on profits.  If they don’t have a cap on profits they will generally have a “spread” which determines how much of total index gain you receive minus the spread.  A simple example is the index has a 10% run up but there is a 2% spread on the product.  This means your account is credited 8% of gain that year.  Your index level is now locked in and the next year “resets” as far as gain or loss.  If the index comes down 10% the next year your money will not go down at all but will also not go forward at all either.  In short, when markets go up you participate at some level in the ups but never in the downs of the market.

With many of these annuities you can also add a lifetime income rider on top of the base contract.  These riders will usually guarantee that your eventual income you start drawing out of the account (kind of like your own private pension) will be guaranteed no matter how long you live regardless of what happens to the cash in the account.  So if you live to be a ripe old age you will receive the agreed upon income amount until your death.  If you pass away and there is still money in the account verify that your particular product has a death benefit that would assure any remaining monies go to your loved ones.  The income rider will come with an annual fee but will usually guarantee your income rider value will rise every year even if your cash does not increase.  In short, your eventual income increases every year regardless if your cash does or not that year.

For the right investor these can be attractive places to put money as long as you understand the rules going in and use them to your advantage.  If you would like a free chapter from my book on this very topic and or to watch a video presentation about this program, just visit www.perpetualpensions.com and download these two great resources for free.

Note, not all products and features are the same and will vary state to state.

How to Turn Your IRA or 401k into a Paycheck Machine for Life

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Since the early 1980s, 401(k)s and individual retirement accounts have become the dominant way that workers save for retirement. Yet many workers long for the days of traditional pensions when you could set your watch by how much income you could count on every month after your retired. Many people like that the pension fund (if it did as promised) would pay them and their spouses for the rest of their lives. To be fair, those old-style pensions had some serious flaws:

  • It was difficult and sometimes impossible to port with you when you left the company. Depending on the program and how it was administered, you could be left without a pension and without the money in the pension fund if you left the company before a certain number of years.
  • You didn’t control the asset base that created the income. After you and your spouse pass away, the income stream from the pension fund stops, and your estate gets no cash from the fund. This was even if both spouses passed away early and collected very little of the pension.
  • It was difficult to impossible to access any of the cash inside of the pension prior to actual retirement.

With the 401(k) and most other qualified plans, the flaws of the pension were in large part put to bed.

Now you have the full right to withdraw or roll over your portion of your 401(k) when you leave the company. You control the asset base, so when you and your spouse die, any remaining balance left inside of your qualified plan will go to your estate. It is easier to access your account via loans — assuming you abide by terms laid down by your plan administrator and your employer.

As is often the case when you fix a flaw in something, that repair caused a new set of flaws to emerge. With 401(k)s and IRAs, the burden of guaranteeing income and performance is shifted to the employee. This means that if you are invested in the market, then in good markets you could win, and bad markets you could lose.

Wouldn’t it be great if you could combine the benefits of pensions, 401(k)s and IRAs? Consider annuities. Annuities are offered through insurance carriers to take in big chunks of money and guarantee a payout over a certain period, based on that sum used to purchase the annuity. There are two types of income structure:

  • In the immediate annuity, income is started from the lump sum immediately after the annuity purchase.
  • In the deferred annuity, your lump sum can grow before you activate the annuitization phase. This structure will result in more monthly income from the extra growth and the number of years the insurance company will have to pay out on the contract.

Once you decide on what kind of payout you want, then you have three basic choices:

  • The fixed annuity will guarantee your principle never loses money in the market and guarantee modest growth during the growth phase. That rate might be 2 to 3 percent, so this is for the extremely conservative investor who believes in the old saying “I am more concerned about the return of my money than the return on my money.”
  • The variable annuity will go up and down based on the movements of the chosen market (usually the stock market). This product is more for the market player who believes we are in for a bull market during the annuity contract years.
  • The fixed indexed annuity will guarantee your principle is not lost, but your growth is not guaranteed. The growth will depend on which market index or indexes your annuity follows, such as the Standard & Poor’s 500 index (^GPSC).

With many annuities, you can add riders. The most common is the lifetime income rider, which for an annual fee will guarantee your future retirement income will increase every year regardless of the market’s rise or fall. As the name implies the insurance company will also guarantee your annual income for the rest of yours and your spouse’s life. This income will be guaranteed even if the underlying funds in the annuity are drawn down to zero.

Your 401(k) and IRA can be used to purchase an annuity with no taxes or penalties. Annuities do have potential pitfalls.

  • They are not very liquid. There can be substantial penalties if you withdraw the original purchase price from the contract during a certain period. This penalty will usually graduate downward to zero. This penalty will be determined by the carrier and the product, and it will vary by state.
  • Potential annual fees are inherent. Many fees can be reasonable and bring value (such as the lifetime income rider), but some fees buy you very little value and get prohibitive. Fees are generally higher with variable annuities due to their active money management. Make sure you are comfortable with the fees and know what you receive in return.

The Power of a Money Reset

This is a true story from a new client that describes almost everyone reading this today.

“John, I just got back to even this year on my retirement account after being down for about 8 years.”

Does this sound familiar?

I asked this client if he had ever heard about a reset and he said “no”.  If he understood a reset he would have never been in the tough situation of waiting for money to rebound to long forgotten high values.

You see, when your money has the power of a “reset” every year it is a game changer for the future value of your money.Reset buttonEx:  You place money in a program that allows you to track an index instead of actually owing the underlying security.  Let’s say for the sake of example that the index you follow is at the level of 100 on the day your money starts tracking that index.

Let’s also assume that one year later that index is now 80 instead of 100.  This is a 20% loss that because of the way you have your money structured you did not participate in any loss whatsoever.  Your cash didn’t lose any market value even though that index you track is down 20%!  This is powerful in and of itself but it gets even better.

Now let’s say from the first day of your second year until the last day of that same year the index that went down to 80 rebounds that year to 90.  If this was a share of a mutual fund or a stock you would still be underwater 10%.  However, since you took advantage of tracking the index your cash went up the second year because your base for determining an index’s gain or loss “reset” back to the 80 level which it was at the end of the first year.

So, in year two, instead of being still underwater on your investment your cash grew by a percentage of the index gain from 80 to 90!  Would this have changed my new client’s end results?  The results would have been very different over that 8 year period by utilizing the power of indexing with the power of a reset.

Do you have money in the market right now you are hoping will grow over time providing you with a great retirement nest egg?  If you knew your money could never go backwards, would grow any year the index was higher than where it started from by using the power of a “reset” why would you still take on all the risk of the market?  There is no need to lose large amounts of money needlessly.

You can be in the market with a chance at real growth but never the downside risk.  Your money can also be guaranteed to provide you with lifetime income no matter how long you live.  Another benefit is you can use your IRA money or new money for this kind of program.

Guaranteed Income (Part 3)

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Last week, we talked about investing, the second circle of wealth in my series of “Six Absolute Necessities for Acquiring Long-Term Wealth.” The third is guaranteed income. When I study people with successful retirements, filled with abundance and options, almost all have things in common:

  • They carry very little, if any, personal debt.
  • They have stable, secure income from multiple sources that they can set their watch by every month
  • Starting about 10 years before they retire, they begin shifting their assets from riskier investments to low- or no-risk income assets.

A mortgage is generally the biggest debt most of us have. Many argue that you should never pay off your house because the equity you put into it is tied up and not making you money. They might recommend borrowing as much as you can now because interest rates are low.

I say you can have the best of both worlds. First, pay off your mortgage before you retire. By adding small amounts directed to your principle every month, you will take months, even years off your payoff date. When your house is paid off, get the biggest equity line of credit you can. This way, if you see an attractive investment opportunity, you can put your equity to use, and if you don’t, you have removed the pressure of a big mortgage payment in retirement.

If you can pay off your mortgage while you are working, why not now shift that payment over to a solid savings or income product? This could work out to tens of thousands of extra dollars producing monthly income for when you retire.

An abundant retirement is about strong positive cash flow that you can count on for years to come. Do you have any idea how much money you need to retire every month? Do you know where you can get that income from? Do you have enough money for home health care or long-term care? Are you protected from big market downturns during your retirement years? How much will inflation eat into that monthly income needed?

Can You Answer These Questions?question mark

All these questions must be part of an income plan. We calculate these for clients all over the country. First, know how much income you and your spouse will receive from Social Security when you retire. You can get an estimate from the Social Security Administration. If you believe that number is at risk because of issues with Social Security, you better start putting more away and growing it safely.

If you need $5,000 per month to retire and the Social Security for you and your spouse is only $3,500, then you have a $1,500 shortfall. Do you have a pension? How much will that be when you begin to draw it? Do you have a 401(k) or Individual Retirement Account? How long could that account last if you need to draw $1,500 a month — $18,000 in a year? Will you have to pay taxes on what you take out? If you have a 401(k) or traditional IRA, the answer is yes. If you lose 50 percent of your capital to a bear market, how long will you be able to get $18,000 per year?

As you get to be in what we call the “retirement danger zone,” which is 10 years before your projected retirement, you need to start shifting assets away from market risk and over to guaranteed products. A solid fixed indexed annuity with a long-term income rider might be a very good call. I wrote an article about the different types of annuities and how to purchase one that fits your needs.

A lifetime income rider (state and product variations exist) will guarantee that you have a certain amount of income (depending on how much you have in your annuity and at what age you start withdrawing) for you and your spouse’s life. If you live to be very old, your normal retirement funds might run out, but a lifetime income rider guarantees that income stream regardless of what happens to the underlying cash in the account. Also if you have five to 10 years, you have time for that income rider to grow. Many income riders offer 6 percent and more guaranteed growth every year.

When you purchase a $200,000 annuity, many companies might offer a 10 percent bonus on your initial purchase price so your starting amount would be $220,000. When you add compound growth at 6 percent over 10 years, your income rider would top $400,000. Then you would start to draw your lifetime income at 6 percent of the $400,000, giving you $24,000 a year income for you and your spouse’s life. Presto! You have filled your income gap. If you have the resources to purchase another annuity, you might get one with a cost of living clause to hedge against inflation.

John Jamieson is the best-selling author of “The Perpetual Wealth System.” Check out this week’s featured video.