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“Today’s seniors face many unforeseen challenges, particularly as costs continue to rise for everything from groceries to medications.”
Many retirees are just getting by without a financial cushion to pay for emergency expenses. According to Insurance News Net’s recent article, “5 Key Questions Asked About Selling a Life Insurance Policy for Cash,” the ongoing erosion of assets threatens an entire generation of seniors currently having trouble paying retirement costs. Unfortunately, it might be even worse news for baby boomers and Generation Xers. An Associated Press analysis of savings data from the Federal Reserve found that 35% of households in their prime earning years have saved nothing in a retirement account and have no access to a traditional pension. Therefore, for seniors facing a financial crisis or those wanting to shore up their emergency funds, a life settlement may be a necessary option.
A life settlement, also termed “a life insurance settlement,” is a financial transaction that allows a senior to sell an existing life insurance policy for immediate cash. A retiree could, for instance, sell a policy for a percentage of the overall death benefit. Even though many see life insurance as a regular expense, it’s actually an asset with an inherent value that can be sold to a life settlement company.
Most people purchase life insurance for a specific reason, like providing for a surviving spouse and family. However, over time a person’s need for life insurance may change. In such situations, a senior may no longer need the life insurance, even though it served a valuable purpose for years. The cost of life insurance may also increase over time and paying the premiums may become much harder to manage. In these instances, it may make sense to consider a life settlement by selling an existing life insurance policy.
Most individuals who pursue a life settlement are in their mid-to-late 70s and typically not in great health. They have an existing whole life or universal life policy … or a term policy that is near the end of the term (which can be converted). The face value of the insurance policy is a big factor in determining the offer. Life settlement companies typically want policies in excess of $500,000. However, with a new transaction known as a retained death benefit, a senior also may be able to sell a portion of a life insurance policy and keep some coverage intact for beneficiaries.
A life settlement offer is based on a number of factors such as the face value of the policy, the amount of premium needed to keep the policy in force, the seller's medical history and the seller's life expectancy.
Every life settlement transaction is different, and a final offer will not be made until all the different factors are evaluated. Generally, a policy owner receives between 15 to 20 % of the policy's face value.
“One benefit of the increasing life expectancies for Americans is that more people have bonus years for enjoying the company of their aging parents. But all is not rosy.”
Extended years with your parents around, means increased chances that your parents could spend all of their retirement savings or fall victim to dementia and be unable to make financial decisions for themselves.
Bureau County Republican’s recently published article, “Three ways to talk with aging parents about finances,” says that these longer lives of parents can leave adult children confused as to when and whether to intervene and monitor their parents’ money. This type of conversation isn’t an easy one because there are stubborn parents who refuse to discuss their money. That said, there aren’t too many adult children in a big rush to broach the subject either. They have their own feelings of discomfort and delay the subject. However, when there is a crisis, the children are left with no idea of their parents’ savings or where to find critical documents.
Speaking of critical, these discussions are necessary so the children have the ability to gather information about their parent’s income and expenses, know where legal documents are located, and understand what kind of medical or long-term-care insurance the parents have. The approach to the subject is often the key to success in these conversations. To help with this task, here are a few tips on how to approach the subject and make it easier for everyone:
Select a date for the talk. Set an appointment for yourself to broach the subject at a specific time. Maybe it’s after a birthday, a family event, or a holiday where other family members are present who will help with the responsibility for the aging parents in the future.
Show respect. Let your parents know that you understand and respect their reluctance to open up about their finances. Try to make the conversation about you instead of them. Tell them that you’re worried that if anything went wrong, you’d be totally lost as to how to help them.
Address fears honestly. Let the parents know that you understand their concerns about discussing their finances and that their independence might be stripped from them. You could tell them that it’s your goal to see them keep their independence as long as possible … and that you’re willing to help them, but you can’t help without information.
Moving beyond an aging parent’s fear of discussing their finances can be a daunting task. However, if you create a well-planned strategy to address the subject, you’ll have your best chance of success.
“For a NASCAR legend like Jimmie Johnson, a pit stop can spell the difference between first place and being out of the race.”
U.S. News’ article, “5 Pit Stops for Better Retirement Planning,” advises those saving for retirement to look at the racing world and build in some “pit stops” on the way to their golden years. This type of pit stop is a break to check your investment performance, review your portfolio and get back in the race to a rewarding and enjoyable retirement.
Experts suggest that you use key birthdays as critical checkpoints. They’re good reminders to take stock of where you are and how you want to shape your future. Take a look at these important birthdays from a financial planning viewpoint:
On your 21st birthday, or as soon after that as you start to earn money, also start saving long-term. You can invest in a 401(k) plan at work to get company matching contributions.
On your 30th birthday, check on your savings. You have only 10 years until age 40, and the money you save before 40 is almost equal to what you’ll save for the rest of your life after that point, as far as compounding returns.
On your 45th birthday, you're going to be in the "sandwich" position. You may have parents who are around age 70 or so with college-age kids or recent grads. This is an ideal pit stop for your trust and estate planning, so that you and your children are ready for the issues associated with this sometimes difficult time.
By age 62, you should be concentrating on your needs—from 50 to 62, your earnings must help you prepare for retirement. At age 62, you are also now eligible for Social Security, but the longer you can wait before drawing on your Social Security payout, the better. You’ll realize a sizeable jump in income, if you wait until 70.
Ok, so your 70th is the magic birthday. You can now withdraw from Social Security at the highest rate and place that money into other safe investments. At age 70½, you are required to withdraw from your 401(k).
Every birthday is special, but also all of these retirement pit stops are important. Plan your pit stops around these key birthdays, and be sure that your retirement savings plan is all fueled up and ready to hit the road.
Under our "system" of paying for long-term care, you may be able to qualify for Medicaid to pay for nursing home care, but in Alabama there's no public assistance for home care. Most people want to stay at home as long as possible, but few can afford the high cost of home care for very long. One solution is to tap into the equity built up in your home.
If you own a home and are at least 62 years old, you may be able to quickly get money to pay for long-term care (or anything else) by taking out a reverse mortgage. Reverse mortgages, financial arrangements designed specifically for older homeowners, are a way of borrowing that transforms the equity in a home into liquid cash without having to either move or make regular loan repayments. They permit house-rich but cash-poor elders to use their housing equity to, for example, pay for home care while they remain in the home, or for nursing home care later on. The loans do not have to be repaid until the last surviving borrower dies, sells the home or permanently moves out.
In a reverse mortgage, the homeowner receives a sum of money from the lender, usually a bank, based largely on the value of the house, the age of the borrower, and current interest rates. The lower the interest rate and the older the borrower, the more that can be borrowed. To find out how much you can get for your house, use a reverse mortgage loan calculator.
Homeowners can get the money in one of three ways (or in any combination of the three): in a lump sum, as a line of credit that can be drawn on at the borrower's option, or in a series of regular payments, called a "reverse annuity mortgage." The most popular choice is the line of credit because it allows a borrower to decide when he or she needs the money and how much. Moreover, no interest is charged on the untapped balance of the loan.
Although it is often assumed that an elderly person would want to use the funds from a reverse mortgage loan for health care, there are no restrictions--the funds can be used in any way. For instance, the loan could be used to pay back taxes, for house repairs, or to retrofit a home to make it handicapped-accessible.
Borrowers who take out a reverse mortgage still own their home. What is owed to the lender -- and usually paid by the borrower's estate -- is the money ultimately received over the course of the loan, plus interest. In addition, the repayment amount cannot exceed the value of the borrower's home at the time the loan is repaid. All borrowers must be at least 62 years of age to qualify for most reverse mortgages. In addition, a reverse mortgage cannot be taken out if there is prior debt against the home. Thus, either the old mortgage must be paid off before taking out a reverse mortgage or some of the proceeds from the reverse mortgage used to retire the old debt.
The most widely available reverse mortgage product -- and the source of the largest cash advances -- is the Home Equity Conversion Mortgage (HECM), the only reverse mortgage program insured by the Federal Housing Administration (FHA). However, the FHA sets a ceiling on the amount that can be borrowed against a single-family house, which is determined on a county-by-county basis. High-end borrowers must look to the proprietary reverse mortgage market, which imposes no loan limits. The national limit on the amount a homeowner can borrow is $625,000. As of April 1, 2013, the federal government stopped allowing homeowners to apply for HECM Standard fixed-rate, lump-sum reverse mortgages. For details, click here.
As long-term care insurance premiums keep rising and fewer companies are offering policies, seniors are looking for other ways to help pay for long-term care. Annuity "nursing home doublers" have emerged as a new long-term care option. These doublers can be beneficial, but as with any annuity product, customers should use caution before purchasing.
Anannuity is a contract with an insurance company under which the consumer pays the company a certain amount of money and the company sends the consumer a monthly check for the rest of his or her life, or for a certain term. Immediate annuities are a way to receive a guaranteed income for life and can be useful inMedicaid planning.
Many insurance companies that sell annuities are now offering "nursing home doublers" to help pay for long-term care. If the beneficiary of such an annuity needs long-term care, the insurance company will make double payments for five years or until the annuity's cash value is depleted. To activate the doubler, the annuitant needs to be unable to perform two of sixactivities of daily living (i.e., eating, bathing, dressing, transferring, toileting, and continence). Once the five years are up and if the annuity still has a cash value, the insurance company would go back to making regular payments.
The benefit of a doubler is that it is relatively inexpensive. Many insurance companies offer the doubler at no additional cost beyond the lifetime income rider fee. If there are additional fees, the fees are usually low. The double payments are not designed to cover the full cost of long-term care, but they can help defray the cost.
Before purchasing an annuity, you should fully research the product. While annuities—particularly immediate annuities--can be a valuable retirement product, annuity salespeople have come under scrutiny for targeting older Americans withdeceptive sales tactics. Before purchasing an annuity with a doubler, find out whether it covers home care in addition to nursing home care. In addition, using a doubler depletes the cash value of your policy, which means there would be less left in the annuity to leave to your heirs. Also, if you purchase a joint annuity, the doubler will only cover one spouse's long-term care.
Before making any purchases consult with your elder law attorney to find out the best way to plan for long-term care.
“As more and more baby boomers start eyeing the coastline of retirement, thoughts turn from the daily worry over the Monday-through-Friday commute to concerns about how to fund the golden years.”
How prepared are you for retirement? Are you up to speed on your pension, your 401(k), IRA, and other retirement accounts that comprise your nest egg? How about Social Security benefits?
These are some of the questions you will have to ponder as you get closer to retiring. To help you out, Kiplinger’s has compiled a list of retirement decisions you may regret forever in “10 Financial Decisions You Will Regret in Retirement.” We’ll look at a few to see if they sound familiar.
Putting Off Saving for Retirement. Bankrate found in its survey that the single biggest financial regret of Americans was waiting too long to begin saving for retirement. Many folks don’t start to really buckle down and really save for retirement until they reach their 40s or 50s. For those who waited, you may still have enough time to change your savings behavior and reach financial goals. Start saving now!
Claiming Social Security Early. You can take Social Security retirement benefits at 62, but you probably should wait at least until your full retirement age, which right now is 66 and moving up to 67 for those born after 1959. If you can delay until 70, all the better. If you claim at 62, rather than your full retirement age of 66 in this example, your monthly check will be reduced by 25% for the rest of your life. If you wait until age 70, you’ll receive a 32% boost in benefits. That’s 8% a year for four years because of delayed retirement credits.
Borrowing from Your 401(k). Taking a loan from your 401(k) retirement-savings account seems like a nice solution to cash flow problems. Provided that your plan sponsor permits borrowing, you usually have five years to pay it back with interest. However, aside from a crisis, it’s a bad idea to tap your 401(k). You’re likely to reduce or suspend new contributions during the repayment period, so you’ll be short-changing your retirement account and missing out on employer matches. You’re also not getting the investment growth from the missed contributions and the cash that you borrowed. One last thing: you’ll be paying the interest on that 401(k) loan with after-tax dollars—then paying taxes on those funds again in retirement. Another last thought: if you leave your job, the loan usually has to be paid back within 60 days. If not, it’s considered a distribution and taxed as income.
Putting Your KidsFirst. Sure, you want your children to have the best, but paying for private college tuition or a huge wedding at the expense of your own retirement savings could come back to haunt you. Remember, you can’t borrow for your retirement living. Think of other options beyond borrowing from your 401(k) plan to help your kids. No one plans to go broke in retirement, but it happens when you don’t save enough. If you’re not smart now, your kids might wind up with you as a permanent house guest.
Increasingly, several generations of American families are living together. According to a Pew Research Center analysis of U.S. Census data, more than 50 million Americans, or almost 17 percent of the population, live in households containing two adult generations. These multi-generational living arrangements present legal and financial challenges around home ownership.
Multi-generational households may include "boomerang" children who return home after college or other forays out into the world, middle-aged children who have lost jobs in the recent recession, or seniors who no longer can or want to live alone. In many, if not most, cases when mom moves in with daughter and son-in-law or daughter and son-in-law move in with mom, everything works out well for all concerned. But it's important that everyone, including siblings living elsewhere, find answers to questions like these:
If mom owns the house, what happens when she passes away? Do daughter and son-in-law have to move out? If mom leaves them the house, is that fair to the other siblings? If she leaves them her savings and investments instead, what happens if that money gets spent down on her care?
If mom pays for an in-law addition to be built on daughter and son-in-law's house, what guarantees should she have about being able to live there? What happens if, despite everyone's best intentions, mom moves out either because living together isn't working out or she needs care that the family can't provide? Do the daughter and son-in-law simply get the advantage of the increase in value to their property? What if mom needs the money she put into the house to live on? What are the Medicaid issues if she needs nursing home care within five years?
What are everyone's expectations in terms of paying living and housing expenses?
What happens if daughter gets a great job offer in another city? Or daughter and son-in-law get divorced?
If grandchildren are still living at home, is mom expected to help with child care?
How do the answers to all of the questions change if mom and daughter and her husband are pooling their resources to purchase a new home for everyone?
Who will care for mom if she becomes disabled? Is daughter expected to give up her work to provide the care? Should she be compensated? What about using up mom's financial resources to pay for care providers?
It is difficult to answer many of these questions in the abstract, but having an open discussion about them at the start, writing down the answers, and reviewing the questions and answers as circumstances change, can help avoid misunderstandings and potential recriminations down the road.
The answers to these questions may lead to different forms of home ownership that can help achieve the family's goals. Here are some of the options:
Joint Ownership. If mom, daughter, and (perhaps) son-in-law own the house as joint tenants with right of survivorship, when mom passes away the house will go to the other owners without going through probate. This has an advantage if mom ever needs Medicaid to pay for home or nursing home care because it may avoid the state's claim for reimbursement at her death (usually referred to as "estate recovery") Some states have expanded the definition of estate recovery to include property in which the recipient had an interest but which passes outside of probate, so property in joint ownership may be included in estate recovery in those states. If the house is sold while the owners are alive, the proceeds (absent another agreement) will be divided equally among the co-owners.
Tenants in Common. If mom, daughter, and son-in-law own the house as tenants in common, mom's share at her death will go to whoever she names in her will. This may be fairer to other family members, but does not avoid probate. As with joint ownership, if the house is sold while all the owners are alive, the proceeds (absent another agreement) will be divided equally among the co-owners.
Life Estate. A life estate is a form of joint ownership where mom as the "life tenant" has the right to live in the house during her life and at her death it passes automatically to the "remaindermen" who can be anyone she names -- daughter or son-in-law or all of her children equally. Like joint ownership, it avoids probate and thus may also avoid Medicaid estate recovery. If the property is sold, the proceeds are divided up between the mom and whomever is on the deed as remaindermen, the shares being determined based on mom's age at the time -- the older she is, the smaller her share and the larger the share of the remaindermen.
Trust. Putting the house in trust is the most flexible approach because a trust can say whatever the person creating it wants. It can guarantee mom the right to live in the house and compensate daughter and son-in-law for the care they provide. It can also take into account changes in circumstances, such as daughter passing away before mom. At the same time, it avoids probate and Medicaid estate recovery.
All of these options have different tax results in terms of capital gains when the home is sold, as well as different treatment by Medicaid if mom needs help paying for care. It's best to consult with your attorney to determine what makes the most sense in your particular situation.
For more on the different ways to co-own property, click here.
Increased dependency due to illness, disability or cognitive impairments can make seniors susceptible to financial abuse. Nest eggs accumulated over decades also often make seniors attractive targets for predators, whether the predator is an offshore bogus sweepstakes or a care provider who sees an opportunity to be paid more than an hourly wage.
Just as sunlight makes the best disinfectant, transparency provides the strongest abuse protection. If others are aware of the senior's finances, either possible predators will see that no opportunity exists to take advantage of the senior or the family members or professionals can step in to keep any fraud from going too far. Here are some steps seniors or their loved ones can take to prevent financial abuse.
1. Arrange for account oversight
Make sure that someone close to the senior has access to her accounts to be able to see if anything unusual is going on, for instance large checks being made out or larger-than-usual cash withdrawals from ATMs. The oversight can be through copies of monthly statements or online access to accounts.
2. Create joint accounts
A joint account with someone gives them oversight as well as the ability to write checks, make investment decisions and take steps if necessary to protect the funds in the account. It also avoids probate, making the transition somewhat easier at the owner's death. But make sure you only add the name of someone you really trust to the account because it can also be an avenue for financial abuse if the joint owner becomes the perpetrator.
3. Use a revocable trust
Revocable trusts can be useful for a number of reasons. They include all of the benefits of joint accounts, with few of the drawbacks. Your revocable trust gives someone you trust access to your accounts in trust and the ability to step in seamlessly if you become disabled. Unlike a joint account, it does not give the trustee any ownership interest in the account. If, for instance, you had four children but named one as a co-owner of your joint accounts, at your death she would have the legal right to keep the funds rather than share them with her siblings. That would not be the case with a revocable trust.
4. Visit often
Nothing prevents financial abuse or stops it in its tracks better than frequent visits by loved ones. Either the potential perpetrator will see that he can't isolate the senior and take advantage of him or family members or friends will notice the abuse before it goes too far.
5. Get help paying bills
If someone helps you pay your bills, they will help you make sure that you're not letting anything slip through cracks or paying something that you shouldn't. They will be able to help you sort through your mail and determine what is important and what is not.
6. Use a limited credit card
Credit cards are now available that allow another person to monitor the activity of the cardholder and to limit both the amount he spends and where he can spend it. One of these is the True Link card.
7. Sign up for do not call registry
It is quite easy to register your telephone number with the Federal Trade Commission's Do Not Call Registry either online at www.donotcall.gov or by calling 888.382.1222. While this may not stop someone intent on defrauding a senior, it should help reduce calls from salespeople.
8. Sign up for Nomorobo
You can sign up for Nomorobo to block robo calls. Unfortunately, it does not work with all telephone providers, including Verizon.
9. Consult with an elder law attorney
An elder law attorney can help set up a revocable trust and durable power of attorney to assist with financial management, advise on the best protective steps to take in each situation and provide additional oversight to discourage financial abuse.
10. Opt out of mail solicitations
At www.dmachoice.org the Direct Marketing Association permits you to limit the amount of catalogs, credit card offers and other direct mail pieces you or a loved one receives. You may well ask why the Direct Marketing Association does this. The answer is that they don't want to waste their print and mail costs sending to consumers who have no interest in the product being marketed.
While there's no foolproof measure you can take that will both prevent financial fraud and leave you or your loved one with at least some independence and control over his or her finances, the steps described above can make the world a safer financial place. Just remember what was said at the beginning: isolation is a breeding ground for financial abuse (as well as depression and other ills). Social involvement is the best protection.
"Surprisingly, the answers may lie in a hit television sitcom that debuted in 1985. NBC's "The Golden Girls" followed four older women living together and trying to make ends meet."
Baby boomers are heading toward retirement, and some are already there, as the oldest members of the generation turn 70 this year. This milestone may have you thinking about this next stage of life and asking these questions: When will we stop working? Where will we live in retirement? How will we afford it?
NBC's "The Golden Girls" was groundbreaking in its portrayal of feminism, aging, and other important issues of the day. Its lessons about retirement are still relevant today, says this Kiplinger's article, "5 Things 'The Golden Girls' Can Teach Boomers About Retirement." Let's take a look.
Lesson #1: Roommates can help pay the bills and keep you company. On "The Golden Girls," Blanche (Rue McClanahan), Rose (Betty White), Sophia (Estelle Getty), and Dorothy (Bea Arthur) shared Blanche's Miami home out of financial necessity. All four women were near, at or above retirement age. Just like many boomers, they didn't save enough for retirement. Blanche sought some roommates to help offset expenses and ended up with Rose and Dorothy—and Dorothy's mother, Sophia. These ladies showed future retirees that you can save money by splitting costs and doing things yourself, such as installing a toilet and renovating a garage. Boomers are now aware of the shared-housing model, as over a million households now have unrelated single people ages 46 to 64 living together. That's about a third more than there were in 2000.
Lesson #2: You might need a job after you retire. For boomers who don't have a pension and didn't save enough in a retirement fund, a post-retirement job could be necessary. "The Golden Girls" needed to work to make ends meet. For example, Dorothy was a substitute teacher, and Rose—who lost her pension—worked at a TV station. For Boomers in the '80s who focused more on their kids and careers than retirement, this was a TV-inspired wakeup call. We need to think about saving money for our later years. Like the characters on “The Golden Girls," staying on the job or starting a side business is a necessity.
Lesson #3: You might end up divorced or widowed—and dating. Can you believe that the divorce rate among people 50 and older in the U.S. doubled between 1990 and 2010, which means more older singles. The characters on "The Golden Girls" were no strangers to relationships and love. Blanche, Rose, and Sophia were all widows, and Dorothy was divorced. Their late-life dating made for a lot of laughs and some tears. Remember that divorce and widowhood can have a significant effect on the size of your Social Security checks. For instance, you can claim potentially higher benefits based on your ex-spouse’s earnings as long as you don’t remarry—and you don't need to tell your ex you're doing it.
Lesson #4: Your purpose doesn't end with your career. Like in the "The Golden Girls," retirement doesn't have to mean checking out. This series never shied away from topics that could make viewers uncomfortable and eschewed stereotypes. It showed us why we should stay connected with the real world in our own Golden Years through, among other things, volunteer work and second careers.
Lesson #5: Real life isn't a sitcom. Life wasn't always golden for "The Golden Girls." They complained, fought, and insulted each other. However, they were great friends and resolved their issues.
Reference: Kiplinger April 29, 2016) "5 Things 'The Golden Girls' Can Teach Boomers About Retirement"