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Tuesday, July 31, 2012

Women facing 'retirement income glass ceiling'

Savings crimped by lower wages, time outside the workforce

By Darla Mercado
July 31, 2012

Women face a unique set of hurdles when it comes to saving for retirement, and those difficulties set them far behind men once they stop working.

“Due to persisting income disparities, a retirement income glass ceiling has been placed over women, and it is limiting their ability to fund a secure retirement,” according to Cathy Weatherford, chief executive of the Insured Retirement Institute.
Research released by the IRI on Tuesday showed that over time, income disparities hurt the growth of women's retirement savings. After 30 years, female employees end up with a 25% to 30% shortfall in savings, compared with a male worker who has the same saving and investing habits.
Further, while half of male baby boomers have at least $200,000 socked away for retirement, just 35% of boomer women have that much in savings, according to the IRI, which conducted interviews with 503 people 50 to 66.
Women continue to earn close to 80 cents for every dollar earned by men. That difference inevitably affects the amount that women put away in their retirement plans.
Between 25 and 34, a woman's retirement savings is only about 64% of a man's, rising only slightly to 78% between 65 and 69, according to data from ING Groep NV and cited by the IRI.
Female workers' savings plans go awry when they take time off of work to care for family members.
Stepping out of the workforce to raise a child or to care for others means that these women end up missing out on career opportunities, as well as the time to contribute to a retirement plan at work.
The IRI cited data from the Family Caregiver Alliance that showed that a third of working women cut their working hours, while 29% took a pass on a promotion and 16% outright quit their job to take care of others.
Life events, such as divorce or death of a spouse, hurt women more keenly due to the loss of income and assets, particularly if these events take place later in life. Women tend to live three to four years longer than men, according to the Society of Actuaries, so they need to stretch their savings and income over a longer time period.
Following a divorce or separation, women's household income declines by an average of 41%, close to twice the amount of income loss men experienced, according to an analysis of people over 50 by the U.S. Government Accountability Office. Once a woman is widowed, her household income declines by 37%, compared with a 22% drop for men.
“Women face a unique set of circumstances that warrant special attention,” Barbara D. Bovbjerg, managing director of education, workforce and income security at the GAO, wrote in the report.
“Women may have a more difficult time saving for retirement and avoiding poverty late in life,” she wrote.

“[This is] partly due to the fact that they have a greater likelihood of being single, living longer, taking time out of the workforce to care for family members and having lower average earnings.”

Friday, July 27, 2012

Is LTC Insurance Worth It? Get Real...

CNBC lets you vote on the question “Would You Buy Long-Term Care Insurance?” here.

This article says the premiums are expensive. I hear that all the time.
Are they expensive?

I have to expand the question for those who make that statement.

Long-term care insurance premiums are expensive compared to ... what? Compared to the cost of long-term care? NO. Long-term care insurance premiums are a drop in the bucket compared to the cost of the type of care this valuable insurance pays for.

Take the group plan for state of Tennessee employees, for example.

A 50-year-old can get a $200 daily benefit to cover today’s cost of care with either a 3-year benefit period or a 5-year benefit period for only $159.14 a month or $224.26 a month respectively. If a spouse is also issued, the premium is reduced 10% for both the employee and the spouse and paying annually instead of monthly will reduce it an additional 8%. So now we’re at $1,591 for the 3-year benefit period and $2,242 for the 5-year benefit period.

Sound like a lot? Here’s the value proposition: The premium for the 3-year plan will cost $47,730 over 30 years and the premium for the 5-year plan will cost $67,260. At 5% compound, the daily benefit will be $823.23 in 30 years, which means the benefit pool for the 3-year plan will be $901,433 and the benefit pool for the 5-year plan will be $1,577,508.

Let me restate this information to be crystal clear:

Buying long-term care insurance at the above premium means you would spend 4% to 5% of the potential benefits in 30 years. ($47,730 is 5% of $901,433 and $67,260 is 4% of $1.5 million)  But we’re not done.

The benefits will continue to grow each year at 5% compound for the rest of your life as long as you haven’t used them all up! At 5% compound, the benefits DOUBLE every 15 years.

I’ve told you what the benefits will be at age 80 for the 50-year-old. Could today’s 50-year-old live to be age 95? According to the Wall Street Journal, one in 10 people who turned age 65 in 2011 will see age 95, so it’s logical to think those odds will be even higher for someone 15 years younger.

At age 95, the 3-year plan will have grown to almost $2 million and the 5-year plan will be sitting at $3 million.
$1,591 x 45 years = $71,595 premium vs. $1.8 million in potential benefits
$2,242 x 45 years = $100,890 in premium vs. $3.1 million in potential benefits

Oh, and let’s see, should we mention that the premium STOPS once you start using the benefits?

But wait – I’m not saying that the premiums can increase on a class basis? Yes, they certainly can.

The company that insures the state of Tennessee has had one rate increase since 1987 and it happened in 2011. Can it have more? Of course. But look closely at the numbers above. Even if the premium doubled or tripled, is it still a great deal? I think so. Would I rather pay a million or $1.5 million out of my pocket or would I rather pay less than 10% of that amount?

What if you never use it? Then you’ve made a 4% to 5% mistake… But was it a mistake? Your 4% to 5% mistake bought peace of mind for you and your family for 30 to 45 years. To me, that’s priceless.

Tuesday, July 17, 2012

The Basics of Long-Term Care Insurance

Long-term care--particularly whether it will be needed, and how much it will cost--is enough to make anyone uncomfortable. That said, it's also a topic that often generates lots of questions and is frequently misunderstood.

We spend a lifetime saving our money to provide ourselves and our loved ones with a sense of financial security in the future. Many of us have a great deal of our retirement assets tied up in qualified funds like 401ks and IRAs. It would be a shame if proper planning is overlooked and financial security is diminished by the cost of care. If income is needed to pay for care, keep in mind that these types of assets are subject to federal and possibly state income taxes.

And how much does long-term care cost for those who truly need it? The average cost of nursing home care in the United States now exceeds $70,000 per year, but varies widely from state to state, according to AARP.

For the most part, those who need long-term care are left to foot the bill on their own. Neither Medicare, nor Medicare supplemental coverage ("Medigap"), nor standard health insurance policies cover long-term care unless you are impoverished.

This is where long-term care insurance plays a critical role. Premium costs are based on your age and health at the time of purchase, so the younger and healthier you are when you purchase a policy, the lower the premium you're apt to pay during the life of the plan.

As you evaluate long-term care insurance, keep the following variables in mind:

Coverage parameters. Policies differ in the types of services they support. Choose a policy that best meets your particular needs.

Benefits payout. How much does the policy pay per day for care in a particular setting? How does the policy pay out? (For example, is the payout a fixed daily amount, as reimbursement for the cost of care up to a daily maximum?) Does the policy have a maximum lifetime limit?

Eligibility. Does the policy use certain "triggers" to determine benefits eligibility, such as the formal diagnosis of an illness or disability? What is the maximum issue age for the policy?

Women may need more. Women tend to live longer and may need additional coverage.

Finally, keep in mind that most long-term care policies sold today are federally tax-qualified, which means premiums paid and out-of-pocket expenses are deductible. Also, long-term care benefits received are not taxed as income up to certain limits.

Protecting the work of a lifetime sometimes means being willing to address the sensitive topics of mortality, old age, and infirmity. These may be inevitable issues for all of us, but we can at least prepare from a financial perspective, and in the process, leave ourselves and our heirs with a better future.

Retrieved on 1/18/12 from http://finance.yahoo.com/news/basics-long-term-care-insurance-134726269.html;_ylt=AkvRDjmV.DuTdWZo.5qRyOvC34dG;_ylu=X3oDMTQwNWdibGJzBG1pdANQRiBJbnN1cmFuY2UEcGtnAzRhMjFmMWIyLWFmMmQtMzAyZi04YjEyLWE2NDc5NDBjOGMwYgRwb3MDMgRzZWMDTWVkaWFCTGlzdE1peGVkTFBDQQR2ZXIDZjgxOTc1MjYtMWFjOC0xMWUxLWE4YmQtNzhlN2QxNWU5MWUy;_ylg=X3oDMTJkMjNyZGpxBGludGwDdXMEbGFuZwNlbi11cwRwc3RhaWQDBHBzdGNhdANwZXJzb25hbGZpbmFuY2V8aW5zdXJhbmNlBHB0A3NlY3Rpb25zBHRlc3QD;_ylv=3

Wednesday, July 11, 2012

How Married Couples Can Boost Their Social Security Checks

Coombes: Strategies that can increase your retirement income. .


You'd think claiming Social Security would be a simple retirement decision -- you retire and you start your benefits. But there are certain complex strategies that can help pad a married couple's retirement savings with tens of thousands of dollars of additional income.

Don't make your claiming decision lightly, said Joe Elsasser, an Omaha, Neb., certified financial planner and creator of Social Security Timing, a software program for pre-retirees and advisers to run scenarios to assess strategies.

"It's a decision that's going to impact you for your entire life, and it's a decision that's going to make up a substantial portion of your income," he said.

Specific strategies can help maximize savings, but couples also need to avoid a common mistake. "Almost everyone thinks of it as their own earnings record, their own benefit, as opposed to integrating what they receive," Elsasser said.
Instead, make the decision as a couple. Consider a hypothetical situation. The husband, the higher earner, believes he's going to die relatively early and the wife thinks she'll live a long time. So the husband claims his benefits as early as possible and the wife delays.

"That's exactly opposite of the scenario that should happen," Elsasser said.

Each year you delay claiming your benefits past your normal retirement age, your benefit ticks about 8% higher, up to age 70, thanks to what the Social Security Administration calls "delayed retirement credits." And in the event of a spouse's death, the surviving spouse can take the higher of her own benefit or that of the dead spouse.

If the husband claims early and then dies first, "effectively he's shortchanged his wife's survivor benefit," Elsasser said. Instead, that husband should delay his claim, so if need be the wife can claim the highest possible benefit for the rest of her life. If the wife dies first, the husband simply keeps his own benefit.

"You're trying to maximize benefits over both spouses' lives. That's the key that most people miss," said Brett Horowitz, wealth manager at Evensky & Katz Wealth Management in Miami.

The 'file and suspend' strategy

A claiming strategy called "file and suspend" can help get the most money. Say a husband plans to delay his benefit until age 70. He is allowed to claim his benefit at his normal retirement age -- say it's 66 -- and then immediately suspend it.

That way, his benefit amount keeps growing -- thanks to those delayed retirement credits -- but since he did make that initial claim, his wife, at her full retirement age, can file a "restricted" application to claim spousal benefits based on her husband's record, but not her earned benefit.

Generally, spousal benefits are up to 50% of the other spouse's monthly benefit at full retirement age (some age restrictions apply). In this scenario, her own benefit now can grow until she hits 70, too.

In one hypothetical "file and suspend" scenario, a couple, both 66, could collect an additional $60,000 by delaying their benefits and the wife taking spousal payouts while they wait, according to Lisa Colletti, New York-based director of wealth management at Aspiriant.

Say a husband and wife, both 66, are entitled to monthly benefits of $2,500 and $1,500, respectively. The husband decides to file and suspend -- he wants to delay until age 70, when his monthly benefit will be $3,300.

But, meanwhile, the wife can collect a 50% spousal benefit based on her husband's benefit at his full retirement age -- that's one-half of $2,500, or $1,250 a month -- from her age 66 to 70. Then, at 70 she switches to her benefit, which has grown to almost $2,000 a month.

End result: $60,000 more in benefits than had the couple simply delayed their benefits. This scenario assumes that delaying benefits until age 70 makes sense for the couple.

A 'restricted' application

Another use of a "restricted" application: Say a 66-year-old husband decides it makes sense for him to delay his benefits until he's 70. His wife started her benefits at 62.

"What the husband doesn't realize is he is entitled to 50% of his wife's benefit while he waits, because she already filed," Horowitz said.

When he turns his full retirement age, the husband can tell the Social Security Administration that, rather than filing for his own benefits, he wants to restrict his benefits to his wife's record. If he changes his mind, he can switch over to his own benefits at any time.

Assuming his wife's benefit at her full retirement age would have been $1,750 a month (she's getting less because she filed at age 62), the husband will get $875 a month.

"If he waits till age 70, he will receive $875 a month for 48 months, or $42,000," Horowitz said.

Note that the spouse who files a restricted application must be at least full retirement age. "If you apply for spousal benefits prior to full retirement age, then 'deemed filing' applies. You are deemed to have filed for both your own benefit and the spousal benefit at the same time," said Jim Blankenship, a certified financial planner in New Berlin, Ill., and author of "A Social Security Owner's Manual."

It's tough to generalize about Social Security strategies. Each spouse's age, benefit amounts and health outlook play a big role in how and when to claim. The point is, don't claim before you assess your options.

Retrieved 7/11/12 from http://www.smartmoney.com/retirement/planning/how-married-couples-can-boost-their-social-security-checks-1341249055117/.

Tuesday, July 10, 2012

GM follows in Ford's tracks, offers lump sum to retirees

Automaker also shifting balance of pension plan to Prudential

June 1, 2012 3:38 pm ET

Apparently, as Ford Motor goes, so goes GM.

General Motors Co. on Friday announced plans to cut its pension obligation by $26 billion by offering lump-sum payments to about 42,000 white-collar retirees. The nation's largest automaker is also shifting the balance of its plan to Prudential Insurance Co. of America.
“These actions represent a major step toward our objective of derisking our pension plans and will further strengthen our balance sheet and give us more financial flexibility,” Dan Ammann, GM's chief financial officer, said in a statement. GM's pension buyout announcement follows a similar move by Ford Motor Co. that offered lump-sum payments to about 90,000 salaried retirees.
The GM announcement affects retirees who retired before Dec. 1. GM retirees don't have to accept the offer. Those who don't will continue to receive monthly pension payments through a new group annuity contract administered by Prudential. The annuity contract is expected to be completed by the end of this year.
“This landmark agreement allows GM to maintain the value of U.S. salaried pension benefits for its retirees while significantly reducing its pension obligations,” said Christine Marcks, president of Prudential Retirement. “With our financial strength, investment capabilities and actuarial expertise, Prudential is uniquely suited to assume the responsibility of guaranteeing pension benefits.”
Leon LaBrecque, founder of LJPR, a firm managing over $431 million in assets, noted that choosing between the two payment types can be nettlesome. “The lump-sum vs. monthly pension benefit decision is an exceedingly complex one with, tax, estate, mortality, investment, and many more consequences," he said. "Retirees should study their options carefully before making a decision."
The GM and Ford announcements may be just the tip of the iceberg. A new report, “The Future of Retirement and Employee Benefits,” issued by Prudential and CFO Research Services last month found that senior finance executives in a broad cross-section of industries increasingly are exploring solutions to reduce or eliminate the effect of pension-funding volatility. Many respondents indicated that funding their pension obligations constrains their firm's cash flow, access to capital and ability to invest in growth opportunities.
The 2012 survey found an increase in the percentage of companies likely to transfer pension plan risk to a third-party insurer. More than 40% of respondents said they are likely to do so within the next two years, up from 30% in the 2010 survey.