From my favorite financial guru, Jonathan Clements:
"Mortgage interest is tax deductible, but the tax savings are often
less than we imagine—and there may be no tax savings at all. Suppose
we’re married and our itemized
deductions—including $13,000 in mortgage interest—total $26,000 in
2019. Sound impressive? Remember, we could always claim the $24,400
standard deduction for a couple filing jointly."
"In other words, that $13,000 of mortgage interest is reducing our
taxable income by a mere $1,600—and perhaps saving us just $352 in
taxes, assuming we’re in the 22% federal income-tax bracket. The
standard deduction was claimed by an estimated 88% of tax
filers in 2018, which means these folks got no tax benefit from their itemized deductions, including any mortgage interest they paid."
Check out his Humble Dollar website: https://humbledollar.com/
May 20, 2019
Hybrid Long Term Care Insurance
Actuaries miscalculated when insurance companies first started selling Long term care insurance (LTCI). As insurance company losses mounted many purchasers faced unaffordable increases in their annual premiums. Rather quickly the number of companies offering LTCI shrunk from about 100 to a dozen as it became clear that the product was not properly priced.
Now a variation combines annuities or whole (or universal) life insurance with LTC protection. These hybrid policies are worth considering.
A blog with reliable, understandable information about LTCI and the new hybrid policies is: https://www.insuranceandestates.com/long-term-care-insurance/
The site explains the pros and cons of buying LTCI vs. combining LTC protection with an annuity of whole life coverage. One of the main drawbacks of the hybrid policies is that they typically require a single, large, upfront premium compared to a yearly premium for traditional coverage. The disadvantage of the lower annual premium is that companies can raise the premium whereas a one time payment provides cost certainty.
Hybrid policies offer: Life Insurance with Long Term Care Rider or Chronic Illness Rider
https://www.insuranceandestates.com/long-term-care-rider-vs-chronic-illness-rider/
The site provides information on the 10 best (highly rated by independent raters) insurance companies and plenty of information that consumers should read before talking to any sales persons. Be sure to read through the entire website for in depth information and check out AARP info. Due to the large upfront premium for hybrid LTCI policies, thorough due diligence is essential. Keep in mind that insurance agents are sales people working on commission.
Another reliable source providing an overview of the new hybrid policies is AARP: https://www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html
Now a variation combines annuities or whole (or universal) life insurance with LTC protection. These hybrid policies are worth considering.
A blog with reliable, understandable information about LTCI and the new hybrid policies is: https://www.insuranceandestates.com/long-term-care-insurance/
The site explains the pros and cons of buying LTCI vs. combining LTC protection with an annuity of whole life coverage. One of the main drawbacks of the hybrid policies is that they typically require a single, large, upfront premium compared to a yearly premium for traditional coverage. The disadvantage of the lower annual premium is that companies can raise the premium whereas a one time payment provides cost certainty.
Hybrid policies offer: Life Insurance with Long Term Care Rider or Chronic Illness Rider
https://www.insuranceandestates.com/long-term-care-rider-vs-chronic-illness-rider/
The site provides information on the 10 best (highly rated by independent raters) insurance companies and plenty of information that consumers should read before talking to any sales persons. Be sure to read through the entire website for in depth information and check out AARP info. Due to the large upfront premium for hybrid LTCI policies, thorough due diligence is essential. Keep in mind that insurance agents are sales people working on commission.
Another reliable source providing an overview of the new hybrid policies is AARP: https://www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html
5 Things You SHOULD Know About Long-Term Care Insurance
Retirees Regret Claiming Social Security Early
Many Retirees Wish They Had Delayed Taking Social Security Benefits
"MassMutual says a married couple that
lives into their 90s but decides to begin their Social Security
benefits at age 62 as opposed to age 70 could be leaving as much as half
a million dollars on the table, or forfeiting $2,000 to $4,000 a month
for life."
By Lee Barney
By Lee Barney
May 17, 2019
Asset Based Long Term Care Insurance
A new development in the long term care insurance (LTCI) industry is "asset-based" policies that link long term care (LTC) coverage with a whole life insurance policy or a deferred annuity. Huge premium increases in the early years of LTCI often caused insured to drop their policies because they simply could not afford the much higher premiums. Premium increases were a result of lack of experience in the early years of the industry and projections by actuaries that were too conservative.
Keep in mind that most mid to old age Americans simply cannot afford any type of LTCI because they have so little saved for retirement. They will have to rely on Medicaid or relatives if they need nursing home care. The wealthiest Americans can afford to self-insure and pay any LTC expenses out of their extensive assets. It's the folks in the middle who need to decide how to prepare for potential LTC costs.
New developments in the LTCI industry include "asset-based" insurance. This means that coverage for LTC is linked to a whole life (NOT term) insurance policy or to a deferred annuity (a tax advantaged way to invest for retirement). The primary advantage to asset-based policies is that typically there will be assets left over after paying for LTC for children or other beneficiaries.
While insurance covers the insured in the event of a loss, one may pay decades of premiums and never collect on a homeowners or auto insurance policy. That's how insurance is structured and most consumers understand that they paid for protection against possibly devastating losses but may never collect on a policy. Traditional LTCI is the same way. You may never need care and may die suddenly of a heart attack or stroke and never collect on a policy. However, because LTC is different from an auto accident or house fire, and because premiums often skyrocketed making them unaffordable, the industry has devised ways to make paying premiums more palatable by guaranteeing some sort of payout to heirs in the event there is not LTC claim.
Another factor is that far too many Americans think that Medicare will pay for LTC. It won't. Or they assume they will be eligible for Medicare paying for their care without understanding how the system works.
So welcome to "asset-based" LTCI, a way to make paying premiums more palatable.
"Asset-based long-term care (“ABLTC”) is an innovative insurance strategy that provides coverage for long-term care expenses without running the risk of “wasting” premiums if you don’t need long-term care."
ABLTC insurance links coverage to a whole life insurance policy or a deferred annuity.
"The beauty of ABLTC is that, if you don’t need long-term care, the annuity or whole-life policy retains its value and pays out to your designated beneficiary. And many people who might not qualify for traditional LTCI due to preexisting conditions may still be able to obtain coverage."
Get details and lots more info from:
https://www.insuranceandestates.com/asset-based-long-term-care/
Keep in mind that most mid to old age Americans simply cannot afford any type of LTCI because they have so little saved for retirement. They will have to rely on Medicaid or relatives if they need nursing home care. The wealthiest Americans can afford to self-insure and pay any LTC expenses out of their extensive assets. It's the folks in the middle who need to decide how to prepare for potential LTC costs.
New developments in the LTCI industry include "asset-based" insurance. This means that coverage for LTC is linked to a whole life (NOT term) insurance policy or to a deferred annuity (a tax advantaged way to invest for retirement). The primary advantage to asset-based policies is that typically there will be assets left over after paying for LTC for children or other beneficiaries.
While insurance covers the insured in the event of a loss, one may pay decades of premiums and never collect on a homeowners or auto insurance policy. That's how insurance is structured and most consumers understand that they paid for protection against possibly devastating losses but may never collect on a policy. Traditional LTCI is the same way. You may never need care and may die suddenly of a heart attack or stroke and never collect on a policy. However, because LTC is different from an auto accident or house fire, and because premiums often skyrocketed making them unaffordable, the industry has devised ways to make paying premiums more palatable by guaranteeing some sort of payout to heirs in the event there is not LTC claim.
Another factor is that far too many Americans think that Medicare will pay for LTC. It won't. Or they assume they will be eligible for Medicare paying for their care without understanding how the system works.
So welcome to "asset-based" LTCI, a way to make paying premiums more palatable.
"Asset-based long-term care (“ABLTC”) is an innovative insurance strategy that provides coverage for long-term care expenses without running the risk of “wasting” premiums if you don’t need long-term care."
ABLTC insurance links coverage to a whole life insurance policy or a deferred annuity.
"The beauty of ABLTC is that, if you don’t need long-term care, the annuity or whole-life policy retains its value and pays out to your designated beneficiary. And many people who might not qualify for traditional LTCI due to preexisting conditions may still be able to obtain coverage."
Get details and lots more info from:
https://www.insuranceandestates.com/asset-based-long-term-care/
May 8, 2019
Mom doesn't need flowers or a new kitchen gadget for Mother's Day!
Mom needs an Individual Retirement Account (IRA)!
Whether employed or not, as long as a spouse is earning income, Mom can open an IRA to help provide financial security/financial freedom in later life. Typically one must have earned income to fund an IRA but not if a spouse has earnings.
Typically dad is accumulating credits toward Social Security retirement benefits and may have access to an employer sponsored retirement account through his work but many moms, whether employed or not, are building very little in the way of financial security for later life. Sure they may be eligible for Social Security retirement equal to half of their spouse's benefit but that's not much.
So show mom you are financially savvy and get dad to help open and contribute to a Roth IRA for mom.
Lot of info on IRAs on this blog; use the search function for details.
Whether employed or not, as long as a spouse is earning income, Mom can open an IRA to help provide financial security/financial freedom in later life. Typically one must have earned income to fund an IRA but not if a spouse has earnings.
Typically dad is accumulating credits toward Social Security retirement benefits and may have access to an employer sponsored retirement account through his work but many moms, whether employed or not, are building very little in the way of financial security for later life. Sure they may be eligible for Social Security retirement equal to half of their spouse's benefit but that's not much.
So show mom you are financially savvy and get dad to help open and contribute to a Roth IRA for mom.
Lot of info on IRAs on this blog; use the search function for details.
May 5, 2019
Don't Delay Investing for Retirement!
It's so easy to justify procrastinating retirement savings... once I pay off the mortgage, when I finish helping my kids pay for post-secondary education, when I get a raise...
"Most retirement calculators are optimistic to a fault. They assume our incomes will rise throughout our working lives, or at least stay roughly the same.
In reality, our incomes are likely to peak years — and sometimes decades — before we retire. Consider this:
— People’s biggest wage increases tend to happen in their 20s and 30s, with more modest increases in midlife followed by declines, according to a 2016 analysis of Social Security earnings records underwritten by the Federal Reserve Bank of New York.
— Most people’s incomes peak by age 45, the researchers found, although the top 20% of earners peaked in their 50s.
More than half of those who enter their 50s with a stable job are laid off or otherwise forced out the door, and the vast majority don’t recover financially, according to analysis by ProPublica and the Urban Institute." Liz Weston writing for the AP News.
So... what to do:
Save early and avoid "lifestyle creep"
Remind yourself about the time value of money and compound interest which illustrate how much more valuable is a dollar invested a decade ago compared to a dollar invested today.
Get the details at: https://www.apnews.com/3ae0c46014564b82bbdd55f4d7facd4b
"Most retirement calculators are optimistic to a fault. They assume our incomes will rise throughout our working lives, or at least stay roughly the same.
In reality, our incomes are likely to peak years — and sometimes decades — before we retire. Consider this:
— People’s biggest wage increases tend to happen in their 20s and 30s, with more modest increases in midlife followed by declines, according to a 2016 analysis of Social Security earnings records underwritten by the Federal Reserve Bank of New York.
— Most people’s incomes peak by age 45, the researchers found, although the top 20% of earners peaked in their 50s.
More than half of those who enter their 50s with a stable job are laid off or otherwise forced out the door, and the vast majority don’t recover financially, according to analysis by ProPublica and the Urban Institute." Liz Weston writing for the AP News.
So... what to do:
Save early and avoid "lifestyle creep"
Remind yourself about the time value of money and compound interest which illustrate how much more valuable is a dollar invested a decade ago compared to a dollar invested today.
Get the details at: https://www.apnews.com/3ae0c46014564b82bbdd55f4d7facd4b
May 2, 2019
Retire Early? Work Forever? Both Are Wildly Unrealistic
Writing for Barron's, Sarah Green Carmichael interviewed Teresa Ghildarducci, the Irene and Bernard L. Schwartz Chair in
economic policy analysis in the economics department at the New School,
and the author of How to Retire with Enough Money: And How to Know What Enough Is.
Regarding the FIRE (financial independence retire early) movement, Ghildarducci said:
"The person who says, 'I want to retire early,' should probably talk to a
therapist, because behind that is probably an uncertainty about what
they want to do with their life, or they don’t like their job. But just
financially, it doesn’t make sense unless you’re very, very rich, and if
you’re very, very rich, you probably have expensive taste. For most
people to quit work for 40 or 50 years, it’s just not a plan that can be
sustained for anybody, except for people on TV."
"There’s two kinds of people who say that. There’s the rare pediatrician who loves their work and wants to see a couple of kids a couple of times a week until they’re 90. That’s rare; that’s why you see them in the newspaper"
"The second group are people who are engaged in what’s called cognitive dissonance. They know they don’t have enough money, and so they engage in another kind of fantasy, which is, 'I can work until I die. My employer will want me.' We find in our research that there’s a [level of] enormous age discrimination and that there are a lot of jobs that are so fast-paced in terms of technology skills required that an older worker will just not be able to keep up." There is also the physical requirements of some jobs that cannot be sustained into advanced age.
Research shows: "Most people will stop work before 65 and collect Social Security before 65."
"They were pushed out, or they were laid off, or they had to take care of their spouse or had to attend to their own illness. Most people do not retire when they want to. They retire earlier."
So what is a realistic goal and game plan for retirement planning?
"Here are some rules of thumb. If you’re 30, you should be out of debt, and you should have about half of your salary in the bank. By the time you’re 40, you should have a little more than your annual income in the bank sequestered for your retirement in either a 401(k) or an IRA. By the time you’re 45, you should have two times your annual salary. By the time you’re 50, you should have three.
By the time you’re 65 or so, 63, you should have about eight times your annual salary, if your annual salary is about what you want to live on...."
Read the interview at: https://www.barrons.com/articles/retire-early-or-work-forever-51556397683?shareToken=st1b1d6680257d4fb7ab3787524708bd0c&reflink=smartbrief
Single Premium Immediate Annuity vs. "Safe Withdrawal" Strategy
"Economist and mathematician Michael Edesess compares a "safe withdrawal"
strategy from a 60/40 stock-and-bond retirement portfolio with a single
premium immediate annuity of the same value. He found the SPIA offers
retirees a bigger monthly payout and decreases
their chances of running out of money."
Author/researcher Michael Edesess explains:
"A safe withdrawal rate is the percentage of your assets you can withdraw each year without danger of running out of money, no matter how long you live. The seminal work on the subject was written by financial planner William P. Bengen and published in the Journal of Financial Planning in October 1994."
Bengen asked the question, with a portfolio of 60% stocks and 40% bonds, “What percentage of your starting assets can you withdraw yearly for the rest of your life without fear that you will run out?”
"His answer, based on simulations using past history, was that you can withdraw 4% a year (adjusted for inflation)."
"But in recent years, stock and bond market conditions have changed. Interest rates are historically low. This has caused some researchers to argue that 4% is not a safe withdrawal rate anymore.
In 2013, three researchers found, using their revised stock and bond market parameters, that as low as a 3% withdrawal rate would still mean a 10% chance of running out of money — too big a chance for comfort."
Edesess compared the "safe withdrawal rate" strategy to buying a Single Premium Immediate Annuity (SPIA): A SPIA "is a financial instrument that guarantees you a consistent monthly income as long as you live." Don't confuse a SPIA with the "more complicated, expensive, and much less useful annuities with other names, such as variable annuities or fixed-income annuities."
According to Edesess, "My own calculations show that for an investor to be 95% certain of not running out of money with a safe withdrawal strategy from a 60%/40% stock-bond portfolio, the strategy would be to withdraw 3.5% of the initial investment in real (inflation-adjusted) dollars each year."
"If the portfolio started with $500,000, for example, the average annual lifetime income would be $23,000. With the SPIA, the average annual lifetime income would be $33,500, and the certainty of achieving it is greater than 95%."
"Thus, both the certainty of not running out of money, and the lifetime income, are much greater with the SPIA than with the 'safe withdrawal' strategy."
By purchasing a SPIA you are creating your own pension.
Read the full article at: https://www.marketwatch.com/story/this-one-investment-move-can-give-you-lifetime-yearly-income-in-retirement-2019-04-29
Author/researcher Michael Edesess explains:
"A safe withdrawal rate is the percentage of your assets you can withdraw each year without danger of running out of money, no matter how long you live. The seminal work on the subject was written by financial planner William P. Bengen and published in the Journal of Financial Planning in October 1994."
Bengen asked the question, with a portfolio of 60% stocks and 40% bonds, “What percentage of your starting assets can you withdraw yearly for the rest of your life without fear that you will run out?”
"His answer, based on simulations using past history, was that you can withdraw 4% a year (adjusted for inflation)."
"But in recent years, stock and bond market conditions have changed. Interest rates are historically low. This has caused some researchers to argue that 4% is not a safe withdrawal rate anymore.
In 2013, three researchers found, using their revised stock and bond market parameters, that as low as a 3% withdrawal rate would still mean a 10% chance of running out of money — too big a chance for comfort."
Edesess compared the "safe withdrawal rate" strategy to buying a Single Premium Immediate Annuity (SPIA): A SPIA "is a financial instrument that guarantees you a consistent monthly income as long as you live." Don't confuse a SPIA with the "more complicated, expensive, and much less useful annuities with other names, such as variable annuities or fixed-income annuities."
According to Edesess, "My own calculations show that for an investor to be 95% certain of not running out of money with a safe withdrawal strategy from a 60%/40% stock-bond portfolio, the strategy would be to withdraw 3.5% of the initial investment in real (inflation-adjusted) dollars each year."
"If the portfolio started with $500,000, for example, the average annual lifetime income would be $23,000. With the SPIA, the average annual lifetime income would be $33,500, and the certainty of achieving it is greater than 95%."
"Thus, both the certainty of not running out of money, and the lifetime income, are much greater with the SPIA than with the 'safe withdrawal' strategy."
By purchasing a SPIA you are creating your own pension.
Read the full article at: https://www.marketwatch.com/story/this-one-investment-move-can-give-you-lifetime-yearly-income-in-retirement-2019-04-29
Consumer Financial Protection Bureau head more interested in helping corporations than protecting consumers
"Kathy
Kraninger gave her first speech as director of the Consumer Financial
Protection Bureau (CFPB) at the Bipartisan Policy Center in Washington,
D.C., in April. We were alarmed to hear Kraninger voice an overall
vision for the CFPB that appeared antithetical to its core function of
“enforcing federal consumer financial laws.” Kraninger stated that she
was concerned with the CFPBs’ role in creating a “regulatory burden” for
the companies under its supervision. She conveyed her intent to focus
the Bureau on “prevention of harm” through consumer education, while
limiting its powerful examination and enforcement tools to “purposeful”
uses.
“Given Director Kraninger’s announced focus on education over
consumer protection, consumer advocates are determined to educate the
new director about the need for robust Bureau oversight and enforcement
to hold financial companies accountable for harmful practices,” Consumer
Action’s Deputy Director for National Priorities Ruth Susswein said." Source: Consumer Actionhttps://www.consumer-action.org/news/articles/consumer-action-insider-may-2019/?eType=EmailBlastContent&eId=c4ee986f-51de-4c8a-a008-0d1eaef48ad2#Topic_08
Another example of the value of government regulation: The Card Act of 2009
Beside the obvious everyday advantages of vehicle safety regulations like requiring seat belts and air bags in vehicles, many federal laws protect consumer privacy and financial transactions.
"May 22 is the 10th anniversary of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. The game-changing CARD Act, which was passed by Congress during the Obama Administration and has since been enforced by the Consumer Financial Protection Bureau, has saved consumers billions of dollars in credit card fees and predatory “penalty rates,” despite industry predictions that it would kill the credit card market. Sadly, nearly half (47%) of consumers surveyed by CompareCards, a Lending Tree company, said they’d never heard of the CARD Act. Now’s your chance to learn more about what the CARD Act has done (and continues to do) to protect consumers like you." source: Consumer Action Insider.
Here's a reminder about how banks and credit card companies used to take advantage of consumers and how the world changed for the better 10 years ago.
By
Beverly Harzog , Credit Card Expert Feb. 20, 2019,
https://creditcards.usnews.com/articles/what-the-credit-card-act-of-2009-means-for-you?eType=EmailBlastContent&eId=c4ee986f-51de-4c8a-a008-0d1eaef48ad2
"May 22 is the 10th anniversary of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009. The game-changing CARD Act, which was passed by Congress during the Obama Administration and has since been enforced by the Consumer Financial Protection Bureau, has saved consumers billions of dollars in credit card fees and predatory “penalty rates,” despite industry predictions that it would kill the credit card market. Sadly, nearly half (47%) of consumers surveyed by CompareCards, a Lending Tree company, said they’d never heard of the CARD Act. Now’s your chance to learn more about what the CARD Act has done (and continues to do) to protect consumers like you." source: Consumer Action Insider.
Here's a reminder about how banks and credit card companies used to take advantage of consumers and how the world changed for the better 10 years ago.
What the Credit CARD Act of 2009 Means for You
You might not know it, but the Credit CARD Act of 2009 changed your life in a powerful way.
By
Beverly Harzog , Credit Card Expert Feb. 20, 2019,https://creditcards.usnews.com/articles/what-the-credit-card-act-of-2009-means-for-you?eType=EmailBlastContent&eId=c4ee986f-51de-4c8a-a008-0d1eaef48ad2
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