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Prepare for the Unexpected in Retirement

Your Line to Retirement • January 19, 2015
Your retirement dreams probably center around travel, leisure activities, and spending time with family and friends. You probably don’t spend a lot of time thinking about nursing homes or assisted living facilities. And yet, both of those living options become a reality for 7 out of 10 seniors at some point during retirement. Considering the odds that you’ll need long-term nursing care at some point, it’s best to plan ahead for the financial consequences.

While expenses may vary greatly depending upon your state of residence, national averages for long-term nursing care paint a pretty clear picture of the expense:

  • Assisted living facilities average $3,300 per month
  • Nursing homes average between $6,083 and $6,753 per month, depending upon room type
  • The average cost for in-home skilled nursing care is $3,432 per month
 As you can see, long-term nursing care can be expensive. Even if you only need to stay in a facility for a few months or so, the bills could put a big dent in your retirement savings.

Medicare coverage of long-term nursing care is more limited than you may think. The public health program will only pay for 100 days of care in a nursing facility; after the 100th day, you are responsible for the entire bill. Medicaid, a health care program for low income individuals, will pay significantly more toward long-term care bills. However, it can be very difficult to qualify for Medicaid if you have income and assets.

Rather than risking a huge bill you can’t cover, or placing a significant financial strain on your spouse, it’s best to plan for the possibility of nursing care long in advance of retirement. Make sure you include plenty of wiggle room in your retirement budget, or consider long-term care insurance to protect you from the rising costs of nursing care.

A Look at Mortgage Term Life Insurance

By Your Line to Retirement • January 19, 2015
What are the pros and cons of paying premiums for mortgage protection? A potential “helping hand” for a homeowner’s heirs. No one wants to saddle their heirs with the hard choice of paying off an unsettled mortgage or selling or losing a home. A mortgage term life insurance policy can provide relief in such a dilemma. Simply put, this is a term life policy designed for homeowners. If you die owing a huge sum to a mortgage lender, the proceeds from the policy will pay off the note. Why, and why not? The pros and cons of mortgage term life are simply stated. On the plus side, you are paying (relatively) little for a lot of potential mortgage protection, which could be useful if your heirs are in no financial shape to make mortgage payments. On the negative side, term insurance is term insurance. If you live past the term of your mortgage term life policy, no benefit will be forthcoming for all those premiums. You don’t find many fans of mortgage term life insurance in the mortgage industry. Their argument is that a regular life insurance policy might do the job just as well, and give your heirs more flexibility besides. Still, quite a few homeowners want mortgage term life insurance and appreciate its designated purpose. Basic types. The cheapest type of mortgage term life is the level premium/level benefit policy. You can commonly purchase them with 20-, 25- or 30-year terms. As the name implies, the premiums are guaranteed to stay level for the entire policy term, and the benefit amount does not decline with time. You can still find the original kind of mortgage term life policy, in which your premiums stay level but your coverage shrinks as your mortgage balance diminishes. While some banks and insurers still offer these “old school” policies, they are getting scarce. An interesting alternative. Some homeowners decide to get a return-of-premium term life policy instead of a mortgage term life policy. With an ROP term policy, the insurance company will give you all of your premiums back if you outlive the term (provided, of course, that you’ve kept your policy in force). Someone with 20 years left on a home loan could get a 20-year ROP term policy for an amount comparable to their mortgage balance and get all the money paid into the policy back without a tax consequence if they are alive two decades later. 1 That money could be used for any need or objective. So how is this different than private mortgage insurance? Well, PMI isn’t about protecting you at all – it’s about protecting the lender in case you default on your home loan. It diversifies that risk to a third party. Should you look into these options? You might be in a situation in which you really don’t want to risk burdening your heirs with an existing mortgage – especially if they are trying to pay off one themselves. Or, maybe you want a more flexible insurance option that could be used to pay off a mortgage or meet other needs. Talk to your financial or insurance advisor today to explore this a little further.

Don't Make This Mistake with Your 401(k)

By Your Line to Retirement • January 19, 2015
If you have kids, you’re either dreading the cost of college or already dealing with the pressure. Today, the average cost of an education at a public university is $22,286 per year. Private schools cost even more, averaging $44,750 annually. For most people, providing their children with a solid education is a high priority, so it’s no wonder so many parents feel driven to make desperate decisions. Unfortunately, desperation can drive us to make poor decisions with our money. Before you drain your retirement account to pay that tuition bill, stop and consider the ultimate cost to you. You may feel that you can afford to lose a few thousand from your retirement account, but that’s not all you’ll lose. You would also lose the compounding interest that money would have accumulated over the rest of your life, and you may also incur significant fees for withdrawing the money. You could end up struggling once you retire, or being forced to work longer than you had planned. Raiding your 401(k) fund to pay for college can be one of the worst financial mistakes you’ll ever make. Luckily, it’s also a mistake you can easily avoid. You have many other options available to you, such as grants, scholarships, loans, work study programs, and so on. Families who don’t believe they’ll qualify for financial assistance are often surprised – especially if they have more than one family member in college at the same time. Talk to a financial aid counselor at the school of your choice, and you may find that you have more options than you previously imagined. If you start planning early enough, you can prevent an educational funding crisis from ever hitting your family. A 529 savings plan allows you to set aside money for college with taxes deferred. Talk to your financial advisor about the benefits and risks of a 529 savings plan, and protect your retirement fund while giving your children their best start in life.
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