Anyone closing in on retirement knows that health care can be one of the biggest unknowns in retirement. 

What if you have a stroke and need to pay for long-term care?  With retiree insurance disappearing, more retirees face monthly premiums for Part B of Medicare, a Medicare supplement plan and Part D prescription drug insurance or a Medicare Advantage plan.  If you develop a chronic health condition, some plan co-pays and deductibles can make a pretty big dent in the retirement budget. 

So it’s surprising that in a recent survey 68% of people said they did not want to talk about health care with the person from who they seek financial advice.  And these were people aged 60 and over, who one can assume are at least thinking about life without a pay check.  (The survey was conducted for Senior Market Advisor by the Boomer Project.) 

While the research didn’t provide any insight into the background of those answers, our guess is that those responding are still locked in a world where health and money just didn’t connect.  But as more  health care costs are shouldered by the individual, it’s a dangerous perspective.  That’s why insurance to reduce the personal financial risk is so important.

 Here are three reasons why health care and financial planning should be linked in your retirement planning: 

1.  Health care costs can destroy your retirement savings.  Without adequate health insurance, you’re left to pick up the bill.  Remember, even Medicare covers just 80% of the costs – you shoulder the rest unless you purchase insurance such as Medicare Supplement or Medicare Advantage. And, the cost of prescription drugs can be astronomical.

 2.  Long-term care costs can top $100,000 per year in some states – they average about $79,000 per year..  Many people don’t realize that Medicare generally does not cover long-term care needs. If you have money, you will pay the bills.  Government supported Medicaid is only for those who have limited financial resources. Long-term care insurance can help shift some of the financial risk to an insurance company.

3.  Your health can change in a minute.  If you haven’t planned ahead on how to cover the cost and considered insurance to offset some of the risk, it’s probably too late now.  Long-term care insurance has strict rules on the health condition of those who qualify –you have to be in generally good health.  And sometimes it is just not realistic to think that family or friends will be able to care for you so you’ll face paying for the help you need. 

Whether you have a financial advisor who helps with your planning or you take care of your own retirement planning, don’t shrug off health care as not being relevant to your financial plan.

If you have a financial advisor, let them know about family health history especially if there are conditions such as Alzheimer’s, stroke, MS or heart problems.  And determine how much financial risk you can shoulder if you face a debilitating health issue and how much you should pass off to an insurance company.  You don’t have to buy insurance from them — that’s probably not their area of expertise.  There are experts in health care and long-term care insurance.

 If you are approaching Medicare age, find out what Medicare covers and what it doesn’t.  and make sure you get the right coverage whether it’s Medicare Advantage, Medicare Supplement or Medicare Part D.  Once you’ve got the coverage, you can better understand what risk you’ll have to cover through your own assets.

It’s the best way to protect your assets –and your family.

Fewer companies are offering employees individual investment advice or retirement planning services, according to a new survey.  About 40% of companies offer this type of assistance, down almost 10% since 2006. 

And as many workers know the traditional defined benefit pension plan is continuing to disappear:  Just 27% of companies offer a traditional pension plan compared to 48% in 2006.  At the same time the number of companies offering defined contribution plans (401 K’s) grew to 92% from 81%. The survey comes from SHRM (the Society for Human Resource Management). 

It’s not surprising given the economic conditions of the past few years, but it is ironic that at a time when we need the most help with retirement and investment, fewer employers are there to help.  Remember back in the early 2000’s when an increasing number of employers were offering retirement seminars (during the workday) to help employees plan for retirement?  Not anymore. 

What’s it mean?  You are on your own more than ever when it comes to planning  a financially sound retirement.  You’ve got 3 options: do it yourself or hiring someone to help you plan and invest or do nothing.  The worst option is the third option –doing nothing –because you increase your odds of outliving your money.

DIY: If do-it-yourself is your preference, check out the tools available through your 401(k).  Many of the fund companies have robust tools on their websites to help you figure out where to invest and how well you are doing in meeting your retirement planning goals.  The government website MyMoney.gov is a good source of information and referrals to tools and tips to help you with all aspects of financial planning. 

Professionals: You can get advice from a professional fee-only retirement planner.  If most of your savings is tied up in your company 401(K), you don’t need someone to manage your money, but you might want someone to help you figure out if you have your funds in the right type of investments, if you are saving enough to meet your retirement goals, debt management, savings, etc.  What you’ll get is a plan that you can implement yourself.  If you hire someone, make sure you check out their credentials. 

Also, make sure your planning includes looking at health care costs. What will health care cost in retirement (retiree health plans are fading too)?  Do you have a plan on how you’ll pay for long-term care if you need it?   

It’s unlikely we’ll see a return of these employee benefits.  So if your employer does offer retirement and planning benefits, consider yourself lucky and make use of it NOW.

If you are lucky enough to have a pension (a defined benefit plan that sends a check every month) then it’s increasingly important to know about the health of your pension plan.    Just like individuals and their 401 K’s, pension plans got hit hard by the recession.  That left many underfunded and unable to meet their pension obligations to individuals.

This article from Kiplinger’s points out that the Pension Benefit Guarantee Corporation (PBGC) took over 129 plans last year…and 2010 looks like it will be event worse. 

It’s not just bankrupt companies.  New hires and current hires are finding their pension benefits change as even healthy companies look to trim their obligations to future retirees.  A pension fund approaching 80% funding is a signal to carefully consider the role  pension payment plays in your retirement. And if you are planning on taking a lump sum payment, note the limitations mentioned in this article if the fund is at 80% funded.

So if you retirement planning counts on a pension payment every month, take time to read the annual statement you receive about the funding of your pension plan.  And if you have the resources, continue funding your own retirement with contributions to a 401K or IRA while you are working.

Control, choice and independence are what we want as we age.

Research reports confirm these are high priorities.  Yet, we often fail to plan and take the steps necessary to have a better chance at living out our life in the way we want.

Take, for example, new research that shows 1 out of 4 will need someone else to make end-of-life medical decisions for us.  And where people had the right documents in place, their wishes were carried out according to family members interviewed as part of the survey.

The study, published in the New England Journal of Medicine, concluded that advance directives – living wills and health proxies chosen to make end-of-life decisions – are “important tools for providing care in keeping with patients’ wishes.” 

If concerns about legal fees are the reason you are putting off getting these documents in place, you don’t need a lawyer. You can download copies free at caringinfo.org. The documents are state specific. If you’ve moved to a new state recently, this is a good time to update your advance directives.

For those with life threatening health conditions, like cancer, you might find this information from the National Cancer Institute helpful in understanding the role of advance directives.

Another way to preserve choice, independence and control is to have a plan for long-term care and know how you will pay for that care.   An estimated two-thirds of people over the age of 65 will need some form of long-term care.    

Since Medicare generally does not pay for long-term care (custodial care helping you do things you can no longer do for yourself), you will need to pay for care yourself, spend down your assets to qualify for Medicaid, or count on family and friends.  Long-term care insurance is one way to shift some of that financial risk to an insurance company.  Whether or not long-term care insurance is right for you depends in part on your health, your financial situation and your age.  Make sure you speak with someone knowledgeable about long-term care insurance who will customize policy benefits reflecting your situation and always get insurance quotes from 2 or 3 companies since they can vary widely.

Planning for long-term care and end-of life is something many of us put off…until later.  But having the right documents and plans in place can be a great benefit to your family.  

And it gives you a better chance of knowing “ I did it my way.”

Helping your parents?  Here’s an article from the Baltimore Sun on documents you need to help  your parents with their finances.

Figuring out the right retirement investment strategy in this market is no easy task. So, many investment advisers are suggesting “a bucket approach” to retirement savings.

Christine Benz, Director of Personal Finance for Morningstar, recently told attendees at the American Society of Aging conference that the flight to bonds could be putting some retirees at further risk in retirement.  

“Retirees and pre-retirees burned by 2008 bear market appear to be fighting the last war.” she said.  She said there has been a massive stampede into bonds and bond funds over the past year ($330 billion in 2009). 

So, while Investors seem to be saying they’d prefer a small but knowable gain over the uncertainty of stocks, that’s a problem.  Unfortunately, the near-term prospects for bonds aren’t particularly bright, given the potential for higher interest rates. Given longevity, she recommends, most retirees need at least some stock in their portfolios.

So how do you do that with the experience of 2008 still fresh in your mind? 

She suggests a “bucket approach” to thinking about your retirement portfolio: 

• Bucket 1: Covers living expenses for years 1-5 of retirement; consists entirely of highly liquid investments such as CDs, money market funds, and short-term bond funds.
• Bucket 2: Covers years 6-15 of retirement; consists of high-quality intermediate-term bond funds and balanced funds.
• Bucket 3: Covers years 16-25+ of retirement; consists primarily of stocks, both domestic and international. 

 This way you’ve got ready-case to handle your current living expenses, but you are also planning for “retirement” that could last 20-30 years. 

She also recommended that near-retirees and retirees be proactive and inoculate their finances against three threats: 

Threat 1: Inflation

Solution: TIPS (treasury inflation-protected securities); stocks with “moats” (a stock that has a significant competitive advantage – Morningstar article on moats

Threat 2: Higher taxes

Solution: Roth IRAs, municipal bonds, and take maximum advantage of tax-sheltered options. 

Threat 3: Longevity (a good kind of threat…)

Solution:  Stocks as a component of all retiree portfolios, fixed annuities (but payouts are currently low), long-term care insurance 

It is broad advice and you need to determine what works best for your individual situation. 

 But thinking forward – rather than fighting the last fight – is advice worth heading.

Longevity Alliance Retirement Risk

 The closer you get to retirement, the more you see how big a bite healthcare cost can take out of your retirement savings.  So how do you plan and what are the biggest risks in figuring out your healthcare costs from age 65?

 A new research report from the Center for Retirement Research at Boston College tackled these questions and came up with some recommendations. 

First, let’s take a look at what you can know and plan for in retiree health care:  Medicare Part B, Medicare supplement and Medicare Part D, Medicare Advantage or retiree health insurance premiums; co-payments for what insurance does not cover; and services that are not covered such as dental, eye glasses, hearing aids.

So where is the risk?  Co-payments for Medicare-covered services and payments for non-covered services, including long-term care costs.   Long-term care costs are the BIG potential risk.

So here are the facts on long-term care.

* It’s generally not covered by Medicare ( a maximum of 100 days)

* About one-third of people turning 65 in 2010 will need at least 3 months in a nursing home

* 24% of those people will need more than a year of long-term care

* 9%  will need more than five years of long-term care 

 Of course what you can’t know is which one will you be.  And there’s the risk. 

The research took data and applied various chronic diseases to the impact of health care spending after age 65.  Here’s what they found: 

At age 65, a typical married couple free of chronic diseases can expect to spend $197,000 on remaining lifetime health care costs.  There’s a 5% chance that number could exceed $311,000.  Those costs do not include long-term care.

Include long-term care costs in the calculations, the typical costs increases to $260,000 with a 5% chance that the costs will be more than $570,000.  Most of us don’t have that kind of money set aside for health care costs in retirement. 

So what do you do?   Here are three questions the report recommends you ask yourself as you ready for retirement: 

1. What risk are you prepared to accept of having your assets substantially depleted by health care costs? 

2  Given your current health and family history, are you above or below the average risk of incurring exceptionally high healthcare costs? 

3. Should you insurance against health care costs by purchasing long-term care insurance? 

If you take the step to look at long-term care insurance, Longevity Alliance recommends that you consider whether you want insurance to cover potentially all your long-term care costs or whether you are willing to share –paying some of the costs yourself and having an insurance policy that will pay a portion.  That strategy can lead to more affordable long-term care insurance rates.

Resources:

What is the distribution of lifetime health care costs from age 65? Center for REtriement Research at Boston College

Longevity Alliance – Insurance products and solutions to make a longer life better

Long-term Care Quote — online quotes for long-term care insurance

When it comes to financial and retirement planning, it’s tempting this time of year to look back with a bit of “woulda, coulda, shoulda” .  But really, who could have anticipated the depth of the recession, job loss and stock market crumble. 

So rather than beating yourself up about what you didn’t do, focus on what you can do to make sure that you can weather the financial bumps a bit better and the financial road ahead is a bit smoother. 

New Year’s resolutions often include promises to change our financial lives.  Research from Fidelity Investments found that this year is no exception.  In fact, thanks to the economy more of us are resolving to change our financial ways.

For the coming year, 43 percent of individuals surveyed said they are more likely to consider financial resolutions, a potential jump of 23 percent. This number increases to 55 percent among those ages 35 to 44, who often are managing multiple financial goals such as saving for retirement and a child’s education and paying down mortgages.

So where do you start? Here are four tips for your financial New Year’s resolutions

 1. A return to basics.  Spend less, save more.

Saving more and spending less was the overwhelming mantra for most Americans when listing the top three financial resolutions they are considering. More than half (51 percent) said that saving more money was their primary focus, followed by spending less money (30 percent) and making or sticking to a budget (14 percent).

2. Have a plan and a goal.

Making tip #1 work requires having a plan in place to reach your goals and you modify the plan and goals when necessary. Whether you scratch it out on a notepad, use technology to build a detailed plan or use a professional advisor to help you, this is the step that gives you the biggest chance of successfully reaching your goal.  Otherwise a year from now you’ll find yourself back in the “woulda, coulda, shoulda” mode of thinking.  

There are lots of free planning tools available. Here’s an article from Kiplinger’s personal Finance reviewing three financial planning tools.  Other sites include. http://www.mymoney.gov,  http://www.mint.com, http://www.fidelity.com, http://www.vanguard.com or your 401(k) plan probably has free tools available to get you started.

If you are not yet retired, make sure you go to the Social Security website and calculate your benefits. It can be eye-opening! You’ll find an easy to use tool that helps you see the difference in your benefits depending upon how old you are when you retire.

3.  Rethinking credit.

Boy, if there is one lesson learned in the past year, it is how many of us treated credit like we never had to pay it back.  Many used it to fund a lifestyle rather than special purchases.  It’s true that the behavior was not only encouraged but enabled by many lending institutions- from banks to credit card companies to mortgage lenders.  Hopefully, lesson learned.

So, going forward, if credit is your “achilles heel” some good news is that you’ll find fewer “enablers” as the credit card issuers and banks tighten their credit terms.  And employing tip #1 and #2 can you get you on the path to rethinking the right way to use credit in achieving your goals.

This is also a great time to help young adults understand how to use credit wisely. Here’s a resource from Charles Schwab about talking to kids about money.

4.  Managing big risks

As you go through the planning process, you’ll want to consider how to handle the risks that may just be too big to finance on your own.  That’s usually where insurance comes in.

*Do you have the right amount of life insurance for your stage of life?

*Do you have a plan for covering the potential costs of long-term care and, if appropriate, do you have long-term care insurance?

*Do you have the right health insurance coverage?  And if you are a Medicare beneficiary, do you have a Medicare Advantage plan, or Medicare Supplement Plan and Part D Prescription drug plan?  If you have retiree health care coverage, have you thought about potential cost increases if your employer drops or changes coverage?

*For those who are working, do you have some level of disability coverage that can provide income if you are disabled?

*Is your home and auto insurance reflective of current conditions and have you comparison shopped it recently to make sure that your getting the right coverage at the right price?

Keeping your resolution

Although nearly one-third (30 percent) of Americans surveyed by Fidelity said it was harder to keep a financial resolution over other popular resolutions, 60 percent said they had stuck with their past financial resolutions versus 51 percent who kept non-financial resolutions.

Of the 31 percent who broke their financial resolution in past years, the average length of time they managed to stay with their resolution was a little more than three months (3.2 months).

But the vast majority (88 percent) of those considering a financial resolution said they believe the economic events of the past year will give them impetus to stick with them in 2010.

What are you going to do to make your financial resolution stick this year?

Is delaying retirement to help your children or grandchildren shore up their finances, pay off loans, or buy a new house the right thing to do?

It’s an issue more baby boomers are facing as their adult children struggle with the effect of the recession.

For years, the bank of Mom and Dad has been a way for many to finance school or a down payment on a new house.  But the recession has hit the bank accounts of parents and grandparents, too.   

So what’s the right thing to do?  

Work longer to beef up your retirement savings account and help the kids with their finances?

Tell the kids you’d like to help, but you need to get your own retirement savings in better shape?

There’s an interesting article this week in Newsweek outlining the pros and cons.  

While this is a personal decision, financial planners recommend that you have your own retirement issues taken care of first including adequate retirement savings, a plan for long-term care and a clear understanding of your retirement income needs.

If you are in good shape, then the question becomes whether helping with wisdom and guidance or helping with money is more beneficial.

 What do you think?

It’s been a tough year for many of us as we watched our nest-eggs shrink and our concern for financial security grow. That kind of anxiety and search for “solutions” is just the kind of fear that some in the investment field feed on.

We’re already hearing about an uptick in mailings offering “free lunch” seminars.  That will grow in January as many make New Year’s resolutions to get their finances in better order.  Free lunch fliers and mailings will multiply.  The lunch may be good, but the advice may not be.

Keep your antenna up!  And remember the old adage –“ there is no such thing as a free lunch.”

Nearly 6 million Americans age 55 and older have attended a free lunch or dinner in the past three years, with mail as the most common method of solicitation (63 percent). Over a quarter of invitees (27 percent) have received ten or more invitations.

More than three-quarters of older Americans are concerned that financial scams will damage their retirement nest eggs or those of someone they know, according to AARP and the North American Securities Administrators Association (NASAA).

A free meal and information can sound innocent enough.  But the survey found once at the seminar, half of seminar attendees said the presenter asked them for personal information, such as their contact information or information about their finances and 46 percent reported that presenter attempted to make a follow-up appointment at their home.   Nearly 40 percent reported that the presenter tried to sell them financial products either during or after the seminar

There are better ways to get information and help.

• Get referrals from people whom you know and trust.
• Check regulatory websites for background on anyone you speak with about your investments.
• Bring along someone knowledgeable about investments if you aren’t confident in your knowledge.
• Don’t agree to anything if you don’t understand it fully and have read all of the terms and conditions.
• Know the standard under which the individual operates:  suitability — recommend investments that are suitable for your situation; fiduciary – must act in a manner that is in your best interest (not theirs); and  how they make money on what they sell you.

 If you go to a “free lunch seminar” you might want to take along this checklist from AARP to help you gauge the content and the presenter.  

NASAA has a websitefilled with information for seniors about investing and a clickable map to let you know where to file a compliant with your state regulator if you have a problem.  

The SEC also offers information, investment guidance and tools especially designed for seniors.

More people are saying “yes” to that question and vowing to take more responsibility for their finances, according to MetLife’s Lessons Learned Poll.

Here’s what people say they are doing to change their financial ways:

* Reduce spending on non-essential purchases (65%)

* Build a cash cushion (57%)

* Allocate a portion of investments to guaranteed income or very low-risk products like CDs and annuities (17%)

* Consult a financial advisor (15%)

* Diversify their portfolio (15%)

What’s high on the “regrets” list?  Not building enough of a cash cushion and amassing too much debt.

The financial crisis is also shifting the retirement mindset of many with more than 64% or respondents saying that it has had some influence on the way they plan for retirement. 

And the majority thinks that the events of the past year will have a lasting impact of ten years or more.  While younger generations are optimistic about their financial future, 38% of baby boomers say their personal economic recovery will take ten years or more.

Has the financial crisis made you hit the “reset button?”  What have you changed inyour financial life in the past year?