Blog

Nov

Carving Up a Portfolio and that Thanksgiving Pie

If your 2018 Thanksgiving pie is all U.S. equities, consider expanding your palate

The big picture might look rosy – unemployment near a 50-year low, U.S. companies are reporting record profits, interest rates are still low and even wages are rising.

But through Thanksgiving week 2018, the S&P 500 went negative, led by the FAANG group (Facebook, Apple, Amazon, Netflix and Alphabet’s Google) which officially entered bear market territory after dropping more than 20% from their 52-week highs.

So, how do you carve up your portfolio pie to minimize risk and protect it from market troubles, like what we’re seeing through Thanksgiving 2018? Through smart asset allocation, aided by diversification and rebalancing.

Diversification and Asset Allocation

Diversification means the mathematical process of reducing risk through the use of many different types of assets. In other words, one asset class typically zigs while the other zags.

Asset allocation is when risk versus reward is balanced, according to the risk capacity, risk tolerance, time frame and goals of the investor. Many people believe that when they have more investments, it means they are more diversified. Wrong.

Asset Allocation Pie

When allocating assets, you need to do two things:

Find asset classes that are distinct and don’t overlap. You are not as diversified as you think if they do.
Examine how they interact with each other. Different classes tend to do different things at different times.

So, it is not necessarily how many pieces you have in your pie, but what makes up the ingredients of the pieces to begin with. You have the entire global economy to locate them. You could cut the pie into very tiny pieces. However, those likely would be similar to other tiny pieces nearby.

A Better Pie

Rebalancing is a financial planning tool designed to get your portfolio back to your original allocation target. Why? Because with time your portfolio investment allocation drifts, and you take on a different risk profile as a result of this drift.

A Sample Pie

Let’s also assume you have a global asset allocation with exposure to many different asset classes. What happens when, say, your small cap asset class fund declines and now makes up a smaller piece of your portfolio than you want in your asset allocation pie?

Your next step is to rebalance.

You sell off a portion of your portfolio that has expanded too much and buy into the asset class that has declined.

Remember the old saying, “Buy low, sell high?” Well, rebalancing means you are doing just that, except you sell high first, then buy low. You sell some of what has gone up to buy more of what has gone down, thus restoring your desired asset allocation pie and remaining consistent with your risk profile.

But beware: selling “winners” and buying “losers” goes against the grain emotionally, of course. So, you make this a regimen in order to eliminate some of the emotional challenges.

Pies and Financial Planning

You probably make pretty good pies. Your pies might even rival those from your favorite local bakery. But asset allocation pies might taste better when constructed by a professional baker – your financial advisor (hopefully, a fiduciary, and CERTIFIED FINANCIAL PLANNER™ certificant).

Talk to your financial advisor about different types of pies (asset allocation).
Ask questions about the ingredients your financial advisor uses to make pies (diversification).
Recognize that sometimes you need to reduce the amount of nutmeg and add more cinnamon to make a pie that you like (rebalancing).

But most importantly, know that your financial advisor will create an asset allocation pie specifically tailored to your tastes (financial planning).

Happy Thanksgiving.

Disclosure: There is no assurance that a diversified portfolio will produce better returns than an undiversified portfolio, nor does diversification assure against market loss.

Nov

California Wildfires: Steps You Can Take Now to Prepare Your Family for an Emergency

The Three California Wildfires

Would you be prepared?

The fires are heartbreaking and close to home. They’ve become the most destructive and deadliest in California history has raged for almost a week. And firefighters and residents are battling three wildfires – the Camp Fire about 90 miles north of Sacramento and the Woolsey Fire and the Hill Fire, both west of Los Angeles and close to homes of our family and friends.

The wind-swept and massive infernos have devastated the California town of Paradise and the toll from the three wildfires so far is staggering – at least 44 residents have died, more than 200 are missing, over 7,000 structures – including 6,453 homes – are destroyed, and more than 117,000 acres are burned. And the fires are still not contained as residents fear that the Santa Ana winds will soon reach hurricane strength.

How would you react if the news came that a fire was heading in your direction? Would you scramble to protect your home and family, uncertain of where to begin?

Or, would you calmly pull out a detailed plan for such emergencies? Would your family be ready to evacuate quickly with essential supplies? Would your house be secure?

Planning for a disaster is no different from other measures you probably take to protect yourself and your family from potential hardship, such as insuring your life, saving for retirement, and getting regular medical check-ups. But preparing for a disaster does take a small investment of time and money. Even a very basic plan could one day save you and your loved ones from ruin.

Here are some steps you can take to prepare your family to manage in an emergency:

Plan to evacuate

Think carefully about what you and your family would do if you were advised to evacuate your home.

Plan in advance where you would go, and how you would get there. Establish a meeting place for family members in case you become separated.
Keep your gas tank at least half full at all times.
Prepare a kit of emergency supplies to last you three days, including food and water, a first aid kit, clothing and blankets, and prescription drugs.
You should also have an envelope on hand with enough cash or travelers checks to last your family about three days, as well as several credit cards with high available balances.

Store important documents in an “evacuation box”

Collect and make copies of all your key financial and personal documents, and make a written and photographic inventory of all your valuables. Essential documents should be stored in a bank safe-deposit box located some distance from your home or in an airtight, waterproof, and fireproof safe or container that can easily be taken with you in an emergency evacuation.

Protect your property

If you live in an area that is frequently hit by natural disasters, consider what you can do to mitigate potential damage to your property. Depending upon the type of disaster likely to strike, you may want to take steps like adding fire-resistant siding, installing smoke detectors, clearing brush from around the house, anchoring the foundation and roof, installing fire-resistant shutters on windows and glass doors, securing objects that could fall, and moving electrical panels and furnaces to upper levels.

In addition, develop an action plan for evacuation. Before leaving your house, secure outdoor furniture, unplug electrical equipment, shut down gas and water utilities, and lock windows and doors.

Get the family involved

Assign evacuation-related tasks to each family member, and conduct a drill to ensure that everyone in your household knows exactly what to do in an emergency situation.

Purchase necessary insurance coverage and review your policies regularly

Many people who have lost their homes to fires find their insurance policies do not cover the cost of rebuilding. Review your homeowners-insurance policy annually to make sure it reflects the actual replacement cost of your home and its contents. Be aware that your policy may not cover damage due to specific causes.

Your particular circumstances will ultimately determine what measures are necessary to prepare your family for weathering an emergency. Whatever action you decide to take, remember that most disasters strike with little or no warning – the time to get ready is now.

Oct

5 things to do if you win the lottery

Mega Millions is Now at $1.6 Billion

Five things to do if you win the lottery:

Fortunes can change overnight – especially because the winning ticket in Mega Millions is now worth a staggering $1.6 billion – the largest jackpot in U.S. lottery history.

Dealing with a dream financial windfall, though, can bring you new financial issues you might well find unexpectedly challenging.

If you’re planning to win Mega Millions, know that advanced planning can ease your transition, provide long-term stability and eventually calm your emotions. Here are five things to do if you win:

Get objective advice. Many people will want to give you advice, most well intended, some self-serving. You want to speak with a financial advisor who can provide unbiased recommendations. Choose a financial advisor like you choose other important professionals: reviewing qualifications and looking for a good match with your values and priorities. Financial advisors come with varying credentials, experience and expertise. Interview a few advisors before making a final decision. Ask each how he or she might approach working with you. Listen to your intuition and find someone who you feel listens to you and understands your needs and goals.
Give yourself permission to succeed. If managing wealth is new to you, you might feel intimidated or even guilty for having money. Emotional barriers may make wise decisions harder. Therapists even coined a term for your situation: “Sudden Wealth Syndrome.” Symptoms include feeling isolated from former friends, guilt over good fortune and an extreme fear of losing all the money. Trust yourself to be responsible and remember to take the long view. You haven’t changed – just your finances have.
Don’t be intimidated. Few people without specialized training can understand all the documents you see when considering your big-dollar investment options. Don’t hesitate to ask those you trust for advice or admit that you don’t understand everything. Don’t sign any paperwork you don’t understand. Make sure the financial advisor you choose will take time to help answer your questions.
Take inventory. Before you can set new goals and make long-term decisions, gather information. What do you own? What is it worth? Do you face new tax implications? Identify your real estate holdings, cash, bank accounts, stocks and bonds, retirement funds, insurance proceeds, automobiles, art, antiques and collections. This process can take months, so give yourself time to fully gather all of this important information.
Set goals. What does wealth mean to you? In an article titled “The Financial Psychology of Four Life Changing Events” in the Journal of Financial Planning, authors William L. Anthes and Shelly A. Lee wrote, “Money not only is a medium of exchange, it is also a substitute for love, a symbol of power, a benchmark of success, a tool for doing good deeds, a source of great anxiety, a scapegoat, a flashpoint in a marriage, and an emotional force of its own.”

Preparing and sticking with a well-managed financial plan can provide freedom from these intense emotions. Again, your financial advisor can help identify your risk tolerance, guide you on appropriate levels of debt, help you prepare for retirement, set up charitable contributions and direct you to a tax specialist.

Good advice and solid planning can take the anxiety out of managing a sudden mass of wealth and let you enjoy the benefits.

Oct

Don’t Be Like Sears – Lessons Learned

Lesson from the Death of Sears, Roebuck and Co.

Diversification is not asset allocation

In 1886, Richard Sears bought a shipment of gold watches that had been rejected by a local jeweler, sold them at a profit, ordered more and then founded the R.W. Sears Watch Company in Minneapolis. The next year, he partnered with Alvah Roebuck, moved to Chicago and in 1893, Sears, Roebuck and Co. was born.

Sears went public in 1906 in the first IPO for an American retail company and the first IPO handled by Goldman Sachs. Under the stock symbol “S,” Sears was a member of the venerable Dow Jones Industrial Average from 1924 to 1999.

In the 1930s, Sears created Allstate Insurance Company and began placing Allstate representatives in its stores in 1934. Over the years, Sears established a number of major brands, including Kenmore, Craftsman, DieHard and Toughskins. Throughout most of the 20^th century, Sears was a true conglomerate, owning Dean Witter Reynolds and Coldwell Banker and launching the Discover Card in 1985.

Socks and Stocks

In the early 1980s, Sears bought Dean Witter Reynolds, and under Sears it grew to become the third-largest brokerage firm in the U.S. with over 9,000 account executives serving over 3.2 million clients with total assets under management over $90 billion.

With this acquisition came a new “socks and stocks” strategy, which was an effort to expand their financial services offerings beyond its existing insurance business.

What Killed Sears

Sears filled for bankruptcy on Monday, October 15th. So, what happened to cause this 125-year-old company to fall so far?

Typing in the phrase “what killed Sears” in a Google search will turn up over 12 million hits and lots of explanations for the demise of this one-time giant. At the top of the list is usually Amazon, but one will also find articles with inflammatory titles like:

Retail Hubris;
Walmart, Home Depot and Target Killed Sears;
Blame the Sears Retirees;
The Most Hated CEO in America; and
Ayn Rand Killed Sears

The reality is that there were lots of reasons for the demise of Sears. But instead of trying to answer that question, there is one very important lesson that investors would be well served by remembering:

Diversification is Not Asset Allocation

The question of how we array our investments is vital to our future financial well-being. Key to this is knowing the difference between asset allocation and diversification.

Some think that asset allocation and diversification are the same. They are not. An investor may have excellent diversification but poor asset allocation and vice versa. To keep unnecessary risks to a minimum, we need both.

Let’s start with asset allocation. This refers to the actual act of investing in different categories of investments, called asset classes. That is, we pick which assets we want to have in our portfolio. Generally, investors choose from stocks (equities), bonds (fixed income), cash, commodities and real estate.

Diversification, on the other hand, is the process of balancing these classes and within these classes so they offset one another amid ever-changing market conditions.

A Simple Example

Suppose an investor buys one single stock, one bond, holds one dollar, one ounce of gold and owns a home – this is an example of a decent allocation across most of the asset classes. However, the diversification is terrible.

Assume we have a total of $100 ($20 each) in the five asset classes. If the company issuing the stock goes bankrupt, we immediately lose 20% of the portfolio and now hold a total of $80. This, of course, assumes that the rest of the market does not change.

The following year, the company that issued the bond defaults on its debt and cannot repay the bondholders. Now, our portfolio is worth only $60, a 40% loss in two years. The next year gold doubles, as does real estate, which brings the portfolio back to a total of $100 ($40 in gold, $40 in real estate and $20 in cash). We are back to where we started financially but with fewer asset class categories.

Then, stocks and bonds soar. Since we lost our stock and bond exposure when they tanked, we miss a huge opportunity. Not to mention that cash actually lost money (purchasing power) due to inflation.

As an alternative, if we still choose the same asset classes, but diversify within those asset classes, we have more protection against market volatility. For example, we don’t choose just one stock, but several hundred through mutual funds divided among small-capitalization, mid-cap, large-cap and international mutual funds. Similarly, instead of one single bond, we consider holding short-term, intermediate and long-term fixed-income mutual funds. The same is true for commodities (not only gold, but natural resources, silver, etc.) and real estate – we consider mutual funds.

The Final Proof Point

Richard Sears was born into a relatively prosperous family in 1863. His father was a blacksmith and wagon-maker, but he lost all of his money – about $50,000 – in a failed stock-farm venture.

Don’t be like Sears.

Disclosure: There is no assurance that a diversified portfolio will produce better returns than an undiversified portfolio, nor does diversification assure against market loss.

Oct

4 Reasons Small Business Owners Need to Consider 401(k) Plans

401(k) Plans – A Nice Fit for Small Business Owners

Qualified plans, such as a 401(k) plan, offer excellent benefits for small business owners. These plans can provide a multitude of tax advantages that combine to deliver far more tax leverage than most people may imagine. Here is a list of the advantages a 401(k) plan may provide for your company:

Within the limits of the present tax and ERISA (Employee Retirement Income Security Act) rules, the business receives a current income tax deduction on contributions to the plan and the individual employees are not taxed on plan contributions made on their behalf.
Improving employee benefits will provide an advantage when seeking to recruit and retain good employees. Often, a significant amount of the contribution for the employee’s benefit has been realized as a result of corporate after-tax income savings to the plan.
Plan funds will accumulate on a tax-deferred basis.
At retirement age, individuals are provided with favorable tax treatment on the plan distributions. They may, for example, use their interest in the plan to fund an annuity to fit their retirement needs and be taxed on the income only when received.

The Bottom Line

While an obvious advantage to a 401(k) and other qualified plans is the ability to take a deduction today and postpone paying taxes until tomorrow, it is clearly not the only advantage. Even more important is the ability to invest employee retirement funds on a tax-deferred basis. As a result, whether tax rates remain the same or increase, a 401(k) plan remains a valuable tax planning tool for small business owners.

Sep

What’s the alphabet soup after your financial advisor’s name?

As a consumer it can be difficult to understand what was involved in an advisor obtaining their designation/certification.

You may ask your advisor or prospective advisor what the letters after their names mean and how it helps them provide assistance to their clients. You may also visit the Financial Industry Regulatory Authority (FINRA)’s website to lookup a designation here. At the site you can learn the requirements for obtaining and maintaining the particular designation or certification.

Generally the most widely known designation is the CERTIFIED FINANCIAL PLANNER™ certification, where the CFP® mark are the letters after an advisor’s name (for example: Andrew Eddy, CFP®). You may have seen advertisements on the certification on television.

It’s also surprising to some that anyone can call themselves a “financial advisor” or “wealth manager”. These are generic terms, and do not signify any securities licenses or designations or certifications.

Below are descriptions of the current designations/certifications for myself (Andrew Eddy, AIF®,ChFC®,CLU®,CFP®):

To attain the right to use the CFP® marks, an individual must satisfactorily fulfill the following requirements:

Education – Complete an advanced college-level course of study addressing the financial planning subject areas that CFP Board’s studies have determined as necessary for the competent and professional delivery of financial planning services, and attain a Bachelor’s Degree from a regionally accredited United States college or university (or its equivalent from a foreign university). CFP Board’s financial planning subject areas include insurance planning and risk management, employee benefits planning, investment planning, income tax planning, retirement planning, and estate planning;
Examination – Pass the comprehensive CFP® Certification Examination. The examination includes case studies and client scenarios designed to test one’s ability to correctly diagnose financial planning issues and apply one’s knowledge of financial planning to real world circumstances;
Experience – Complete at least three years of full-time financial planning-related experience (or the equivalent, measured as 2,000 hours per year); and
Ethics – Agree to be bound by CFP Board’s Standards of Professional Conduct, a set of documents outlining the ethical and practice standards for CFP®professionals.

Individuals who become certified must complete the following ongoing education and ethics requirements in order to maintain the right to continue to use the CFP®marks:

Continuing Education – Complete 30 hours of continuing education hours every two years, including two hours on the Code of Ethics and other parts of the Standards of Professional Conduct, to maintain competence and keep up with developments in the financial planning field; and
Ethics – Renew an agreement to be bound by the Standards of Professional Conduct. The Standards prominently require that CFP® professionals provide financial planning services at a fiduciary standard of care. This means CFP®professionals must provide financial planning services in the best interests of their clients.

The AIF® designation certifies that the recipient has specialized knowledge of fiduciary standards of care and their application to the investment management process. To receive the AIF® designation, an individual must meet prerequisite criteria based on a combination of education, relevant industry experience, and/or ongoing professional development, complete a training program, successfully pass a comprehensive, closed-book final examination under the supervision of a proctor and agree to abide by the Code of Ethics and Conduct Standards. In order to maintain the AIF designation, the individual must annually attest to the Code of Ethics and Conduct Standards, and accrue and report a minimum of six hours of continuing education. The designation is administered by the Center for Fiduciary Studies, the standards-setting body of fi360.

A Chartered Financial Consultant® has completed the most extensive educational program required for any financial services credential. Each ChFC® has taken at least eight college-level courses on all aspects of financial planning from The American College, a non-profit educator with the highest level of academic accreditation. The average study time for the program is over 400 hours, and advisors frequently spend years earning this coveted distinction. Each ChFC® must also complete a minimum of 30 hours of continuing education every two years and must meet extensive experience requirements to ensure that you get the professional financial advice you need.

A Chartered Life Underwriter® has earned the premier credential in the insurance profession, representing eight or more comprehensive college-level courses covering all aspects of insurance planning, estate and retirement issues, taxation, business insurance and risk management. For more than 80 years, consumers have trusted this mark, which is conferred by The American College, a non-profit educator with the highest level of accreditation. The average study time for the program is over 400 hours and can take years to earn. Each CLU® must also complete a minimum of 30 hours of continuing education every two years and meet extensive experience requirements, ensuring the knowledge you’re counting on is both comprehensive and current.

Sep

Long Term Care – A Woman’s Guide

Women face unique financial challenges as they age. When compared in aggregate with men, women live longer, earn less, and spend fewer years in the workforce.

Financial concerns are often more acute for older women who are divorced, widowed, or otherwise single, as well as for those who have spent all or a significant portion of their adult years caring for children and other family members. Consequently, planning for long-term care (LTC) is an issue of particular importance.

LTC assists people, through various support services, with activities of daily living, such as dressing, bathing, eating, transferring, and toileting. If a woman has difficulty performing two or more of these activities due to physical limitations, cognitive impairment, or both, LTC may be needed. Generally (depending on the policy), LTC services may be provided in your home, in an assisted living facility, or in a nursing home.

Most people are unaware of the actual costs associated with LTC. For example, according to the Genworth 2017 Cost of Care Survey, the average cost in Los Angeles, of a private room would be $111,325, or $9,277 a month.

There are a number of reasons why it is important for women to plan for LTC.

First, women live longer. Back in 1900, women and men shared a similar life expectancy of about 47 years. Today, the longevity of both men and women has increased overall by 30+ years, with the life expectancy for women generally five years longer than men. Unfortunately, with longer life comes an increased risk of health problems. In fact, the American Association of Retired Persons (AARP) in a recent report noted that there are more women than men living in nursing homes. Women are also more likely to sustain a disability or be diagnosed with a chronic health condition.

Second, women often lack the resources necessary to fund the care needed later in life. According to the U.S. Department of Labor (DOL), the average woman in the U.S. who is employed full-time earns less than her male counterpart (80 cents for every dollar a man earned in 2016). In addition, women typically spend nearly 12 years out of the workforce while taking care of children or elderly parents. It is not uncommon for many women to spend years juggling family, professional, and caregiving responsibilities, and as a result, their income is disrupted, hindering their ability to save money or attain financial stability.

Finally, shorter careers and lower incomes often result in lower Social Security benefits. According to the American Association of Retired Persons (AARP), the average annual Social Security income received by women 65 years and older was just $14,184 in 2015. Moreover, married women often don’t know that the benefits accrued by their husbands may be reduced if they are widowed or divorced. These factors put many women at high risk for poverty as they age, especially if they do not plan accordingly.

Many women think their children or other relatives will be there for them, should the need for LTC arise. But even if the willingness is there, the costs associated with caregiving often exceed the financial capabilities of the average family. And, if medical care is required, family members may not have the necessary skills to provide care. As you can see, the time has come for women to look toward the future and prepare for LTC.

The Insurance Alternative

The good news is there is an alternative. LTC insurance can help cover LTC expenses before you meet the strict requirements for Medicaid eligibility. Many policies cover the costs of nursing homes, assisted living/residential care facilities, adult day-care centers, and/or home care. The cost is typically based on your age, your current health, and specific policy features, such as scope of coverage, levels of care, and duration of benefits. LTC insurance is designed to help you maintain your independence and quality of life, while offering increased options for care.

Needless to say, it is difficult to prepare for the possibility that you may one day need LTC. While you don’t know what the future holds, planning today for an uncertain tomorrow may help preserve your assets, increase your options for care, and perhaps most importantly, bring you and your loved ones peace of mind.

Important Disclosure

Eddy Financial, LLC is not a licensed insurance entity. Insurance services are offered through Andrew Eddy, an individually licensed life insurance agent in the state of California. Andrew Eddy’s California Insurance License is № 0K02163.

Sep

Did Aretha Franklin Die Without a Will?

Yes, she did. And now her $80 million estate is in probate court.

When legendary singer Aretha Franklin died of advanced pancreatic cancer at age 76, she did not have a will or trust, according to documents filed in Oakland County Probate Court. And now the $80 million estate of the intensely private Queen of Soul is about to become very public – and possibly very taxing for her heirs.

“The decedent died intestate and after exercising reasonable diligence, I am unaware of any unrevoked testamentary instrument relating to property located in this state as defined under the law,” the form reads.

Aretha’s lawyer of nearly 30 years told the Detroit Free Press that he was constantly asking her to do a trust, but she just never got around to doing it.

“I was after her for a number of years to do a trust,” Los Angeles attorney Don Wilson told the Detroit Free Press. “It would have expedited things and kept them out of probate and kept things private.”

Wills Are for Everyone

Figuring out how to divide your estate is a very personal matter. How you allocate your assets among your heirs is very important on both a financial and an emotional level. This even affects items of sentimental value.

Not all distributions of assets are so simple. But they all tap into human emotion. If you care about how your heirs will react to the unveiling of the will, even if you aren’t around to witness it, think about what the impact will be on loved ones.

There also can be an emotional toll on you when you frame your will. Some people have trouble with doing one, as it reminds them of their own mortality. Some even think they are tempting fate by creating a will. Planning for what happens after you are gone is difficult enough, but a lack of planning is even worse.

Wills Help Avoid Probate Court

By most accounts, almost 60% of all decedents die without a will, which means the distribution of assets will occur based on state law. In most cases this isn’t what you want. In addition to handing your descendants a legal hassle, failing to have a will ensures that your wishes aren’t carried out.

Let’s say that now you are finished with the attorney and have a will. Are you really done? Yes, for some, but for others, absolutely not. What else could be left?

Remember that an estate plan is an intimate subject. Have you thought about sitting down with the kids and making sure they understand all that you have done? No, you don’t have to go into all of the intimate details of your personal finances, but give them a high-level overview of your personal wishes for final arrangements and an explanation in general terms of what will happen.

Are you the owner of a closely held business in which one child is involved and others are not? Do you have a succession plan? Are you worried about your daughter being married to “that bum,” or a son married to “that woman?” So, do you then decide to leave their assets in a trust, rather than outright?

Are you excluding a child or perhaps favoring others? What about the child that is taking care of you in your later years: Do the other children appreciate how you might treat the caretaker differently? Maybe you want to give it all to charity; will the kids understand? What about a child with special needs? The list goes on and on.

Why not sit down with the family and explain it all in advance? Sure, it is hard in some respects, but it may just keep the family together.

“As a parent you try to maintain a certain amount of control and so you have this tug-of-war…You have to learn when to let go. And that’s not easy.”

~ Aretha Franklin

Aug

Do I Need Long Term Care (LTC) Insurance?

When it comes to long-term planning, the realist has an edge. No one wants to think about the prospect of his or her own failing health, but considering it now, in the short run, may make your future more comfortable and secure. One of the most important realities to face is that as people’s longevity has increased over the latter half of the last century, so has the need for long-term care (LTC). While the services available for assistance, such as nursing homes, assisted living facilities (ALFs), adult daycare centers, and in-home care options, have expanded and improved to keep pace with the “graying of America,” public programs and private health insurers have not necessarily adjusted to make long-term care a funding consideration.

The Real Need for Long-Term Care

Long-term care refers to the broad range of services that assists those with chronic conditions in performing the essential activities of daily living (ADLs), such as getting around the house, dressing, bathing, or eating, or the instrumental activities of daily living (IADLs), such as traveling outside the home, preparing meals, or taking medication. A person is generally considered to be in need of long-term care if he or she has difficulty performing two or more ADLs or IADLs, because of physical limitations, cognitive impairments, or both.

Already, increased longevity has spurred a “Sandwich Generation”—people who have the dual responsibilities of caring for aging relatives, as well as children. With public programs and private health insurers providing only limited coverage for long-term care, the burden of costs and services often falls on younger generations.

Funding Realities

No public program—neither Medicare nor Medicaid—is specifically designed to fund long-term care. While many people mistakenly assume Medicare will cover the costs, it actually only covers short-term care. Medigap—private health insurance intended to supplement Medicare—also generally does not pay for costs associated with long-term care. As a result, Medicaid has become, by default, the primary funding source, but an individual must be in a position of financial need to receive assistance.

A Real Alternative

An increasingly popular insurance alternative has emerged to alleviate the strain long-term care may place on your savings and younger generations—long-term care insurance. Long-term care insurance can help pay for long-term care expenses before you or a loved one become eligible for Medicaid, and it may allow you to keep significantly more of your savings. A policy tailored for your needs may assume the costs of a nursing home, an assisted living facility, adult day care, and/or care in the home. In addition, participation in certain policies makes you eligible for tax deductions. Thinking about it in the short run may save you in the long run.

Securing long-term care insurance is a realistic approach that may enable you to maintain your quality of life, while offering you, or a loved one, financial independence and increased options for care.

Important Disclosure

Aug

When the Nest is Empty, it’s Time to Save and Invest

After the Nest is Empty

Save and Invest

When your children are grown and leave home, you are released from being the financial “provider”: No more bills for everything from food and clothes to visits to the dentist. Along with this “freedom” may come immediate temptation to spend your “extra” money on the things you have been waiting for over the child rearing years.

Instead, you should purge that urge to splurge! Now is the time to put a sizable portion, if not all, of that extra money away in a savings and investment plan earmarked for your retirement.

Add Up Your Savings

Figure out just how much those tuition bills and other child rearing expenses have cost you. A potential smart move is to save and invest that much for at least the next several years. If you feel you just can’t resist splurging on yourself before retirement, make up a short-term savings goal list to reward yourself at intervals along the way.

The important point is to make sure the extra dollars do not land in your general budget where they can disappear all too quickly, eaten up by a meal out here and a “we-deserve-a-little-luxury” purchase there.

Check Some Facts, Reduce Your Tax

At this stage of life it is also wise to assess whether you are taking full advantage of every opportunity to reduce your tax bills. The number of dependents you can claim will drop; are there additional deductions you can claim to replace them?

After your children have flown the nest, take the time to evaluate your personal financial situation and make adjustments as needed.

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Carving Up a Portfolio and that Thanksgiving Pie

If your 2018 Thanksgiving pie is all U.S. equities, consider expanding your palate

Diversification and Asset Allocation

Asset Allocation Pie

A Better Pie

A Sample Pie

Pies and Financial Planning

The Three California Wildfires

Would you be prepared?

Plan to evacuate

Store important documents in an “evacuation box”

Protect your property

Get the family involved

Purchase necessary insurance coverage and review your policies regularly

Mega Millions is Now at $1.6 Billion

Five things to do if you win the lottery:

Lesson from the Death of Sears, Roebuck and Co.

Diversification is not asset allocation

Socks and Stocks

What Killed Sears

Diversification is Not Asset Allocation

A Simple Example

The Final Proof Point

401(k) Plans – A Nice Fit for Small Business Owners

The Bottom Line

What’s the alphabet soup after your financial advisor’s name?

Long Term Care – A Woman’s Guide

The Insurance Alternative

Yes, she did. And now her $80 million estate is in probate court.

Wills Are for Everyone

Wills Help Avoid Probate Court

Do I Need Long Term Care (LTC) Insurance?

The Real Need for Long-Term Care

Funding Realities

A Real Alternative

After the Nest is Empty

Save and Invest

Add Up Your Savings

Check Some Facts, Reduce Your Tax

WHAT’S NEW

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