Outside Economics

Who Should Have Long-Term Care Insurance?

Posted by Wendell Brock, MBA, ChFC on Wed, Nov 25, 2015

November as we know is the month in which we celebrate Thanksgiving, perhaps the most celebrated and gratefully under-commercialized holiday of the year, for which I am truly thankful. I love Thanksgiving – it is my favorite holiday. November is also Long-Term Care awareness month.

Long-Term Care is so very important to plan for. Throughout our lives we are bombarded with taking care of risks we are exposed to, auto accidents, home owners’ problems, life and disability, etc., but often we do not plan much for the end of our lives (actually few people die with a valid will in place). And what is left for our loved ones is literally a financial mess on top of the emotional challenges of losing a family member.Long-term_Care.jpg

Below is some information from two studies I would like to use, they lay out some statistics about Long-Term Care. The people who are prepared or ill-prepared for such a catastrophic problem might find the motivation to look for more information to help their unique situation.

According to researchers at Georgetown University and Pennsylvania State University, about 70% of individuals 65 and older will need some kind of long-term care—whether at home, in an assisted-living facility or nursing home.

But how many of them should purchase a long-term-care insurance policy? That number, it turns out, is far lower—at 19% of men and 31% of women, according to a new study published by Boston College’s Center for Retirement Research. (Women live longer on average, and so they’re statistically more likely to incur long-term-care costs; my own mother lived 27 years past my father.)

Surprise - most “individuals should not buy insurance,” wrote the authors of the paper, which was published in November 2014. However, this study only looks at strictly “nursing home care” and ignores assisted living facilities or home health care. Neither of these two levels of care are provided for by any government programs.

Most people do not need the coverage because they do not have a sufficient level of assets to protect. People work their whole lives to provide for themselves and their families, what is left over at the end they want to pass on to their heirs, Long-term Care insurance can help protect that final nest egg, so there is something left.  The value of owning a Long-term Care policy is related to the amount of assets one has and the estimated amount needed to cover the catastrophic cost of long-term care. Additionally the authors found, that for many people of modest means the coverage provided by of Medicare and Medicaid are adequate to cover most of their needs. 

To assess the odds of needing long-term-care, the researchers used government data to “calculate monthly probabilities of transitioning among various health states” from age 65 on. The “health states” are: “healthy, requiring home health care, living in an assisted living facility, living in a nursing home and deceased.” The data show that 44% of men and 58% of women will spend at least some time receiving nursing-home care.

However, many people spend only short spells in nursing homes. Government data show that, on average, men who require nursing-home care spend an average of less than a year in such care over their lifetimes. For women, the figure is about one year and four months.

As the study notes, “many short-duration stays in nursing homes are covered by Medicare,” which covers stays of 100 days or less following a hospital stay of more than 3 consecutive days, Half of all men and 40% of women who use nursing-home care fall within this coverage window, and Medicare picks up their tabs.

At the other end of the spectrum, Medicaid picks up the tab for extended stays in nursing homes for those who run out of money. There are also those people of modest means who try to game the system by spending their assets and thus causing self-inflicted poverty to qualify for Medicaid.

So who should consider buying coverage? According to Anthony Webb, a senior research economist at the Center for Retirement Research and a co-author of the paper, those with significant assets—of a couple hundred thousand dollars or more ($200,000)—should look into a policy. The target market, he adds, is “people who have a sizable amount of household financial assets and would be unlikely to qualify for Medicaid.”

Two things to remember: 1) The study primarily focused on nursing home care, and that type of care is far more comprehensive care than assisted living care and Home Health Care, both of which is covered with Long-Term Care, but not covered by Medicaid or Medicare. People tend to spend more time in assisted living facilities and using home health care then nursing home care. Nursing home care is truly an end of life type of care.

2) What triggers the receiving of long-term care benefits is the loss of two of six activities of daily living, which often allows a person to remain at home, but simply need help on a daily basis to tend to certain activities.

It is likely that in your adult stage of life, most people have experienced a friend or relative that has needed and or used, home health care, assisted living care, and/or nursing home care. There are many different types of policies to choose from. You will want a policy which is simple to understand and yet is flexible enough to cover your needs, while at the same time not being subject to massive rate increases. Or worse, a reduction of the benefits you have paid for, because you can’t afford the new rate increase.

My family has several times expressed gratitude for the policy my mother had, which kept her estate intact and left more to her heirs. It was a wonderful blessing for which I am truly grateful. But more than that it made it possible for my sisters, who were responsible for her, to be care managers rather than care givers – a significant difference between the two roles – and a major difference in the quality of life for both the care manager and the one receiving the care.

With that - I wish y'all a very happy Thanksgiving!



“When you walk with gratitude, you do not walk with arrogance and conceit and egotism, you walk with a spirit of thanksgiving that is becoming to you and will bless your lives.” - Gordon B. Hinckley

Topics: Long term care, LTC, Long term care insurance

529 Plans - An Estate Planning Tool

Posted by Wendell Brock, MBA, ChFC on Wed, Nov 11, 2015

Named after the IRS Code it falls under, Section 529 plans (529 Plans) have amassed over $244 billion in assets since their inception in 1997. Their popularity soared over the years as parents and grandparents realized their favorable tax benefits while also saving for college expenses. These 529 Plans are limited to only “higher education” or post high school education, where as a Coverdell Educational Savings Account can also be used for certain K-12 expenses.

529 Plans were initially intended to provide parents of young children the ability to save and invest money for future anticipated college related expenses, such as, tuition, books, room and board, lab fees, etc.

These plans offer two primary benefits: assets grow tax deferred and come out tax free for qualified expenses; and, contributions made by parents and grandparents are considered a gift, thus proving a tax benefit for some contributors.

Over the years, both wealthy and lower-income parents and grandparents have been the main contributors to these plans. The maximum contribution in to any one plan in Texas is $370,000, this can be made in one payment or through monthly or annual contributions.

Any parent or grandparent can make gifts of up to $14,000 per year per individual person (child) and to as many individuals as they wish. 529 Plans allow gifts to be made five years ahead all at once. Thus, a grandparent can gift $70,000 per grandchild at once for the next five years. If the grandparent has five grandchildren, then they have the ability to contribute $350,000 at once to the 529 Plans, which are considered gifts. There would be no gift tax, assuming no other gifts were made to that child over those years.

Another benefit of 529 Plan is the ability to change beneficiary to another member of the beneficiary’s family. This flexibility allows the family to set up one account for several children as the balance can roll down to the youngest child without any penalties.

Such generous contributions allow a reduction in the contributor’s taxable estate. This is an ideal strategy for parents and grandparents that may have estates valued at over $5.43 million, the current federal estate tax exemption level. The federal estate tax exemption, that’s the amount an individual can leave to heirs without having to pay federal estate tax, is $5.43 million for 2015.

While many people are not in the above situation of needing to reduce their estate size to avoid paying estate taxes; using such a gifting strategy may be advantageous for other family reasons. With the high cost of a college education any help from family should be appreciated by the student.

Selecting the right strategy for college savings or combination of strategies is worth the time and effort. A discussion with your financial advisor of the different strategies and what would make the most sense for your family should be part of the plan, after all next to you no one should know your finances better and how best to integrate the strategies.

 For More Info on College Savings

Source: IRS, Saving For College


Remember the only real control is self control. - Jefrey R. Holland

Topics: College Savings, Section 529 Plans, Estate Planning, Coverdell Education Savings Account

Macro Overview of 3rd Quarter 2015

Posted by Wendell Brock, MBA, ChFC on Wed, Nov 04, 2015

International growth concerns and uncertainty surrounding the Fed’s decision as to when to finally start raising rates continued to roil markets in the 3rd quarter.

The Fed held interest rates steady during a critical meeting in September, signaling that it intended to raise rates towards the end of the year. The economy’s apparent return to normalcy will be tested when a rate hike does eventually take effect.

The Department of Labor released data for the 3rd quarter showing that there were improvements for low-income workers across the country, which tends to accelerate when the economy is close to full output. Historically, the Fed has considered full output to be a catalyst for rising rates in order to stem inflationary pressures driven by increasing wages. Consequently, employment data continues to weigh on the Fed’s decision to raise rates.

Markets reacted to mixed signals from the Fed regarding the timing of its anticipated interest rate hike while economic conditions were still questionable. The Bureau of Labor Statistics may have been contributing to the Fed’s uncertainty as it revised 2nd quarter GDP estimates to a growth rate of 3.9%, up from 3.7%. Such revisions signal a strengthening economy, thus swaying the Fed to a rate rise sooner rather than later. Many economists view a decisive rate increase, a confident attainment of some economic progress.

Many analysts believe that Federal Reserve members have become extremely sensitive to the occurrences in China and the emerging markets, which have been adversely affected by the dollar’s strength. Some propose that the Fed is trying to indirectly minimize the dollar’s strength by keeping interest rates from rising too soon.

Since a stronger dollar has historically been a negative factor for the emerging markets, developing countries such as Brazil and Mexico are taking restrictive actions in order to slow the decline in emerging market currencies.  Brazil implemented sharp interest rate hikes in September while Mexico intervened to sell dollars in order to boost a record low peso. Traditionally, emerging market countries are inclined to raise interest rates in order to stem the decline of their currencies against the U.S. dollar.

It was 7 years ago this September that the financial crisis reached its most critical point when industry behemoths, including Lehman Brothers and Merrill Lynch, were acquired by other institutions.

Commerce Department data released identified construction as the strongest evolving sector of economic growth in September, with construction spending up over 13% for the past 12 months. Construction expenditures have been led by private sector nonresidential building, which includes manufacturing spending that is up considerably over the past year.

Reis, reported in its research that, office space throughout the country became scarcer as the vacancy rate fell to 16.5% in the 3rd quarter. Department of Labor data showing an increase in higher paying professional positions coincides with the increase in demand for office space.

Sources: Fed, Bloomberg, Dept. of Labor, Commerce Dept.


To Remember:

When things go wrong, don't go with them!  - sign on a church


Topics: Interest Rates, Fed, Department of Labor, Macroeconomics


Wendell W. Brock, MBA, ChFC

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