Monthly Archives: September 2011
By Lisa Christiansen
1. Break Free From Debt
If you carry credit card balances, debt is your biggest financial oppressor. “You’re in bondage of things you bought or did in the past that you’re still paying for today,” says Lynnette Khalfani, author of ‘Zero Debt: The Ultimate Guide to Financial Freedom’ (Advantage World Press). “And it’s costing you for tomorrow, because you don’t have the opportunity to save or invest for your other financial goals.”
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The best strategy for paying off your debt is simple: Focus on paying off the card with the highest interest rate first, and never settle for making only the minimum payments. (You say you can’t possibly squeeze any more dollars out of your budget? visit www.smartmoney.com/spending/deals/save-300-a-month-19398/ for tips on how to save $300 a month.)
Consider this: A $5,000 balance on an 18% credit card would take nearly four years to pay off if you made a $150 monthly payment — and would cost you $2,013 in interest. With $450 monthly payments, you’d wipe away your debt within 13 months and pay only $519 in interest. (To see how much interest your plastic will cost you, visit www.smartmoney.com/personal-finance/debt…-will-you-pay-9660/.)
For more on beating credit card debt, and for more debt advice, We will be gearing up the toughest economic experts to help you in these times of tremendous opportunity.
2. Build a Nest Egg, Always have Cash
A cash cushion — enough to cover three- to six-months’ worth of living expenses — is your protection against falling into debt. “Without it, any time an emergency comes up you’re forced to resort to plastic,” Khalfani says.
The good news: Thanks to rising interest rates your cash can earn decent returns in the bank. Visit www.smartmoney.com/spending/deals/5ive-t…ng-interest-rates-0/ here for the best deals.
3. Fortify your assets
According to the Consumer Bankruptcy Project, the major reasons for bankruptcy filings are job loss and medical problems.
The best way to protect yourself: Make sure you have adequate insurance. “Most people are woefully underinsured,” Khalfani says. “The problem is, if you suffer any kind of setback, illness or disability and don’t have enough insurance to cover that, you’re thrown into financial crisis.”
If you aren’t offered health insurance through your job, consider private health insurance. Visit www.smartmoney.com/spending/deals/buying…lth-insurance-14819/ for advice on finding the most affordable policy with the best coverage.
Disability insurance is another tricky area. Most employers offer it, but for many people, the policies don’t provide adequate coverage.
Contact me if you need a worksheet to help you figure out where you are at and how to get where you are going.
4. Creat a budget
Your mortgage payments, insurance and food — the so-called “must-haves” — should comprise no more than 50% of your monthly spending. Then, allocate a solid 20% to savings for retirement, college costs and other long-term savings goals. Finally, leave a pleasing 30% for the fun stuff, be it golfing or clubbing, buying shoes or fine dining.
Need help creating a budget? email me firstname.lastname@example.org
5. Master your emotions, Create Peace of Mind!
It’s a subject no one likes to discuss, but the fact is that having a will is more important than you may think. “People have big misconceptions about why and who should create a will,” Khalfani says. “A big one is that wills are only for people with big estates, elderly people, people who are married or have kids. All of those are myths.”
Even if you’re a recent college grad renting a studio apartment with two roommates a will is always a good idea. Once you start building a portfolio and acquiring assets, When the time has come to draw up a will, you have already done so. Hiring a lawyer may cost anywhere between $500 and $1,000, depending on where you live and the complexity of the paperwork. But at online law clinics like Buildawill.com and Legalzoom.com a basic will costs as little as $19.95 and $69, respectively.
Also, consider a VUL (Variable Universal Life), it is never to soon or to late to start also a ROTH IRA is a great place to start, it is especially a good idea for people nearing retirement. The VUL is a better vehicle when you are planning on buying life insurance.
Feel free to contact me at email@example.com or visit http://www.drlisacoaching.com/index.php?option=com_kunena&Itemid=136&func=view&catid=5&id=11
By Lisa Christiansen
The article I wrote concerning Long Term Care (LTC) generated enough response to have a follow-up. I realize I need to provide two more articles to address numerous questions, the first one going over some of the points I tried to make in the first article in more detail and the final one showing some of the features and options if one considers buying a LTC policy.
… The first thing I would say is that this information is from my friend who is retired from financial planning for 6 years, I feel he is still current enough to offer information that hopefully will benefit you and encourage some of you to consider whether this is something you need to learn more about.
The main point of the first article was to say that I know no one wants to buy something that is expensive when what they want is to enjoy their retirement and maybe spend that same money traveling, on their hobby, etc. I hoped to encourage those of you young enough and with the financial resources to think about purchasing at age 40 or so instead of waiting until you are at age 70 (at which time you may not qualify), even though you don’t think that you would need it until you were at least 70 years old. Two reasons for this are that many more people need the benefits and help at earlier ages (45 or 50) than you would imagine and that the premiums become so expensive if you wait to purchase at say age 65. I have been doing financial planning for about 5 years with the advice of my friend, I had limited knowledge of LTC, when my friend purchased his policy he was 56 years old. His initial thinking was because he was in excellent health he wouldn’t need this for many years, so he would gamble and save paying those premiums for 10 years or so. My mentor in LTC convinced me that it was smart too buy at the earliest age I could afford it because of the huge difference in premiums as we age, and what we thought health care costs would be 10 years in the future (we were both too low), the fact that he thought he would live to at least age 85 and that there was no guarantee for any of us that we wouldn’t need care at age 60 or so.
Let me throw some LTC statistics at you as follows:
1. If you live to age 65, the odds say you will live to age 84.
2. Over 65% of all Americans will need some kind of LTC in their lifetime
3. If a person lives to age 65, there is a 44% chance he/she will wind up in a Nursing Home.
4. For a couple both turning 65, there is a 75% chance that one of them will need LTC.
5. Fifty-nine percent (59%) of the adult population in the United States either is now or expects to become a family caregiver.
The two Common Myths I had to overcome when I was talking to someone about LTC were number one that “my family will take care of me”. The reality is children have other responsibilities; they have limited family resources as to time, finances, skill, and geographic constraints. “My spouse will take care of me”. He/she may think they can do this, but how many times have you seen a wife care for the husband for say 2-3 years and be in as bad a shape as the husband because of the burden placed on her. The second myth is that all else fails, the government will be there as a safety net. Let me assure you the government does not, nor can afford, to take care of our LTC needs. I attempted to point this myth out in my first article. The two options are Medicare and Medicaid. For Medicare to pay Nursing Home costs you must have been hospitalized for 3 days, be in a “Medicare Approved” facility that is “Skilled Care” not” Custodial Care.” Skilled Care accounts for less than 5% of all such facilities. If you meet these hurdles, Medicare will pay 100% for the first 20 days. Days 21 thru 100 they pay everything above your co-pay (I’m sorry I don’t have a current number, the last I have is $114 for 2005.) This says you pay I’m sure its now over $120 per day for 80 days. On day 101, you pay all costs, they pay ZERO. The other option, Medicaid is even worse. It’s done on a state-by-state basis. In Oklahoma, you are required to “spend down” your assets to $2000. There are restrictions going back 5 years as to gifting assets to get to the $2000.figure. There is often a waiting list to get into a facility and you have no control over what facility you are placed in. I know of one family where the Mother was placed over 300 miles from the home of the closest child.
In my opinion, your OPTIONS are as follows:
1. Do Nothing (hope the problem goes away)
2. Be Very Wealthy (self-insure)
3. Be Very Poor (spend down to the poverty level)
4. Purchase LTC Insurance or a Hybrid Plan (Transfer some or all the Risk)
The Pros and Cons of Long-Term Care.
1. Too Expensive
2. Crimp my Budget
3. No Return of Premium
4. No long-Term Rate Guarantee
1. Maintain Control and Independence
2. Financial Security, Don’t Outlive Your Assets
3. Avoid “Welfare”
4. Not a Burden to Your Spouse and/or Kids
5. Able to Qualify Now
6. Good Policy with an Excellent Company
7. It will Never be Less Expensive than it is Today
My Final article (Investing In Long Term Care, Part III) will hopefully correct anything I have misspoken about or missed covering will cover the different decisions that have to be made concerning the several options that most policies have. If there are questions, I would attempt to answer those after my next article in a week or so. Thanks it’s always good to refresh your memory about something you believe in.
By Lisa Christiansen
This article is inspired by my friend who has a law degree; he is also a retired banker and financial planner. I will remind you that he has been retired for about 5 years, I do believe his input is still pretty much top-line. I feel the most under-utilized financial product is long-term care insurance (hereafter LTC)
… … The main reason it is under-used is because it’s expensive. Other reasons are that you might pay premiums for lots of years and never get anything back. Also that many people are fed-up paying insurance forever, i.e. car ins., home ins., health-care ins, life ins., etc. So, why not gamble and not do LTC, because Medicare or Medicaid will pay if I don’t?
To briefly answer those concerns, yes it is very expensive and will only get more expensive because we live longer and that health-care costs have skyrocketed. If you buy a $50,000.00 life policy, the insurance company knows what their liability is, with LTC, their exposure is open-ended, and they may pay for 10 years or 30 years. If you think LTC premiums are out of sight, try paying for a couple of years in a decent nursing home. I promise you it is higher than you can possibly guess. My advice is if you are thinking about purchasing do it as young as you possibly can. If you wait until you are 65 or older, it may not be practical to purchase because of the cost.
As to paying for something and possibly not ever getting any benefit from it, you should be so lucky. He says “YOU SHOULD BE SO LUCKY”. He says he would be happy to pay premiums forever if it meant that he lived to a ripe old age and never used it because of the quality of life that implied.
I could write a chapter about what LTC cost the government governs. For Medicare to cover, the hurdles are as follows:
3 days of hospitalization;
Only in “Medicare Approved” Facility;
Does not cover Custodial Care, only Skilled Care (over 90% of care is Custodial);
It pays nothing for Assisted Living, Limited as to Home Health Care.
If all this happens, they will then pay 100% for days 1-20. Days 21-100 they cover 100%, except for your co-pay portion, which is over $120 per day. After day 100, they pay ZERO, you pay 100%.
For Medicare, it is done on a state by state basis; you must spend down to a certain amount, like $2,000. There are restrictions on your ability to gift down to the set limit. You have no control over what facility you are placed in, and often there are waiting lists to get in.
My conclusions, if you are going to consider this product, shop carefully because the insurance company and the agent are more important than with other products. If you are buying a $50,000.00 term policy from a decent rated company, price is probably the most important factor and any insurance agent can write it. You never want to buy from a low-rated insurance company, but it is critical with LTC. Hopefully, you aren’t going to need this product for 20 or more years, also unlike most insurance products, you know what the price is always going to be. Not so, with LTC, all companies reserve the right to raise your premiums at any time if the states approve the increases. I would only buy from a company with an A or A+ rating, one that has been in LTC business for several years and has a sizable book of business, and most importantly has never increased premiums. This eliminates a number of companies and he also recommends that you go to an agent that specializes in LTC because lots of agents know nothing about the product.
If there is enough interest I would write a follow-up article about the different options and features of a LTC insurance policy.