financial focus newsletter - fall 2011 issue

8/3/2019 Financial Focus Newsletter - Fall 2011 issue

http://slidepdf.com/reader/full/financial-focus-newsletter-fall-2011-issue 1/4

See LONG-TERM CARE . . . . . . . . . (continued on page 4)

Fall 2011

3

22

3

Women and Retirement

Student Loan Repayment

Never Put Squid Down the Disposal

INSIDE THIS

ISSUE

INSIDE THIS

ISSUE

An ACA member can help you transormyour lie and eliminate your fnancial worries

through holistic fnancial planning.For more inormation, call 888-834-6333 or

visit us at www.acaplanners.org.

W e boomers act as i we will never get old and in-frm. But as we approach 60 and begin to seeour contemporaries ade rom the eects o

time, reality sets in. I we live long enough, we will haveto deal with the debilitating eects o aging.

As people age, having to rely onothers to help with daily tasks o liv-ing can range rom a riend or amilymember stopping by occasionally toull-time nursing home care. The or-mer may not be too costly; the latter isvery expensive. According to the 2000census, approximately 4.5% o thepopulation older than 65 were livingin nursing homes. Those odds do notsound too scary. But as we age, theodds change. In 2000, 1.1% o people

age 65 to 74 were in nursing homes,4.7% o those 75 to 84, and 18.2% othose 85 and up. The average lengtho stay in a nursing home is 2.43 years;the average age or making a long-term care claim is 78.

Most long-term care (about 71%) is provided in thehome by amily members, typically by a spouse, daugh-ter, or daughter-in-law. This in-home amily arrange-ment is certainly cheaper fnancially and more preera-ble, but caregivers oten burn out. I the caregiver is anelderly spouse, he or she may hesitate to spend downassets to provide adequate care because o the ear o

LONG-TERM CARE: IS IT IN THE CARDS? by Michael Ryan Hendersonville, TN

running out o money themselves.Nearly everyone insures against the risk o a house

fre and auto accident, but until recently, very ewbought insurance or the greater risk o needing long-term care at some point (odds: 1 in 20). The annual

cost o nursing home care ranges rom$70,000 to over $100,000. Medicarecovers almost none o this expense,and Medicaid takes over only aterthe amily has expended virtuallyall o its assets. Long-term care (LTC)insurance can provide fnancial helpor at-home care, assisted livingcare, as well as nursing home care. Acouple in their mid-50’s can expect tospend rom $2,000 to $5,000 per yeaor a policy rom a major carrier that

covers both o them with a $110,000total beneft or three years with a90 day elimination period and ina-tion protection.

Do you need to ork over yourhard-earned money or a LTC policy?

Here are a ew thoughts to get you started:

• I you are a couple in your 50’s with assets o at least$200,000 (excluding your home and cars) and havea yearly retirement income o $40,000 to $50,000,you may have the fnancial means to apply or LTCinsurance.

• Many authorities believe that i your net worth isapproaching the neighborhood o $1.5 to 2 million,you should be able to sel-insure. This assumes thatyou or a spouse caring or you is willing to spendyour money on long-term care and is comortabledepleting your estate.

• I you will be living primarily on your Social Secu-rity check, you are not a candidate or LTC insurancebecause you simply cannot aord it.

44



W hether single, married, divorced, or widowed,women ace a challenge in planning orretirement that can be summed up succinctly:

need more, have less. Women, on average, live fve yearslonger than men and also have less opportunity to earnand build wealth. According to the Women’s Institute ora Secure Retirement, a typical college-educated womanearns almost $500,000 less during her career than acollege-educated man. Women also suspend or cut backon employment to care or elderly, ill, or disabled par-ents, siblings, or other amily members.

Social Security benefts are computed over the span o

a work lie assumed to be 35 years. Employed men aver-age more than 30 years in the workorce; or women, theaverage is 27 years. Thus earnings counted toward SocialSecurity, lower per year or women to begin with, areeven lower in the aggregate due to ewer years o pay-ing into the system.

When they are oered options or retirement plan-ning, women too oten neglect to take ull advantage othem. Fewer than hal participate in employers’ retire-ment plans. Expecting to rely on a spouse to take care othe fnances is not a dependable approach to retirement.Women are much more likely than men to be manag-ing on their own in their later years. Almost 80% o men

older than 65 are married compared to just over 40% owomen.

What are some o the steps women can take to ensurethe golden time they’ve dreamed o is ree rom worryand deprivation?Saving Early, Saving More

It’s crucial or women, given their average longer liespans, shorter work lives, and lower overall earnings, tostart saving early. Women can then take advantage othe magic o compounding interest to help make up orlower earnings and ewer years in the workplace.

Women must understand that planning well or their

own retirement serves the needs o their amilies betterin the long run. They need to resist the impulse to ne-glect tax-deerred savings accounts in avor o spendingon pricier-than-necessary education, weddings, and otherbig-ticket items or children or other amily members.

Given that women oten have a lot o catching up todo and are limited in the amount they are allowed tosave in qualifed accounts by their generally lower wages,saving additional unds or retirement in an ater-tax ac-count may be a smart move. Earning women who don’tbelong to an employer-sponsored retirement plan andnonearning women married to earning spouses shouldconsider contributing to their own IRA.

Investing AppropriatelyA solid retirement or anyone depends on a diversifed

asset allocation that provides both security and growthand protects against ination and deation. Duringthe prime earning years, between 50% and 60% o anindividual’s investment portolio should be optimallyallocated to equities. Research shows that this level oinvestment in stocks is necessary to maintain portoliolongevity throughout an average lie span. Women whoseek saety by holding only cash and interest-earninginvestments risk either outliving their portolio or acinga severely constricted standard o living later on.

However, women’s greater conservatism can work totheir advantage. They are better able to resist the temp-tation to trade requently, which incurs costs and reducesreturns over the long term.

Maximizing Social SecurityMost Americans choose to start claiming Social Secu-

rity benefts at a reduced level as soon as they’re eligible.But waiting to claim Social Security at the ull retirementage or at age 70 makes sense or women, given their lon-ger lie spans, greater likelihood o being alone in lateryears, and dependence on Social Security benefts or alarger percentage o their income in retirement.

Because women are more oten the lower earning or

younger partner in a marriage, they are more likely toace decisions about when to take benefts and whetherto claim benefts on their own or on a spouse’s earningsrecord. For example, a younger wie may want to begintaking spousal benefts when her husband reaches ullretirement age and then fle or benefts on her ownemployment record when she reaches age 70.

Divorce can change the equation too. Any man orwoman who has been married or 10 years or moreand has not remarried can collect on a ormer spouse’srecord.

Beyond the Financial

Women do have some advantages over men in ac-ing their later years. They tend to have ewer concernsthan men do about what they are going to do in retire-ment. Their sense o identity is less likely to be bound upin their work, and they are more apt to have a varietyo support systems. Women oten are less unsettled byambiguity and uncertainty than men are, less inclined toneed to eel in control.

Retirement ultimately is about the time we have atour disposal as well as the money in our accounts. Savvyplanning can help women, and those they care about,make the most o both.

by Claire Emory, CFP ® , CFA, MBA Arlington, VA

RETIREMENT PLANNING STRATEGIES

LONGER LIVES, LOWER EARNINGS:

WOMEN AND RETIREMENT



STRATEGIES FOR EVERYDAY LIVING

Repayment Plan, which allows you to make smallerpayments at frst and larger payments later (but nevermore than three times any other payment) whenyour income will presumably be greater. I you don’tconsolidate, each loan will have its own payment plan.There are no prepayment penalties or paying o a loanearly.

But I don’t have a real job yet. How can I affordthis?

The Income-Based Repayment (IBR) plan may be anoption. Your income, amily size, location, and amount

o debt determine how much you can pay. As you earnmore, the monthly payment increases. The IBR is only

available or ederal loans likeStaord or Perkins Loans butnot or Parent PLUS Loans orprivate loans. The reducedpayment amount might notbe enough to cover your loaninterest, which in most caseswill increase the balance. ForSubsidized Staord Loans, thegovernment will pick up theadditional interest not covered

by your reduced payment orup to three years. You mustsubmit annual documentation

to prove your continued eligibility, and i you are still inthe program ater 25 years, your remaining balance willbe orgiven. The Income Contingent Repayment plan isa similar program, or Direct Loans only, in which yourmonthly payments are based on your adjusted grossincome and recalculated each year.

I the fnancial hardship o loan repayment is too greatyou may qualiy or loan deerment or orbearance topostpone your payments. An unemployment deerment,

or loans made since 1993, can last up to three years, orsix months at a time. Interest still accrues during thesedeerment periods. You must prove you are actively seek-ing work, or example by registering with an employmentagency or providing evidence o unemployment benefts.Deerments are also available or economic hardship, suchas joining the Peace Corps or being on active military dutduring a war or national emergency. I you don’t meetthe requirements or deerment, you may apply or or-bearance to reduce or postpone your payments. For moreinormation on these options, contact your loan servicer.Don’t stop your payments until you are approved.

STUDENT LOAN REPAYMENT by Erin Baehr, CFP ® Stroudsburg, PA

Financial Focus is a publication o the Alliance o Cambridge Advisors, Inc. ©2011. All rights reserved.

W hat happens once you get a student loan?How will the loan be disbursed? When thetime comes, what are the options or paying

the loan back?

How do I get my money?You have signed a Master Promissory Note and

completed Entrance Counseling. The wheels are now inmotion to issue a Staord Loan. Your school will applythe unds to your tuition bill. The loan does not cometo you but is paid directly to the school and appliedin two installments, one or the all semester and one

or the spring. You may use any letover amount orbooks, room and board, transportation, or o-campushousing.

While you are in school, nopayments on Staord Loans arerequired, although unsubsidizedloans accrue interest, which isthen added to the principal, orcapitalized. Capitalization takesplace once you are fnished withschool or when the grace periodhas ended. You may make interestpayments while in school to avoid

interest capitalization. Interest paidmay beneft your income taxes.

I’m out of school; now what do I do with all ofthese loans?

You may have quite a collection o loans by thetime you graduate. I keeping track o the lendersand payments becomes difcult, you may consolidateyour loans. The interest rate on a consolidated loanis the weighted average o all the loans you areconsolidating, but it cannot exceed 8.25%. Be awarethat consolidated subsidized loans still retain their

subsidized benefts.

Do I have to pay it back all at once?Several payment plan options are available. Most

student loans allow you to spread payments over 10years. The Standard Repayment Plan requires up to 120equal payments o at least $50 a month.

I the Standard Repayment Plan is too difcult, youmay choose the Extended Repayment Plan, whichcan give you up to 25 years to pay, although you willincur a lot more interest. There are eligibility rulesthat you must meet. Another option is the Graduated



STRATEGIES FOR VOLUNTEERING

by Judy McNary, CFP ® , Broomfeld, C

A ew years ago I was in training to be a vol-unteer scuba diver at the new aquarium inDenver. I remember that harsh instruction as

i it were yesterday. My training group was in the LieSciences Kitchen learning the ins and outs o oodprep or marine animals. It elt worlds away rom mycomputer-oriented day job. Who knew there couldbe serious allout rom putting squid down a garbagedisposal? Not me.

Volunteering there has been a parto my lie or over a decade now. Ieed stingrays, moray eels, and other

sea creatures. I wave through the glassat children, pose or pictures, and spendhours scrubbing algae. But the thrill obeing right among the sharks, turtles,and other animals is as resh or me asthe day I started. Hands down, it’s thebest diving in Colorado.

One o the side benefts o volunteer-ing is that some o my expenses aretax deductible as a charitable contribu-tion. Not quite as nice as getting paid todive but still pretty good. I deduct themileage or my trips to and rom the

aquarium and the cost o classes I’m re-quired to take to keep my skills current,such as CPR.

I there’s something you’re passionate about thatmight not ft your budget, I encourage you to look intovolunteering. The possibilities are endless.

In our goal-setting meeting, one client wanted to skimore but worried about the cost o the season pass. I

suggested the National Sports Center or the Disabledin Winter Park, Colorado. He just completed his secondseason volunteering there. The ree pass, the chanceto help other people learn to do something he enjoys,and the camaraderie are all great benefts. His mile-age to and rom skiing is tax deductible or the days hevolunteers or is in training.

A riend o another client loved the theater but notthe price o the tickets. She now volunteers as an usher

She sees the productions or ree, hasmade wonderul riends, and deductsher mileage and parking expenses or

days she is volunteering.A ew guidelines must be ollowedto deduct expenses. First, the orga-nization must be a nonproft, whichmeans it has a 501(c)(3) status. Sec-ond, keep in mind it is the actual ex-penses that are deductible; your timeand services are not. I your role as avolunteer requires you to wear certainclothing or shoes, those typically aredeductible. Materials you are requiredto purchase or use in the volunteerposition generally are deductible as

well. Third, good record keeping isparamount. You must track your mile-

age and expenses in order to deduct them.Get creative! The perect opportunity to volunteer is

waiting or you. And remember; never put your let-over squid down the disposal. The squid tendrils clogup the disposal or, to quote the marine biologist, “Theydo a real number on it.” Now you know.

NEVER PUT LEFTOVER SQUID

DOWN THE DISPOSAL

• You should determine that you will be able to

pay the premiums without adversely aectingyour liestyle and be able to absorb possibleuture premium increases.

• I you eel you can aord to sel-insure partbut not all o the cost o LTC, you can choosea policy with a lower daily rate, a limited payoutlength, or a policy with a longer exclusion per-iod (e.g., a year). All o these choices reducethe annual policy premiums. Remember, youwill then be on the hook or the rest o the costnot paid by the insurance.

One huge advantage o LTC insurance is that it gives

the owner a choice when the need or long-term carearises. Other issues to consider when purchasing LTCinsurance include what triggers policy payout (i.e., howmany o the activities o daily living require assistanceand how are these activities defned), how otenthe policy pays (once a month, as the expenses accrue,etc.), the strength o the issuing insurance company,and whether or not the policy is “tax qualifed.” All othese are vitally important, and you must understandthem thoroughly beore you sign on the dotted line.For an impartial review, be sure to consult with yourACA advisor.

LONG-TERM CARE . . . . . . continued rom page 1

financial focus newsletter - fall 2011 issue

Documents