CFP Board eNewsletter
April 2007
Try a Little LTC: A Guide to Long-Term Care Insurance
Preparing Your Financial Fire Drill
Understanding Your Brokerage Statements
Financial Alerts
Free Online Introduction to Financial Planning Available from University of California, Irvine
About This Newsletter

Try a Little LTC: A Guide to Long-Term Care Insurance

A couple of weeks ago, I did something I haven’t done in a long time. I hoisted my daughter up onto my shoulders while we were walking through the park. My daughter loved it; she was laughing, bouncing up and down, and really enjoying the view. But I quickly realized why I hadn’t done this in quite some time. My daughter, who is four-and-a-half years old, is just a little bit too big for this kind of thing. And I, at 44, am getting just a little bit too old.

The next day, I had a very sore neck and back. It was about a week before I could turn my head without spasms of muscle pain shooting through my left shoulder. The simplest movements — like bending down to tie my shoes or getting in and out of a car — became excruciatingly slow and painful. I never knew how many back muscles were involved in a simple sneeze until I sneezed and ended up writhing in pain on the floor as the left side of my spine seized up. I had a scary glimpse into how it must feel to be old, and an even scarier insight into how it must feel to require help in performing the most trivial tasks of daily life. For the first time, I thought seriously about long-term care (LTC) insurance.

Long-term care comprises a range of health and personal services — including assistance with everything from bathing, dressing and using the toilet to residence in a nursing home — that are provided over an extended period of time. People who require such services may have a chronic illness or disability, a cognitive disorder like Alzheimer’s disease, or some other age-related infirmity. According to the National Clearinghouse for Long-Term Care Information, some 9 million Americans over the age of 65 will need LTC services this year. By 2020, as more and more baby boomers enter their golden years, that figure is expected to rise to 12 million. The National Clearinghouse estimates that about 60% of those over 65 will need some type of LTC, which can be very expensive, during their lifetime.

Despite these statistics, LTC insurance is still relatively rare. “You should be thinking about LTC insurance when you’re in your forties, and you should own it by the time you’re fifty,” says Stephen A. Moses, president of the Center for Long-Term Care Reform. “If you’re older than fifty, you should do it now.” For a variety of reasons, though, most people do not purchase LTC insurance. “It’s an uncomfortable thought to consider being dependent on others for care,” says Moses. “But then it’s uncomfortable to think about dying, too, but most people still buy life insurance.” Here are the basic facts on LTC to help you increase your comfort level should you decide to insure yourself against the costs of long-term care:

What Kinds of LTC Are Available?
Long-term care needs change as a person ages and as any medical conditions, such as Alzheimer’s disease, progress. A person with Alzheimer’s, for example, might start off needing assistance with simple daily tasks, but then require more intensive care as the condition becomes more debilitating. Services can be provided at home, at a local community center, or at an assisted living facility or nursing home. According to the National Clearinghouse, on average, someone who is now 65 will need LTC services for about three years. Women tend to require care longer than men because they tend to live longer. The Administration on Aging (AoA) has an Eldercare Locator linking individuals in need of services with state and local agencies that can help. The AoA Eldercare Locator staff can also be reached by calling 1-800-677-1116.

How Much Does It Cost?
LTC costs vary according to the type and duration of care. In 2006, the average cost for a year in a nursing home in a semi-private room was more $62,000; care provided in the home three times a week cost almost $16,000 a year. These figures are merely averages, though. Some care facilities may charge more for additional services, while home care can be more expensive if provided in the evening or on weekends. You can find the estimated costs of LTC in your state by visiting the What Does Care Cost Where I Live? section of the National Clearinghouse site.

How Do I Pay for It?
Some government programs may pay for specific LTC costs. But there are important restrictions on the duration of and eligibility for coverage. Medicare will only pay for skilled services or recuperative care required for a short period of time. It does not normally cover any of the assisted living services — such as help with eating, dressing and other daily activities — that represent the majority of LTC needs. (Most forms of private health insurance follow the same general rules as Medicare.) You can learn more about what Medicare does and does not cover by visiting the Medicare Web site and downloading or ordering the Medicare & You handbook.

Other Federal programs, like the Older Americans Act and Veterans Affairs, pay for some LTC services, but only for specific populations and under specific circumstances. The Administration on Aging Web site has more information on the Older Americans Act. The Department of Veterans Affairs Web site has details of the long-term care benefits the VA provides.

Medicaid covers a much wider range of LTC services than Medicare, but only if certain financial and functional conditions are met. Eligibility and coverage vary by state. Details on eligibility requirements can be found on the Medicaid Web site. For more information, contact your State Medical Assistance office, which can be located via the Helpful Contacts page on the U.S. Department of Health and Human Services Web site.

What About LTC Insurance?
Relying solely on Medicaid for LTC is a lot like relying solely on Social Security for retirement: not a good idea, because the benefits you receive are unlikely to cover your costs. By planning ahead, though, you can make sure you have sufficient funds for LTC should you ever need it. Two effective ways of covering long-term care costs are LTC insurance and reverse mortgages.

The first step in preparing to finance LTC is to review your current insurance to learn which aspects of long-term care, if any, are already covered. Then decide whether you can — or want to — pay for LTC from any retirement income and savings you might have. The National Clearinghouse’s LTC Savings Calculator can help you estimate the funding gap between your assets and the estimated cost of care. If the gap is too large, it may be time to consider LTC insurance or a reverse mortgage.

Long-term care insurance is just like home, car or health insurance: You take out a policy hoping you will never need to make a claim. LTC insurance is designed to cover the costs of long-term care not covered by traditional health insurance or government programs. The cost of a LTC policy is based on the type and amount of services you choose, how old you are when you buy the policy, and any optional benefits, such as inflation protection, you may decide to include. Premiums are normally waived if you have made a claim and are receiving long-term care. The Federal Government offers LTC insurance to its employees; check out the Federal Long-Term Care Insurance Program for more information. Consult with your human resources department to find out if your employer provides LTC insurance. You can also find out more about LTC insurance by contacting your state insurance regulator. A state-by-state list of regulators can be found on the Consumer Action Web site.

Reverse Mortgages are often a convenient way to finance long-term care because many people have paid off their mortgages by the time they require these services. With a reverse mortgage, you receive money — a lump sum, a monthly payment or a line of credit — from a lender. The amount of the loan is determined by the value of your home. You do not have to sell your home, and you do not have to repay the loan as long as you continue to live in the house. A reverse mortgage simply frees up the value of your home to fund LTC. The loan becomes due when you or the last borrower (such as a surviving spouse) dies, sells the home, or permanently moves out.

There are some restrictions, however. You must be 62 or older to obtain a reverse mortgage, and you must have little or no outstanding balance on your mortgage. The good news: The money from a reverse mortgage is tax-free. You can find out more about this type of financing at ReverseMortgage.org. The site has a Reverse Mortgage Calculator that estimates benefits from three reverse mortgage programs. If you want to learn more about LTC and how to fund it, download the Own Your Future booklet from the AoA Web site. A little LTC insurance may not do much for my aching back, but it could do a lot to lift one big worry from my shoulders.

— James Geary

Online Resources
A selection of Web sites with information on long-term care:

American Association of Homes and Services for the Aging
The AAHSA is dedicated to “providing the services people need, when they need them, in the place they call home.” The Consumer Information section of its Web site provides information about what services and facilities you or your loved one might need.

American Health Care Association
The AHCA is a non-profit federation of state health organizations, together representing more than 10,000 non-profit and for-profit assisted living and nursing facilities. The AHCA represents the long-term care community to government, business leaders, and the general public. The National Center for Assisted Living is part of the AHCA. The Consumer Information section of its Web site features tips on choosing assisted living facilities.

Assisted Living Federation of America
The Assisted Living Federation of America promotes business and operational excellence among the country’s assisted living communities for seniors. The site’s Consumer Resources section features frequently asked questions about assisted living and allows users to search for facilities by city and state.

Long-Term Care Living.com
Sponsored by the American Health Care Association and the National Center for Assisted Living, LongTermCareLiving.com provides consumers with information on nursing homes, assisted living and residential care, and other types of long-term care services.

National Clearinghouse for Long-Term Care Information
This Web site was developed by the U.S. Department of Health and Human Services to provide information and resources to help individuals and families plan for LTC. The site has comprehensive tips on the types of LTC services and facilities available, as well as details on a variety of financing options.

 
Preparing Your Financial Fire Drill

Dual-income families, in which both partners contribute to the household finances, are increasingly the norm. That’s good news, since it means two revenue streams instead of one are available for all the (big and little) expenses of daily life. But in their book The Two-Income Trap, Elizabeth Warren and Amelia Warren Tyagi highlight an unexpected side effect of the dual-income household: Families are still struggling to make ends meet, even with a second income. “The average two-income family earns far more today than did the single-breadwinner family of a generation ago,” the mother-daughter team write. “And yet, once they have paid the mortgage, the car payments, the taxes, the health insurance, and the day-care bills, today’s dual-income families have less discretionary income — and less money to put away for a rainy day — than the single-income family of a generation ago.”

This financial squeeze is not, according to Warren and Tyagi, due to over-consumption. In other words, it’s not the new high-definition television or the daily skinny lattes that are the primary drain on family incomes. Instead, it’s the rising cost of bare necessities — like housing, health insurance and education — that are causing the strain, even as more and more families bolster their earnings with a second breadwinner. “Today’s parents are working harder than ever … holding down full-time paying jobs and still covering all their obligations at home,” say Warren and Tyagi. “Yet, paradoxically … they are more vulnerable to financial disaster” if they are hit with job loss, divorce, health problems or some other unexpected crisis. The authors suggest a way for families to safeguard themselves: Prepare your own financial fire drill.

The first question to ask in the financial fire drill is: “Can your family survive without one income?” Warren and Tyagi estimate that the average two-income family faces a one in 16 chance that one earner will lose his or her job in any given year. (The Losing a Job section of the MetLife Web site offers tips for making a smooth transition after job loss.) Should one partner become unemployed, or should some other financial crisis occur, the authors urge partners to ask themselves if the family could get by for six months one only a single income. “If the answer is no,” they write, “then it’s time for some disaster planning.”

Which brings us to question number two: “Can you downshift the fixed expenses?” Surprisingly perhaps, Warren and Tyagi do not counsel families to cut impulse purchases or stop dining out. Splashing out on the occasional luxury is fine, they argue, if such treats fit within your overall spending plan. Things change, however, when one income falls away. “Take another look at your budget,” the authors advise. “If you are feeling squeezed during ordinary times, it is likely that you have a much bigger problem than an occasional dinner at the Olive Garden. You have a problem with your fixed costs. Now is the time to take a hard look at the necessities, not the frills.”

Warren and Tyagi suggest a number of ways to trim fixed costs. Families can tighten their budgetary belts by deferring major purchases, such as a new car or that sorely needed renovated bathroom. It might also be time to look for cheaper insurance and less expensive childcare arrangements. In extreme cases, the authors advise, partners may want to consider selling their home and moving into more affordable accommodation. (The Building a Budget section of the Mind Your Finances Web site offers step-by-step instructions for creating and sticking to a budget.)

It’s not all doom and gloom, though. “So long as you are staying out of debt and putting something away in savings,” Warren and Tyagi write, “you should feel free to buy the kids a new pair of Nikes or treat yourself to a night on the town. If the tough times come, you can drop those expenditures in a heartbeat. As long as your fixed expenses are low enough that you can manage during a crisis, then you can count yourself secure enough to go ahead and have some fun.”

The third and final question in the financial fire drill is: “What is your emergency backup plan?” Warren and Tyagi urge partners to add a separate line to their budgets for emergency funds, the money a family should set aside for a crisis. Insurance is also crucial. If you or your partner becomes unable to work because of illness, disability insurance could provide an income until you recover. If a family is faced with unexpected medical bills, health insurance could cover those costs. If a parent or elderly relative enters a nursing home or assisted living facility, long-term care insurance could help pay those fees. (The Financial Precautions to Safeguard Your Family’s Future section of CFP Board’s Web site has a list of tips and resources for protecting family finances during difficult times.)

Warren and Tyagi have one final piece of advice: “If at all possible, think of that second income as a safety net, a special reserve for bad times. When times are good, put something in savings, and spend the rest of the second pay check on restaurants, nice clothes, and treats. If you can avoid committing it to the mortgage and the health insurance, you’ll get to enjoy the benefits of having two incomes while staying secure.”

 
Understanding Your Brokerage Statements

Investing doesn’t stop with researching, selecting and purchasing investments. After you’ve bought an investment, you need to keep track of its value and performance and determine how well it is meeting your needs. To help investors monitor and evaluate their investments, investment firms provide those who purchase securities such as stocks and mutual funds with an important tool: brokerage account statements. Three national securities organizations — the Securities Industry and Financial Markets Association (SIFMA), the North American Securities Administrators Association (NASAA) and the Securities Investor Protection Corporation (SIPC)— recently published an updated version of their “Understanding Your Brokerage Account Statements” brochure to help investors use their brokerage statements more effectively.

The brochure provides investors with tips on analyzing their brokerage statements, including details about features found on most brokerage account statements, a step-by-step checklist to help investors review statements for accuracy, answers to frequently asked questions, and an extensive glossary of investment terms that commonly appear on brokerage statements.

“State securities regulators have an ongoing obligation to help all of our constituents develop the knowledge they need to make good personal financial decisions,” said Joseph P. Borg, NASAA President and Director of the Alabama Securities Commission. “This joint effort with SIFMA and SIPC reflects our fundamental belief that financial education is the first and best defense against financial exploitation.”

Copies are available in pdf format, in both English and Spanish, on the Web sites of NASAA (Spanish version here), SIFMA, and SIPC (Spanish version here).

 
Financial Alerts

The Federal Trade Commission recently issued a consumer alert about the unsolicited loan and insurance offers many people receive after they apply for a mortgage loan. Your interest in obtaining a mortgage loan will be reflected on your credit report as soon as the lending company reviews your credit report, and that information may become available to certain other companies, such as lenders and insurance companies. Learn more about why your mortgage loan application may trigger unsolicited offers from other companies, how you can benefit from the competing offers and how to request a stop to unsolicited offers at:
www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt171.pdf

As life expectancy continues to rise in the U.S., more and more Americans between the ages of 40 and 84 are purchasing long-term care insurance in preparation for their golden years. Because costs for long-term care insurance rise with age, it’s important to know the ins and outs of long-term care insurance, including when to purchase it. Read more about the potential benefits of long-term care insurance and what to consider before purchasing it in a consumer alert from the National Association of Insurance Commissioners at:
www.naic.org/documents/consumer_alert_ltc.htm

NASD has issued an alert to inform investors – especially military personnel – of the costs and risks associated with investing in systematic investment plans, sometimes called “contractual plans” or “periodic payment plans.” These investment plans require investors to make a long-term commitment of 10 or 15 years, have high upfront costs and are expensive if the full term of payment is not met. Before you make any decisions about investing in a systematic investment plan, learn more about the costs and risks involved at:

www.nasd.com/InvestorInformation/InvestorAlerts/MutualFunds/SystematicInvestmentPlans--EducateYourselfBeforeYouEnlist/NASDW_012785

Read more about these and other financial alerts.
 
Free Online Introduction to Financial Planning Available from University of California, Irvine

Many people think first of retirement or investments when they hear the term “financial planning,” but financial planning is much more than that. Financial planning is a process designed to help you take a "big picture" look at where you are financially and help you manage your finances so you can reach your life goals.

To help people learn more about the variety of financial issues involved in financial planning, University of California, Irvine (“UC Irvine”) has developed a new course, “The Fundamentals of Personal Financial Planning.” Made possible by a grant awarded in 2006 through CFP Board’s Financial Planning Grants program, this online course provides a comprehensive but easily-understood overview of personal financial planning and is available for no cost.

The information contained in this new online course is based on UC Irvine Extension’s Personal Financial Planning Certificate Program — a course that helps prepare financial planners to attain CERTIFIED FINANCIAL PLANNER™ certification. Developed by Don Debok, CFP®, assistant planner at Newport Planning Corporation and UC Irvine Extension course instructor, the course is presented in eight modules that provide an overview of basic financial planning topics such as determining goals, creating net worth and cash flow statements, insurance planning, investment basics, retirement planning and estate planning. “The Fundamentals of Personal Financial Planning” isn’t intended to be a replacement for professional financial planning assistance; rather, it’s designed to educate people about the range of topics involved in financial planning and prepare them to apply the financial planning process to improve their financial lives.

This free introduction to financial planning was developed as part of UC Irvine’s OpenCourseWare (OCW) Initiative, which aims to provide the general public with high-quality teaching and learning resources that help increase educational achievement and sustaining social and economic development. “As part of our mission as a public university, it is important for our institution to provide educational pathways which cater to the needs of learners,” said Gary W. Matkin, Ph.D., Dean of Continuing Education at UC Irvine and head of UC Irvine’s OCW initiative. “The development of ‘Fundamentals of Personal Financial Planning’ demonstrates UC Irvine’s ongoing commitment to the goals of the OCW Consortium, and provides a comprehensive university-level overview of the ‘nuts and bolts’ of financial planning that is free and available to interested parties across the globe.”

Whether you intend to do your own financial planning or just need basic information before meeting with a professional financial advisor, this program will help you understand many of the concepts and terms that are part of the financial planning process. With worksheets and links to financial planning resources, “Fundamentals of Personal Financial Planning” is a complete online educational experience that contains a thorough explanation of financial planning to help give people a greater understanding of their financial options.
 
About This eNewsletter

CFP Board's "It's Your Turn" eNewsletter is sent monthly to those who have subscribed through CFP Board's Web site, www.CFP.net/learn. CFP Board exists to make people aware of the benefits of financial planning and to encourage people to seek out individuals who can help them apply the financial planning process to improve their financial lives. This eNewsletter is designed to provide information about financial planning, financial planning tools and resources, consumer alerts and more. Suggestions and feedback are welcome at mail@CFPBoard.org.