Them’s your odds.

Heads a normal, relatively healthy retirement. Tails long-term care (LTC).

So it’s 50-50.

Actually, the stats show differing percentages for men and women over 65. For men, 46.7% will need LTC, for women it’s 57.5%. ¹

For all, roughly 50-50. Flip a coin. Heads or tails.

No one should plan a financial future with a coin flip.

Unfortunately, many do just that: they take the chance that the coin flips to heads. Then, something happens. A broken hip. Onset of dementia. Or these days, COVID-19. Suddenly, the husband or the wife, or both, need assisted care. The cost can spell financial disaster.

Horror Stories Abound

Writing for MoneyWatch, Steve Vernon recounted “3 Horror Stories” involving the need for long-term care. 

Here’s one:

A seventy-something friend of ours is taking in her 98-year old aunt, who ran out of money. The aunt’s son can’t or won’t help his mother, for whatever reason. Our friend and her eighty-something husband feel very strongly about letting her aunt live with them, despite the extreme disruption to their lives. But what happens when the aunt needs some form of long-term care? Our friend still works full time, and her husband isn’t really qualified or able to help if the aunt needs extensive care. ²  

​Many will face situations requiring LTC. And when they check their balance sheets, the question inevitably arises: Just how the heck am I going to pay for this?

Long-Term Care: The Price Tag

The numbers provide little solace. According to the National Association of Insurance Commissioners and the Center for Insurance Policy and Research, of those turning 65 between 2015 and 2019, 57.5% can expect to pay less than $25,000 on long-term care during their lifetimes. But 15.2% can expect to pay more than $250,000. ³

In 2016, the median annual cost of a semiprivate room in a nursing home was $82,125. A private room ups the ante to $92,378. ⁴

Planning for Long-Term Care

Many have looked to insurance to stave off the costs of long-term care. In the late 1970s, LTC insurance was called “nursing home insurance.” Only a few insurance companies wrote these policies. Back then, the annual national cost of long-term care totaled $20 billion. By 1980, those numbers grew to $30 billion. Now they have ballooned to $225 billion. ⁵

When the calendar flipped to the current century, many carriers started to exit the market. In the words of the NAIC Report:

Most insurers’ [LTC policies] issued before the mid-2000s have seen adverse experience when compared to their original pricing assumptions. Rising claims, low mortality and lower than expected lapses have led to higher prices often unaffordable to a large segment of the affected population. A number of insurers have also opted out of the market, leaving only a relatively few insurers to provide much needed LTC products. ⁶

The LTC policies provided back then were reimbursement, term-type policies. They resembled car insurance. They provided no cash value and no refund options if you died suddenly. You received no guaranteed renewal options. The insurance company could cancel your policy or raise your premiums. Not a pretty sight.

Needless to say, buyers of these products stopped buying. So insurance companies came up with hybrid products.

Now, using a guaranteed “no lapse” life insurance policy with two important riders, clients can protect their families from their early death, from disability, and from running out of money at, say, age 85.

The NAIC study describes this new approach:

One area of continued growth in the market is with combination or hybrid products. These products combine LTC benefits with either life insurance or an annuity. They can pay out if LTC is needed, but if not needed, there is a death benefit or annuity payout. In cases where an individual uses some, but not all, of LTC benefits, the remainder would be payable as a death benefit. This is one of the principal appeals of combo products. If LTC is never needed, there is still a return on the money invested in the premium. ⁷ 

Example of the Hybrid Approach

To take just one example, a one million dollar life insurance policy with LTC and annuity riders protects your family from your premature death with the payment of a tax-free amount of $1 million. If you become disabled and can show an inability to perform certain daily routines, the LTC rider provides up to $120,000 of annual long-term care costs. And, if you live to age 85, the annuity feature kicks in: you can receive the entire $1 million death benefit through 10 annual payments of $100,000.

Give Us a Call

For 30 years, Research Financial Strategies has helped families like yours achieve their financial goals by providing a customized investment solution that is not only easy to understand and but is also focused on meeting your goals.

This starts with an in-depth understanding of you and your family, your current situation and your aspirations—not just for your money, but for your entire life. Often, that’s where LTC insurance, life insurance, and annuities can play a big role.

We always provide first-class service by taking the time to gain a deep understanding of you and your family. We work closely with you to develop a customized strategy that connects all aspects of your financial life. By focusing on all risks, we can help you protect what you’ve earned and guard against events that can take it away.

​Give Jack Reutemann a call at (301) 294-7500.

1 75 Must-Know Statistics About Long-Term Care: Sobering data on usage, cost, insurance products, and the toll on unpaid caregivers, by Christine Benz, Aug 31, 2017. https://www.morningstar.com/articles/823957/75-must-know-statistics-about-long-term-care (“Morningstar Report”)
2 The Long-Term Care Threat: 3 Horror Stories, by Steve Vernon, Updated on: July 28, 2011 / 6:03 PM / MoneyWatch, CBS News. https://www.cbsnews.com/news/the-long-term-care-threat-3-horror-stories/
3  The State of Long-Term Care Insurance: The Market, Challenges and Future Innovations, by Eric C. Nordman, Director, Center for Insurance Policy and Research, May 2016 (“NAIC Report”). https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
4  Morningstar Report https://www.morningstar.com/articles/823957/75-must-know-statistics-about-long-term-care
5  NAIC Report https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
6  NAIC Report https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
7  NAIC Report https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf

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Investment advice offered through Research Financial Strategies, a registered investment advisor.

The best place to retire in the United States is in dispute. There’s no formal debate, but a review of reliable publications showed surveys have named different states and cities as the “best” place to retire. For instance:

• Iowa was #1 in a best places to retire survey cited by Yahoo! Money.¹
• Fort Myers, Florida was #1 in the ranking from S. News & World Report.²
• Athens, Georgia was the first name on a list of 25 places that are all the best, according to Forbes.³
• Catalina Foothills, Arizona topped com’s list of eight equally best places to retire.⁴

In 2019, Kiplinger offered a list of the 50 best places to retire. There was one in each state.⁵

It begs the question, doesn’t it? How can there be so many ‘best’ places to retire? The answer is it all depends on the criteria used to make the determination. If you plan to move and start life in a new place during retirement, there are a variety of factors to consider. Some are general, like cost of living, state tax rates, and healthcare services. Others are personal, like livability or proximity to children and grandchildren.

Here are a few of the issues to consider when deciding where you’ll spend retirement:

Cost of living.
Affordability is an important consideration. The cost of living – the amount needed to pay for basic expenses like housing, transportation, groceries, and healthcare, varies significantly from state to state and city to city. According to a study by GoBankingRates.com, those four items cost retirees in Hawaii about $118,000 a year, on average. In Mississippi, they cost about $53,000 a year, on average.⁶

Home prices.
While cost-of-living calculations often include housing costs, some focus on renting rather than buying. If you plan to buy a home, then it will be important to learn about the average housing costs in the regions you’re considering. In September 2019, the U.S. Census Bureau reported the median home price in the United States was $299,400.⁷

Taxes.
There is a lot to think about when it comes to taxes. Kiplinger determines the most and least tax-friendly states for “a hypothetical retired couple with a mixture of income from Social Security, an IRA, a private pension, interest and dividends, and capital gains. We also gave them a $400,000 home (with a small mortgage) and $10,000 in deductible medical expenses.”⁸

The publication evaluates state income tax, taxation of Social Security benefits, retirement income tax-exemptions, property taxes, and sales taxes. You may want to consider these as well.⁸

Fiscal soundness.
Fiscal policy is the way a government balances taxes and spending, which can affect economic conditions in a city or state. A government that spends profligately will need to raise revenue and that could lead to higher taxes. Similarly, a government that restricts taxation may have little room to innovate and govern. A 2018 Pew Research report described the types of steps some states are taking to evaluate and adjust fiscal policies.⁹

Livability.
It’s a catch-all category that speaks to quality of life. For instance, how does the crime rate compare to other places? Can you get around without a car? Is it easy to walk or bike around town? Are there opportunities to take advantage of continuing education? What types of cultural events and entertainment are available?

If your list of potential retirement spots includes places you have not visited before, make sure you travel to them more than once. If possible, live in the community for a few weeks or months.

Availability of healthcare.
If your list of possible retirement locales is comprised primarily of cities, healthcare services may be readily available to you. If your preference is for more remote locations, it will be important to investigate the availability of healthcare services.

One of the criteria that informed Kiplinger’s ‘10 Great Places to Retire for Your Health,’ was the availability of a hospital with a five-star rating from the Centers for Medicare and Medicaid Services. In rural areas, you may need to consider physicians per capita.^{10, 11}

Work prospects.
A lot of people would like to continue working in retirement. They may begin a new career, start a business, offer mentoring, or take on a part-time job. If a working retirement is a priority, you may want to research which cities have the highest percentage of workers age 65 and older, and where the growth of 65 and older workers is fastest. A 2019 CNBC article ‘Here are the cities with the biggest share of 65-and-older workers,’ offered some insights such as the top 10 cities, where these workers have a significant share of the workforce, five Texas cities are listed.¹²

Weather.
If you hate the cold, South Dakota will never be the best place for you to retire. Similarly, if you hate heat, Arizona may not be the most desirable choice.

The bottom line is the best place for you to retire is the place that meets your criteria. Money.com explained it pretty well:⁵

“What makes a great place to retire? It’s a trick question, of course – there are as many answers as there are retirees. Some love to golf in the sun, while others feel most invigorated by winter sports. For every history buff, there’s a modern art enthusiast, an adventurer for every homebody.”

The first step in finding your ‘best’ place to retire is to know yourself and your spouse and what will be important to you in retirement. If you would like to discuss the financial aspects of retirement, give us a call. We’d be happy to talk with you.

Sources:
¹ https://money.yahoo.com/best-states-retirement-211142233.html
² https://realestate.usnews.com/places/rankings/best-places-to-retire
³ https://www.forbes.com/best-places-to-retire/#486930521af5
⁴ https://money.com/best-places-retire-now/
⁵ https://www.kiplinger.com/slideshow/retirement/T047-S001-50-best-places-to-retire-in-the-u-s-2019/index.html
⁶ https://www.gobankingrates.com/retirement/planning/comfortable-retirement-cost-state/
⁷ https://www.census.gov/construction/nrs/pdf/uspricemon.pdf
⁸ https://www.kiplinger.com/slideshow/retirement/T037-S001-10-most-tax-friendly-states-for-retirees-2019/index.html
⁹ https://www.pewtrusts.org/en/research-and-analysis/articles/2018/12/17/states-strengthened-fiscal-policies-in-2018
¹⁰ https://www.kiplinger.com/slideshow/retirement/T006-S002-great-places-to-retire-for-your-health/index.html
¹¹ https://www.aamc.org/news-insights/press-releases/new-findings-confirm-predictions-physician-shortage
¹² https://www.cnbc.com/2019/06/27/here-are-the-cities-with-the-biggest-share-of-65-and-older-workers.html

Recently, we decided to share some non-financial lessons we’ve learned in a series of letters called, “Things Most Advisors Don’t Tell You.” You see, there are certain habits and behaviors that, while not directly related to finance, can spell the difference between reaching your goals or not. But in our experience, people rarely hear about these things from their financial advisor.

That’s unfortunate, because applying these lessons makes working towards your goals both easier and more rewarding. So, without further ado, here is:

Things Most Advisors Don’t Tell You #3: The importance of prioritization

Once there was a farmer who woke up early to milk his cows. On the way to the barn, he noticed his fence was broken. So, he went to his shed to get his tools, only to find he was out of nails. On the way to town to buy more, the fuel light in his truck came on. As he filled up at the gas station, he noticed a shoe store across the street advertising a special on men’s work boots. As his own were starting to wear down, he went to buy a pair. Then, he went to the hardware store. Once inside, he remembered his tractor needed a tune-up, so he bought the equipment he needed and drove home. Upon arriving, the sound of clucking hens reminded him to collect their eggs. After finishing that, he turned his attention to his tractor. By the time he finished, the afternoon was making way for the evening. “Still time to fix the fence,” he thought, when he realized he’d never actually bought the nails. So, back to town he went to get more.

The stars were out by the time he finally fixed the fence. Exhausted, the farmer went inside and kicked off his boots. But just as he sat down, his wife asked him why they had no fresh milk.

Groaning, the farmer rubbed his eyes and wondered why there was never enough time in the day to do what needed doing.

***

This is an extreme example – and obviously no self-respecting farmer would work like this – but it illustrates an important point. Too often, many people start the day – or the month, the year, or even an entire phase of their life – with a goal in mind, only to be distracted and side-tracked.

The result? We fail to achieve what we originally set out to do. We fail to realize our most cherished dreams.

There are two main culprits behind this.
1. We don’t plan ahead.
In the story above, the farmer probably would have felt a lot better about his day if he’d laid out a plan. But instead, he started going around in circles, always making decisions based on what he saw right in front of him. Many people to do this with their finances, too. For instance, maybe you decide it’s time to pay off your debt. But then you notice the roof needs repaired, so you pay for that. Then you get frustrated because your personal computer is old and slow, so you buy a new one. By that time, your money is running low, so you decide to just wait until your tax refund comes. But when the refund comes, you’re burned out from work, so you go on vacation instead. Meanwhile, your debt just grows and grows. When we plan ahead, we can determine what we want to accomplish, what steps it will take to get there, and when and in what order we execute those steps. Done correctly, this ensures we do more of what we actually want to do.

2. We don’t prioritize.
This is the culprit many advisors don’t talk about.
Let’s take the farmer again. Obviously, everything he did needed to get done – but some things were probably more important than others. The fence, maybe, could have waited. Buying new boots could have waited. Or perhaps he could have made a list of everything he could do without going into town, and a list of everything that required going into town. Then, he could have prioritized which tasks to do first, and in doing so, gotten a lot more done with a lot less effort.

Taking time to prioritize our goals, needs, and short-term wants has a similar effect. It ensures that we allocate our time and our money as effectively as possible. For instance, some people may find that investing their money for retirement is a lower priority than starting a rainy-day fund. Others, meanwhile, may get the most bang for their buck if they prioritize minimizing their taxes over, say, earning more money.

Life is hectic, and it seems like we always have a million-and-one things to do. Thankfully, the solution doesn’t always require beating our heads against the wall because we’re trying to “work harder.” Sometimes, the solution is to work smarter – by planning and prioritizing how we spend our time and money.

Next time, we’ll move on to a topic you’ll rarely hear a financial advisor talk about: Achieving financial harmony in the home. In the meantime, have a great month!