The expert that disfavors LTC insurance is a staff attorney at California Advocates for Nursing Home Reform. His argument is that instead of buying the insurance with a $3500 annual premium, invest the premium amount., giving you $70,000 plus interest in 20 years. There is a huge psychological flaw in that argument.  The average consumer will not have the discipline to actually invest the premiums that are not paid. They are much more likely to spend it. Also, for older boomers, there is no reasonable assurance of  20 years without a long term care need.

Here is the link to full debate article which is definitely worth reading.

Related posts:

1. Long-Term Care Options Change Again
2. Concerns and Misconceptions About Long Term Care

My  last comment brings me to the first topic in my list of misconceptions about Long Term Care.

1.  Long Term Care insurers can raise premiums  any time they want and in any amount.  This is mostly untrue.  In most states, insurance companies have to obtain approval of state insurance regulators to increase premiums for existing policies that allow for rate increases. The proposed premium increases have to be “justified.” Justification generally means that the insurer must show that it is losing money (and will likely continue  to lose money) on the policies as a group. Sadly, this seems to be the case for most LTC insurers, who underestimated how long its policy holders would live and how much long term care they would need. I believe that Met Life has requested an increase that has not yet been approved. I am holding my breath on this one.

2.  You are unlikely to need long term care.  This is sort of true but the risks are greater than you think. Recent data shows that 20% of older Americans will need long term care for 5 years or longer. That puts you in the one-in-five category.  The average cost of long term care is in the range of $75,000 per year.  Compare that risk to the likelihood that your house will burn down. If you own your home with no mortgage, have you considered cancelling your homeowner’s insurance because your house is unlikely to burn down?

3.  The government will pay for my long term care.  This will not happen, even under Obama Care.  Medicare only covers short-term rehab from an injury or illness. Medicaid will pay for some long term care but only after you have essentially spent yourself below the poverty line. Having LTC insurance that meets the long term care partnership guidelines actually provides a double benefit in this regard. For example, if you have a LTC policy that provides $250,000 in benefits and those benefits are exhausted because you need more care, you can get Medicaid coverage for that additional care and still keep $250,000 in personal assets. (Make sure you ask your sales person about this.)

4.  My family will take care of me.  If you need skilled care, your family can’t provide it and probably can’t afford to pay for it.  If you need care at home, do you really expect (or want) your family to be on site to bathe you, fix your meals, and (without being too graphic here), attend to your personal hygiene? I don’t think so.

5. I will get the insurance if my health declines.  While long term care insurance may not be as tough to get as regular health insurance, if you develop a chronic disease and then apply for LTC coverage, you are likely to be denied.  If you are older when you apply for coverage, you will likely be tested for cognitive decline as well.

6.  The insurance is too complicated to even think about.  I get this, because the policies can offer a myriad of confusing options. Because of this, people are concerned that they will buy the wrong coverage so they avoid the issue altogether. If you don’t understand it, don’t buy it but don’t avoid the issue either. Find a trusted and knowledgeable adviser to guide you (not a sales person). You can start exploring the topic by reading about the key provisions in long term care policies. 

Long term care is a difficult problem to think about, but the pain of not having insurance to cover it can be much greater than the pain of being prepared for it.

Related posts:

1. Long-Term Care Options Change Again

Once you get past discarding the obvious trash (stuff that is broken, clothes that are torn or that will never fit, etc.), it become more difficult. No one likes to get rid of something that is in perfectly good shape, even if it is doing nothing in your life but taking up space. We rationalize keeping it because “I might need that someday” or “that was a fun thing for me to use – ten years ago.” Giving it to someone who could use it now may be painful because it establishes that maybe we shouldn’t have purchased that object to begin with.

On the other hand, after you give away that first item that has some historical significance to your life, there is a twinge of anxiety followed by a much larger feeling of liberation. The dam of reluctance breaks and each succeeding separation becomes much easier.

Last summer when I went into Craigslist downsizing-mode, I also decided to sell two large objects that I have carried around with me for 45 years. I have been an Amateur Radio operator since the 8th grade. For $50 dollars (an advance from my parents), I acquired my “dream” radio receiver in 1965 (used, of course). In 1967, I acquired a radio transmitter that I had lusted after. I used these throughout high school. When I went to college, this equipment went into boxes. Since that time, I have fired them up only once.

I loved the memories of using that equipment. But they were outdated (remember vacuum tubes?), needed to be refurbished, and weighed almost 100 pounds between them. (What we Hams call “boat anchors.”) They simply needed to go. So I sold them to another Ham who wanted to restore them.

When I physically transferred possession of my old radio gear, there was some uneasiness. I asked the buyer to email me photos of the restored equipment so I could cherish those images instead of the actual “stuff.” This “fond photo-memory” strategy works better than keeping the stuff around. Five minutes after the stuff was gone, I was over it. The positive feelings of being liberated from stuff were now dominating my stuff-attachments.

Since that time, I have had no problem getting rid of anything that I have no use for. The irrational attachments to “things” are gone. Each trip to the dump or to Good Will brings more freedom – mental and physical. If it is something I want help remembering, I photograph it.

So my regular stuff-separation trips will continue. I am invading the attic now. There are many more downsizing adventures ahead of me. When it is time to sell this house, I will be ready.

Now if only Mrs. P. will join the de-cluttering club! That will be another chapter in our downsizing story.

Related posts:

1. Downsizing Through Craigslist

To access your statement online, you first need to establish a “My Social Security” account. This requires answering numerous questions to confirm your identity, etc. I recommend that everyone do this, not only to reduce paper but to improve access to information you will need to complete your retirement plan. We can no longer use the excuse that we don’t know what our likely retirement benefit will be.

Back in 2008, I wrote about how I read my annual Social Security Statement. At that time, my estimated monthly retirement benefit at full retirement age was $2,314. When I checked this morning online, the estimated benefit had increased 7.4% to $2,485. If I delay until age 70 (probable), my monthly benefit will be $3,326.

There is an upper limit on a monthly Social Security retirement benefit. For 2012, a person retiring at full retirement age can receive a maximum benefit of $2,513.

I was pleased to see how user-friendly the My Social Security account interface is.  If you are worried about other folks accessing your account, you have the option of having a text message sent to you each time someone (including you) logs in to your account.

The SSA will email you annually, reminding you to review your updated statement. Generally, the updates occur after your birthday.

If you still like paper, paper statements will still be mailed to people age 60 and older who haven’t yet signed up for benefits, to 25-year-olds (to jolt them back to reality), and to other people who are unable to use the online tool.

To start the process of creating a My Social Security account and accessing your statement, follow this link.

Related posts:

1. New Social Security Calculator for Estimating Retirement Benefits
2. Finding the Best Strategy for Social Security Spousal Benefits
3. Filing a Restricted Application for Social Security Retirement Benefits

The interview was by telephone. It didn’t last long. Most of it was me discussing our personal downsizing experiment to a condo that is 1/3 the size of the house we raised our family in. Because there were not many questions asked, I doubted that I would be quoted in the article.

I was wrong.

The article – “When Downsizing Makes Dollars and Sense” – was published yesterday at CNBC.com. I was surprised to see that I was quoted extensively in the article. Even better, most of it was accurate. (The article states that we built our family home in 1980. Actually, we moved to Tennessee in 1980 but our present house wasn’t built until 1992.)

Unfortunately, the article did not link to this blog. That would have been nice because it would probably have added new readers.

The article is definitely worth your time, and not because I am quoted in it. It contains advice from others that should be considered. One piece of advice is a warning against keeping a vacation home in retirement. We are on a different path because right now we are juggling three homes, with plans to sell the “big house” in the next few years.

We still have lots of stuff to get rid of – that is a slow process but we are taking our time to reduce the shock value of downsizing.

Here is the link to the CNBC article:  Downsizing Makes Dollars and Sense.

Related posts:

1. Downsizing Through Craigslist
2. Remodeling and Downsizing

A writer at Smart Money magazine recently asked some experts in Social Security at the Stanford Institute for Economic Policy Research to analyze the economic benefit of delaying claiming Social Security in terms of an equivalent retirement investment. The results were very informative.

As one example, if a 62 year old unmarried man in average health waits until age 67 to collect Social Security (instead of age 62), that is the equivalent of buying a long-term bond that pays 3.2% a year. (If that man were a woman, the annual return is 4%.)

The numbers get even better for married couples, if they follow a “restricted application” strategy.  Using this strategy, the  higher-earning married spouse delays claiming his or her own benefit from age 62 to age 70. Instead, that spouse begins collecting spousal benefits at age 66 from the lower-earner’s earnings record. The investment return arising from this strategy is equivalent to owning a bond that yields 7.0% annually!

Actually, the equivalent investment return is even better than from a conventional bond, because the Social Security payments are government-guaranteed, adjusted for inflation, and for most folks, tax-free.  A typical retiree would have to earn more than 10% on a fixed rate, taxable CD to do this well.

As the article points out, the wild card in this analysis is health. But unless my expectations of a normal life span are already in doubt, I am not going to “take the money and run” early just because I am afraid of dying young.

Will you?

Read the full article here.

Related posts:

1. Starting Social Security Early – Break-Even Age Actuarial Analysis
2. Taxes and Social Security: Random Thoughts and Concepts
3. New Social Security Calculator for Estimating Retirement Benefits

There is lots of pessimism and general gloom and doom to be found in the retirement confidence survey data. Sadly, the gloom and doom attitude is probably justified by the facts. Here are some of the survey “highlights”:

• Only 14 percent of Americans are “very confident”  they will have enough money to live comfortably in retirement. This is an historic low number.  A lot of this is related to uncertainty in the job market, a concern expressed by 42% of the respondents.  Similar financial concerns are linked to an inability to meet future health care and long term care obligations.  Employment insecurity looms large: Forty-two percent identify job uncertainty as the most pressing financial issue facing most Americans today.

• For so many people, retirement savings and investments are non-existent. Specifically, 60 percent of workers state that the total value of their household savings and investments (not including pensions and home equity) is less than $25,000.  For a worker over 40, that is a scary bad statistic.

• One-half of current retirees surveyed say their retirement was unplanned. Instead, they stopped working because of health problems, a disability, or a job action by their employer (e.g., the infamous ”downsizing”).  Folks who rely on the “I’ll just work longer” retirement plan should take careful note of this.

• This next stat is crazy:  56 percent of workers say neither they nor their spouse have tried to calculate how much money they will need save so that they can live comfortably in retirement. This is the “head in the sand” retirement plan. (The adult children of these folks should probably intervene for their own future protection!)

For baby boomers with no meaningful savings, there is not much opportunity to fix the problem, particularly if they become one of the 50% who retire involuntarily.  Social Security will be it for them. If they also retire with debt, financial survival is questionable.

There are non-financial reasons to be uncertain about retirement. I think I will write more about those another time.

Where does your retirement confidence fall on a scale of 1-10 where 1=”I’m doomed”, 5=”I might make it if I stay healthy, the markets improve, and inflation is low” and 10=”No worries – I am financially set for a satisfactory retirement lifestyle under all foreseeable cirumstances.”

I would say that we are an 8 for now but shooting for 10.

Here is a link to the EBRI survey.

Related posts:

1. Are You Part of the Great Retirement Rethink?
2. If Working Longer is Retirement Plan A, What is Plan B?

Some states that hit working taxpayers hard are less aggressive with retirees. To understand this, you must consider all forms of taxes and and all sources of income. Location-specific taxation of retirees can include income taxes, property taxes (state and local), sales taxes, and use taxes. For some, inheritance taxes may also be relevant. Regarding income taxes, pension and Social Security income may be treated differently from investment and employment income. For example, our state of Tennessee has no conventional “income tax” but has a special “Hall Tax” that applies to certain sources and levels of investment income.

CCH is a major player in the tax publication industry and likes to create charts, calculate and rank tax burdens by state. Market Watch used the CCH data to create a slide show featuring the states most tax-friendly to retirees.

Number one is Alaska but given other cost of living issues, its remoteness, and weather, it would not be on my list.

Texas and Florida make the list also, which is a plus for them.

If course, these are generalized rankings. If the gap between your anticipated retirement income and desired spending budget is small, it would be important to do an individualized analysis based on your own sources of income, etc. and to look at related taxation trends. For example, Nevada has a low tax burden on retirees but that may have to change somewhat for Nevada to get its finances in order

Here is the link to the slide show and article.

Related posts:

1. More Opinions on the Worst States to Retire
2. Ranking the 50 States for Retirement 2011
3. Taxes and Social Security: Random Thoughts and Concepts

Two weeks ago we launched what will be likely be the most expensive and comprehensive remodeling project – our master bathroom. I am painfully aware that our actual return on this “prepare to downsize” cost will be less than 100%. However, our master bath was so dated that it was likely to cause potential buyers to turn around and walk out of the house without further consideration. Moreover, our shower was constantly leaking into the lower level and I was tired of trying to stop those leaks. It was time to gut the bathroom and start over.

We brought in a remodeling expert with design expertise and a Realtor on staff. We told his team that we wanted a complete bathroom makeover but with two stipulations: (1) the design and decor had to appeal to a large percentage of potential buyers when we sell in a year or two; and (2) the level of finishes should be consistent with homes in our price range but without over-the-top luxury.

Clearly, our Jacuzzi tub had to go. In its place will be a smaller soaker tub and an expanded shower. The corner linen closet is also gone because it occupied too much space. In its place will be a floor to ceiling linen cabinet built-in along the wall with the double vanity sinks. The carpeting is being replaced by travertine tile. The cultured marble vanity tops will now be granite.

To select the contractor, we interviewed three and obtained two fixed-price proposals. The third proposal was for a cost-plus job. That is the proposal we selected, for several reasons. First, this remodeling contractor has been around 30 years with a significant positive track record. Second, he had a larger staff available to help us make appropriate selections of materials. Third, his internal cost estimates (one by the owner, one by his designer) were in-between the two fixed-price proposals we received. This will end up being a $25k-$30k project.

The work is progressing rapidly. I was shocked at how quickly Mrs. P and I were able to select the new fixtures, tile, and cabinets, with the expert assistance of the contractor and his suppliers.

Sadly, the beautiful custom solid cherry cabinets and tub skirting are gone. However, we will try to reuse the vanity cabinets at our lake house.

Although this is expensive, we will end up with a master bath that will not scare-off buyers. At least we will get to enjoy the new bathroom for a year or two ourselves before selling.

After the dust settles (and our bank account recovers!) from this bathroom remodel-to-downsize project, the next project will probably be the kitchen. We will not do a complete kitchen make-over. Instead, we will refinish the existing cabinets and replace the solid-surface counter-tops with granite. We may need to update the appliances.

Are any of you preparing your home to sell so that you can downsize?

Related posts:

1. Downsizing Through Craigslist

So I went bird-watching. Hard to believe that an engineer turned patent lawyer would be a nature boy but why not? A couple in our Long Branch Lakes community are dedicated and experienced “birders.” They sent an email to the rest of us, inviting us to learn a little about their hobby and take a first bird watching stroll around part of our 5,000 acres. We met at 8:00 AM on Monday at a pavilion near one of our community lakes. I brought my binoculars, a notepad, and my iPad with a bird app. (The iPad was overkill, I know.). It was a beautiful morning and I was determined to enjoy every minute of it.

Our neighbors the birders were extremely helpful and informative. In less than 90 minutes I
was able to identify 15 bird species including a flock of snipes, a bird that is rarely seen in Tennessee. The fresh air, exercise, and neighborly companionship were plentiful. I was pleasantly surprised by how much I enjoyed it. This will likely turn into a regular activity for me because our neighbors will be leading a “birding” walk every Monday morning.

This “test drive” of a new activity had a double benefit for me. First, it taught me that I can learn and enjoy new things that earlier in my life I never would have considered. Second, it allowed me to socially engage with new people while doing more than making small-talk.

This coming week I will write a little about my recent experiences as a pony caretaker which is another activity that potentially looms large for retirement.

Related posts:

1. A Safe Way to Test Drive Your Retirement
2. Driving Hunger Away from Our Senior Citizens