Money in the Middle

Sandwich Generation Talking About Money Up, Down and Across Generations

Archive for May 2010

Lump sum or annuity: Is that the right retirement planning choice?

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Retirement Income Planning

Retirement income planning is tricky business.  You need to be able to see into the future, account for emergencies, gauge the future state of the economy and know what your investments/savings will be earning to generate income. In other words, you need a calculator and a crystal ball.

 With the baby boomer generation approaching retirement age, and more concern about how to make those dollars stretch a lifetime, there is increased interest in the choices people make with those retirement dollars.

 What role does your employer 401(k) plan have to provide you with  more options in making that money last a lifetime?

 That was the focus last week of a summit on retirement income last week sponsored by AARP, WISER and ASPPA.  A request for information from the government on the role of income annuities in retirement plans (Dept. of Labor and Treasury) has sparked a lot of comments (800+). 

There were a couple interesting ideas that cropped up during the day.  Maybe they’ll help you think through your retirement plan.   

Thinking differently about your number…that big bucket of money you need in retirement.  The one depicted in the TV commercials with the guy carrying his number over his shoulder.  Big numbers, however, can be deceiving.  It may not last as long as you think if you have to take out too much each year to supplement your expenses (planners suggest no more than 3% -4% per year) or it may not grow as fast as you planned if there’s a downturn in the market or a recession.  We all know now how fast that bucket of money can disappear with economic dips. 

So rather than focusing on the big number, figure out how much that generates for you every month and plan backwards.  Figure out what you’ll receive in Social Security (your yearly benefit statement will tell you or use the benefit estimator at http://www.socialsecurity.gov), add in your pension and any other guaranteed income.  Then figure out how much you need to fill the gap, for how long and you’ll be able to determine how big that bucket needs to be.  Or how much you need to scale back your retirement plans or work longer.   

It’s a different view– and for some a more manageable way to look at how much you need in savings to live the lifestyle you want in retirement.  You’ll probably be seeing more tools from your 401(k) plan to help you figure this out. But this does require getting comfortable with what’s in your budget – a task many of us prefer to put off. 

Trial annuities. While annuities have their rightful place in retirement planning since they can guarantee income for as long as you live, their not a consumer favorite.  For many of us it’s hard to trade guarantees for the hope and possibility that our money can grow really big, making us rich in retirement. Because once you turn on an annuity (annuitize) there’s no turning back, and when it comes to money most of us like options.

Of course, the other side of that is what happens if you invest incorrectly. 

So there is some talk about figuring out how to create a “trial annuity” from your 401(k) plan.  A test drive of sorts – try it for say, two years, see how it works, how you feel about receiving a monthly check . Like it: then turn your savings into an annuity.  Don’t like it: go on with Plan B.  The devil is probably in the details, but a creative way of helping us better understand the value of guaranteed income for what could be a long life. 

Here’s one thing we know won’t happen – a return to defined benefit plans (fixed pensions).  Those days are gone.  It’s now up to us to figure out how to create our own pensions.

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Written by Laura Rossman

May 26, 2010 at 8:18 pm

Long-term care crisis looming-time to talk

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5 Generations

If we needed long-term care tomorrow, most of us are not financially prepared. 

If our parents needed long-term care tomorrow, most of us have no idea what financial resources they have or their expectations and desires for where to live, who will care for them.

Statistically, 72% of Americans will need some level of care later in life. 

The crisis in long-term care is coming.  For many of us, it is already here.  So what do we do about it? 

I attended a session on Women and Aging 2010:  America’s Emerging Crisis last week in Washington sponsored by the Volunteers of America.  They have a robust senior housing program including a program that helps those who want to stay in their home or community (Aging with Options program at Volunteers of America). 

Good research, good discussion by a good panel – but no answer to the question of how do we even begin to have the family conversation about long-term care and finances.  Parents – especially the GI Generation _ don’t want to talk about money.  Baby boomers are generally in denial that they will ever need care.

Everyone agreed we need to have family discussions about this topic.  But, no one had an answer on how to have that conversation before crisis mandates it. and that, of course, is the worse time to try to make any decisions about money or long-term care.

Michelle Singletary, a finance columnist from the Washington Post (her column on the panel)  recommended starting the conversation with children now – hopefully once you need care, they’ll know what you have and what you want.  She also joked that her long-term care plan is that she has 3 daughters (and long-tem care insurance.)

But what do you do if you are caring for a parent now?  As a friend said to me today after her 92-year old mother went to the hospital with a hip fracture – “If I just knew what to plan for now –how long, what resources, what’s next. ”  But as those of us who have found ourselves in caregiving mode, planning need to happen a long time ago.  We just bump from crisis to crisis now – juggling life and catching our breath when we can.

This is a particularly important topic for women because we live longer and generally have lower incomes to support ourselves as we age.  The Volunteers of America survey said that among women caregivers, almost half (48%) say the recent economic downturn has made it harder for them to care for older loved ones.

And this is a middle class problem. As panel members noted — lots of money and you can pay for care, no money and you’ll qualify for government programs.  But a pension, Social Security and some savings and you’ll be figuring out how to pay for this care on your own.

 It’s not just the conversations at home – it’s flexibility in the workplace.  Almost half of the women surveyed (ages 45-65) expect to be called on to provide care to an older family member at some point in the future.  Yet elder-care doesn’t get the same flexibility in the workplace.  And the nature of eldercare giving is different – lots of doctor’s appointments and crisis events.

Volunteers of America says this is the beginning of a year-long discussion about women and aging.  That’s a good thing.  Because we’ve got a lot to talk about – and hopefully it can begin at home with a conversation today – or around Father’s Day if you need an event – to begin to talk about long-term care before the crisis hits.  It’s not just about money (though it’s an important part of the conversation)  it’s gaining the emotional intelligence so when the time comes you feel like you are on the preferred path.

 Michelle Singletary begins her column:  “The time has come.” 

Yes, it has.

America’s Caregiving and Aging Challenges, Volunteers of America research

video of Women and Aging panel discussion

Aging with Options program

Written by Laura Rossman

May 18, 2010 at 7:08 pm

3 Tips for Mothers Caregiving Mothers

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As we approach Mother’s Day, many of us find ourselves providing care or assistance for our mother. 

It might be every day in our home, or weekly check in calls from afar; or providing financial support or just more frequent check-in visits.   If the research is right, most of us didn’t see it coming, there was a crisis involved –and we still may be moving through periods of calm and crisis. 

As caregivers – or whatever word we use to describe our new duties – we’re juggling our own life at the same time which could include the demands of work, kids, and partner/spouse.  Sandwich generation.

 It’s exhilarating – sometimes – and exhausting– most times. 

But one thing I know to be true, most of us are wondering (out loud or to ourselves) how do I keep this from happening to me as I age?  Will my children face the same burden in caring for me?  

And while I am blessed with a very healthy mother that was not true with my father and that round of caregiving took its toll – and taught me a couple of lessons.  And now my mother and I are blazing a new relationship as we live in the same area for the first time in 35 years.  

There’s a very poignant article in the New York Times about the growing number of Alzheimer’s patients and the challenges wandering brings.

 So here are three suggestions for what you can do today to better prepare for tomorrow. 

1.  If you are a mother, caring for a mother, get some help and take a break on Mother’s Day– for yourself and for your family.  I know that can be challenging financially, but breaking for even a bit from the rigor of caregiving is essential.  You may even want to spend the day with Mom, but for once let someone else take on the caregiving and worrying. 

2.  Plan for your own long-term care needs.  No matter how scary it might be, sit down and start working on a plan.  How you want to receive care, where, from whom, how will it be paid for?

 3.  Talk to your children about your long-term care plans. If they are in their teens or 20s or 30s–they see what is going on, what you are going through and are wondering what’s in store for them.  As a society we tend to shy away from talking about money and about such things as long-term care and death.  Yet, what a gift it is to your children to know that you have thought about this and have plans and resources.

The fact is that women live longer than men.  They need more financial resources to make it through a longer life.  And they are likely to need some assistance as they age.  We’re still all trying to figure out what longevity means to us as caregivers or as one being cared for. 

So if you are a mother caring for a mother, remember to take some time for yourself this Mother’s Day. As they tell you on the airplane, put your mask on first so that you are able to help those around you.

Happy Mother’s Day.

Written by Laura Rossman

May 5, 2010 at 8:40 pm

Medicare Supplement Plan Changes Coming June 1

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If you buy your own Medicare insurance or soon will be, you should know about the changes  coming to Medicare Supplement, often called Medigap, plans beginning June 1, 2010.  But you don’t necessarily have to DO anything.

There will be two new Medicare Supplement plans – Plan M and Plan N and four plans will no longer be offered: Plans E, H, I and J. 

So what do you need to do?  

  • If you currently have a Medigap plan, you don’t have to change anything. But you might want to take a look at the new plans if you have experienced significant premium increases. 
  • If you are purchasing a policy that will be effective after June 1, your choices will be limited to these plans, – Plan A, B, C, D F, G, K, L, M, N.
  • If you are interested in purchasing Plan E, H, I or J, you must do it before June 1, 2010. 
  • If you have a Medicare Advantage plan now and think you might want to switch to a Medicare Supplement plan, you’ll generally have to wait until the open enrollment period begins Nov. 15. 

These changes aren’t the result of the recent health care reform bill, but from a law passed in 2003 that happens to take effect June 1, 2010.  And, don’t confuse this with Medicare Part A, Part B, Part C, and Part D.  Those “parts” refer to Medicare itself.  These “plan” changes are for Medicare supplement plans sold by private insurance companies.

Not all insurance companies offer all plans.  And some of the companies are still in the process of getting rates approved for the new plans. 

There’s always been a pretty clear line between Medicare Advantage and Medicare supplement plans.  Generally, Medicare Advantage required you to use a network and included cost-sharing (you pay co-pays when you visit the doctor and deductibles.)  Medicare Supplement pretty much covered the gaps left by Medicare – Medicare paid 80%, Medigap paid 20% — the plans differed by benefits covered but co-pays weren’t part of the deal. 

Plan N is a new plan that has some features that tend to be more associated with Medicare Advantage plans.  Plan N requires you to pay the Medicare Part B deductible ($155 in 2010) and up to $20 per office visit and up to $50 per emergency room visit.  That cost sharing may result in lower premiums, but if you frequent the doctor often, the premium savings will be offset by co-pays for visits to the doctor. Do the math to compare costs, and recognize that health can change in a minute – Are you prepared to pay the higher costs that could result? 

These changes make it more important than ever to shop and compare plans, benefits and total cost. If you are a member of the sandwich generation helping an older adult with their health care choices, make sure you ask a lot of questions before you consider a change to their plan just because of price.  Switching to a new plan may require underwriting.  If you speak with an agent who wants to switch you to a new plan from a different company than your current insurer, ask some questions.

Remember, the benefits of a Medicare supplement plan are the same no matter which insurance company you purchase a policy from — they are standardized.  But the price differences can be different and are from the prices I’ve seen so far for these new plans that start June 1.  Ask questions before you switch companies – about the stability of the company and its history on increasing rates and whether your application will be underwritten for medical conditions. 

Resources

To find out more about the changes in Medicare supplement plans,  you might want to read the free white paper “What’s all the noise about new Medicare plans” from Longevity Alliance. 

Buying A Medigap Policy booklet from Medicare– changes described

Written by Laura Rossman

May 4, 2010 at 3:06 pm