Ending Up in the Bad Nursing Home

Sep 29, 2020 David Kennon

Long Term Care   Note:  This is the number one most difficult and sensitive subject in the financial advising world.  I’m going to try my best.   Will you, or your spouse, end up living in a nursing home? And how do you plan for that expense? I’ve wrestled with this question for years. And the advice I’m about to impart on you might sound a little counterintuitive, but stick with me until the end.   I want to be very sensitive to readers who have had loved ones go through this experience, or are going through it now. I offer my prayers and support to those struggling with caring for disabled loved ones.   You may disagree with what I have to say, but after 20 years of planning these are the best answers I have.   So, what do you do if you’re retired and nervous about the possibility of having to live in a nursing home, but also want to actually live a little during your retirement?   From where I sit, I see three possible options:   Spend as little money as possible. Grow your net worth if possible and have the financial resources, if necessary, when the time comes. Of course, this means that for the duration of your retired lives you are going to have to scrape and battle to get by. No vacations. Few visits to the grandkids. And going out to eat consists of early bird specials at Denny’s.   Spend it all without a plan. Say, “I’m spending all my money. I worked for it, I earned it, I’m going to enjoy it. If I end up in a nursing home I guess I’ll have to rely on the government and Medicaid to support me.” This might also be a little extreme. You need to find some sort of middle ground.  Not to mention, you may up broke, healthy and 80 years old.   Spend a reasonable amount from savings each year. Start spending a reasonable amount of money from your savings each year. I recommend 5% of your total savings per year. If you only spend the money that the money is making, at least you will still have the original principal in your old-old age and you can use it to pay for that inevitable stay in a nursing home.   But wait … is that nursing home really inevitable?   The nursing home reality for retirees. As I said, I have wrestled with this subject for many years, so let me give you some statistics to inform your decision. All statistics are from Morningstar.com.   Percentage needing 5 years or more in a nursing home: Women: 7% Men: 2%   For those who do need long-term care services: The average length of stay for a man: .88 years The length for a woman: 1.44 years   Alzheimer’s is the #1 cause of long-term care needs. Alzheimer’s research is advancing at breakneck speeds. Many experts believe that a cure could be developed in the next ten years, if not sooner.   Long-term care statistics: 57.5% of people will spend less than $25,000 on long-term care. Only 15.2% of people will spend more than $250,000 on long-term care. 62% of long-term care services are provided through Medicaid.   The first 100 days in a nursing home is covered by Medicare following a hospital stay. Nursing homes, including those covered by Medicaid, have improved greatly over the past twenty years.   If you are married and your spouse needs long-term care there are protections in place for the surviving spouse so they are not left destitute. The surviving spouse can keep their social security, pensions, primary residence and up to $120,900 in assets.   So, how do you plan for the unknown?   From my perspective, needing to be in a nursing home for five years is truly disastrous — both emotionally and financially. I don’t want to sugarcoat it. But there is only a single-digit possibility of that happening. Are you really willing to forgo the retirement you have worked toward all these years to protect yourself from a single digit possibility?   What happens if you defer gratification your entire life and don’t need long term care (like a majority of you)? Nothing very fulfilling.   Long-term care policies are generally hard to qualify for, quite expensive, and have limited benefits. I do not believe they are a particularly helpful tool at this time. But if you already have a long-term care policy from a number of years ago, Keep It. Plans available a few years ago are far superior to ones offered today.   And while I don’t want to advocate for you to rely on government programs, I’ve had several nurses and medical professionals say to me, “I walk around the nursing home ward and the people on Medicaid have the same experience as the ones who are self-paying.”  I know that’s not always the case, but often times the “bad home” isn’t so bad after all.   And lastly, there is more support around you than you realize. When my wife got breast cancer two years ago we were shocked and amazed at the outpouring of love and support we received from people we barely even knew. You are not as alone as you may think you are.   Conclusion: If you spend the rest of your life worried about single digit possibilities you are going to drive yourself crazy. Spend a sustainable and reasonable amount of money from your retirement accounts as soon as you retire. Nothing in life is certain, but living in fear, worrying about the unknown is certainly a crummy way to live your retired life.   Be Blessed, Dave

 

The Secret That Life Insurance Salesmen Don’t Tell You

Sep 21, 2020 David Kennon

When I say “life insurance salesman,” what image comes to your mind?  Probably nothing positive.  I spent a short part of my career selling life insurance and it was miserable.  Why? Nobody wants to buy life insurance. Buying life insurance forces you to think about your own death. The application process is difficult and complicated. Once you get your life insurance, you never want to see your agent ever again.  If you do, it probably means you’re dead. I have great respect for those sales warriors out there who tirelessly get people to insure their own life.  It is a thankless job, but incredibly important.  Without getting nudged along, most people will never obtain it, and the consequences could be devastating.   Whenever someone dies, it is deemed inappropriate to ask, “Did he/she have life insurance?”  But for many people the answer to this question could change the rest of their lives.   If a mother is at home raising three children, and her husband, who was making $70,000 a year, were to die, she is suddenly in a dire situation.  I can’t emphasize this enough.  She could go from a normal life to a life of poverty.   So before I get into the details of various kinds of life insurance and their uses….   If you have a child younger than twenty one, you need life insurance on the life of both parents.  Period.  End of story.  It is remarkably irresponsible to live without this safety net.  If you have grandchildren, call their parents right now and make sure they are protected.   If you are home raising children, your death would put a financial strain on the household as the children would need care going forward.  You still need life insurance even if you are not making an income.   How much insurance do you need?  If you are making $50,000 a year, you need to get enough insurance to reproduce your income.  Remember it’s appropriate to withdraw 5% from your portfolio of stocks and bonds each year.  If you die, the life insurance needs to be able to replace your income.   So if you make $50,000 you need $1,000,000 of insurance.  You take the million bucks, invest it, and take your yearly distribution of $50,000.  It might seem like a big number, but it’s just simple math.  We will talk soon about how remarkably inexpensive life insurance can be.   There are basically two kinds of life insurance.  The kind that lasts forever and the kind that lasts for a limited term.  The “lasts forever” kind is far more expensive.  With this kind of insurance, the insurance company knows that, at some point in time, they will have to pay up.  Unless you live forever.   The far more popular “term insurance” is, in my estimation, the answer 98% of the time.  Term insurance is simple.   For example:   $100,000 of 20-Year Term Life Insurance =  If you die during the first 20 years the company pays $100,000 tax free.  If you live longer, the policy ends.   This kind of insurance is far cheaper because most of the time the insurance company doesn’t have to pay anything.  The term ends before you die.   To give you an idea of how inexpensive these policies are:  A healthy 25 year old man can get a $1,000,000 policy for twenty years for $40/mo. (How could young parents not buy these policies?) A healthy 30 year old woman can get a $1,000,000 policy for twenty years for $30/mo (it’s cheaper because women live longer). A 50 year old man can get a $1,000,000 policy for twenty years for $150/mo.  The insurance company starts to get a little nervous that you will die during the twenty year period. A 70 year old man can get a $1,000,000 policy for twenty years for $2000/mo.  Now the company is really afraid that you’ll die during the term. Whenever you buy life insurance, you have to go through an underwriting process.  This is where the insurance company checks you over.  You will have to turn over medical records, and someone will come out to your house to take blood, urine, and other vital statistics.   These examples above all assume you are in good health.  If you have pre existing conditions the price could double or triple.  In fact, many people can’t qualify at all.  If you’ve had cancer, a heart attack, or a stroke, you might never be able to get insured.   Common Questions:   When should I buy whole life insurance?  (the kind that lasts forever)   I can find very few instances where this is appropriate.  You have a special needs child who will always have to rely on you for financial support. You have a much younger spouse.  They will need help if you were to die, as they could possibly live another thirty years. If you are incredibly wealthy you might need life insurance for estate tax purposes. I can’t think of anything else. Do I need life insurance once I’m retired? This is a tricky question.  The reality is that most retirees can’t afford it, and many cannot even qualify.  The only rationale for needing life insurance in retirement is based on the fact that you will lose a Social Security check in the event of death.   In a perfect world it would be a good idea to have some life insurance in retirement.  But you are betting on the fact that one of you will far outlive the other. It is an almost impossible calculation.  Generally speaking most retirees are not insured.   Should I get a “burial policy?”     Probably not.  Don’t think you can buy a policy while on death’s door.  The insurance companies aren’t that dumb.  These small policies are often so expensive that you would be better off taking those payments, sticking them in a bank account, and use that upon your death to pay expenses.   My insurance salesman wants me to buy a:   Universal life policy Whole life policy Variable universal life policy Equity indexed universal life policy   Confused yet?  Again these permanent policies apply to very few people.  It is common practice for life insurance salesmen to try to shoehorn these options into your situation.   A life insurance salesman told me that I can use life insurance to protect my life and fund my retirement.  Is that a good idea?   Don’t do that.   I saw a commercial on TV that says I can sell my life insurance policy. Is that a good idea?   No.  It is a borderline scam.   The bottom line to all of this is:   If someone is financially dependent on you, you need life insurance.  Don’t make this more complicated than it is.  Now go out and get those grandkids protected.   Be Blessed,   Dave

 

Why the Election Will Cause a Crash No Matter Who Wins

Sep 14, 2020 David Kennon

The world is crazy right now if you haven’t noticed.  I can’t even watch the news anymore.  It is repetitively upsetting.   As always, the financial media machine is taking advantage of this chaos.  Remember, the more things they say that elicit an emotional response from you, the better for them.  People are drawn to articles called, “This Presidential Election Will Cause the Market to Crash No Matter Who Wins.”  People are not drawn to articles like, “Stop Paying Attention to the Markets, Everything Will Be Fine.”   As I’ve discussed, repeatedly, Baby Boomers have been put into an almost impossible position.  Instead of traditional pensions enjoyed by their parents’ generation, Boomers need to rely on investments that they don’t understand (or trust) to secure their retirements.  Dumb system, right?   I hear it all the time.  “Dave, I never paid much attention to my 401k.  Sure it went up and down, but I was still working, making an income.  Now that I retired, suddenly these investments REALLY matter.  I have no income to fall back on.  I get sick with worry over this stuff.”   The financial news loves this fear.   The Motley Fool published: Stock Market Crash 2.0: A Perfect Storm Is Brewing  (source)   Forbes says: Stock Market Crash: Warning Signs Are Flashing (source)   Barrons’ reports: The Bear Market Is Nearing an End. The Bubble Might Just Be Getting Started.  (source)   Please ignore.  Nobody has a crystal ball.  The more you read this stuff the worse investor you become.  Not to mention it will stress you out.  If any of these people really had an accurate inkling of the future of the markets, wouldn’t they be the most sought after people in the world?  Wouldn’t every investor beg them for their priceless knowledge?  I don’t think they’d be working, getting paid $40,000 a year (which they are) to write articles.   It’s nonsensical.   Next up:   “Should I rush to pay off my mortgage?”  Note:  This is a touchy subject, so don’t read this if you are easily offended.   While it might feel great to have no mortgage once retired, should you do everything you can to pay it down?  Maybe double your payments or put in any extra money at the end of the month?   My answer is:  No.   Why?    You should be putting that money into your 401k.  Huge tax savings over time. Once you pay off your house and have no savings left, what do you do if you need money suddenly?  You can’t take it from your house.  While you may be able to get a home equity line of credit or a second mortgage, do these sound like attractive options?  Cash is king. If you are going to live in the same house for the rest of your life, just look at your payments as “renting” your home.  It’s just an expense that needs to be added to your budget. I’m not even against refinancing your mortgage into a new 30-year term.  It would dramatically lower your payment (especially with today’s interest rates).  Who cares if your house isn’t paid off when you’re gone?  Your kids are going to sell it anyway. By the way, if you have a ton of money in cash at the bank, you need to invest some of it.  Getting .01% on your savings messes up my advice.  You have to get at least 3% to make the math better.  3% is a very reasonable expectation for a conservative portfolio.   “Should I pay off my credit cards even though they are zero interest?”   Yes.   I know, I know…. you are getting 0% on this card until December.  Don’t fool yourself.  December is going to roll around and you’ll be paying 19%.  Pay them off.  Before your 401k.  Before anything.   “I have a pension through work.  They gave me two options.  I can get a higher payment, but the payment will stop if I were to pass away.  I could also take the lower payment.  In that case, my spouse will keep getting the payment.  Which one should I take?”   C’mon.  You’ve got to protect your spouse.  Unless your spouse has severe health problems, it almost always makes sense to take the protection option. It is called a “Joint Annuity with 100% Survivor Benefits.”   “Why is the stock market having such a tough week?”    I don’t know and it doesn’t matter.   Be Blessed,   Dave

 

Three Guaranteed Ways to Die Rich

Sep 8, 2020 David Kennon

I was recently interviewed by a magazine about my book. I thought the article would be a great way for you to master living an awesome retirement. Warning: Their writer is way better than me. ——————————– Many Baby Boomers, often shackled by the fearful teachings of their Depression-era parents, are not spending enough of their savings early in retirement, and Sarasota author and business owner David Kennon is on a mission to stop retirees from sabotaging their own retirement. “For 20 years, I’ve sat down with thousands of retiring Baby Boomers to help them determine optimal timing for their Social Security benefits. From nearly all of them, I hear the same refrain, ‘I’m worried I’m going to outlive my money.’ It doesn’t seem to matter whether they have $200,000 in the bank or 2 million, the dread is the same.” Kennon continues, “I’ve also sat down with many people in their 80s and 90s to whom I always ask the same question, ‘What advice do you have for those of us who are just starting our retirement journey?’ And the answer is nearly always the same. ‘Spend more money earlier in your retirement. By the time we realized that we wouldn’t outlive our money, we were too old to enjoy it’.” As outlined in Kennon’s book, The Retirement Revolution, Kennon’s formula for a better retirement follows three steps. The first is to invest retirement savings in a diversified portfolio of stocks and bonds with at least half of the money in stocks. Second, take out 5 percent per year from those savings starting in the very first year of retirement. Last, spend the money.   “When clients tell me they don’t really need the extra money, I still insist they begin withdrawals. I refuse to let them die with all of this money,” he says. “You deserve to enjoy the fruits of your labor. Spend the money.” Kennon uses historical data to back up his recommendation. “One reference I use is a 30-year study by the Federal Reserve that tracked retiree spending and found, incredibly, that people, on average, were dying with about 60 percent more money than the day they retired.   This is the biggest injustice facing the Baby Boomer population today,” Kennon says. “It is painful to see the regret in the faces of people nearing the end of their life when they realize they missed their only chance to enjoy the money they worked so hard to save.” Kennon notes that 87 years of economic history point to the same fact. Assuming the money is invested and working as outlined in his first step, people who withdrew 5 percent from their savings each year would have ended up dying with more money than they started with 100 percent of the time. “It doesn’t matter if you retired in 1940 or 1960 or 1997. If you took 5 percent per year, 20 years later you would have ended up with more than you started with,” he says. “This isn’t my opinion, it is purely historical data. The simplest way to understand it is this. If a diversified portfolio of stock and bonds does not return an average of 5 percent between now and the end of your life, it is the first time in modern economic history that it hasn’t.” Kennon says he spent three years developing his book, which he believes could radically alter the way Baby Boomers view their savings and spending for the rest of their lives.   “My overwhelming conclusion is that the transition from working and saving to retiring and spending is a stressful experience due to the intense fear of running out of money,” he says. “It doesn’t help when Baby Boomers watch the daily stock market coverage on television. The continuous fear-based rhetoric seen on the financial news adds to the Depression-era mentality from their parents. That profoundly affects their mental state, which in turn affects their decisions about whether they can afford a new kitchen, take that vacation, spoil their grandkids, or support a cause they believe in.” Could Kennon’s message spread throughout the country? That’s his plan. “The country needs to start a national conversation about this terrible injustice,” he says. “It is causing so much needless worry, pain, and regret.”   -Sue Cullen   Be Blessed,   Dave