Don’t Let Your Heartstrings Control Your Purse Strings

There may be plenty of factors outside of your control that impact your financial situation, such as the markets, the economy as a whole, or an unexpected illness. But those circumstances may not play as critical of a role in your financial life as you might think. The real dangers to your financial future are the lies you tell yourself when it comes to financial planning. Here are some ways you could be undermining your financial success and some ideas on how to change course.

Lie #1: I Don't Need Help. I Know What I'm Doing

Let’s say you read a plethora of financial planning books, stay up-to-date on the markets, and know all about budgeting software. That may put you ahead of a lot of other people, but there are certain aspects of financial planning that often go ignored even by the most knowledgeable people. Let’s look at a couple of hypothetical examples.

How Often Do You Review?

How often do you refresh your goals, adjust your plan, and determine how and when to make changes? A financial planner does more than just monitor your portfolio. They act as your coach, motivating and guiding you when things get tough. They bring an objective perspective to the table and develop a customized strategy based on your financial priorities. The end result is increased confidence in your financial strategies and decision-making. You don’t want to suffer a financial setback just because you were too busy or too forgetful to keep up with your financial plan.

In Case of Emergency

What if the unthinkable were to happen and you couldn’t make financial decisions? Will your family be able to handle the details and figure out your financial plan? An advisor can offer a holistic overview of your net worth and determine what elements need to be in place to protect your family and your wealth. These are often things you may not be aware of, such as life insurance or a living trust.

Market Research

Investing is tricky business on a good day. Can you manage the emotions, anxiety, and possible second-guessing of your investment choices if you were living on a fixed income and the market were to face a correction? An advisor has tools to evaluate cash flow to help you determine the probability of your money lasting through your retirement years. They can also keep you accountable and committed to your long-term strategy in the midst of market ups and downs.

Lie #2: I Can Always Get Help When I Need It

If you were going on vacation, would you rather have everything packed ahead of time and enjoy your restful break? Or would you prefer to be disorganized and arrive without essential items, forced to then spend your time off running around shopping for things you forgot? When it comes to money, it’s the same idea. When you really need the help, you may have lost your most valuable resource – time. Instead of thoughtfully researching your options and making decisions with a clear head, waiting until you need help will result in a frantic scramble to just get things done.

Whatever it is you experience in life, having a financial planner on your team will help you stay on top of your money and prepare in advance for future milestones and events.

Lie #3: I Don't Need An Advisor, I Have Financial Technology

Financial planning has evolved. Years ago, it was about who had the most up to date information on a company to buy a stock, and the planning industry was mostly concerned with buying and selling stocks and bonds rather than portfolio management. Today, financial planning is more about what’s missing in your overall strategy, what have you not thought of, and what could you be doing that you’re not. On top of that, the financial planning process helps you emotionally connect with your goals so you can get on the right track. Technology, at the present time, can’t do that.

Technology has many good points, but several drawbacks as well. For example, you can find more information than you’ll ever need, but you’ll also come across plenty of misinformation which could lead you astray. It’s not uncommon for someone to research something on the Internet and find just as many pros as there are cons. If you want to save for your child’s college education, you’ll find articles touting the value of using a 529, a Roth IRA, or a Roth 401(k). How do you figure out which one is truly right for you? The abundance of information has created so much noise that in many cases, people don’t do anything at all.

While technology should be used in financial planning, it should not replace the role of an advisor. The importance of what advisors do from a human aspect is help clients sift through the noise and misinformation and encourage them to move forward in taking action.

A Change In Perspective?

Have you ever believed one of these lies? It’s easy to do, but the consequences are real. Don’t take a gamble with your money. Join forces with a financial advisor who can help you make the most of what you have, where you are, and get you positioned for a bright financial future. Call my office at (949) 221-8105 x 2128, or email me at michael.loo@lpl.com for a no-strings-attached meeting to discuss your situation.

In 2015, Americans spent $225 billion on long-term care. That’s 7 ½ times what was spent 15 years prior, in 2000. With the great advances we have made in medicine and medical technology, people are living longer. The downside to that is that it means people are more likely to need care and need it longer. In fact, over half of people turning 65 will need long-term care at some point in their lives.(1)

Types Of Long-Term Care

When you think of long-term care, skilled nursing facilities are probably what comes to mind. However, that is actually the last step in the long-term care journey. Most long-term care is not medical; it is simply assistance with basic activities of daily living like bathing, dressing, eating, and going to the bathroom.

Even without serious medical problems, most people become less and less capable of taking care of themselves as they age. Traditionally, people would turn to family for help with such things. However, in our modern era where families live far apart and adult children are already overburdened with careers and children, more and more people have to pay for long-term care services.

The most basic, and least expensive, form of care is homemaker services. Homemaker services do not involve anything medical, but rather things like meal preparation, cleaning, and running errands. The next step up, which does have a medical component, would be a home health aide.

Once basic in-home assistance is not enough, specialized facilities are needed. Care outside of the home can be in the form of adult day healthcare, assisted living facilities, and nursing homes.

Costs Of Long-Term Care(2)

Costs vary depending on the type of care needed and the part of the country in which you live. On an annual basis, the national average goes from just under $48,000 for homemaker services to over $97,000 for a private room in a nursing home, and that number is growing about 3-4% a year.

Things change drastically when you look at specific locations. In San Francisco, homemaker services are more than 150% the national average and growing twice as fast. A private room in a nursing home averages $171,185 a year. Even downgrading to a semi-private room still costs over $141,000 a year. Twenty years from now, that same semi-private room is expected to cost over a quarter of a million dollars.

As you can see, long-term care can be very expensive, especially with the rise of dementia, where people can live a long time while needing care. In 2018, the estimated lifetime cost of care for someone with dementia is $341,840,(3) and it’s probably much higher in a state like California.

Ways Of Paying For Long-Term Care

Because of the high cost, it is important to plan ahead for long-term care. There are a number of ways to pay for care, each with its advantages and disadvantages.

Medicaid

The vast majority of Americans turn to Medicaid for their long-term care expenses. However, it’s not because it’s a great option. Rather, it’s their only option. In order to qualify for Medicaid, you have to have a low income and low assets, so it’s not really something people plan for intentionally.

Self-Insure

On the opposite end of the spectrum from the people that can qualify for Medicaid are those who have amassed enough wealth to self-insure. If you have $50 million in assets, you can afford to pay $170,000 a year for a nursing home and it won’t have a significant impact on your finances.

The danger is that sometimes people take too great a risk thinking they can self-insure. Often, care is needed later in retirement when savings have already been spent down significantly. Having $500,000 in the bank may seem like a lot of money, but long-term care expenses can eat through it very quickly. Unfortunately, it’s not uncommon for a couple to spend all of their savings on the husband’s care only to leave the wife destitute at his passing.

Life Insurance With A Long-Term Care Rider

One option for those that find themselves in between broke and very wealthy is adding a long-term care rider to their life insurance. If you have, or are planning on purchasing, permanent life insurance, your policy may allow you to add a rider that would help pay for your long-term care costs. Using the long-term care option will often lower your death benefit, but many people appreciate knowing they will receive a benefit even if they never need long-term care.

Premium Paying Long-Term Care Insurance

Another option is buying pure long-term care insurance. Like with most kinds of insurance, you pay a regular premium in exchange for receiving a benefit when you need long-term care. One downside to this for many people is that you will only receive a benefit if you end up needing long-term care. As with car insurance where you have to get into an accident in order to get money out of it, if you never need care, you never see your money again.

Asset-Based Long-Term Care Insurance

The final option has been the fastest growing long-term care option over the last decade.(4) It is a combination of long-term care insurance and single premium life insurance, commonly called asset-based insurance.

The way it works is that you pay a large amount up front and then low annual premiums. You have several times your initial deposit available tax-free for long-term care needs. If you never use it or cancel your plan, you usually get your deposit back plus interest. Some plans even include tax-free death benefits.

Choosing A Long-Term Care Option

Looking at the statistics, you can tell that planning for long-term care is an important thing to do. Failing to do so can be a costly mistake. Because the multitude of options available can be complex and confusing, it’s important to work with an experienced financial professional.

An experienced advisor can explain all of your options to you, help you consider the pros and cons of each, and decide which is the best solution for your particular situation. If you want that kind of help choosing a long-term care option, call my office at (949) 221-8105 x 2128, or email me at michael.loo@lpl.com to set up a no-strings-attached meeting.

(1) https://www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed.html

(2) https://www.genworth.com/aging-and-you/finances/cost-of-care.html

(3) https://www.morningstar.com/articles/879494/75-mustknow-statistics-about-longterm-care-2018-ed.html

(4) https://www.525longtermcare.com/asset-based-ltci/