Category Archives: Financial Management

Long Term Care Insurance

Several years ago, I attended a lecture by world-renowned financial management guru Suze Orman. At one point in her talk, she asked for a show of hands of folks who had homeowners or renter’s insurance. While most hands went up in response, she assured us that few were likely to issue claims against those policies. She then asked for a show of hands of folks who had automobile insurance. Nearly all hands raised. Again, the chances that we’d need to use those policies were relatively slim. Finally, she asked for a show of hands for long term care insurance policy holders. Very few hands went up. She asked: Why are we spending money for policies that we’re unlikely to use while ignoring a major financial risk factor in old age?

According to Morningstar, here are a few statistics regarding long term care:

  • long term care52% of people reaching the age of 65 will need some form of long term care service in their lifetimes
  • Women will need an average of 2.5 years of service; men will need an average of 1.5 years of service
  • 14% of people who use long term care services will need them for 5 or more years
  • One-third of the population over 85 will need support services for Alzheimer’s disease
  • The median annual cost for services in a skilled nursing facility is $85,815 for a semi-private room and $97,455 for a private room.

As shocking as those figures may seem, they accord with my experience of parent care. My father shared a room with 3 other gentlemen in a skilled nursing facility during the last 17 months. My mother resided in an assisted living facility for 3 years and has now moved into the Alzheimer’s unit. Their care costs are eye-popping!

Mercifully, my parents took out long term care insurance 20+ years ago, and both policies have rendered benefits to defray the out-of-pocket cost of care. Yet it is no small matter to file a claim and gain approval. Here were the requirements for Mom’s recent claim:

  • 10-page claim form with associated 2-page narrative describing my mother’s condition
  • Signed authorization form to enable the insurance company to engage directly with my mother’s care providers
  • Copy of the care facility’s State-issued licensure
  • Affidavit by the care provider indicating my mother’s need for assistance in performing Activities of Daily Living (e.g., bathing, dressing, eating, transferring, toileting, care for incontinence)
  • Copy of my mother’s formal Plan of Care
  • Results from a Mini Mental State Examination (MMSE) performed by a registered nurse or physician
  • Results from a comprehensive cognitive examination signed by my mother’s primary care provider

Given the number of “moving parts” in the application process, it is no small feat to complete the package within the time frame specified by the carrier. It then takes a couple of weeks to go through the underwriting process and gain approval. Once approved, a form must be signed and submitted by the care coordinators at the end of every month to verify that services were rendered along with a copy of the associated invoice.

Even with long term care insurance, it has taken a fair amount of cash to support my parents’ care. Their policies called for self-financing of the first 90 days of care. Moreover, the care facilities want their money up-front – before they’ve provided any services. The insurance companies pay monthly claims after services have been rendered. It takes 10-15 business days to receive payment upon proper submission of the monthly form and invoice.

For example… Dad went into long term care on September 10th. His 90-day self-funded services were up in early December. But since the monthly submission could not be processed until January 1st, we did not receive any payments from his long term care claim until mid-January. Meanwhile, we were responsible for full payment of his September, October, November, December, and January fees!

Here’s the rub: You can’t wait until you are old to purchased long term care insurance. Most pundits recommended that it be secured in one’s 50s. To that end, my husband and I purchased policies years ago. They’re rather spendy, and the rates keep escalating every year. But we’re committed to maintaining the policies (or at least some fraction of our current coverage) so long as we can find the funds to support them.

One may think that the alternative of home care is far more appealing than the expense of institutional care. However, my husband and I were physically incapable of maneuvering my father to attend to his daily care needs. And my mother’s dementia is so severe that she requires round-the-clock monitoring. At a bare minimum, we’d have to have nightly staff on hand to allow us a decent night’s sleep… and that’s not cheap either! Mercifully, their astute financial management has accorded the freedom to give them the best institutional care available while keeping us healthy enough to attend to their other needs.

Financial Management Mistakes – Part III

Here’s the final installment of commentary on The Dumb Things Smart People Do With Their Money, by CBS News Business Analyst Jill Schlesinger.

#9: Saddling your kids with your own money issues. We all have baggage when it comes to money management. And parents tend to pass along some variation of their baggage onto their children. As the daughter of parents who lived though the Great Depression, I’m conservative with money management and I know how to stretch a dollar. It’s baggage that has served me well, although I’ll accept the nudge to live a little!

#10: Lacking a plan for your aging parents. I’ve written a post on becoming my parents’ financial manager. I was lucky. My parents were open to a frank discussion about their means and needs, and they’d already done the hard work of making provisions for themselves. I simply had to take over the administration of those plans. I see my friends struggling with aging parent issues and all the anxiety that comes with a substantive change in the parent-child dynamic. It’s hard! But I think it’s really important to work out a plan well in advance of the imperative to execute it. That way, everyone gets on the same page about what will happen, and the mechanisms can be put in place to step in and manage things when and if it becomes necessary.

#11: Buying the wrong insurance. I wasn’t as attentive to this chapter given that we’ve had multiple reviews of our insurance coverage and feel very well protected. (I’ll still likely schedule another review shortly for good measure!) But I’d tie the message about insurance back to the first two financial mistakes covered in Jill Schlesinger’s book: Buying investments you don’t understand and working with the wrong advisors. Insurance has its own share of complexity and fine print. Find a trustworthy person with whom to navigate the terrain. Do your homework. Ask questions.

#12: Lacking an estate plan. We have a living trust, wills, powers of attorney, and healthcare directives. They’ve been in place for quite some time but probably merit review. A surprising number of my friends and colleagues have no such provisions. To me, it’s a fundamental denial of our impermanence on this planet and the lack of predictability over when our time is up. It’s pretty easy to put these legal documents in place, and it saves mountains of grief for our loved ones to attend to these details before the unthinkable happens. (And having worked as a hospital chaplain, I know that the unthinkable does happen!) So as Nike’s ads would tell us: Just do it!

#13: Trying to “time” the market. The author argues that today’s markets are too sophisticated and too unpredictable for any one person to accurately time the peaks (to sell) and valleys (to buy back in). We have no illusion about possessing special powers to do what others haven’t been able to do reliably. We have an asset allocation plan, and we only make adjustments to adhere to the guidelines that we’ve set.

This brief foray into Ms. Schlesinger’s treatise should give a taste for a much bigger discussion. If you are serious about handling your own finances well, check it out!

Financial Management Mistakes – Part II

This post continues the discussion of The Dumb Things Smart People Do With Their Money, by CBS News Business Analyst Jill Schlesinger.

#5: Buying a house when you should rent. The author bursts the bubble on the long-standing American dream of being a homeowner. She has seen folks go overboard on home purchases while failing to take a full account of the annual costs (mortgages, taxes, insurance, annual maintenance). She has seen folks bet on increases in the value of their homes that never materialize. And she has watched folks deal with headache-upon-headache as they attempt to reap big gains as landlords. In short, homeownership isn’t a bed of roses. As one who has had to spend money on roofing, fencing, painting, HVAC systems, water heaters, and a host of equally unglamorous expenditures, I take her caution to heart. However, we enjoy having a nice place to live that isn’t subject to escalating rental rates or forced relocation at the lease’s end. We also bought a modest property that is well within our budget. So, I think the better advice is simply to have a really sharp pencil and a really sharp mind when making housing decisions.

risk#6: Taking on too much risk. My parents had an elderly friend years ago who bragged about an investment opportunity in which she was guaranteed a 24% return. She was so enthusiastic about it that she invested the majority of her retirement savings in it. Within 2 years, her money had all but evaporated, and she went back to work. Like it or not, there’s a relationship between risk and return. The higher the return, the less predictable the reward and the more volatile the year-to-year performance. If you don’t have the stomach to ride the highs and lows of the investment (e.g., the stock market), then you may not be well-served dipping you toes in it. Over the years, I’ve erred on the side of caution. I worked very hard for the money I earned and hated putting it at risk. But I’ve since learned the value of a balanced portfolio with fixed income and equity investments. And I don’t panic and sell every time values take a dip!

#7: Failing to protect your identity. I’ve written a blog post on this subject where I lay out the 7 key steps that I follow to protect our identities. I take the author’s admonition to change passwords for on-line access to financial accounts seriously. Even though I use complex passwords, it’s still a good idea to change things up periodically. Where available, I also sign up for two-factor authentication – i.e., a logon password plus entry of a code sent to my cell phone. (Read the blog!)

#8: Indulging yourselves too much in your early retirement years. We have yet to retire, but I doubt that this problem will surface for us. I understand the temptation. It goes something like this: “I’ve worked hard all my life. Now that I’m retired, I’m going to live it up and do all of the things that I’ve always wanted to do.” I’m all for it assuming that the dollars and cents support the dreams. I temper our enthusiasm with an Excel spreadsheet that I created to capture our anticipated income streams and expenses going out through age 100. (Respected financial planners at a former client go out to age 95.) I’ll tell you this: It takes a pretty good chunk of change to finance a long life, especially if there’s infirmity at the end of it. I update my spreadsheet every year. If we fall outside of our capacity to fund our old age, we make adjustments. I’d rather make a few sacrifices today than find myself destitute when I haven’t got the means to bolster my personal treasury.

Financial Management Mistakes – Part I

I bend my ear toward financial planning gurus from time to time to help keep the business side of our household in good stead. The latest book to capture my attention is The Dumb Things Smart People Do With Their Money, by CBS News Business Analyst Jill Schlesinger. While it didn’t reveal any new earth-shattering insights, I nodded my head quite a bit as I read through her commentary.

In the next three posts, I’ll offer my two cents on her list of 13 dumb things that smart people do:

#1: Buying financial products that you don’t understand. Been there, done that. My husband and I were really, really busy pursuing our careers during the early years of our marriage. Long hours. Lots of weekends spent at the office. So the last thing we wanted to do during our down time was wade through all the fine print that comes with regulatory investment disclosures. We wanted the “professionals” to handle things for us. And we went with a friend’s recommendation on who those folks might be, never realizing that their due diligence was as suspect as ours! We wound up putting IRA contributions into limited partnerships that invested in real estate. Long story short: We had high administrative fees, low yield on our invested funds, and very limited means for getting our money out. At the end of the day, we lost nearly all of our initial stake. Fortunately, we got burned before we had any substantive capital to invest. Nowadays, I either force myself to read all the fine print (and ask questions!), or I stick with investments that I readily understand.

#2: Taking financial advice from the wrong people. This lesson goes along with the aforementioned debacle. Many of us fall prey to the notion that someone who sells financial products is a financial expert. In reality, an awful lot of them are just salespeople who make commissions off of the investments that they place. They aren’t trying to narrow down the wide range of available products to those that best suit our goals and risk tolerance. They’re trying to sell their products! Of course, they’d like us to do well and become repeat customers. But realize that it’s their financial security (and not ours) that drive the interactions. I still think it’s a good idea to take advice from qualified experts as they can lend their knowledge, skills, and experience to your money management. (They read all that fine print!) I simply prefer to deal with credentialed folks who earn their living by the fees I pay them, not the commissions they make off product sales.

#3: Making money more important than it is. Money is a means to an end – a roof over one’s head, food on the table, clothes on one’s back, and quality time with friends and family. When the pursuit of money impinges on health, happiness, and relationships, it’s time to change course. The author tells us that individuals feel happiest when making $60,000-75,000 and feel the best about their lives when making ~$95,000. They have “enough” to take care of their material needs… and then some. Surprisingly, as wealth increases, issues and anxiety surrounding money also increase. Symptoms include: keeping secrets from spouses, losing sleep, obsessing about investments, over- or underspending, comparing one’s financial standing with others incessantly. Both my husband and I are predisposed toward thrift based on our upbringing and life experiences. So, I’ll take the heart the call to loosen up the purse strings a bit and make sure we’re enjoying life!

#4: Taking on too much college debt. This issue is heartbreaking for me given the number of friends and family members who have soul-crushing college debt. With the cost of higher education spiraling out of control, we do a grave disservice to college-bound students by making student debt so readily available. As neuroscientists tell us, our brains are not fully formed until we reach our mid-twenties. Executive functioning is the last to develop – i.e., that part of the brain that recognizes the long-term consequences of our short-term decisions and actions. So, it’s up to the older, wiser generation to inject some reality into a young person’s college dreams so that their financial future does not become a nightmare. I’m a fan of the junior college system to satisfy lower division educational requirements. (Living at home a couple of extra years beats a lifetime of debt!) I’m also a fan of having straight talk about career options to guide one’s academic choices… including the option of deferring (or taking a pass on) college education altogether.

How to Protect Against Cybercrime

This week’s post makes a sharp U-turn from last week’s sublime contemplation of consciousness expansion. I’ve decided to address strategies for reducing one’s exposure to cybercrime.

We’re living in an era where more and more of our personal and professional lives are conducted on-line. We keep up with friends and family via text, email, and social networks. We shop on-line and enjoy the convenience of doorstep delivery. We manage our finances and investments via the web. We even interact with our healthcare providers via their medical information portals.

If we care about protecting our digital footprints, our personal information, and our financial resources, we need to take cybersecurity seriously. Here are the top 7 things I recommend to thwart cybercriminals.

cybersecurityONE: Equip your computers with firewalls, anti-virus protection, and spyware deterrents. Keep the software current and run partial- and full-system scans routinely. Don’t visit websites unless they are “approved” by the cybersecurity software.

TWO: Password management is a critical line of defense. Passwords should be at least 8 characters long and include elements from each of the following categories: upper case letter, lower case letter, number, and special character. Don’t include dictionary words, proper names, places, or other recognizable references. Don’t use the same password for multiple accounts.

For those of us with LOTS of login credentials, there are on-line services that will store individual site data and allow access via a master login-password. However, if that master account ever gets breached, the hacker will have access to all of those individual logins and passwords.

It would be lovely to delete logins/passwords from websites that are no longer in use. Unfortunately, most won’t let you do that. I’ve opted to change those passwords to random collections of 12 or more letters, numbers, and special characters. (Norton’s password generator helps!) It’s highly unlikely these passwords would ever be hacked, and inactive accounts tend to purged… eventually.

THREE: Manage email with care. Don’t open mail from sources that aren’t familiar. Avoid clicking on links embedded in emails unless you really trust the sender. Even then, take note of the URL on the lower part of your screen as you hover over the link before you click to ensure that it’s legitimate. Don’t open executable files transmitted as attachments even from a “safe” source. Don’t send sensitive information in the body of an email or in an attachment. Email is a lot like sending a post card by mail but with many more “eyes” lurking around to read the contents.

FOUR: Never provide personal information to unknown callers or email senders. Be especially wary of folks who claim to be computer support personnel, government representatives, or financial services providers. They like to create a sense of urgency and panic as incentive to get wary consumers to let their guards down.

FIVE: Check credit reports periodically. Each of the three major credit bureaus provides a free copy of your credit report annually. These reports tend to cover the same information. As such, you can ask for a report from 1 of the 3 bureaus every 4 months or so and keep a regular watch on your credit. Report unusual entries immediately.

We made the decision to place a “freeze” on all of our credit reports. We were among the millions of people whose sensitive information had been compromised by the Equifax breach. While that prevents us from gaining new credit without lifting the freeze, it protects us from unauthorized access by persons of nefarious intent. And it’s not that big a deal to “unfreeze” the accounts.

SIX: Wherever possible, delete credit card information from on-line accounts. If the vendor’s security measures get breached, credit card data joins all the other personally identifiable information to which the cybercriminal gains access. Several big name companies have already fallen prey to such attacks. When I place orders on-line, I cycle back to my account profile and delete the credit card information once I’ve received confirmation that the order has been processed.

SEVEN: Reconcile individual credit card slips against the monthly bill. Make sure there are no unexpected entries that suggest the presence of a third party with unauthorized access to the account. This review also helps answer the question: On what am I spending all my money?

On Becoming My Parents’ Business Manager

Four years ago this week, my family dynamic changed. In the wee hours of September 4, 2014, my elderly father fell en route to the bathroom and couldn’t get off the floor. My husband and I rushed to the apartment and (barely) managed to get him back on his feet and into bed. Within the week, his care needs argued for placement in a skilled nursing facility. In the process, Mom asked me to step in and take charge of their financial and administrative affairs.

As several of my friends find themselves on the cusp of assuming a similar role, I thought I’d share some insights from my experience.

Trust is a prerequisite for success. Turning over one’s financial affairs is akin to placing one’s life in another person’s hands. There’s a very real sense of vulnerability that accompanies the surrendering of control. My parents would not have taken that step unless they had absolute confidence that I would act in integrity and pursue their wishes to the letter. For peace of mind, I made sure to review the state of their affairs at regular intervals.

It helped to have my name on their checking account in advance. We added that provision when they moved to the area to make sure that I could jump in and pay bills at a moment’s notice. When Mom decided that she was ready to relinquish her money managing responsibility, it was easy for me to pick up the reins. It also enabled me to balance the check book while assessing their liquidity and cash flow.

My parents each signed a Power of Attorney (POA) to empower me to act on their behalf. They’d previously executed POAs naming one another as their preferred agent with me as a back-up. In that arrangement, I was told that each would have to either formally disavow that role or have the court declare incompetency before I could act. Suffice it to say, it was much easier to prepare new documents while both parents were mentally up to the task. It was a little tricky getting a Notary Public to Dad’s room given his incapacity, but we managed just fine.

I worked with their financial institutions to register the POAs. This task was a bit tricky as it takes more than simply presenting the documents to get it done. Each institution had a separate document to accompany the POA in which I had to declare my willingness to serve as a fiduciary. While I certainly understand the rationale for taking this step, the branch personnel had trouble figuring out how to do it.

I sent forms into the federal and state tax authorities to allow me to act in my parents’ behalf. The federal and state governments do not recognize POAs. They’ve got their own forms. It’s not a big deal; it’s just something that has to be done. It proved useful as there was an issue that cropped up relative to their state tax returns that I needed to handle.

I should have worked with my folks’ retirement and health benefit providers to set up the POAs before I needed them. Most of my parents’ benefits were issued in my father’s name. There was a fair amount of activity surrounding the transition to Mom’s name after Dad passed. It tooks 6 weeks from the time I submitted Mom’s POA to the legal department for review/approval until the document was in force. During that interval, I had to get Mom on the phone every time I needed to contact the center.

Dad and Mom made all of their final arrangements long before they needed them. They signed a contract with a funeral home that specified in detail what they wanted done with their remains. Their estate plan allows for an orderly transition of financial assets and personal property. These plans ensure that their wishes are followed. They also create the space for loved ones to grieve without the burden of navigating the court system to settle their affairs.

I understand why people avoid working through all of the foregoing. The subject matter is unpleasant, and it can be awkward to talk about it. I would argue that a little bit of planning and preparation makes life much easier for all concerned in the long run. Hats off to my parents for their foresight and courage!

First Steps Toward Financial Freedom

I learned two very important lessons early in my career. I learned that two professionals can pull down decent money yet still fall short of their expectations for savings. And I learned that job security is an illusion – a point driven home painfully when one of us fell unexpectedly out of work. Fortunately, a friend and colleague suggested I read Your Money or Life: Transforming Your Relationship with Money and Achieving Financial independence, by Joe Dominguez and Vicki Robin.

The book’s title comes from the assertion that we’d all gladly give up our wallets when confronted with an armed robber. In that moment, we’re crystal clear that it’s more important to give up our cash than risk bodily harm or death. But we fail to have that blinding insight in the day-to-day management of our lives. We trade away vast quantities of our lives for the sake of earning money, often at jobs that we find unfulfilling, aggravating, stressful, or some combination thereof.

The authors acknowledge that it takes money to finance life’s basic needs along with the range of diversions that make life interesting. But they advocate for an elevated consciousness surrounding money to avoid falling into the trap of working more and enjoying less. To that end, they offer up the following definition:

Money is something for which we choose to trade our life. We “pay” for money with our time.

They don’t judge the choices any of us makes. They simply want us to respect our life energy enough to make these choices consciously. That respect leads to gaining clarity on:

  • What we really need versus what we think we want
  • What purchases genuinely bring us fulfillment
  • What constitutes “enough” for each of us

They provide a nine step plan for raising consciousness and taking action on those insights. Two of those steps proved especially valuable for me.

They challenge readers to calculate their bottom-line hourly wage – i.e., the cash that finds its way into the pocket in exchange for the hours expended. That calculation demands a close accounting of the actual hours invested in working that would not be expended absent the job – i.e., all paid shifts, overtime, after-hours work at home, commuting, business travel, etc. It also calls for tallying up all of the expenses that go along with working – e.g., taxes, FICA, transportation, wardrobe, daily Starbucks, eating out for lunch, eating out after work if too tired to cook, child care, household help, etc.

It sounds rather tedious to go through the exercise of figuring out what an hour of one’s time is actually worth. But that figure becomes the bellwether for a whole range of impulse decisions. I ask myself regularly, “Do I really want to give up X amount of time in exchange for Y? Is it really worth it to me?

The second impactful exercise was definitely tedious, but well worth it. They challenge readers to track every single penny they spend and add them up by category. The big ticket items were easy to identify – mortgage, car loans, student loans, utilities, healthcare premiums, health club membership. Credit card spending and loose cash took more work, but it wasn’t all that tough. We kept a notepad in the kitchen and “balanced” our cash on a daily basis.

Our big lesson: Loose cash creates a big drain on resources when you don’t pay attention to it… and that’s a lot of life energy to squander! We found that we were spending an inordinate amount of money on dining out. We didn’t eat in fancy restaurants. But we ate out several nights a week at sandwich shops, inexpensive ethnic food restaurants, and fast food restaurants. Even low budget dining out racks up a lot more spending on a monthly basis than eating in. So we found low effort ways to eat at home and saved a bunch of money!

Here’s another way to think about it. The daily $5 latte may not seem like a big deal. After all, it’s just $5. But if that’s an indulgence enjoyed every working day, it adds up to over $1,000 per year. Is that the best use of $1,000 of money?

At the end of the day, conscious spending is not onerous; it’s liberating. Through conscious spending, we’ve paid off our debts, contributed consistently to savings, and developed our roadmap to a secure retirement. It reflects another keystone definition from the book:

A frugal lifestyle reflects the virtue of getting good value for every minute of life energy and from everything for which you have use. A frugal life is characterized by a high Joy-to-Stuff ratio!

Each of us must ask ourselves: What am I willing to give up to achieve financial independence? Mr. Dominguez and Ms. Robin helped me find my answer.