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In 1967, the Beatles released the song, "When I'm Sixty-Four." The lyrics are a preemptive plea to secure a relationship, especially as the realities of old age set in. Now, as the nation's largest generation whistles this tune into retirement, the question seems less rhetorical:
Who is going to take care of us in retirement?
Not everyone will need long-term care insurance (LTCi), but everyone needs a long-term healthcare plan. That's the big takeaway from this week's final installment of our risk management series. (If you missed our discussions of disability income insurance, life insurance, or home and auto insurance and can't find them in your inbox, please just hit reply and I'll send them to you personally!)
We'll distill this complex-to-the-point-of-confounding insurance product this week while also updating you on a crazy (good) week for the markets--and don't miss out on our Quote O' the Week that you should probably tape to your computer to remind you of how to remain a successful long-term investor.
Welcome to this week's edition of the Financial LIFE Planning weekly!
Like I said in the open, not everyone will need long-term care insurance (LTC), but everyone needs a long-term healthcare plan.
Your long-term care plan should incorporate the following: facts about you (and your spouse, if applicable), your age, your personal health, longevity of lineage, your retirement income and assets, your tolerance for risk, the costs and demographics of long-term care in your geographic area, and information about any long-term care insurance that you own or have considered owning.
One very important thing to remember is that Medicare does not cover the costs of most long-term care needs. Allen Hamm, in his book, Long-Term Care Planning, shares the following statistics:
In reality, Medicare will only pay for 100 days of skilled nursing care. Thereafter, the insured is responsible for 100 percent of the cost. But a risk manager does not automatically assume that the reflex response is to purchase a long-term care insurance policy with all the bells and whistles.
The annual average cost of assisted living care in in the United States is $54,000. The cost of full nursing care tops $100,000, and cost by state can vary greatly! Regardless, we’re dealing with a significant amount of additional expense which most retirement plans are not prepared to support.
If you have liquid assets north of $2.5 million, you *may* consider self-insuring the risk of a long-term care event as long as your retirement withdrawal rate is not rapidly depleting your nest egg. Conversely, if your net worth is below $250,000, a long-term care event would likely exhaust it so quickly that paying insurance premiums is likely prohibitive. If you’re in that situation, you will likely qualify for Medicaid—medical care for the impoverished—shortly after your infirmity sets in.
Long-term care insurance is sold most often in daily increments, so you would purchase a policy that would pay $100, $150, or $200 per day for a stated number of years or your lifetime. LTC has almost as many moving parts as LTD. Here are the most important to understand:
In addition to making sense of the myriad of moving pieces in the policies, the problem that scares away most prospective insureds is the bottom line price. If you buy the policy designed to insure virtually every possible scenario you may encounter—say, a $250 per day benefit guaranteed to pay a benefit for the rest of your life—you will, indeed, find shocking premiums that may send you packing.
The solution, however, for many people is to partially-insure the risk of a long-term care incident or incidents. Consider a policy with a reduced benefit, like $100 or $150 per day, and a shorter benefit period, like three or five years.
1) Be honest with yourself. When considering your age, health, lineage, retirement income, assets and tolerance for risk in their entirety, is transferring all or a portion of your long-term care risk through insurance a wise move? (The default answer is "probably.")
2) Consider getting a quote for long-term care insurance based on the following policy template:
3) Adjust the policy to reflect your personal risk characteristics and financial situation.
Like with many insurance products, there are knowledgeable and professional sales agents out there, but their economic bias is still so overwhelming that I recommend you do your homework and consult with a fee-only advisor who doesn't accept comissions prior to engaging an agent.
The rally continues...
Contributed by John Marske, CFP®, a Notre Dame grad and generally good guy.
The first week of earnings season was filled with decent reports from the large financial institutions. The past week of earnings was filled with dismal earnings from most of the big tech companies. Nonetheless, we started the week higher and ended the week higher, on track for a strong month of October, after a miserable September.
The Dow has surged more than 14% in October, putting it on track for its best month since January 1976. The Nasdaq has gained 5% while the S&P 500 is up 9%. This was the fourth straight positive week for the Dow index. The S&P 500 increased roughly 2.5% for the week, closing above 3, 900 for the first time since mid-September.
The stock market started strong on Monday, buoyed by the prevailing sentiment that the Fed is looking to slow down its policy tightening. A report from the Wall Street Journal, and various comments coming from important Fed officials, suggested that the decision on a 75-basis point hike in November would go as expected. However, starting December, the Fed would be debating whether to continue with its stringent tightening that has occurred the last few meetings.
The day started on a mixed note, however, with the major averages oscillating around the flat line as the 10-yr Treasury note yield tested the 4.30% level. Selling quickly subsided in the Treasury market and stocks built upside momentum. The S&P 500, which slipped below 3,500 on October 13th, briefly traded above 3,800 before ending just below that level.
One notable area of weakness was Chinese stocks and U.S. stocks with high exposure to the China market. This comes after Xi Jinping secured an unprecedented, third five-year term to serve as China's leader. That wasn't surprising, but it did come as a shock to many investors that he managed to surround himself only with loyalists who are apt to help him pursue tighter regulations and the continuation of China's zero-Covid policy.
Tuesday’s pre-market activity looked as if we were going to give up some of Monday’s gains. However, once the market opened, buying momentum carried through the day. The NASDAQ index led the gainers as most investors hoped tech earnings, which would start with reports from Google and Microsoft on Tuesday evening, would not disappoint.
On Wednesday, we again saw pre-market losses, with the NASDAQ getting hit especially hard on earnings reports from Alphabet (Google) and Microsoft. By the opening bell, the NASDAQ was the only index in the red, as the non-technology stocks were again being pushed higher at the onset of trading. Much of the advance could probably be attributed to the yield on the ten-year Treasury falling 16-basis points, to 4.07%. Meanwhile, Enphase Energy (ENPH) advanced 14% on strong earnings, helping to advance many of the “green energy” stocks.
While the tech-heavy NASDAQ index got crushed on Thursday, the Dow managed to gain for the fifth straight session. Nonetheless, big tech dominated the headlines with GOOGL, TXN, MSFT and META (Facebook) all disappointing. META stock fell over 23% on the day, falling under $100 for the first time since early 2016.
There was some good economic news on Thursday, which helped boost industrial stocks. After decreasing -1.6% in the first quarter of 2022, and -0.6% in the second quarter, the initial report for real GDP was +2.6% for the third quarter. We also saw good inflation components in the GDP data. This helped push down the 10-year treasury yield to 3.94%.
On Friday, another big tech company, Amazon, bit the dust on lower earnings. The stock initially fell more than 10%, before ending the day lower by “only” 6.8%. But this was a day where all the major indicies were up more than 2.5%, led by Apple stock, as well as strong earnings from the oil & gas companies. Apple was the sole tech winner this week, ending up over 7.5% on Friday. It’s not that their earnings were especially strong, but they were higher than the low expectations baked into the stock price.
There was no stopping the stock rally on Friday, despite the fact that a key gauge of U.S. inflation favored by policy makers (PCE) stayed stubbornly high in September (+6.2% year-over-year). Ten-year treasury yields jumped back over 4%. Get ready for more inflation talk next week, when the Fed is expected to implement another 75-basis point rate hike.
And, in case you forgot, we will also have mid-term elections next week. Thank goodness all the political ads will be coming to an end.
Here's to hoping your weekend comes to an end slowly!
Best,
Tim
Thanks so much for being part of the FLiP community!
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Oh, and BTW, The information in this article is for educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. That should really come from your financial advisor. I'm thrilled to work for Triad Financial Advisors, but what I write is my opinion, and not necessarily theirs.
Please enjoy reading through this edition. If you like it, you can sign up to receive one newsletter each week in your inbox Sunday morning at 7:05 am.
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