Do you find all of the Medicare options confusing?

How do you go about finding the right plan for you?

You can

• Talk to a parade of Medicare insurance agents, each with a specific plan that they want you to choose
• Respond to the most frequent advertisement for specific Medicare plans
• Talk to someone who understands the various Medicare options and who has no preference as to which plan you choose but wants you to understand the choices so that you can be comfortable with each choice.

We’ve been working with Medicare plans for several years – all kinds and from several insurance companies.

Sometimes we are asked which plan we prefer.

What we prefer is not important. What our client prefers is important.

There are Medicare Supplement plans, which are insurance policies that supplement original Medicare and are designed to pay for the costs of medical care that original Medicare doesn’t pay. These plans are a no hassle way to receive care at a hospital, doctors office or out-patient clinic. The member receives care from a health care provider who accepts Medicare and the provider bills the insurance company for whatever Medicare doesn’t pay. It’s very simple and convenient. The one drawback is that Medicare Supplement plans have a monthly premium which is usually accompanied by a monthly premium for a Medicare Part D plan, a plan designed to pay part of the cost of prescription medications that are prescribed by a physician and dispensed at a pharmacy.

Then there are Medicare Advantage plans (Medicare Part C), which are plans offered by private insurance companies, are strictly regulated by Medicare, and are largely funded by Medicare.

The Medicare Advantage plans usually require that the member pays a copay when receiving care from a hospital, doctor or outpatient clinic.

These plans usually have much lower premiums than Medicare Supplement plans (sometimes no premium at all), and they usually include a Medicare Part D prescription plan at no additional cost.

Why choose one type of plan over another?

It’s truly a matter of personal preference.

Because the Medicare Advantage plans (Medicare Part C) have little or no monthly premium and reasonable copays, they are seen as ‘pay for what you need, don’t pay for what you don’t need’ plans. The annual out-of-pocket outlay for a Medicare Advantage plan can be a great deal less than the annual cost of premiums for the Medicare Supplement plans.

We have clients who can’t understand why anyone would not go with a Medicare Advantage plan over a Medicare Supplement plan.

We also have clients who can’t understand why anyone would not go with a Medicare Supplenent plan over a Medicare Advantage plan.

At the Wade Agency, we are neutral.

Our role is to help our client to be fully informed as to the advantages and disadvantages of each approach, so the client can be comfortable with his or her choice.

Please call us at (913) 440-9637 for a no-charge consultation.

 (The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

•  I remember a TV advertisement in which a nice older gentleman (not much older than I, now that I think about it ) was confiding in his 30 something year old daughter. The young woman seemed confident and professional and her Dad told her that he was worried that he may run out of money before he ran out of life.

• I remember a rather graphic TV scene in which a politician was pushing someone’s grandmother off of a cliff in her wheelchair while the voice-over warned of the intentions of certain politicians to do away with Medicare.

 PLEASE!!

 If politicians have learned anything, they have all learned not to mess with the most faithful voters in our society.

•  I remember hearing people say that we Baby Boomers would each need at least $1 Million in our retirement account in order to retire, unless we had some generous pension on which to rely.

About 10 years ago, a friend who was about my age and who was still raising his family told me that he had heard that $1 Million estimate. He had concluded that, since he had little hope of accumulating that much money, he and his bride would both have to work until they die, even if their health would decline.

Did you ever hear about the people who actually made money buy going into neighborhoods and warning about a plague of venomous snakes, and would ‘remove the snakes from your house’ for a fee?

Most of us know that fear can be a powerful motivation, but if the person who is afraid doesn’t get to know something about that which scares him or her, the fear is likely to become destructive.

I’ll bet you agree that most things are not as scary when you understand them.

One of our clients, who was shooting for that $1 Million plus retirement account had an unwanted surprise in his career. We discuss his situation on our blog posting entitled Retirement Planning Case Study #1. While George (not his real name) was in his mid 50s his lucrative career came to an abrupt end. Of course, he didn’t manage to accumulate the $1Million as planned. Not even close!

We did an analysis for George and Dorothy (not her real name either). We projected how their assets, such as they are, will serve them in their retirement.

If you read the Case Study at the link referenced above, you can see their story. The summary is that George and Dorothy are going to be just fine.

What a pleasant surprise!

Even though they didn’t accumulate the nest egg they had in mind, they had done a few other things right along the way.

It isn’t always the case that the analysis we do for our clients indicates that they’ll be ‘just fine’ with things as they are.

Sometimes changes need to be made.

Even when people need to change a few things to prepare for a comfortable retirement, they usually find that the resulting peace of mind is priceless because they understand the nature and size of the challenge before them.

We didn’t charge George and Dorothy for the analysis. It’s done using a computer-based model and it doesn’t really involve much work. We just plug in numbers from various sources into the model and are able to project how changes and events that may occur will effect our client’s plans.

I’ve been asked why we don’t charge for the analysis. It’s a little like how a retail store will offer services to get people into the store. Chances are if you go into a store enough times, you’ll see something you want or need. We’re the same way.

We have some very effective products and services to offer. People are more likely to want our products and services when they know how they apply to their individual situation based on real knowledge rather than fear and uncertainty.

 (The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

Most Annuities are never ‘annuitized’, meaning the owner of the annuity never turns on the switch which begins a lifetime stream of income that doesn’t stop until the annuitant dies. There are two things that cause some people to never turn on the switch:

1. The annuity doesn’t pay anyone any additional money when the annuitant dies.
2. Once the annuitant turns on the switch, the switch cannot be turned off, meaning, whether the annuitant needs the money for income or not, an income will be paid, rather than a legacy to the annuitant’s heirs.

In the last few years the idea of an Income Rider was introduced.

An Income Rider allows the annuitant to take income from his or her annuity for a while, and then turn the income flow off, leaving the funds that are not paid out in an accumulation account that can be passed on as a legacy, or withdrawn in a lump sum or several lump sums.

So as you can see the Income Rider solves the two problems with the annutization process mentioned above.

We believe that it is very important to note that since an Income Rider is additional insurance, you pay for the income rider, usually by diminishing the accumulation value of your annuity.

So, we believe that it’s very important that you determine the likelihood of the need for income from your annuity.

If it’s more likely that you will want the accumulation value of your annuity to pass on to your heirs, you won’t want to pay for the income rider.

Some objections to following the logic mentioned above are as follows:

• The Income Rider is included with the annuity at no additional charge

 No additional charge doesn’t mean the same as no charge. If the income rider is there, you’re going to pay for it. The cost of income riders is not trivial, and unless you’re fairly confident that you’ll want to use the income rider, you may not want to pay for it.

• I don’t know whether I’ll need income from the annuity or not.

We can help you get closer to knowing whether you’ll want income from your annuity by running a calculated projection of how your retirement funds will play out. The projection will take into consideration many considerations such as market downturns, the need for Long Term Care and many others. If it turns out that you’re fairly certain that you want your annuity for income you may find that a Single Premium Immediate Annuity (SPIA) is a better buy for you. The SPIA is designed exactly for someone who wants a predictable income for life. It’s an option that should not be overlooked, because it’s likely to offer more value to the person who is certain that her or she is more interested in a lifetime income from the annuity than leaving a legacy from the annuity.

It’s a good idea to ask your agent to run a projection that will give you an idea of how much of the accumulation value of your annuity will be diminished by the cost of the income rider, before choosing to add an income rider.

Remember that an income rider is insurance and insurance companies and insurance agents like to sell insurance. It’s up to you to decide whether you want to buy the additional insurance, which is what an income rider is.

In summary, there is no one annuity, or investment vehicle that is the best for every situation. The decision as to what financial instruments should make up your retirement portfolio should result from serious study by you and your trusted advisor.

Long Term Care, unfortunately is something many of us would rather not think about.

I see many people who are Baby Boomers (I’m a Baby Boomer).

 (The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

When the subject of Long Term Care comes up, many of us have ways of dismissing the subject. Sometimes we joke about how we’ll let that be the State’s problem, or that’s how we’ll get even with our kids etc.

It’s my business to listen to people and it’s my business to understand the issue, so here’s some insight that you might find helpful:

• Long Term Care does not necessarily mean Nursing Home care.

Only about 10% of the people needing Long Term Care are in nursing homes.

• Many of the people in nursing homes aren’t there because they need nursing home level care.

Many who are in Nursing Homes are there because the only Long Term Care for which the State will pay (under Medicaid) is care in a Nursing Home. Most of the people in Nursing Homes would be better off in a different kind of facility such as an Assisted Living Facility, or at home with assistance, either licensed professional assistance or non-licensed aids. For every person in a Nursing Home, there are 6.8 people with the same level of need, receiving care in a different kind of facility.

• The cost of Long Term Care in places like home, or Assisted Living Facilities is a great deal less expensive than care in a Nursing Home.

For example a stay in an Assisted Living Facility costs about half of what a stay in a Nursing Home costs. We know people in Nursing Homes and we know people in Assisted Living Facilities. Unless a person is very sick, he or she would most definitely rather be in an Assisted Living Facility. My 97 year old aunt is in an Assisted Living Facility and she is enjoying this chapter of her life there.

• The idea that ‘Our kids will take care of us’, may not work as well in today’s culture as it once did.

Families today are very busy. Our children love us and wish the best for us. Even though they may find joy in caring for us when we can’t care for ourselves, they are stressed more now than ever before. There’s a strong possibility that the people on whom we would rely, would be employed because they need the income. They also need and deserve a break. You’ve heard of the ‘sandwich generation’, the generation of people who’s not quite grown children still require much care and attention (maybe more than ever) and who’s parents require much care and attention. I don’t meet many people who want to squeeze their adult children in this way. For this reason, there are more people in adult day care then in child day care. This is not a bad alternative, but it costs money.

So how much do the different alternatives for Long Term Care cost?

Genworth has prepared a Cost of Care Survey

for 2011. It’s an excellent source of information regarding the cost of all kinds of Long Term Care, including Homemaker Services, Adult Day Care, Assisted Living Facilities and many others. It’s broken down by state and it shows the rate of cost increase over the previous year.Contact us from this web site, or call us at (913) 440-9637 for a free copy.

What are the ways to prepare for the Cost of Long Term Care?

I. Long Term Care Insurance

. If you’re like me, you’ve heard horror stories about Long Term Care Insurance from the early days of the existence of this kind of insurance. The Insurance companies who have continued to offer Long Term Care insurance over the last 20 years have learned much, and state departments of insurance have stepped in to insist that citizens are protected. For example, State Departments of insurance do not permit Insurance Carriers to increase premiums as the carrier’s cost if insurance increases. This eliminates one of the more serious problems with early Long Term Care Insurance policies. Of course, you and your trusted agent should carefully review your policy for any exceptions to this rule.

There have been many innovations in Long Term Care Insurance like:

• Return of Premium. If you decide to change your mind and cancel the policy after a few years, before you file any claims, some policies will return all the money you have paid in premiums.
• Benefit Sharing among couples: if a husband and wife purchase Long Term Care Insurance with a financial limit per person, the other spouse’s benefit can be used by the person who needs it.
• Partnerships with the state in which the state has agreed to protect the amount of money paid by an insurance plan in Long Term Care Benefits to be protected from the infamous Medicaid Spend-Down that can consume a person’s assets in the unfortunate event that he or she must resort to a Nursing Home under the state’s Medicaid program.

II. Long Term Care Riders on Permanent Life Insurance Policies and Annuities

Many Permanent Life Insurance Policies and Annuities offer riders which allow the insured to withdraw a portion or all of the Death Benefit of the Life Insurance Policy or Annuity to pay for Long Term Care. Of course, you usually don’t buy such a policy for Long Term Care, but the rationale is that you would have bought the policy anyway for other reasons and it’s better for you and your loved ones of the money that would have been a wealth transfer to you heirs is used to pay for the Long Term Care that you had hoped you would never need. This approach doesn’t suit everyone’s purpose, but you may want to look at it, and we’d like to help you look at it.

When considering such a rider for the purpose of paying for Long Term Care, you and your trusted agent should thoroughly read and understand the conditions under which the funds will be made available for Long Term Care. Important considerations include making sure the funds can be used to pay for care at home, adult day care, or care in an Assisted Living Facility etc, for the reasons discussed above.

We believe that a matter as serious as Long Term Care Planning should be addressed in a thoughtful discussion with a Trusted Advisor who is well versed in Long Term Care. We do not believe it is prudent to secure a quote for Long Term Care Insurance from a web site and apply for a policy without such a conversation.

We’d welcome a chance to have a no obligation discussion with you regarding how to plan for Long Term Care. Only after we understand your concerns, will we be in a position to make a recommendation.

Please contact us through this web site, or call at (913) 440-9637 to arrange a conversation.

It’s not a new concept. It’s an under-appreciated concept. The fact that it’s built on a Life Insurance platform, has caused many of us to go no further in exploring this option as a retirement strategy. That’s too bad because this strategy can be very beneficial for many. And that’s an understatement.

 (The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

I’ll keep this discussion at a very high level and in non-technical conceptual terms.

You are probably aware that Life Insurance death benefits are not taxable. In today’s financial management parlance, we like the term ‘wealth transfer’ more than the term ‘death benefit’ because it seems less morbid.

Now you may be thinking that being dead is not what you have in mind when you think of retirement.

 Me too.

There are cash value permanent life insurance policies called Universal Life insurance policies that have been around since the early 1980s.

With a Universal Life policy you don’t have a fixed premium to pay for your death benefit (wealth transfer). You pay premiums into a ‘bucket’ of money’ from which the premiums for the death benefit are taken. If your bucket of money accumulates more money than is needed to fund the premiums for your death benefit, the excess money will become your accumulated cash value. The idea is to ‘over-fund’ the bucket, to grow your cash value tax deferred.

The excess money in the bucket can grow, and with certain types is guaranteed to grow while insured against loss. There are ways (very popular) to give your bucket an opportunity to grow when the securities market grows, while insuring your bucket from loss during market downturns. When the bucket grows you pay no taxes on the growth. The growth of your bucket of money is tax deferred, which means that you pay taxes if you withdraw the money.

Here’s one of the keys of the tax free retirement concept:

• You don’t have to make a taxable withdrawal to get the use of your money for retirement. You can borrow your money from your bucket and pay little or no interest on the loan. You have borrowed the money from yourself, and you don’t’ need to pay it back.

The purpose of this article is not to get ‘down in the weeds’ regarding how this is done, but it works, and it has become a legitimate practice.

The money in your bucket that you don’t borrow, becomes part of your death benefit (wealth transfer).

We are learning that more clients that we might have imagined, are very concerned about the legacy that they will leave to their loved ones or favorite charity. The wealth transfer is also tax free.

So now we have explained the concept. Of course there are more details that we’ll want to explain as we get closer to a live analysis. Patrick Kelly’s National Best Seller Tax Free Retirement is an excellent presentation of this concept that provides more detail about how this concept can be implemented, but it’s still in layman’s language – not in insurance technical language.

We would be happy to run (at no charge) a set of illustrations from Insurance companies that offer Universal Life Insurance policies to show you how such a vehicle might serve your goals for Tax Free Retirement.

We would also be happy to run (also at no charge) a calculated projection of your overall retirement plan to see you your current plan is likely to play out.

We believe that there’s too much at stake in Retirement Planning to ‘fly by the seat or your pants’ and cross your fingers, hoping that your plan is adequate. Today, we have the technology to actually project what’s likely to happen, taking into consideration how your plan will stand up to things like major market downturns, serious illnesses, the need for Long Term Care etc.

Let us equip you fly with an ‘instrument rating’, the insrument being an

How does it work?

It’s not a new concept. It’s an under-appreciated concept. The fact that it’s built on a Life Insurance platform, has caused many of us to go no further in exploring this option as a retirement strategy. That’s too bad because this strategy can be very beneficial for many. And that’s an understatement.

I’ll try to keep this discussion at a very high level and in non-technical conceptual terms.

You are probably aware that Life Insurance death benefits are not taxable. In today’s financial management parlance, we like the term ‘wealth transfer’ more than the term ‘death benefit’ because it seems less morbid.

Now you may be thinking that being dead is not what you have in mind when you think of retirement. Me too.

There are cash value permanent life insurance policies called Universal Life insurance policies that have been around since the early 1980s.

With a Universal Life policy you don’t have a fixed premium to pay for your death benefit (wealth transfer). You pay premiums into a ‘bucket’ of money’ from which the premiums for the death benefit are taken. If your bucket of money accumulates more money than is needed to fund the premiums for your death benefit, the excess money will become your accumulated cash value.

The excess money in the bucket can grow, and with certain types is guaranteed to grow while insured against loss. When it grows you pay no taxes on the growth. The growth of your bucket of money is tax deferred, which means that you pay taxes when you withdraw the money.

Here’s one of the keys of the tax free retirement concept:

You don’t have to make a taxable withdrawal to get the use of your money for retirement. You can borrow your money from your bucket and pay little or no interest on the loan. You have borrowed the money from yourself, and you don’t’ need to pay it back.

The purpose of this article is not to get ‘down in the weeds’ regarding how this is done, but it works, and it has become a legitimate practice.

The money in your bucket that you don’t borrow, becomes part of your death benefit (wealth transfer).

We are learning that more clients that we might have imagined, are very concerned about the legacy that they will leave to their loved ones or favorite charity. The wealth transfer is also tax free.

So now we have explained the concept. Of course there are more details that we’ll want to explain as we get closer to a live analysis. Patrick Kelly’s National Best Seller Tax Free Retirement is an excellent presentation of this concept that provides more detail about how this concept can be implemented, but it’s still in layman’s language – not in insurance technical language.

We would be happy to run (at no charge) a set of illustrations from Insurance companies that offer Universal Life Insurance policies to show you how such a vehicle might serve your goals for Tax Free Retirement.

We would also be happy to run (also at no charge) a calculated projection of your overall retirement plan to see you your current plan is likely to play out.

We believe that there’s too much at stake in Retirement Planning to ‘fly by the seat or your pants’ and cross your fingers, hoping that your plan is adequate. Today, we have the technology to actually project what’s likely to happen, taking into consideration how your plan will stand up to things like major market downturns, serious illnesses, the need for Long Term Care etc.

Let us equip you fly with an ‘instrument rating’, the instrument being an updateable calculated projection of your retirent plan.

(The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

They’ve been married over 40 years and for about 20 of those years, Dorothy was a stay-at-home Mom. She then took on a job as an administrative assistant, which she still has.

George had a somewhat successful career and started funding an IRA account after their kids finished college. It seemed that they would be able to acquire an adequate nest egg until an in involuntary career change came upon George while he was in his mid 50′s (he is now self-employed). Then the IRA contributions stopped and their combined IRAs hold about $186,000.

They asked us to run an analysis of their current retirement outlook. When we first addressed the subject, their expectations were not very positive.

Below are some important things about their current situation:

• The mortgage on their house will be paid off in early 2014 and they have a small second mortgage (the second mortgage was taken when George was starting his business and  will also be paid in 2014).
• They don’t have car payments and are accustomed to buying good used cars that will last for several years.
• They live a moderate life style – they go out to dinner with friends occasionally, but don’t take expensive vacations and don’t have expensive hobbies.
• George can work in his field beyond age 65, and doesn’t mind the prospect of working a few more years. He hopes that Dorothy can retire from her job before age 65. Dorothy would like to dedicate her time to being a grandma and to volunteer work.

First Step

We ran a Social Security timing analysis and learned that the greatest payout from Social Security for George and Dorothy would be to turn on full Social security benefits for both of them would be when George is 68 and Dorothy is 67. The resulting lifetime payout with this strategy would generate over $113,598 more income in Net Present Value Dollars than the least beneficial strategy, which would be to turn on Social Security benefits when they each reached their 62^nd birthday. Because George can keep working until age 68, the best strategy can work for them.

Second Step

We entered George and Dorothy’s projected Social Security income information and the information about their current retirement funds into our Computer Model, which produces a calculated projection of the retirement outlook of a couple or an individual. We also entered their living expense information, including adjustments for projected inflation and the expense changes that will occur when their mortgages are paid off.

Third Step

We ran the computer model with the assumption that George and Dorothy would need 100% if their current income, adjusted for inflation and paid off mortgages to receive a projection of how their retirement funds would hold up for the rest of their lives.

Fourth Step

We asked the computer model to throw curve balls at George and Dorothy’s retirement plan. The curve balls included

1.  Another Great Depression like the one we had in the 1930s
2. George enters the nursing home at age 80 and stays there until his life ends at age 84.
3. George dies before age 70.

The Outcome

George and Dorothy were surprised to learn that they would be able to live at their current lifestyle even with inflation, on their Social Security Income with several hundred dollars per month to spare.

They certainly didn’t expect that!

The surprising good news is largely due to the facts that they’ve stayed on track to be debt free by age 67 and that George can keep working until age 68.

A major economic downturn, even one like the Great Depression, is not likely to effect George and Dorothy’s lifestyle.

Since the income on which George and Dorothy will rely will not be tied to the securities market, a major market downturn will not change their income. In fact, the calculated projection estimates that George and Dorothy’s funds would exceed $1.3 Million if they were to pass away in 2032. This is due to George and Dorothy’s earlier decision to put most of their retirement funds into Fixed Indexed Annuities, which are back-tested to yield over 5% per year growth and are insured against loss of principle. For an explanation of how this works, please click on  The Benefits of Annuities to see our entry on Annuities.

They learned that even if George needed to be confined to a nursing home from age 80 to age 84 and they needed to withdraw some money from their retirement funds, their retirement funds would still be worth over $400,000 (inflation included)

While the nursing home expenses would be quite substantial, George and Dorothy’s earlier decision to put most of their retirement funds into Fixed Indexed Annuities would serve them well by continuing to grow their money by about 5% per year, while insuring their principal from loss during market downturns (to learn more, click on The Benefits of Annuities to see our posting in Annuities.

They learned That if George were to pass away,Dorothy’s income would be more than adequate, assuming that her expenses as a widow would not exceed 80% of their combined expenses.

NOTE: The purpose of the analysis is to determine how George and Dorothy’s current retirement plans will play out. While a discussion of Long Term Care Insurance may be appropriate, we will only have that discussion after a full evaluation of their current plan.

BY THE WAY, we didn’t charge George and Dorothy a nickel for this confidential analysis. We don’t charge anyone for this service. It’s our way of getting to know the right people.

A unique generation. We Boomers have  faced many challenges together.

Now we’re confronted with the challenge of retirement planning – most of us within the next 10 years or less.

These are turbulent times.

We’ve been through turbulent times before.

So what are some of the Retirement Planning Issues that confront Baby Boomers?

(The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

Social Security

Most of the experts believe that those of us who are 55 and older will receive our Social Security benefits, even if there is a major restructuring of the ‘entitlement’

When to take Social Security?

The Wade Agency offers Baby Boomers information and services that will help you to determine the optimum timing of Social Security (See Social Security Timing ).

Investment, Protection and Distribution of Retirement Funds for Baby Boomers

• In the last 75 years, the S&P 500 grew 10.37 % per year (Compound Annual Growth Rate).
• In the last 10 years, the S&P 500 grew 1.31 % per year (Compound Annual Growth Rate), or -1% adjusted for inflation.

So it seems that the Securities Market is a Great place to put money for the Long Term.

Time smoothes out the bumps.

What about the money we may need in the next 10 years?

We might call this
Low Risk Tolerance Money.

We Boomers will want to find a way to Insure from Loss the money we’ll need in a shorter time-frame and still enjoy growth when the market grows.

During the last 10 years, when the S&P 500 grew 1.31%, many Insured Retirement Investments are back tested to yield over 5% (during some of the worst of times in this generation), While they are insured against loss.

The choices:

• 10.37% growth if you have many years to let it grow
• Possibly 1.37 growth, or worse if you need you money in the next 10 years
• Guaranteed growth, Guaranteed principal, average growth over 5% if you need you money in the next 10 years

The Strategy for Baby Boomers:

Since investments that have significant growth potential by nature can have short-term volatility and actually lose value in a 5 or 10 year period, we find an investment vehicle that is insured against loss and still offers some of the growth that the market enjoys during the good times.

The Rule of 100

A ‘rule of thumb’ that is generally accepted that says that you should subtract your age from 100 and the difference is the percentage of your retirement money that can be in the high risk/high gain category. For example, if you’re 55, the rule implies that 45% of your money can be in high risk/high gain investments and that the rest should be in very secure investments.

With today’s technology, performing actual calculated projections based on your individual circumstances (retirement funds, pensions, social security etc) and your individual goals, and so such a rule of thumb, while helpful, may not be something on which we need to rely.

The Tactics

• We work with you to prepare a calculated projection of how your retirement plans will play out to determine if there’s a need for a more secure investment with growth potential for the part of your retirement funds that you’ll need in the next 10 years or so.
• We carefully consider the suitability of any approach we recommend. For example:
  1. We don’t want to suggest that you sacrifice the opportunity for growth for investments for which there may be a higher risk tolerance.
• 2. We want to make sure that we do not limit access for funds to which you may need immediate access within a year.

There is no fee for our computer based calculated projection.

If we can be of assistance with any of these issues, please contact us.

(The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

When I decided to become an insurance agent, I purposed to always be prepared to explain my suggestions and recommendations.

If I recommend life insurance or my client expresses interest in life insurance, it’s very important that we understand the client’s goals.

If a client’s family cannot financially afford the loss of the income produced by one family member for a finite period time, a term life  policy may be morer suitable than a universal life policy. A term policy is likely to be the most affordable way to replace that person’s income if the coverage is needed for a finite period of time. The assumption would be that by the end of the period for which the policy is in effect, the family would be able to manage without the income that the insured person produces.

When may Universal life insurance be a good idea?

Uiversal Life Insurance is a more expensive way to get a death benefit, which is paid to designated beneficiaries in the event of the insured’s death but it has the advantage of being permanent. So what are some conditions under which a uiversal life policy is appropriate?

• When you would like to pass an amount that is much larger than your premium as a tax-free legacy to your heirs, a charity or institution, you might want to consider a Universal Life policy.
• When you would like an amount that is much larger than your premium to be available to pay for Long Term Care, or available as a tax free wealth transfer to your heirs if you don’t encounter Long Term Care Expenses, you might want to consider a Universal Life policy. Many universal  life policies offer access to part or all of the death benefit to pay for Long Term Care while the insured is still alive. Such a feature can protect the insured and the insured’s family from catastrophic expenses and severe emotional stress.
• When you would like to withdraw the accumulated value of a Permanent Life Policy as Tax Advantaged Retirement Income, you might want to consider a Universal Life policy.

A Universal Life policy is likely to require that the insured  undergo underwriting so the Insurer can manage the risk. Typically, the advantages of a permanent life policy, like most life insurance policies are not available if the insured is not in good health.

As with any type of retirement funding instrument, a Universal Life  policy should be evaluated in the context of your entire retirement plan.

Today’s technology has given us the ability to perform a confidential calculated projection of how a retirement plan will play out according to our client’s goals and other considerations. The process of loading a client’s data into the projection system is relatively simple, once the client’s data is gathered. The output of from the system is complete and easy to understand. We can test the projected performance of our client’s retirement plans based on hypothetical situations such as one or two major market downturns or the need for Long Term Care for a client or a client’s spouse.

We do not charge for the calculated projection service.

Annuities are widely used today in retirement plans, however you may be surprised to learn that they are not used the way the Romans used them.

(The Wade Agency will perform a calculated projection of how your current retirement plans are likely to play out under the best and the worst of circumstances. There is no charge for this service and the projection can be run again anytime your circumstances change. Just contact us to set up an appointment).

Fixed Rate Annuity

Originally called an equity-indexed annuity, a fixed rate annuity or fixed index annuity generally guarantees a minimum return on your original investment. But, with a fixed rate annuity, the investor can still lose money if they cancel the policy early and their performance is usually tied to a stock market index such as Dow or S&P. A plus for fixed rate annuities is that most do not have a fixed rate of return, but a gauranteed minimum rate and a first year introductory rate. The first year rate can be determined by the insurance company, but in most cases has a minimum amount of 3%.

Life Annuity

A life annuity is meant to provide an income for life for the annuitant and works similar to a loan made by the purchaser to the inssurance company. It pays back the original untaxed principal with interest to the annuitant which the life annuity is based. The period of the loan is based against the annuitant’s expected life.

Most Annuities Are Never ‘Annuitized’

Because when you annuitize, or turn on the annuity payments from you annuity policy, you can’t turn the payments off and the payments stop when you die. Nothing is left for your heirs or even your spouse.

So, why are annuities becoming such a popular part of many retirement plans?

Some of the benefits of annuities that have attracted those planning for retirement are

Tax Advantage – A Benefit Of Annuities

Annuities can grow based on interest credited or securities market growth but are not taxed until the funds are withdrawn from the annuity. Therefore, since the all of growth of the annuity is reinvested back into the annuity for more growth and not diminished by annual taxation, more of your money is left in the annuity by which to compound the growth. The IRS is not getting the money as you earn it. The IRS only gets to collect on your growth after you’ve compounded the value of your fund for as long as you keep it in your retirement fund. Compare this tax-deferred growth to the growth of another safe investment, a Certificate of Deposit (a CD). If you own a CD, you will receive a 1099 income statement every year, which indicates income taken for that year and will go toward your taxable income for that year, even if you leave your money in the CD after realizing the growth. So you are paying taxes each year on the growth that your CD has realized that year and the money you pay in taxes is no longer available on which to compound growth of your retirement fund.

Insurance Of Your Principle

Fixed Annuities and Fixed Indexed Annuities insure your principle against loss. Fixed Annuities are credited each year with interest according to a Declared Interest Rate.

Fixed Indexed Annuities are Fixed Annuities that have the added dimension of an index that will track one of the market indexes, such as the S&P 500 and will credit an amount which is equal to part (not all) of the amount by which the market index grows. However, when the value reflected in the market index diminishes, the amount that you have accumulated in your Fixed Indexed Annuity does not diminish.

There is another class of annuities called Variable Annuities. A variable annuity includes an account that is invested in securities. Thus, the value of variable annuities can swing widely – both up and down. It’s possible that a variable annuity will enjoy even more of a market upswing when the securities market grows than will a Fixed Indexed Annuity. However, the value of variable annuities can actually decline to a level below the principal that you invested, so the consideration of insurance against loss that is enjoyed by fixed annuities and fixed indexed annuities, does not apply to a variable annuity. In fact, a Variable Annuity is considered to be a security.

When may Fixed Indexed Annuities may be an appropriate part of a Retirement Funds Portfolio?

When you may need some of the money in your portfolio within the next 10 or 15 years and you’d still like it to grow in value.

In the last 75 years, the S&P 500 grew 10.37 % (Compound Annual Growth Rate). This fact illustrates the value of the securities market for funds that will not be needed for a long time. It’s no secret however, that the securities market may not yield the same growth when asked to perform over a shorter period of time. During the last 10 years, when the S&P 500 grew 1.31%, many Fixed Indexed Annuities have been back tested to yield over 5% per year for the same 10 year period. This is because, during the periods when value of the market has gone up substantially and then gone down almost as substantially, the value of the funds in the Fixed Indexed Annuity only experienced upswings realizing part of the market upswing, but never losing value when the market lost ground.

When May Fixed Indexed Annuities Not Be Appropriate?

• Fixed Indexed Annuities are probably not appropriate for funds that you will need to withdraw within a year, because there is usually a surrender charge applied for any funds withdrawn within the first year from the date the annuity is issued. Bank instruments, in which the funds are FDIC insured and can be accessed in a shorter time should be considered.
• Fixed Indexed Annuities are probably not appropriate when you will need access to most or all of the money invested within the first few years from the date when the annuity is issued. To cover the costs incurred by the insurance company when issuing an annuity, there is a contract period that may be five to 10 years. During the contract period, you can generally withdraw up to 10% of your money per year from your annuity without any surrender charges.

Taking Income From Annuities

As mentioned above, most annuities are never annuitized, that is most owners of annuities don’t turn on the annuitizing function, which will pay the annuitant a fixed amount of money each month until the annuitant dies. This is because owners of annuties usually

• Don’t want to lose control of when the money in the annuity is dispersed
• Don’t want to lose the growth benefits of the annuity
• Would like to have a chance to pass the money in the accumulated value of the annuity on to a spouse, an heir, a charity or an estate.

Income Riders

In recent years the Income Rider has been introduced to Fixed Annuities and Fixed Indexed Annuities.

An Income Rider is a way for the owner of the annuity to start receiving income and stop receiving income from the annuity at will, thus eliminating some of the disadvantages of annuitizing (see above) while still providing lifetime income. Income Riders have emerged in the last few years and are very popular.

CAUTION: It’s important, however to point out some possible reasons for which an income rider is not a good idea.

In the insurance world, anything that is called a rider could also be called ‘additional insurance’. The insurance company will charge for the income rider when it is added to an annuity, even if the insurer states there’s no additional charge because sometimes the income rider is built into, and priced into the annuity. If you get an income rider, you will pay for it. The cost of the income rider is most often deducted from the accumulated value of the annuity, leaving less money for you to withdraw, or pass on to your spouse or to your heirs.

When considering an annuity, one should consider if he or she is likely to ever want to take income from the annuity. If income is to be taken, perhaps a better way to take income from the annuity is to simply withdraw the funds and eliminate the cost of the income rider.

So, what information goes into making this decision?

Glad you asked.

Today’s technology has given us software that equips us to prepare a calculated projection of how your retirement plans will play out and, based on your goals and your resources, whether, when and how you’ll ever want to take income from your annuity.

The input includes your assets, any pensions if you have them, your projected social security payments (we have software to project that too), your current income etc.

The output of the software will project how well your existing plan will work if everything goes well, if there are special challenges like a market downturn or two, or if you or your spouse need Long Term Care.

If the output indicates that you might want to make some changes to your plans, it’s very easy to run the projection again, taking the changes into consideration.

PLEASE NOTE:

We don’t believe it’s wise for any professional who gives counsel regarding Retirement Planning to state that annuties are always a good idea, or that annuties are never a good idea. Annuities have their place, but the decision to purchase an annuity, or what kind of annuity to purchase requires careful consideration.

Long Term Care is a term that encompasses all of the services that a person needs when he or she has lost the capacity for some of the Activities of Daily Living (known as ADLs in by the community of care givers, care administrators and Insurance Companies).

The list of these activities is generally recognized as the following:

• Bathing
• Dressing
• Toileting
• Transferring i.e. to or from a bed, a chair or a wheel chair
• Continence
• Eating

A personal situation that often results in the need for Long Term Care may or may not include the loss of the Activities of Daily Living mentioned above, but comes from the cognitive impairment that can come from Dementia or Alzheimer’s disease

Loss of some of the Activities of Daily Living is seen as a loss if independence and Long Term Care is most often defined as the care needed to minimize the effects of the loss of independence.

Most people who need Long Term Care would rather receive such care in their own home, as opposed to being confined to a facility such as a nursing home or assisted living facility.

Society in recent decades has caused families to become scattered geographically and very busy (in most cases today, there is not a spouse who remains at home during the daytime). Delivering Long Term Care to aging or sickly family members who may have lost some of their Activities of Daily Living has become a daunting and often troubling challenge.Many families have purposed to provide for the needs of their loved one, only to become overwhelmed with the demands as time goes by. The struggle has sometimes resulted in feelings of guilt, resentment between family members and loss of the comfort of family closeness on which most of us rely.

Often there was not a good alternative to the family based model of care because health insurance and Medicare does very little to pay for the services needed to deliver Long Term Care.

Sometimes the only alternative to the care-at-home-by-family idea that didn’t work out, was to rely on the government funded Medicaid Nursing Home approach. This government funded option came with its own problems, such as

• The environment in the Nursing Home may not measure up to the family’s hopes.
• In order for the person in need of care to receive the government funded care, he or she had to be ‘impoverished’, owning almost no assets. Once becoming impoverished, the nursing home residency would very likely become permanent, due to the lack of financial ability to live anywhere else.
• Often the Medicaid Certified nursing home would be in a less than ideal location, making visits by family and friends difficult.
• Since most people who have lost Activities of Daily Living are not in need of the intense level of care provided in a nursing home, often the nursing home was not a suitable environment for the person in need of care. A relatively lively person with one or two physical challenges would be confined in a facility with people who were largely bedridden.

Along came the Insurance Companies

Two or three decades ago, Long Term Care Insurance began to address the need for Long Term Care. Insurance companies began to offer plans that would pay Nursing Home Expenses to address some of the problems that were encountered when the person in need of care was confined to a nursing home.

There were two major challenges that early Long Term Care insurers encountered:

• It would be difficult to determine how to price the plans and how much reserve money the insurer would need on hand to cover claims. Insurance company actuaries are very talented, but experience is required to make good projections. Some of the companies needed to request large rate increases, which were not always granted by the individual states, and some decided that they could not continue to offer Long Term Care insurance plans.
• The early plans didn’t compensate for the expenses incurred when the person needing care was not confined to a Nursing Home but would receive licensed or unlicensed, skilled or unskilled care at home (at home care is the choice of most Long Term Care recipients), or perhaps in an Assisted Living Facility, which generally costs half of what a Nursing Home costs and is often (based on the situation of the person needing care) more suitable than the Nursing Home.

The Evolution of Long Term Care Insurance

Long Term Care Insurance has come a long way in the last few years.

There are innovations in Long Term Care Insurance that are designed to pay for the needs for Long Term Care when the services are provided at home by skilled or unskilled personnel (often friends and family members), an assisted living facility or an Adult Day Care service (there are more people receiving Adult Day Care services than there are children receiving child day care).

There are insurance companies who have learned how to offer good Long Term Care insurance plans that provide the coverage needed by their members while still making a profit (necessary to continue to offer coverage).

Partnership Plans

Many states have developed Long Term Care Partnerships. Such Partnership Plans in the event that a care recipient receives Long Term Care under the state’s Medicaid Program, will allow the care recipient to retain an amount of personal assets equal to the amount previously paid in claims by the recipient’s Long Term Care Policy. This of course gives potential Long Term Care recipients an opportunity to protect their personal assets while still having the safety net of the state Medicaid program. The partnership programs, by giving potential care recipients incentive to make arrangements to pay for the possible need of Long Term Care, reduce the financial exposure of the participating state for the costs of Long Term Care.