Long Term Care Planning, Already?

This week, I attended two of three classes provided by a financial planner who specializes in retirement and estate planning. I've learned A LOT!!! And "A LOT" doesn't do justice to the wealth of information I've gained. In this post, I'll share a few of my favorite bits of information from the long term care insurance presentation:

• Long term care (LTC) insurance is purchased to cover expenses related to care in home, continuing care retirement communities, assisted living and nursing homes.
• The majority of long term care is paid for from Medicaid,  followed by out of pocket expenses from the customer and/or their family.
• Medicare and Medigap (health care for people age 65+ (and younger, in some cases, ex. disabled persons)) does NOT cover long-term care expenses.
• Medicaid (health insurance for the impoverished) does cover LTC expenses. For a single person (1-person household) aged 65+ years (someone who is considered to be "aged"), to be eligible in my state of residence, you cannot have assets valued at more than $2,500 and a monthly income no greater than $350.
• Policies can be purchased based on the amount of money a person's care would be on a daily basis and for how many years such care would. Additional features -such as inflation protection, age and health at time of purchase, individual and shared plans, restoration of benefits- impact the cost of a policy.
• The Federal government will enact the CLASS Act (beginning late 2012 or early 2013) to help Americans prepare for the expense of long term care. Here's a summary of the the Community Living Assistance Services and Support (CLASS) Act from AARP.
• Some states have "partnership programs" that incentivize the purchase of long term care policies.

I'm so fired up about this topic! I'm interested in learning more about this product so I can discuss it with my parents as they prepare for full retirement.

Have you heard about long-term care insurance? 

Have you talked about it with your parents/loved ones?

Do you know someone who has purchased a LTC policy? 

What was the experience like?

A Post Full of Pictures: Ups and Downs

A quick update before I get started...

In the August net worth update, I wasn't sure if I had had a recent contribution. I didn't. As promised, I double checked, and my most recent contributions were on 08/05 and 07/20. I wrote the August update on 08/02 and the July net worth update was posted on 07/20 ;)

Now on to today's post...(in pictures screenshots)

The past few days have looked like this....

Am I stressed? Nope. Why? Mostly because I don't intend to access the money in my investment accounts for another handful of decades. Additionally, in that time, I plan to allocate my assets (and diversify within asset classes) to reduce my exposure to equities (I'm thinking pet rocks might be a good bet in my older age, but that business sounds vaguely familiar...). It also doesn't hurt that my investments (outside of my 403b) outperformed the S&P 500 and DJIA =)

Would Anything Change?

While searching for insights into small groups working on financial goals, I came across a website called WealthGathering.com. The article that popped up is titled "Social Wealth: Can Facebook Friends Affect Your Wallet?"

In short, the article discussed influence, social contagion, and a few tips on how to maintain one's financial sanity in the midst of a social snowstorm. A specific tip on how to maintain one's wealth habits is to "Share your savings goals with a select group of friends using a tool like SmartyPig.com." I started to think, what if people shared a few other things on more public forums (ex. Facebook, Twitter), say for example, your current credit card balance (and limit), balance in checking account, balance in savings account (compared to one's goal for that account), or the last time you made a contribution (and amount) into a retirement account.

I recognize that money is still on the list of "taboo" topics, yet I wonder what would happen if people openly shared a few indicators of their financial health (and, most importantly, their goals). Would anything change? Would people start paying off their credit card balances in full? Would people start saving on a more regular basis? Would they increase the amount they save?

Although I have no data to support it, I suspect that a "I'll-show-you-mine-if-you-show-me-yours" display of financial health might encourage us to change for the better. At worst, people would be so annoyed/ashamed and "unfriend"/unsubscribe/etc.

What are your thoughts? 

Would you change your financial behaviors if your friends shared theirs? 

Do you think your friends would change their financial behaviors if you shares your own?

I Spend Less than 75% of My Income

Lately, I've been thinking about how fortunate I am to be able to spend less than 75% of my income on necessities (housing, transportation, food, debt repayment, etc.) In fact, I am currently spending just over 71% of my income (or $1,999.46/month). The $785 left over goes towards the car payment that I obsess over (hooray for principal-only payments!). Later, it will go towards my savings goals. 

I'm happy about these circumstances for a few reasons. First, I've made some updates to my income, and throughout each update, I am able to stay on track with my "financial success plan." Specifically, when I started this blog, my net income was $1,389.01/pay period; later, because of recent and temporary changes to the payroll tax, that amount increased to $1,417.23/pay period; finally, I increased my contributions to my 403(b) thereby reducing my net pay to $1,392.23 each pay period.

Secondly, I am happy about this fraction of spending because it confirms that I can live well within my means. For example, I think a lot about increasing my income and how I would spend it (one of my other 'obsessions' is writing budgets of how I would spend $5,000 and $7,500 of monthly net income). Even with increases in housing expenses (assuming that I'd be a homeowner with thousands more at my disposal) and modest increases in my food, travel and miscellaneous expenses, I'd still be able to pay extra toward my student loan debt, max out the Roth AND max out the 403(b).

Finally, I think about the high percentage of Americans who live "paycheck-to-paycheck." These are folks who spend every cent they earn, leaving very little- if anything at all, for savings or additional debt payments.

Ultimately, my goal is to spend 50% or less of my income. And considering that I aspire to live a comfortable lifestyle (i.e. consistently save at least $10K a year in non-retirement/non-investment accounts, max out individual and employer-sponsored retirement accounts, and travel domestically and internationally every year), I MUST increase my income. I better get started thinking about how to do that....

What percentage of your monthly income do you want to spend? What percentage of your monthly income do you currently spend? What's your plan for achieving your goal?

February Net Worth Update

Here's this month's summary explanation:

Assets

403(b): (+2356.90) I recently updated my 403(b) contributions from $100/pay period to $125/pay period. You'll notice that the $4300+ listed next to this account is more than double what I posted last month. Well, I finally got around to accessing my account. When I first started my current job, I received an email (which I didn't print; nor did I receive any mailed copies) of my customer ID. This ID number allowed me to access my account to view my balance, change asset allocation, and a bunch of other stuff related to employer sponsored retirement accounts. Unfortunately, since receiving that email, my work computer crashed and my laptop was later stolen. And I hadn't backed up a single thing. 

At any rate, I finally got around to calling my plan's sponsor to retrieve my customer ID. Now, I have access to my account and can see all the money I (and my employer :>) have been contributing. By the way, my job contributes up to 4% of my salary to my account, and I'm making sure to get every last penny of it!

Emergency Savings: (+111.57) I'm still not contributing funds to this account on a regular basis. However, I moved $111.17 into this account from my Bank of America savings account because I earn a higher interest in this account...and I didn't have any plans for the excess. I earned $0.40 in interest this past month (versus the typical $0.01 from BofA).

Regular Brokerage Account and Roth IRA: (+117.07) The increases in these accounts are attributed to market increases (i.e. the value of my investments increased). Starting February 4th, every two weeks I will deposit $25 to the Roth IRA. It's not much, but I figured I could cut out some frivolous spending for something of more value. I can't wait to supercharge these deposits!

Savings Account: (-24.87...and other deposits through January) I deposit $25 plus any money left in my checking account at the end of a pay period into this [BofA] savings account each month (I like to match my pay checks with "expense periods," a sort of personal billing cycle). I previously mentioned that I moved some "excess funds" from this account into my emergency fund.

Liabilities

Car Loan: (+300.96) I'm chugging along with eliminating this debt. I'm halfway through paying off this account in 18 months. Had I stuck with the assigned payment amount, I would be halfway through my debt in 31 months.

Credit Card: (+433.33) I paid off the previous balance using funds set aside for my super-duper car payment (just as I suspected). Hooray for no credit card interest charges. Boo for compromising the debt reduction plan for the car. I intend to pay off the current small balance with funds in my checking account and BofA savings.

Student Loan: (+98.26) Hooray for a principal reduction of ninety-eight bucks (sarcasm). I can't wait to unload this sucker, too!

Considering that my liabilities are close to 3.5 times more than my assets is a bit discouraging. At the same time, it's a reminder that I need to work harder to improve my financial situation.  

What do you think is an appropriate balance between assets and liabilities?

Life Expectancy & Retirement Savings Goals

Many people are challenged by the question "how much should I save for retirement?" One of the primary obstacles to answering this question is being able to predict how long one might live. Also, who wants to face the fact of their own mortality? Nevertheless, I came across a handy-dandy life expectancy calculator at MSN.com. According to the quiz, I should prepare to live to 102 years old (or more). That means I have 76 more years of living...woo hoo!! It also means that - assuming I retire at 67 years old (perhaps the new normal for retirement age for my generation?) - I will need to prepare for at least 35 years of income. That's quite a bit of time...

Naturally, my next step was to use a retirement calculator to get an idea of how much money I should aspire to have (at a minimum) for retirement. Here are the results from CNN/Money's Retirement Calculator:

 

"YOUR NEEDS

In retirement, you will need $36,400 a year in income. (Because of inflation, in 2051, that will be equivalent to $122,300.) 

Part of that income will come from your Social Security and/or pensions. To produce the rest, you should build up your nest egg (including your 401k, IRA and other savings accounts) to $306,084 by the time you retire. (In 2051, that will be equivalent to $1,028,413). 

YOUR CHANCES OF GETTING THERE

To save $306,084, your investments need to gain an average of 3.04% from now until retirement. We estimate that there is a 100.00% chance of this happening."

Sadly, I think the idea of Social Security benefits being paid out to me is laughable, so I should prepare to pick up the $21,825 in expected yearly benefits. Currently, my only retirement contributions are $100 per pay period (i.e. 2800/year) to my 403(b) (luckily, I receive a partial match from my employer). I am not actively contributing to my Roth nor my regular brokerage account because I'm focusing my funds on debt elimination (well, my car note; I also have a massive student loan). That said, the idea of living past a century and having to save and invest early to be prepared for it is a bit daunting to me. Suffice it to say, I am well aware that I have to get a 'move on' with significantly increasing my contributions (to the employer-sponsored plan, IRA and regular brokerage account).

How do YOU take the intimidation out of retirement planning?

Why Aren't People Planning?

Have you ever had a financial premonition and were scared poopless? What were the circumstances and how did you deal with it?

I had such a moment when I participated in Dave Ramsey’s Financial Peace University at a local church (the first of 13 sessions). There were about 20-30 people in attendance, quite a few couples and only a handful of folks under the age of 30. We were asked to share our names and why we decided to attend. Stories poured forth about middle-aged individuals coming to the sudden realization that they had to find a way to pay for their 17 year old’s college education, prepare for a dignified retirement or dig out of mounds of consumer debt. In those moments, I thought to myself that there is no way that I would want to be in a similar conundrum. What’s more, these folks could have been in better [financial] circumstances if they had done one thing: plan. I recognize that recent market activity has wrecked havoc on retirement accounts, savings and other investments (I hear my family discuss how such activity has impacted their plans). I am not naive to the reality that folks have been losing jobs, either. In fact, my godmother has been through a few temporary employment stints in the past two years and she still hasn’t procured a permanent position.

I contend, however, that the individuals who planned (and executed their plans) fared better than those who did not plan (and execute) at all. Sadly, my observation about the company I was in during this class was that most of them failed to plan, altogether. Further, I find myself frustrated with individuals who find themselves in the "sudden" predicament of having to make a big purchase....and they haven't prepared for it.....and they're still spending money on random things (oh yeah! we just decided to go to Atlantic City this weekend to gamble and go shopping). So this forces me to ponder, how much time do people think they need to prepare for major expenses and how much time do they actually need to prepare for such expenses? Major  expenses = buying a home, paying for college, preparing for retirement, eliminating debt, etc. From my perspective, there are many people who are slacking on the finances, however, I could be overreacting. ..like this dude:

What do you think?

A Little Extra Something...

I got a check, I got a check, I got a check, hey hey hey hey! I received a reimbursement check from my job and I don’t know what to do with it. By no means is it a tremendous amount- it’s a modest $66.80- but I’m still scratching my head as to what I should do with it. Normally, I apply such checks to my credit card balance. But I don’t have a credit card balance (yippee!). I could blow the money on something beauty-related (like this maybe?). Go out to eat. Put it in my savings account. Put it in my Roth or brokerage account. Give it away. Or let it sit in my checking account just for the sake of it.

What do YOU think I should do with my $66.80?

Contribute or Screw it?

I can’t believe that I got so caught up on having a little bit of spending money that I completely neglected a time-sensitive goal. You see, when I revised my debt reduction plan so that I would pay off my car note by the end of February 2011, I figured I’d have $1245 for March and $350 for [the first half of] April 2011. My plan was to place this amount ($1595) into my Roth IRA. In a previous post, I listed maxing out my Roth IRA as a goal; by sticking to the “$1245/month” plan, I would be $2288.75 short of reaching this goal. (i.e. reaching $5,000; I've contributed $1,116.25, to date). Well, since I’ve updated my debt reduction plan (i.e. reduced my monthly car payments from $1245 to $1045) and paid off my credit card, now I won’t pay off my car until the beginning/middle of April 2011.

And the issue about my goal being time-sensitive? The IRS won’t allow me to make contributions to my Roth IRA for 2010 past April 15, 2011. Each year, I’m allowed to contribute a maximum of $5,000, and I would like very much to begin the trend of doing this sooner than later (I gotta have my money "in the game!"). Going forward, this will be a cinch, because I won’t have a car payment and credit card debt sabotaging my savings.

So, what should I do? Here are a few ideas that crossed my mind:

1) Contribute. Postpone my car payoff date and restore contributions to max out the Roth. If I did this from November 2010 through March 2011 (5 months), I would make my regular car payment ($269.11) and would contribute $776.75 to the Roth (5 months times $776.75 equals the $3,883.75 needed to reach $5K). Additionally, I’d be able to pay off the  car loan by  the end of October 2011 if, starting May 2011, I paid $729/month to the note (includes minimum payment).

P.S. I'd max my 2011 Roth by saving $316/month from May 2011 to October 2011 ($1896), $535/month from November 2011 to March 2012 ($2,675) and including the $430 overpayment for the car note from October 2011.

2) Screw it. Get $625 per month ready for every month starting May 2011 in order to max out the account for 2011 and pay no additional interest on the car loan.

Update: I had my garage sale! Okay, so I probably shouldn't put an exclamation point after that statement, considering that my operation got shut down with a quickness (who knew I couldn't have a sale on the storage company's property? I knew I should have read the contract!) Nevertheless, I earned $93 for my goods and spent less than $50 renting a pick up truck to transport the "leftover" goods to a nearby Salvation Army. Hooray for $97/month restored to my budget!!!

Don’t Get Punked by Retirement Calculators

I found myself toying around with a retirement calculator on money.cnn.com to see how long it would take for my nest egg to reach $1,000,000. It asks for current amounts in taxable and tax-deferred accounts (check out the May 12, 2010 podcast for more info about these types of accounts), what you anticipate saving for those accounts and your best guess at an annual rate of return. I typed in $5,000 for taxable and tax-deferred accounts each and annual contributions of $12,000 for taxable accounts and $16,500 for tax-deferred accounts [this is the 2010 maximum contribution for tax sheltered annuities such as the 401(k), 403(b), 457)]. I left the federal and state income tax rates unchanged (28% and 6%, respectively), as well as the annual rate of return (8%). 

Guess how long it would take before I attained millionaire status? 4 years and 9 months (5 years and 1 month, if adjusted for inflation). Now you might check out this tool and run the same numbers that I did, but I assure you that your answer will be different. Turns out I inadvertently typed an extra “0” in the yearly contributions for the taxable accounts (i.e. my $16,500 became $165,000!). Good thing I had the sense to double check my entry. I mean, I love compound interest, but dang! That calculation was simply astronomical! 

At any rate, these calculations got me to thinking about retirement. I was a bit disheartened to read Money magazine (one of my favorite personal finance publications) this month...they published an article on “7 ways to a richer retirement” (reading it spurred my visit to the website’s retirement calculators in the first place). In the accompanying magazine pull-out, the scenarios STARTED for people who are in their early to mid thirties. I recognize that Money is simply appealing to their target audience, but good golly! I think to my 26 year old self “[35] is a bit late to BEGIN seriously planning one’s retirement!”

What do you think? Am I overreacting or is their an "appropriate age" to begin planning one's retirement?

After all, I wouldn't want to be like Frank...

Update: In the previous post, I asked if I should take funds from my savings to stay on track for my debt reduction plan. I did not transfer any funds. Instead, I've made my regular payment ($269.11) and an additional principal only payment of $445.89 (total September payment = $695). The resulting loan balance is $8,483.81. If I remain "on track" (i.e. make no additional principal payments to compensate for this month's payment and go forward paying $1045/month), I will have a balance of $167.97 in April 2011...and I'll be a little late reaching my my anticipated pay off date. I'll keep you posted!