Annuities? The lunch may be delicious, but it's not free.

I personally invest a significant portion of my retirement in index annuities; in fact, I believe they provide me with one of the best options available to protect my principal while giving me a lot of the upside of buying stocks.

Nothing, however, comes without costs.  The price one pays for the advantages of annuities is giving up liquidity for an extended period of time, usually ten years.  Annuities should best be used as part of a diversified portfolio that provides a lot of liquidity from other investments.

Contrast this with buying stocks directly: Common stock gives one a lot of potential upside, but also a lot of downside, including losing a lot or even most of your money overnight.  You can sell out and get cash at any time, however. Buying an annuity can give you a similar upside while removing the downside in the long run.  The cost of such protection, however, is to give up the ability to withdraw all of your money before the surrender charge period (e.g. 10 years) is over.

Here is an article I saw this morning about an elderly Pennsylvania woman who put too much of her money into annuities without being fully aware of that she was tying up that portion of her money.

You can access the article by clicking on the picture below:

I highly recommend the New York Times 7-minute workout

It's really effective and quick.  Try it out.  This is enough exercise to achieve a substantial health benefit for most people.

Please click on the icon below to access it.

Developing crisis in MassHealth. Gov. Baker makes cuts.

The MassHealth budget is out of control.  The Baker administration is seeking to limit the number of people on MassHealth/Medicare by eliminating "fraud."  In the past year, according to  MassLive, 250,000 people have been eliminating from the roles.  Homecare Services, provided by the Department of Elder Affairs, has grown by 41% ($178mn) over the past year as the state has been encouraging home care as an alternative to the more expensive nursing home option.  Fraud is suspected.  A moratorium on new health care providers has been declared.

MassHealth is gradually bankrupting the Commonwealth.  What is to be done?  I, for one, don't know.

You may access the article on Mass Live by clicking the picture below:

Six Massachusetts cities are now with the program: age-friendly cities

Six Massachusetts cities have joined the age-friendly-city initiative of the World Health Organization as part of the AARP Age Friendly Network.  Here is the list.  You may access the article by clicking on the list.

Age friendly cities commitment to maintaining an infrastructure that makes life more agreeable for seniors. This would include such things as benches at bus stops and signs with larger letters.  It also includes opportunities for part-tie employment, the availability of senior housing and transportation. Small things can make a large difference in the ability of seniors to "age in place."

Massachusetts 50% above the national average for nursing home costs

The long term care association that goes by the name LTCG has just released its annual survey.   It finds that the national average nursing home cost is $100,000.  I would note that since Massachusetts costs $150,000+ per year for a nursing home, we manage to combine very high cost with below average quality of care.  What is our state's special magic?

The press release can be seen by clicking on the logo below:

Pay rise coming for Mass. Nursing Home Aides? They now earn average $13/hour.

Governor Baker's proposed budget has an extra $30 million intended to provide for higher pay among nursing home aides.  These staff members now average $13/hour in the Commonwealth.  This is a positive development because it shows that the MassHealth/Medicaid is starting to shoulder a bit of its burden in nursing home pay.  Right now what happens is that the private pay patients (roughly 1/3rd) are simply charged more to cover the rising costs of the Medicaid patients.  The private pay patients are now paying $5000-$6000/month extra to cover the costs of the Medicaid patients. (In some states Medicaid pays its full share, but Massachusetts is very big on all sorts of hidden taxes, of which the private pay patient cost is a very big one.)

The Boston Globe story can be accessed by clicking on the link below:

The best and worst states to retire: New England states all in the worst half

Wallethub has evaluated the fifty states and the District of Columbia for their relative desirability as retirement venues.  Florida ranks #1 because it is the second cheapest place (after Wyoming) in the US, has a high quality of life, and reasonably good health care.

Massachusetts has a good quality of life and good health care, but it's the pits for affordability. Rhode Island ranks worst in the US, by the way.  All the New England states are like Massachusetts to one degree or another, however.

The study is worth looking at.  You may access it by clicking on the picture map below:

Should home health care workers get time and one-half for overtime?

This is an interesting question for me as a 97-year-old relative has 24-hour home health which consists of two women/day each working a 12-hour shift.  Federal regulation recently provided for Medicare payments of overtime to home health workers.  Of course, to come into effect, the states must agree to shoulder their half of the costs.

This is an issue in Illinois, which is facing a severe financial crunch.  The result is in doubt, but one unintended consequence may be to limit the hours of home health care available to seniors.

You may click on the photo below to read the article.

MassHealth/Medicaid gets even more aggressive in seizing seniors' assets

MassHealth is now asserting that assets given to properly and legally established irrevocable trusts are still a senior's assets even though they haven't owned them for years in order to deny him or her nursing home benefits.  (It's as if they disqualified you because you have a vacation cabin in Maine even though you gave it to your daughter or cousin twenty years ago.)  Will nothing stop them in their drive to reduce the elderly to abject poverty?  Why are we the only advanced country in the world to do this? The answer is this: the system is broke and officials are under the gun to cut costs.

Here is an analysis of a disturbing recent case by Sarah Foster of Margolis & Bloom. (Click on image to read.)

Zikra virus epidemic spreads

The virus causes babies of pregnant women who contract it to be born with shrunken brains.  The epidemic has become widespread in South America and the Caribbean.  Pregnant women are advised not to travel to these regions.

The governments of Brazil and Colombia have advised women not to get pregnant.  El Salvador has advised against pregnancy until 2018.  (Click on the picture below to read the USA Today's article.)

Retirement is a lot cheaper than working, according to the Motley Fool

It is common wisdom that a retired couple should have at least $1 million in liquid assets for retirement. The Motley Fool argues that they could have a decent retirement with $500,000 plus social security.  Their calculation is based on the following:

1. Income from the $500k at 4%, for $20k/year.
2. Social security of $24k/year

This results in $44,000/year in income.  They go on to enumerate retirement expenses and find that this income would work. There are a few challenges for someone living in eastern Massachusetts, like us. They are estimating housing costs of $1232/month,but for us to stay in our present house it would cost $3,000/month.  Of course, we could move to an apartment in the western part of the state, which would be a lot cheaper.

It's an interesting article.  You may wish to review it by clicking the picture below:

http://www.fool.com/retirement/general/2016/01/25/heres-what-the-average-retired-americans-budget-lo.aspx

Big pharmacies take on big pharma to lower drug prices

Big drug buyers like Express Scripts and CVS/Caremark are refusing to buy certain drugs where alternatives are available to force drug makers to lower prices.  Here is an interesting example:

Express Scripts dropped Advair, a popular asthma drug, and offered its customers Symbicort instead. As a result, Glaxo dropped the price of Advair and Symbicort went down, too. This is a welcome development.

(To read the full NPR article, click on the above graph.)

Survivor: the IRA strategy

Famed IRA guru Ed Slott has given us a quick summary of 7 key IRA tax strategies that you can review in five minutes.  One in particular caught my attention: a surviving spouse who is younger than 59 1/2 should not combine his IRA with that of his spouse because withdrawals from a spouse's IRA by a survivor are not subject to the 10% penalty on withdrawals.  It all adds up, and retirees can't afford to leave any money on the table.

This and the other 6 strategies can be review in Investment News by clicking on the egg picture below:

"Murder for a quick paycheck"

Slate magazine reports a particularly disturbing story of an unscrupulous health worker defrauding the elderly in China.  He Tiandai, a 45-year-old female care worker came up with the following scheme.  She negotiated a deal with an elderly person's family to care for her or him that included the provision that she would receive a full month's pay for any month within which the client died.   She then proceeded to kill the client with a few days and collect the full monthly rate, thus boosting her monthly income considerably.

Let us hope that such instances are rare.

To read the full story in Slate, please click on the picture below:

Sanders' Plan would cover nursing home costs for all seniors

Bernie Sanders has issued a brief "white paper" giving his plan for national medical insurance.  He would simply extend Medicare to everyone and add coverage for vision, dental, and nursing home care.  (You may click on Bernie's picture to access the white paper.)

Medical insurance costs for the average family would drop 90% to a maximum of $466/family. 

The simplicity of the program should result in some cost savings.  (He estimates $600 billion a year in savings out of the  $3000 billion currently spent annually.)  Half of the cost of the program would be paid by taxes on workers and their employers and half by soaking the rich through higher income taxes, estate taxes and taxes on investment.

We may argue about how to pay for the plan, but it has the benefits of simplicity and extending coverage to nursing homes.  This would, on the surface, appear good for seniors.

Message to seniors: Take a hike!

The New York Times reports, in an article named "Goodbye, Golf Clubs.  Hello, Hiking  Boots and Kayak." that over 20% of participants in some of the organized long-distance hiking expeditions are over 60.  Some are in their 80s.  The articles leads off with the case of one Dave Roberts, who is on a 3,000-miles solo hike around Texas.  (Click on the picture below to read the full article.)

Yogi Berra once remarked, "Thinking is 90% mental."  So is aging.

Nursing Home Costs: Let's Make a Deal!

I recently read an article that reminds us that a private pay patient in a nursing home or assisted living facility can and should negotiate on price.  Since a private pay patient is probably paying 2x-3x as much as as a Medicaid patient, facilities are eager to have private pay patients.  Not all will negotiate, but those without long waiting lists are sometimes amenable.

Here is a quote from the article, which was in US News & World Report:

"Negotiating Long-Term Care Costs
Most nursing homes won't lower their rates, which are keyed to the payment levels offered by Medicare and Medicaid. Still, there's sometimes room to negotiate when it comes to long-term care costs. "Sometimes, rather than accept a lower Medicaid rate, a facility will agree to take a lower private pay rate, which is still higher than the Medicaid rate but lower than published private pay rates," says Howard Krooks, president-elect of the National Academy of Elder Law Attorneys. By contrast, assisted living facilities, which don't take Medicare or Medicaid, and home health agencies often face steep competition, so consumers shouldn't be shy about talking prices with these organizations. An assisted living facility with a high vacancy rate or no waiting list may be more willing to negotiate a monthly rate, according to Genworth. If you're considering a home health agency, you may be able to secure a lower hourly or daily rate if you indicate that you're shopping around for the best price."

Click for article on paying for nursing home care

A spoonful of sugar makes the elderly go down.

The BBC reports that the British National Health Service is introducing a 20% tax on sugary drinks to discourage consumption, and the government is considering doing the same nationally.

The article can be accessed by clicking on this link: http://www.bbc.com/news/health-35340752

It says, among other things, the following:

• There has been growing concern about the damaging impact of sugar on health - from the state of people's teeth to type-2 diabetes and obesity
• Sugar has been blamed for providing "empty calories" because it has no nutritional benefit
• Government advisers recommend no more than 5% of daily calories should come from sugar
• That is about 1oz (25g; six or seven teaspoons) for an adult of normal weight every day. For children, it is slightly less
• The limits apply to all sugars added to food, as well as sugar naturally present in syrups and honey
• To put this in context, a typical can of fizzy drink contains about nine teaspoons of sugar

What strikes me is that one can of soda has more extra sugar than one should get from all sources in a day.  That means that each can of soda with sugar brings us closer to the nursing home confinement we are seeking to avoid.  Good health begins with good diet.

Why the social security crisis in the US is worse than in any major country in old Europe

Prof. of Economics Laurence J. Kotlikoff of Boston University testified last year to the Senate Budget Committee.  He presented a paper that argued convincingly that since the federal government has been spending instead of saving workers' social security payments for so many decades, paying the promised benefits will be impossible without dramatic and immediate action.  (Personally, I do not believe that taxes can be raised enough to save the system as is.)

I urge you to read this brief but very clearly reasoned essay.   You may access it by clicking on the icon below:

Seniors are moving into retirement communities with their even older parents

The New York Times has an interesting article about a 71 year old who moves into a community with his 95 year old mother.  This is a great solution and is increasingly common.

Click on this photo to read the New York Times article:

Rule of thumb from Fidelity: Your retirement savings should be 10x your final income

I just read an interesting article on retirement savings by Andrew Biggs in Forbes.  He discusses the Fidelity rule of having liquid assets of 10x one's final income and drawing down 4.5%/year for life and combining this with a social security calculation to determine retirement income levels.

Here is a table from the article:

For retirees who were earning up to about $120,000 this works out, since "experts" say that one should aim at replacing at least 70% of one final income in retirement.

I liked this approach because it sets a clear and easily-understood goal.

The full article can be found at http://www.forbes.com/sites/andrewbiggs/2016/01/14/more-mistaken-retirement-crisis-claims-this-time-from-fidelity-investments/#2715e4857a0b2853dd162998

Using reverse mortgages, immediate annuities and longevity insurance in combination for retirement income

Here is an article by a retired Wharton Business School professor on using reverse mortgages, immediate annuities, and longevity insurance to increase retirement income and to assure that it will last as long as you live.  He says nothing new, but it's a good reminder.

The article was found at http://www.abqjournal.com/705814/biz/real-estate/the-mortgage-professor-life-annuities-and-hecm-reverse-mortgages-as-tools-for-protecting-retirees.html

Lincoln

The Mortgage Professor: Life annuities and HECM reverse mortgages as tools for protecting retirees

By Jack Guttentag / The Mortgage Professor (TNS)

Thursday, January 14th, 2016 at 9:03am

My article last week discussed the longevity annuity as a tool for protecting retirees heavily dependent on a stock of financial assets against the risk of running out of money. The retiree in my example was 65 and had assets of $600,000 from which he could draw $3,000 a month until reaching age 100, at which point his assets would be fully depleted — not a happy prospect for someone who might live that long. But this retiree could use $200,000 of his nest egg to purchase a longevity annuity that began payments of $3,000 after 10 years, which would eliminate the risk of impoverishment.

ADDING A HECM REVERSE MORTGAGE CREDIT LINE

If the retiree described above had equity in his home, he could draw on a reverse mortgage credit line to strengthen his retirement further. A $200,000 line, for example, if added to his other financial assets, would extend the period within which he could draw $3,000 a month without running out of money until he was 110. This would eliminate the need for a longevity annuity, but would very likely leave considerable money in his estate.

An alternative would be to increase his monthly draw from $3,000 to $4,000 and insure the continuity of the payment by investing $150,000 in a longevity annuity. The credit line of the reverse mortgage — the home equity conversion mortgage is the Federal Housing Administration’s reverse mortgage program — could be viewed as the payment source for the annuity.

In sum, the retiree dependent on a stock of financial assets could use a HECM credit line either to increase security as a replacement for longevity insurance, or to increase spendable income with a longevity annuity used to provide security.

USES OF A HECM BY RETIREES DEPENDENT ON PENSIONS

Retirees with equity in their home, who depend on pensions rather than a nest egg of financial assets, can supplement their pension income using a HECM reverse mortgage in either of two ways. One way is to exercise the “tenure” option under the HECM program, and receive a fixed annuity payment for as long as the retiree remains in the house. The second way is to exercise the credit line option, using some or all of it to purchase an immediate annuity from a life insurance company. (Note: An immediate annuity begins payments in month one, where the longevity annuities discussed earlier delay the payments until a future date.)

I shopped both options in early January 2016 for a female of 70 with a house worth $400,000 and no existing mortgage. Under the tenure option, she could draw $1,256 a month. This is the largest amount available from any of the 11 reverse mortgage lenders who report their prices to my website.

Alternatively, she could select the largest credit line available from those lenders, which was $224,280, and use it to purchase an immediate life annuity from an insurance company. The largest such annuity available from nine AA-rated companies that report to www.immediateannuity.com.was $1,349. Note that these purchases must be done in two stages because part of the HECM credit line is not available for 12 months.

ADVANTAGES AND DISADVANTAGES OF THE TWO APPROACHES

While the HECM tenure annuity pays less than the life annuity, the borrower retains ownership of the reserve account underlying the annuity. This allows her to change her mind after a few years and switch to a credit line for the reserve amount still available. And if she dies early, the remaining equity in her home goes to her estate. On a life company annuity, in contrast, early death terminates all payments unless the policy has a guaranteed payout, which would reduce the annuity amount.

In addition, the HECM tenure annuity is guaranteed by the federal government. The life company annuity is only as good as the promise of the insurance company, loosely backed by state guarantee programs. Defaults on annuities, however, are extremely rare.

On the other side of the ledger, if the borrower gets sick and has to go to a nursing home, the HECM annuity will terminate after a year of non-occupancy. That’s why it is called a “tenure payment” rather than a “life annuity.” The lender takes the house after the year and sells it, with any equity remaining going to the borrower’s estate. With a life company annuity, in contrast, the senior could be in a nursing home indefinitely without shutting off the annuity.

REGULATION OF LIFE ANNUITY PURCHASES WITH HECM FUNDS

At an early stage in the evolution of the HECM market, some seniors were induced to take out mortgages for the express purpose of purchasing life annuities. The loan officers involved earned two commissions, and the needs of the senior were often disregarded. As a result, a law was passed that in effect prevents a lender from disbursing funds at the closing that will be used to purchase an annuity.

But the law is not an impediment to seniors whose retirement plan includes the purchase of a life annuity from an insurance company. They need only to take a HECM credit line at closing, then draw on the line later to pay for the annuity. This keeps the HECM transaction and the annuity transaction separate, as they should be, and allows the senior to shop for them separately.

——

ABOUT THE WRITER

Jack Guttentag is professor emeritus of finance at the Wharton School of the University of Pennsylvania. Comments and questions can be left at http://www.mtgprofessor.com.

The "Village" can keep seniors in their homes longer, or indefinitely!

Most retirees would like to spend all their remaining days at home.  This once was how things actually were, but ending one's life at home has become less and less practical as families have become smaller, women have entered the workforce, and children have dispersed.

There is a movement, however, that seeks to return things to the happy state of yore: The Village Movement. This is a membership organization, with annual dues of between $500 and $1000, in many cases, that has a paid core staff that coordinates among the members, who generally live in the same town or neighborhood, to provide mutual help and services.  It is, in fact, an extended family.

I am very excited about this movement, which already has hundred of villages in the US and abroad, and which represents and important solution to some of the main practical problems of old age.

Here is an article on the subject (click on picture):

Here is map of some locations in our region:

Glib answers to retirement problems don't help if you're already retired, but they're worth thinking about if your still working.

A recent Huffington Post article listed five things that retirees don't want to hear; these "solutions" to retirement problems are favorites among those not yet retired and serve mainly to allow those still working to avoid preparing for the future.  Most of us still working are like Scrooge in The Christmas Carol by Charles Dickens and need someone like Marley, who was already dead, to come back to warn us about the problems that await.

Here are the five things retirees don't want to hear.  We should think about them before retiring.

From the Huffington Post.  http://www.huffingtonpost.com/entry/5-things-retired-folks-dont-really-want-to-hear-about-retirement_568fe521e4b0a2b6fb6fc359?4wws714i=%2F


5 Things Retired Folks Don't Really Want To Hear About Retirement

1. "There really isn't a retirement crisis."

You know about Holocaust-deniers, right? Well now we have retirement crisis-deniers. For years, pretty much all the studies and surveys have predicted a tsunami of trouble for baby boomers when they retire. We've been told that the combination of our increased longevity, the loss of our jobs in the Great Recession, and the fact that we've been spenders -- and not savers -- for most of our lives was going to unleash the greatest financial crisis since the bankers did or did not jump from the skyscrapers in 1929. Even among Americans aged 55 to 64 who do save,Motley Fool says the median value of their retirement accounts is a mere $103,000. And that doesn't factor in the millions who have not saved a nickel.

But now, along come the deniers. Andrew G. Biggs -- an American Enterprise Institute scholar who served as deputy commissioner of the Social Security Administration under President George W. Bush -- recently wrote an Alfred E. Neuman "What, me worry?" column in the Wall Street Journal in which he decries any such justification for public panic. He talks about stuff like what percentage of your paycheck Social Security needs to replace, how that formula should be calculated, and other things that will make your eyes glaze over.

But this line, everyone will understand: "Add in 401(k) and other plans, and it should not be difficult for a typical worker to achieve a total replacement rate of 70 percent or even 80 percent through individual savings and Social Security benefits."

Right, except for the millions who aren't covered by a 401(k) or any other plan. A recent report by the Employee Benefit Research Institute put the median amount of a 401(k) plan at $18,433 and noted that almost 40 percent of employees have less than $10,000 invested. Older workers, who have been trying to save for longer, have more. At Vanguard, for example, the median for savers aged 55 to 64 in 2013 was $76,381. That's it. And, no offense intended, that will hardly be enough. 

Me? I prefer to just look at the dollar amounts and ask where it is exactly that an elderly person in America can afford to live on $1,335 a month, which is the average amount of a Social Security retirement check.

2. "You should have saved more instead of expecting Social Security to bail you out."

This is a big "No shit, Sherlock" moment. OK, we should have saved more. Right. Got it. Point taken. But some of us didn't, and now what? Are we really prepared to mandate death squads for the elderly to avoid the unpleasantness of watching them go hungry or having them gobble up too much of Medicare? Seriously, what's the solution going to be? Wagging a finger at people who worked their whole lives and lived paycheck-to-paycheck doesn't seem to further the discussion much, does it? Let's make the assumption that most people did the best they could and it clearly wasn't good enough. Now what?

For many, Social Security is what stands between them and the curb. And besides, they paid into it, so give them back their money.

3. "Why don't you find a part-time job if you need more money?"

Happy to, right after we address the problem of age discrimination that runs rampant in the job market. People in their 60s can't get hired. Most say they would be happy to keep working to feather the nest a bit more, but first they need to be able to find a job. And they can't. The EEOC twiddles its thumbs while companies advertise with blatantly biased language like "seeking someone young" or "digital native" or "a recent college graduate."

Forty-four percent of unemployed workers 55 or older had been unemployed for more than a year in 2012, a Pew study reported. And while older workers have a lower unemployment rate overall because they tend to leave the workplace when they lose their job, the ones who are job-hunting find the process an uphill struggle. Maybe what we need is a jobs corps program for those 60+. Wouldn't it be great to flood our overcrowded classrooms with teacher's aides?

4. "Ageism isn't a real thing. It's just that your skills are genuinely out-of-date."

What skills would those be? The ones that cause us to be dependable, bring decades of experience and knowledge to the job and actually have fewer "bad days in the office" than our younger colleagues? Oh yeah, and technology isn't really all that scary. 

5. "Well, at least you get free health care!"

There isn't much free about Medicare. Part A, which is the part that covers in-patient hospital care, indeed in most cases does not charge a premium. But it does have a lot of tricky rules. For example: If you don't spend two midnights as an admitted patient, you get handed the full bill. And even when you make the two-midnight clause, you still get to pay a $1,288 deductible. The rest of Medicare -- parts B and onward -- all have premiums, copays and deductibles. Plus Medicare covers you and you alone. If you have a younger spouse, he or she will not be covered just because you are. They too must be 65. Same issue for your dependent children. Most employers' plan have options to cover the whole family.

Also on HuffPost:

Changes in Social Security Benefits in New Budget Law

The new budget reduced benefits for seniors that were previously available.  Specifically, the extra money that could come from claiming spousal benefits under the "file and suspend" strategy is gone. Previously, one spouse could file for social security and then suspend his or her receipt of payments so his benefits could increase at about 8%/year until he/she started taking them at age 70.  The spouse could, however, receive spousal benefit from the time of filing.  Except in a few case, this great benefit has been eliminated.  (Also  gone is the ability to recoup all of the foregone income in an emergency.)

There are some example of how this works in this article from the Financial Engines blog:  What Married Couples Need to Know about the Latest Changes to Social Security.

Disturbing Massachusetts court case for seniors with life estates

A "life estate" is the right to live in a house or apartment for the rest of one's life even if that property is owned by someone else.  If a person sells or gives away a property but retains a life estate, lawyers believe the property no longer belongs to him legally even though he can still live there.

This is important in nursing home planning because MassHealth/Medicare will not pick up any of the costs until the individual is without any assets.  (i.e. destitute)  Using irrevocable trusts and life estates has been a popular way of preserving property in the family when one member needs lengthy care in a nursing home.

A Massachusetts court recently ruled that a house that had been placed in an irrevocable trust many years ago was still a "countable asset" for MassHealth/Medicare calculations and thus disqualified an elderly man who had retained a life estate in the property from financial support.  This court decision was contrary to previous ones and may be overturned, but it could pose a problem in long-term care planning.

Attorney Harry Margolis has analyzed this case.  You may read his report by clicking on this link:

Zero real interest rates are a major problem for retirees

The income that can be generated from savings keeps falling and is now approaching zero for safe investments.  There was a time when $1 million in liquid assets would assure a reasonably comfortable retirement, but no longer.  Things could get even worse, however.  In Switzerland banks are charging people for savings accounts.  Some banks in the US are doing the same for large institutional accounts.

As a result, investors have been crowding into risky high-yielding stocks and junk bond funds.  These stocks and bonds have been dropping in value of late.  If retirees become concerned enough about losing their principal, prices could drop precipitously, at least for a time.

Now is a time to exercise caution even if it means foregoing income for awhile.