Archive for April, 2009

Strange But True: Claim Social Security Now, Claim More Later

Posted on April 28, 2009 by admin

Center for Retirement Research at Boston College - April 27, 2009


Introduction


Under Social Security, married individuals are entitled to a retired worker benefit based on their own earnings and/or to a spousal benefit equal to one half of their spouse’s benefit claimed at the Full Retirement Age (currently 66). If a married individual claims before the Full Retirement Age, the Social Security Administration assumes that the individual is claiming both types of benefits, compares the worker and spousal benefits, and awards the highest. Upon reaching the Full Retirement Age, individuals can choose which benefit to receive. As a result, married individuals can claim a spousal benefit at 66 and switch to their own retired worker benefit at a later date. This approach allows a worker to begin claiming one type of benefit while still building up delayed retirement credits, which will result in a higher worker benefit later.


In the past, providing these benefit options for spouses was not particularly valuable, since those who postponed benefits beyond the Full Retirement Age were giving up expected lifetime benefits. With the recent advent of an actuarially fair delayed retirement credit, lifetime benefits are roughly the same whether claimed at the Full Retirement Age or at age 70. As a result, today the availability of benefit options has real value for couples and therefore inevitably increases the cost of the Social Security program.


This brief describes how the procedure can benefit married couples, estimates how much it could cost the Social Security Administration on an annual basis, and characterizes those most likely to take advantage of the option. The conclusion is that the procedure could cost as much as $9.5 billion per year and a significant amount of that additional money would go to households in the upper portion of the income distribution.


Calculating Spousal Benefits


Under current law, married individuals are entitled to retired worker benefits based on their own earnings or, if they have no earnings, they receive 50 percent of their spouses’ Primary Insurance Amount (PIA). If they have some earnings, the spousal benefit is used to “top up” the worker benefit so that the total equals 50 percent of the spouse’s. The amount can be lower if the individual chooses to receive either the retired worker benefit or the spouse’s benefit before the Full Retirement Age (see Table 1). However, spouses’ benefits are not affected by the age at which the worker-beneficiary claims benefits.


Prior to reaching the Full Retirement Age (FRA), when a married individual files for benefits, he or she is subject to a “deemed filing” provision. Under this provision, it is assumed that the individual is filing for both the spousal benefit and the benefit based on his/her earnings record. The Social Security Administration then compares the two benefits and awards the higher. After reaching the FRA, deemed filing no longer applies, giving the individual the ability to choose which benefit he or she receives.


Originally, we thought that “claim now, claim more later” would involve the wife receiving the spousal benefit in two-earner couples with roughly equal earnings. For example, consider a two-earner couple in which the husband is three years older than the wife (the typical age difference according to the Health and Retirement Study). Both husband and wife had originally planned to delay claiming until age 70 in order to receive the highest possible monthly benefit. But, instead, once the husband claims his benefits at age 70, the wife – now 67 and no longer subject to deeming – can file for just a spousal benefit. The wife then continues working and contributing to Social Security. At age 70, she files for her own retired worker benefit, which has now reached its maximum amount due to the delayed retirement credits, and stops receiving the spousal benefit. In this situation, the wife gains three years of spousal benefits that she would not have enjoyed under the conventional claiming approach.


But it turns out that those most likely to receive a spousal benefit while using “claim now, claim more later” are the husbands in two-earner couples. The reason stems from the results of an earlier study that showed married women will maximize the couple’s expected lifetime benefits by claiming early.1 The intuition for this somewhat counter-intuitive finding is that women’s planning horizon for how long they will receive their own retired worker benefit is from the date of their retirement to their husband’s death. When their husband dies, they are entitled to their husband’s benefit as a widow. Therefore, optimal claiming in most cases has the woman claiming benefits at 62 and the husband delaying until 69.2 As a result, the way an optimizing couple would use “claim now, claim more later” is for the wife to claim at 62 and, once her husband reaches age 66, he would claim a spouse’s benefit based on his wife’s earnings. At age 69, he would claim the maximum amount of his own retired worker benefit due to the delayed retirement credits, and stop receiving the spousal benefit. Of course, if the woman is the higher earner, the story works in reverse.


The Cost of “Claim Now, Claim More Later”


One can get a rough idea of the potential annual cost by considering how many participants are eligible to use this strategy and how much they will gain from it. In 2006, roughly 650,000 husbands had higher earnings’ histories than their wives.3 The typical wife’s Primary Insurance Amount – the unreduced benefit that serves as the basis of the spousal benefit – is about $900, so the husband would have received 50 percent of $900 for 36 months for a total of $16,200. Multiplying the number of men eligible (650,000) times $16,200 yields a total cost of $10.5 billion. Doing the same exercise for the 10 percent of cases – roughly 80,000 – where the wife has higher earnings than the husband yields an additional cost of $1.3 billion. Thus, a rough estimate of the annual cost incurred by households making their joint claiming decisions is about $11.8 billion.4


A more sophisticated approach to estimating the total cost to the program is to compare for each couple their optimal claiming ages and value of benefits under conventional claiming and under a scenario where “claim now, claim more later” is added to their options. This approach allows for couples with different age differences and different ratios of husband’s to wife’s earnings.


See the entire brief in PDF here…


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What Are Friends For? A Longer Life

Posted on April 28, 2009 by admin

The New York Times - April 20, 2009


In the quest for better health, many people turn to doctors, self-help books or herbal supplements. But they overlook a powerful weapon that could help them fight illness and depression, speed recovery, slow aging and prolong life: their friends.Researchers are only now starting to pay attention to the importance of friendship and social networks in overall health. A 10-year Australian study found that older people with a large circle of friends were 22 percent less likely to die during the study period than those with fewer friends. A large 2007 study showed an increase of nearly 60 percent in the risk for obesity among people whose friends gained weight. And last year, Harvard researchers reported that strong social ties could promote brain health as we age.


“In general, the role of friendship in our lives isn’t terribly well appreciated,” said Rebecca G. Adams, a professor of sociology at the University of North Carolina, Greensboro. “There is just scads of stuff on families and marriage, but very little on friendship. It baffles me. Friendship has a bigger impact on our psychological well-being than family relationships.”


In a new book, “The Girls From Ames: A Story of Women and a 40-Year Friendship” (Gotham), Jeffrey Zaslow tells the story of 11 childhood friends who scattered from Iowa to eight different states. Despite the distance, their friendships endured through college and marriage, divorce and other crises, including the death of one of the women in her 20s.


Using scrapbooks, photo albums and the women’s own memories, Mr. Zaslow chronicles how their close friendships have shaped their lives and continue to sustain them. The role of friendship in their health and well-being is evident in almost every chapter.


Two of the friends have recently learned they have breast cancer. Kelly Zwagerman, now a high school teacher who lives in Northfield, Minn., said that when she got her diagnosis in September 2007, her doctor told her to surround herself with loved ones. Instead, she reached out to her childhood friends, even though they lived far away.


“The first people I told were the women from Ames,” she said in an interview. “I e-mailed them. I immediately had e-mails and phone calls and messages of support. It was instant that the love poured in from all of them.”


When she complained that her treatment led to painful sores in her throat, an Ames girl sent a smoothie maker and recipes. Another, who had lost a daughter to leukemia, sent Ms. Zwagerman a hand-knitted hat, knowing her head would be cold without hair; still another sent pajamas made of special fabric to help cope with night sweats.


Ms. Zwagerman said she was often more comfortable discussing her illness with her girlfriends than with her doctor. “We go so far back that these women will talk about anything,” she said.


Ms. Zwagerman says her friends from Ames have been an essential factor in her treatment and recovery, and research bears her out. In 2006, a study of nearly 3,000 nurses with breast cancer found that women without close friends were four times as likely to die from the disease as women with 10 or more friends. And notably, proximity and the amount of contact with a friend wasn’t associated with survival. Just having friends was protective.


Bella DePaulo, a visiting psychology professor at the University of California, Santa Barbara, whose work focuses on single people and friendships, notes that in many studies, friendship has an even greater effect on health than a spouse or family member. In the study of nurses with breast cancer, having a spouse wasn’t associated with survival.


While many friendship studies focus on the intense relationships of women, some research shows that men can benefit, too. In a six-year study of 736 middle-age Swedish men, attachment to a single person didn’t appear to affect the risk of heart attack and fatal coronary heart disease, but having friendships did. Only smoking was as important a risk factor as lack of social support.


Exactly why friendship has such a big effect isn’t entirely clear. While friends can run errands and pick up medicine for a sick person, the benefits go well beyond physical assistance; indeed, proximity does not seem to be a factor.


It may be that people with strong social ties also have better access to health services and care. Beyond that, however, friendship clearly has a profound psychological effect. People with strong friendships are less likely than others to get colds, perhaps because they have lower stress levels.


Last year, researchers studied 34 students at the University of Virginia, taking them to the base of a steep hill and fitting them with a weighted backpack. They were then asked to estimate the steepness of the hill. Some participants stood next to friends during the exercise, while others were alone.


The students who stood with friends gave lower estimates of the steepness of the hill. And the longer the friends had known each other, the less steep the hill appeared.


“People with stronger friendship networks feel like there is someone they can turn to,” said Karen A. Roberto, director of the center for gerontology at Virginia Tech. “Friendship is an undervalued resource. The consistent message of these studies is that friends make your life better.”


See the original article here…


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Long Odds? Three Scenarios for the Economy’s Path

Posted on April 26, 2009 by admin

Yahoo Finance - April 23, 2009


There is no doubt where the economy is now. “By any measure, this downturn represents by far the deepest global recession since the Great Depression,” the International Monetary Fund declared Wednesday.


But there’s more than the usual uncertainty about where it is going. The key is the U.S. Even though its slice of the world economy is smaller than it once was, it’s still huge. The U.S. led the world into the abyss, and it will lead the world economy out of it.


But how fast and when?


The alphabet can help to imagine the possibilities and the path of the economy. There’s the letter V: the kind of quick rebound that usually follows a deep recession. Or U: a longer recession and slow recovery. There is L: years of painfully slow growth. And W: a temporary upturn as the economy feels the jolt of fiscal stimulus that quickly wears off. Finally, there’s the big D, not the shape but another Great Depression.


With history a guide, consider three starkly different scenarios.


The V


The late Victor Zarnowitz, a student of the business cycle, had a rule: “Deep recessions are almost always followed by steep recoveries.” The mild recession of the early 1990s and early 2000s were followed by mild recoveries. But the U.S. economy grew faster than a 6% pace in the four quarters after the deep 1973-75 recession and faster than a 7.75% pace after the even deeper 1980-82 downturn.


“In deep recessions,” says Michael Mussa of the Peterson Institute for International Economics, “there is usually a growing sense of gloom as the recession deepens.” Then the forces that triggered recession — say, plunging home prices — abate. The adrenaline of tax cuts and government spending kicks in. With inventories so lean, the slightest uptick in demand prompts a sharp increase in production, and the natural dynamism of capitalism reasserts itself.


“Experience suggests all of this should work, and I believe it will,” Mr. Mussa predicts. Governments have administered huge doses of fiscal and monetary stimulus. Home-building and car-buying are so low they can’t fall much further. Many consumers shy away from buying because they’re frightened, not broke, and that state of mind can change quickly and liberate pent-up demand.


But the Federal Reserve caused the deep recessions of the 1970s and 1980s when it put its foot on the brake to stop inflation; it ended them when it let up. This time, Fed has its foot to the floor and the economy is still slowing. And so much stock-market and housing wealth has evaporated that a quick turn in consumer spirits seems unlikely. Plus, the repair of the banks remains far from complete, restraining lending.


The odds of the V: 15%.


The Big D


If one asked a roomful of economists two years ago to put odds on a repeat of the Great Depression, nearly all would have said zero. In early March, The Wall Street Journal posed the question to about 50 forecasters — defining depression as a decline in output per person of more than 10%, four times worse than the decline the IMF anticipates. On average, they put odds at one in seven; several put them above one in four.


“This is a Depression-sized event,” says economic historian Barry Eichengreen of the University of California at Berkeley, citing the global decline in industrial production and world trade. The big difference: In 1929, governments dithered, or worse. In 2009, they’ve rushed to the rescue.


To go from today’s deep recession to a depression something would have to go wrong. It could be a financial catastrophe on the scale of last fall’s bankruptcy by Lehman Brothers or another panic-inducing event. Or a crash in the dollar, one that forces interest rates up at just the wrong moment. Or it could be political gridlock that stops governments in the U.S. or Europe from spending enough to fix the banks before a big one fails, or keeps them for doing more on the fiscal or monetary fronts as the economy deteriorates.


Or it could be virulent deflation that pulls down prices and incomes, making debts, which don’t fall when prices do, a heavier burden. The textbook remedy is easy money and big government deficits. But so much of that has been tried it’s easy to question its efficacy or to imagine resistance around the world to doing.


The odds of the big D: 20%.


The L


For a decade after its stock market and real-estate bubble burst in 1990, Japan bumped along at an annual growth of just 0.5%. It was dubbed the Lost Decade, and it could happen here. The recession ends but the economy plods along, growing too slowly to bring down unemployment for years.


As the IMF observed this week, recoveries following recession caused by financial crises are “typically slower.” Those following recessions that occur simultaneously across the globe “have typically been weak.” Back in the 1990s, as U.S. banks struggled, the Fed talked a lot about “financial headwinds.” Those were zephyrs compared to the gale-force winds that the economy confronts today.


If financial markets stabilize but don’t improve steadily, or if housing prices continue to drift down, or if confidence remains shaky, the U.S. economy could languish for a time. American consumers, once known for spending in the face of prosperity or adversity, could finally decide to prepare for retirement by saving more, having just learned that neither 401(k) retirement accounts nor home values rise inexorably. And the U.S. can’t count on increasing exports, the solution when emerging-market economies run into financial trouble and the reason Japan didn’t do even worse in the 1990s. The rest of the world is in no shape to buy.


An unfolding depression could scare Congress to act boldly, but the L is less ominous — and perhaps more likely as a result. There would be months when the economy appeared to be strengthening so the temptation to wait-and-see would be strong.


Put the odds of the L at 55%. That adds to 90%. So put 10% odds on the U, less pleasant than the euphoric V but far less painful than a Lost Decade. That’s the rough consensus of economic forecasters; it means U.S. unemployment grows for another year and a half.


Bottom line: The odds favor a long slog.


See the original article here…


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Older Borrowers, Out in the Cold

Posted on April 26, 2009 by admin

The Wall Street Journal - April 14, 2009


YUBA CITY, Calif. — In 2006, Carol Couts, a 66-year-old widow in Yuba City, Calif., was living in her home, payment-free, when a mortgage broker persuaded her to refinance her no-cost mortgage for one that exceeded her monthly income by more than $400.


She can’t afford the payments, and unless her lender modifies the loan to make it affordable, she’ll lose her home of 25 years. She’s given away most of her furniture and her cat, and packed her belongings in cardboard boxes. “We’ve got nowhere to go,” she says, referring to herself and her dachshund, Ollie.


As the government presses lenders to modify mortgages, a large subset of distressed borrowers is being left out: older homeowners on low fixed incomes. Many of them are now facing foreclosure, say legal-aid advocates and AARP attorneys, because they were sold loans they could never afford, often fraudulently.


Many of these homeowners had lived for decades in their home and had built up substantial equity, but had low incomes. This made them tempting targets for brokers who persuaded them to refinance their mortgages, telling them they could lower their monthly payments. Instead, many of these loans were loaded with fees and exploding interest rates and quickly became unaffordable.


These borrowers’ incomes are often so low — many are living solely on Social Security — that few qualify for mortgage-relief programs. Even if lenders agree to reduce the interest rate and stretch out the repayment period, strategies at the heart of the Obama administration’s antiforeclosure guidelines, “they won’t get payments low enough,” says Tara Twomey, an attorney with the National Consumer Law Center.


Hundreds of thousands of people in once-hot markets such as California’s Central Valley fall into this camp, say housing counselors. Often the only way to keep these people in their homes is if lenders rescind the fraudulent loans or reduce the principal, steps most are unwilling to take.


The U.S. House of Representatives has endorsed legislation that would allow bankruptcy judges to modify or rescind loans even if lenders are unwilling. But lenders oppose the measure and the legislation has stalled in the Senate.


Meanwhile, people like Mrs. Couts are facing foreclosure. After her husband died in 2005, she took out a reverse mortgage, a deal available only to people 62 or older with substantial equity.


With a reverse mortgage, a bank makes payments to a homeowner, and the homeowner keeps control of the house and doesn’t have to pay back the money as long as he lives there. The loan is repaid, with interest, when the borrower sells the house, moves out or dies.


The arrangement enabled Mrs. Couts to stop making mortgage payments so she could afford to remain in her home on her $913 a month in Social Security.


In 2007, she received numerous phone calls from a mortgage broker named Daniel Lewis. According to Mrs. Couts, he told her he was contacting seniors to warn them that banks were canceling reverse mortgages because they were unprofitable. She would have to refinance her home, he told her, or lose it. (This wasn’t true; reverse mortgages generally aren’t repayable until death.)


Mrs. Couts signed a document that said she could cancel within three days, and also signed documents that she thought were for a 30-year conventional loan with low monthly payments. The next day she saw that the application listed her income as $5,075 a month. She called Mr. Lewis to point out the error and to cancel the loan, but says he told her it was too late to change anything.


The broker had used a “no doc” application, which doesn’t require proof of income. Many brokers used these stated-income applications when borrowers’ incomes were too low to qualify them for loans. All of the other boxes for listing income and assets in Mrs. Couts’s application, which was obtained by The Wall Street Journal, were blank.


Mrs. Couts’s first statement showed she had an adjustable-rate mortgage with an initial interest-only monthly payment of $1,333. She soon defaulted, and Wachovia Corp. — which had acquired World Savings & Loan, the firm Mr. Lewis worked with — started foreclosure proceedings.


Wachovia — now a unit of Wells Fargo & Co. — has offered to change Mrs. Couts’s loan to one with interest-only payments that begin at 66% of her monthly income, rising to more than 100% in a few years.


Citing customer privacy, a Wachovia spokesman declined to say whether the bank took fraud into account when it proposed the modification plan to Mrs. Couts. In a statement, Wachovia said that Wells Fargo has developed mortgage assistance plans to help Wachovia customers with Pick-a-Payment loans (the type Mrs. Couts has) and that the solutions “differ based on the customers’ circumstances and what will be required to help them reach a sustainable mortgage payment.”


Mr. Lewis couldn’t be reached for comment.


During the mortgage boom, brokers commonly cold-called older homeowners. “I was inundated,” says Floy Mae Bryant, 84, a retired telephone operator in Visalia, Calif., who had owned her home since the early 1990s. Loan records show Mrs. Bryant refinanced six times in less than three years using multiple brokers.


Serial refinancing was common among older borrowers, legal-aid lawyers say. Brokers pitched loans with low teaser rates, explaining the homeowner could simply refinance when rates reset. Yet borrowers like Mrs. Bryant didn’t understand that each refinancing added thousands of dollars in fees to their debt.


Mrs. Bryant’s last refinancing was in September 2005, just a month after her previous one. A mortgage broker placed her in a Countrywide Financial Corp. “option ARM,” an adjustable-rate mortgage with a monthly payment of $1,545, barely affordable on her $2,310 Social Security and pension income. To make her mortgage payments, she drew on a $39,000 home-equity line of credit that the same broker encouraged her to set up.


One son helped her financially, but he died of cancer in November 2007; five months later, Mrs. Bryant’s 65-year-old developmentally disabled son, who lived with her, also died of cancer. Mrs. Bryant missed her March 2008 payment, and Fannie Mae, which had bought the loan from Countrywide, sold her home in foreclosure in April. She moved to a rented trailer 20 miles away, returning two or three times a week to her vacant former home to water the roses.


Legal-aid attorneys challenged the foreclosure on the grounds that the underlying loan was fraudulently made. Fannie Mae is now in the process of setting aside the foreclosure and modifying the loan. “We intend to work with the borrower to reach a resolution that will allow her to remain in the home,” says a spokeswoman.


Most defrauded homeowners get no help. Few people know they’ve been defrauded, and law enforcement generally investigates only when the fraud is perpetrated against lenders, not borrowers. While some legal-aid offices and AARP attorneys have sued lenders, they can take few cases — and when they do, the cases can drag on until the homeowners die.


A recent case involved John and Vernice Green, an elderly couple in Sacramento, Calif. In late 2006 they signed up for what they thought was a reverse mortgage on their home of 32 years.


But the next month, they found they actually had an adjustable-rate loan more costly than the one they had before. The interest rate went to 11.4% from 6.25%, which increased their monthly payment to $2,106 from $794. Frantic, they tried to reach the broker, Melissa Villegas. According to legal-aid advocates who helped the Greens, she didn’t return their calls and the Greens never heard from her again.


The couple soon defaulted. They eventually called Sacramento County Adult Protective Services, which in April 2007 sent a social worker, Heidi Richardson, to their home. Ms. Richardson says Mrs. Green was cognitively impaired, and could read only with a magnifying glass, and that Mr. Green was trying to take care of the home, despite having had both feet amputated. Ms. Richardson found him watering the lawn from his wheelchair.


She referred the case to the California Senior Legal Hotline, a nonprofit law office that has been swamped with foreclosure cases. Ralph Livingstone, 71, a volunteer attorney there, obtained the loan documents, which showed that the Greens had authorized the IRS to release their income-tax returns to the lender, and authorized the lender to obtain their employment and bank records.


Meantime, the application contained various fabrications. It noted that the Greens each had 16 years of education; in fact, Mrs. Green had only been through eighth grade, and Mr. Green had left in fifth grade in Mississippi during the Great Depression to help support his family.


The application also falsely said Mrs. Green was employed as an administrative assistant at Friendship Church in Sacramento. That helped inflate the couple’s monthly income to $6,965, versus their actual income of about $3,000, from Social Security and Mr. Green’s Teamsters pension.


The documents showed that the transaction costs totaled $20,127, of which $11,757 was for commissions and fees for the broker and lender.


Ms. Villegas’s lawyer declined to comment. In an interview, the minister of Friendship Church, Rev. Donald Wright — who, the Greens told advocates, had originally steered Ms. Villegas to them — declined to say whether his church employed Mrs. Green. But he said “Melissa was a friend,” and described Mrs. Green as financially sophisticated.


“The people who know the truth are me, Melissa and God,” said Mr. Wright. “Under no circumstances would I do some illegal crooked stuff.”


Mr. Livingstone investigated the loan transaction, hoping that if he could show it was fraudulent, the lender would be more willing to change the terms. To stall the foreclosure, he helped the Greens file a Chapter 13 bankruptcy, and continued to attempt to get the servicer to modify their loan.


“There are thousands of people being washed away in a flood, and we reach into the river and pull out one here and there, and keep them from drowning,” says Mr. Livingstone.


Amid the continued stress, Mr. Green was hospitalized. He died Feb. 5, 2008, age 83.


In June, Ms. Villegas, 29, was arrested and charged with participating in a scheme to defraud lenders. The criminal complaint alleges that Ms. Villegas made false statements to investigators and that loan applications she arranged gave false occupations and inflated incomes. Ms. Villegas denied wrongdoing, and the case is pending.


Late last June, the servicer agreed to reduce the principal on the Greens’ loan and convert it to a fixed rate with 7% interest. Mr. Livingstone called to tell the 80-year-old Mrs. Green the news. He learned she was in the hospital with kidney failure. She died a few days later, on the Fourth of July.


See the original article here…


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


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Here’s what to ask if you’re considering a reverse mortgage

Posted on April 26, 2009 by admin

The Wall Street Journal Market Watch - April 23, 2009


Question: Where can I get more detailed information about reverse mortgages for seniors? We have a house in a “plus 55″ community in California for which we paid $315,000 four years ago. We are told now that it, along with all the other houses in the area, would sell for about 20% less than what we paid. Would a reverse mortgage work for us? We are 71 and 64 respectively.




Answer: You have not provided me with nearly enough information with which I need to give you a proper answer. So I took the liberty of running your question by Cyndi Stephenson, who manages the reverse mortgage division at HomeFirst Mortgage Corp., a mortgage brokerage firm in Alexandria, Va.

Stephenson says that if you and she were sitting down together, one-on-one, she would ask you these questions:



  • Do you have any liens on the property at this time?


  • How much longer would you plan to stay in this home if you do a reverse mortgage?


  • Which one of you is 71?


  • What is the ZIP code for the property?


  • Is it a single family residence, condominium or a townhouse?


  • What are your priorities, both long- and short-term?


  • Do you plan to leave something to your heirs? To charity?

The reverse mortgage specialist also would ask a question she says keeps her awake at night and that is: Do you have long-term-care insurance?

 

“I do not worry at all about those who plan to live in the home until they pass away, that is exactly what this product is designed to support,” she explains. “What I worry about are those who take out a reverse mortgage, live in their home for maybe three years, then have a stroke or suffer some other disabling illness or injury and need to get moved immediately into an assisted living facility. Especially if they are single.”

 

In those instances — actually, if you are out of the house for more than 12 consecutive months — the property will need to be sold to repay the mortgage. And that leads to more questions, says Stephenson: “What funds will you have available to get you into the facility? Who will take care of the sale of the home? Do you have long-term-care insurance or a plan to move into a Medicare/Medicaid facility should something happen to you?”

 

By the way, Stephenson says she studied reverse mortgages up and down, backwards and forward (no pun intended), “for a very long time” before she entered the field. But she never really “got it” until she ran her own reverse mortgage scenario. And she invites readers to see how a reverse mortgage can work out at HomeFirst’s Web site, www.homefirstmortage.com/reverse. Just click on “Scenario for a Reverse Mortgage.”

 

“When properly applied a reverse mortgage can serve to preserve, protect and, quite possibly, enhance a senior’s estate,” she says. “Although reverse mortgages are not the right answer for all senior homeowners, they are a promising financial tool that all senior homeowners should look into, just as they would any other financial tool available to them.”

 

Q: Do you have any information on who to contact in Southern California for more information about reverse mortgages? Where can I learn more information about this program?

 

A: I cannot recommend a particular lender. But the National Reverse Mortgage Lenders Association maintains an excellent Web site (www.reversemortgage.org) that not only explains everything you need to know about reverse mortgages but also allows consumers to find lenders who offer these loans in their particular state. Visit the reverse mortgage site.

 

The AARP also has a information on the product (www.aarp.org/revmort). And so does Uncle Sam. Try both the Federal Housing Administration, which insures lenders who make these loans against loss (www.hud.gov/offices/hsg/shf/hecm/remtopten.cfc) , and the Federal Trade Commission (www.ftc.gov/bcp/edu/pubs/consumer/homes/real3/shtm).

 

Feedback

 

The person who inquired about tax relief for his son who lost his escrow money when the settlement company he was using went belly-up should check with a bankruptcy attorney, reader Phil suggests. See previous Realty Q&A.

 

“If the funds were held in a trust account, as they are generally required to be, the person should be able to get them back from the bankruptcy proceedings,” he writes. “If they were not, a proof of claim should still be filed with the bankruptcy court. There is nothing to be lost by filing the claim.”

 

See the original article here…

 


About Reverse Mortgages:  Learn all about reverse mortgages at NewRetirement.com


Professional Financial Advisors:  Find out what a financial advisor can do for you at NewRetirement.com.


Annuity Advice for Retirement:   Evaluate and compare annuities at NewRetirement.com


NewRetirement Retirement Calculator:   Assess your retirement plan with the NewRetirement Retirement

Protecting Retirement Accounts From Creditors

Posted on April 6, 2009 by admin

The New York Times - April 1, 2009


RETIREMENT accounts remain among many people’s most valuable assets, even at today’s depressed values. That means you need to protect them from creditors, a category that can include former spouses or people who have won lawsuits against you.


The asset protection strategies available to you depend on the type of account you have, where you live and whether you inherited the assets or amassed the funds yourself, among other factors.


You can start by understanding the exemptions in federal or state laws that may protect your retirement accounts. The good news is that most employer-sponsored plans, including 401(k)’s, are covered by the Employee Retirement Income Security Act, known as Erisa, and are completely protected from creditors — except when those creditors are former spouses or the I.R.S., said D. James Gehring, a lawyer with Seyfarth Shaw in Chicago.


The bad news is that individual retirement accounts are not covered by Erisa. If you have filed for bankruptcy, federal law protects up to $1 million in an I.R.A. that you contributed to directly, and protects the entire account balance if the money was rolled over into an I.R.A. from a company plan, said Jonathan E. Gopman, a lawyer with Cummings & Lockwood in Naples, Fla. So it’s important to keep careful records tracing the funds.


For anything short of bankruptcy, state law determines whether I.R.A.’s (including Roth I.R.A.’s) are shielded from creditors’ claims, Mr. Gopman said.


Most states, including New York, New Jersey and Connecticut, exempt 100 percent of the assets while they are in the account. But laws in other states vary widely on whether withdrawals are covered, whether protections extend to inheritors as well as the initial owner and whether former spouses can reach the funds.


Some states limit how much is exempt — Nevada caps it at $500,000 — while California and other states exempt only what is “reasonably necessary” to support the owner and her dependents. Such wording is, inevitably, an invitation to lawsuits.


In deciding whether, under California law, an I.R.A. can be attached by creditors, courts look at the owner’s age, earning ability and other assets, said Alex M. Brucker, a lawyer with Brucker Morra in Los Angeles. If someone had a $1 million company plan that was fully protected from creditors, a court might find that a $500,000 I.R.A. was more than what was reasonably necessary and thus should not receive the same protection, he said. And in some states, an innocent misstep could leave retirement assets vulnerable to creditors’ claims.


If, for example, you have been laid off or are retiring, rolling over assets from a qualified plan, like a 401(k), into an I.R.A. has estate-planning benefits. However, if you live in or are moving to a state where I.R.A.’s are not protected from creditors, you would be better off leaving the assets in the company plan, Mr. Gehring said. So you should consult a lawyer familiar with the rules of the state where you plan to live.


If you have at least $5,000 in the plan, the company must allow you to leave the money there until you are 65, but it is not required to let you take partial withdrawals or borrow against the account, Mr. Gehring said. “If the company goes bankrupt, your money is perfectly safe,” he said, because the business must keep retirement funds in a separate trust where its own creditors can’t reach them.


If you are leaving a company that has a cash-balance pension plan, you should resist the temptation to withdraw the money in a lump sum, Mr. Gehring said, unless you need the money to live on. Upon withdrawal, the money would be exposed to creditors’ claims, and you would have to pay income tax on the full amount.


As with money coming out of a 401(k), you can defer the income tax until you make withdrawals by rolling over the money into an I.R.A., but, again, your protection from creditors will depend on the state where you live.


For example, you might be returning to work after a period of unemployment and have rolled over an I.R.A. when you left your previous employer. Most companies will allow you to transfer that money directly into their plans as you come on board, Mr. Gehring said. You might want to do that either for asset protection or to take advantage of investment offerings. This strategy also works for people who are starting their own businesses and setting up 401(k)’s, Mr. Gopman said.


Note, however, that under federal law an I.R.A. that has been converted to a Roth I.R.A. cannot be rolled back into a company plan, Mr. Brucker said.


Be aware that state and federal laws against fraudulent conveyance prohibit transfers intended to hinder, delay or defraud creditors.


As a rule, such transfers must be in place before there is even a hint of potential trouble, said Gideon Rothschild, a lawyer with Moses & Singer in New York, to be sure they are protected.


If you plan to leave at least some of your I.R.A. to your family, remember that the assets may not be protected from your beneficiaries’ creditors, depending on where the beneficiaries live.


But you can shield the assets by leaving an I.R.A. to a trust, Mr. Rothschild said. To do that, you must name the trust (which in turn benefits certain people) on the beneficiary designation form on file with the financial institution that holds your retirement account. You should be sure not to withdraw the money from the account and put it in a trust; that would make the money subject to income tax.


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Retirement Often Happens Unexpectedly

Posted on April 6, 2009 by admin

US News & World Report – March 31, 2009


We like to think that if we plan and save throughout our working lives, a secure retirement is within reach. But retirement often happens unexpectedly. A lay off, health problem, or the illness of a relative can derail retirement plans in an instant.


Few people make it to age 40 without a sudden event shocking their finances. A new survey of 1,200 adults between ages 40 and 79 found that 57 percent had already experienced a major life crisis such as a job loss (18 percent), divorce (29 percent), death of a spouse or life partner (10 percent), a serious illness or long-term disability for you or a spouse (24 percent), or the illness or disability of a child (7 percent). Only about 43 percent of those surveyed made it to middle age or older unscathed, AARP Financial Inc. and Boston Research Group found.


The emotional toll of any of these events can be devastating. So can the financial toll. “Life crises are the perfect storms of personal finance— where the need for consequential and frequently urgent financial decisions meets an emotional hurricane,” says Richard Hisey, president of AARP Financial Inc. Unexpected job loss or a serious illness took the most obvious financial toll in the survey. About half of those who experienced job loss said they were unprepared to deal with the financial consequences.


The number of seniors who need or want to work during the traditional retirement years is rapidly growing. About 433,000 unemployed Americans age 65 and older were actively seeking employment in February, more than twice as many as in November 2007, just before the recession began. Another 1.3 million adults age 55 to 64 were unemployed. “This is a daunting economy for older people. A lot of older people are coming to see us that are scared or bewildered,” says Cynthia Metzler, president and CEO of Experience Works, a nonprofit organization that helps older people retrain for new jobs. “We have people who are in their 80s who are taking on new jobs.”


Baby boomers need to find a way to take back control of their retirement plans by preparing for the current job situation and creating a back up plan while still employed in case one of these unforeseen events should threaten retirement plans. Last year the Planning to Retire blog told 7 personal stores of unplanned retirement including a telecommunications manager forced into early retirement, an occupational therapist who scaled back her work hours to help care for her mother, and a 57-year-old guest lecturer who became unable to work due to Alzheimer’s disease. Also, check out these 4 tips for getting an unexpected retirement back on track.


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Nearly Two-Thirds Face Risky Retirement Due to Long-Term Care Costs

Posted on April 6, 2009 by admin

ElderLawAnswers – April 1, 2009


A new report by the Center for Retirement Research at Boston College finds that nearly two-thirds of U.S. households are at risk of being unable to maintain their standard of living in retirement when possible long-term care costs are taken into consideration.


The report, “Long-Term Care Costs and the National Retirement Risk Index,” looks at the percentage of households that would fall significantly short of their target retirement income if they do what they can to prepare for the possibility of long-term care costs, on top of health care and other post-retirement expenses.


If those who could afford to do so purchased a comprehensive long-term care insurance policy with a $3,500 annual premium, researchers found that 64 percent of households would still be at risk of a lowered standard of living in retirement. When the researchers assumed that households would instead pay for long-term care using the equity in their homes through a reverse mortgage, 65 percent would still be at risk in retirement.


The report’s authors conclude that their findings “raise major concerns about the retirement security of baby boomers and succeeding generations.”


For a link to the report, which analyzes 2006 data, click here.


For an Associated Press article on the report, click here.


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Doctors Are Opting Out of Medicare

Posted on April 3, 2009 by admin

The New York Times – April 1, 2009


EARLY this year, Barbara Plumb, a freelance editor and writer in New York who is on Medicare, received a disturbing letter. Her gynecologist informed her that she was opting out of Medicare. When Ms. Plumb asked her primary-care doctor to recommend another gynecologist who took Medicare, the doctor responded that she didn’t know any — and that if Ms. Plumb found one she liked, could she call and tell her the name?


Many people, just as they become eligible for Medicare, discover that the insurance rug has been pulled out from under them. Some doctors — often internists but also gastroenterologists, gynecologists, psychiatrists and other specialists — are no longer accepting Medicare, either because they have opted out of the insurance system or they are not accepting new patients with Medicare coverage. The doctors’ reasons: reimbursement rates are too low and paperwork too much of a hassle.


When shopping for a doctor, ask if he or she is enrolled with Medicare. If the answer is no, that doctor has opted out of the system. Those who are enrolled fall into two categories, participating and nonparticipating. The latter receive a lower reimbursement from Medicare, and the patient has to pick up more of the bill.


Doctors who have opted out of Medicare can charge whatever they want, but they cannot bill Medicare for reimbursement, nor may their patients. Medigap, or supplemental insurance, policies usually do not provide coverage when Medicare doesn’t, so the entire bill is the patient’s responsibility.


The solution to this problem is to find doctors who accept Medicare insurance — and to do it well before reaching age 65. But that is not always easy, especially if you are looking for an internist, a primary care doctor who deals with adults. Of the 93 internists affiliated with New York-Presbyterian Hospital, for example, only 37 accept Medicare, according to the hospital’s Web site.


Two trends are converging: there is a shortage of internists nationally — the American College of Physicians, the organization for internists, estimates that by 2025 there will be 35,000 to 45,000 fewer than the population needs — and internists are increasingly unwilling to accept new Medicare patients.


In a June 2008 report, the Medicare Payment Advisory Commission, an independent federal panel that advises Congress on Medicare, said that 29 percent of the Medicare beneficiaries it surveyed who were looking for a primary care doctor had a problem finding one to treat them, up from 24 percent the year before. And a 2008 survey by the Texas Medical Association found that while 58 percent of the state’s doctors took new Medicare patients, only 38 percent of primary care doctors did.


Currently, about 40 million Americans have Medicare insurance, according to medicare.gov. Coverage is provided to those 65 or older, some younger disabled people and people of all ages with end-stage renal disease.


Those approaching Medicare eligibility should talk to their doctors. Even doctors who won’t take new Medicare patients may be willing to allow their existing ones to remain in their care. If they are not, it’s advisable to start looking around. But the search will be easier for people who start early.


“If you have just moved into town and are 64,” said Dr. Jeffrey P. Harris, an internist and the president of the American College of Physicians, “it is easier for you to see a doctor than if you had just moved into town and are 65.”


Before giving up on a doctor who will not accept Medicare, a patient should ask about signing a private contract that stipulates the patient will be responsible for paying the doctor’s fees and lists exactly what those fees are and what they cover. Some doctors may be willing to negotiate and tailor prices to what patients can afford.


For example, a doctor who charges younger patients with employer health coverage $250 for an office visit might be willing to accept $175 from an older patient who pays cash and requires no insurance claims.


“I have a lady of 93 who pays me $5 a visit, and for her that’s real money,” said Dr. Steven D. Knope, an internist and private contract doctor in Tucson. “I charge her because then she listens to what I say.”


How do you find a doctor who accepts Medicare? The Web site www.medicare.gov provides a list of enrolled doctors. Other sources are state medical societies and local hospitals, most of which have online directories of doctors. But that’s no guarantee they will see new patients.


Other options are also available. Roughly 18,000 walk-in, stand-alone urgent care centers in the United States are staffed with doctors who set simple fractures, take X-rays, do minor surgery, diagnose ailments and write prescriptions. By far the majority of these centers take Medicare.


Although they were never intended to provide continuing care, “our primary care practice is growing more than anything else,” said Dr. Franz Ritucci, who is medical director of the American Academy of Urgent Care Medicine and practices at America’s Urgent Care in Orlando, Fla., a chain of walk-in centers that also has clinics in Columbus, Ohio.


The centers are open 12 to 18 hours a day and patients do not need an appointment, though they may have to wait. Some centers allow appointments to see a specific doctor for follow-up.


“If you can hook up with a primary care provider in an urgent care center who is willing” to provide continuing care, said Dr. J. James Rohack, a cardiologist who is president-elect of the American Medical Association, “then yes, it’s an option.”


Type “urgent care centers” into a search engine and thousands come up. In June, the Academy of Urgent Care Medicine plans to add a list of centers it has accredited to its Web site, www.aaucm.org.


Another, more expensive option is concierge or “boutique” care, which comes in two forms. In the most popular kind, doctors accept Medicare and other insurance, but charge patients an annual retainer of $1,600 to $1,800 to get in the door and receive services not covered by Medicare, like annual physicals. Before signing up and paying the retainer, patients should get a written agreement spelling out which services the doctor will bill Medicare for and which the retainer covers. And always check carefully for double-billing.


The other form of concierge medicine — doctors who have opted out of Medicare — is more expensive still. Fees range as high as $15,000 a year and cover office visits, access to the doctor when care is needed, referrals to specialists and thorough annual physicals.


Dr. Knope, the author of “Concierge Medicine: A New System to Get the Best Healthcare,” has this kind of practice in Tucson. His patients sign a contract agreeing to pay $6,000 a year for individuals and $10,000 a year for couples. The fee covers office visits, physical exams and phone consultations, and Dr. Knope will meet patients in the emergency room, see them in the hospital and occasionally make house calls.


A list of about 500 concierge doctors throughout the country is available on Dr. Knope’s Web site, www.conciergemedicinemd.com.


Is the care worth the money? Harold and Margret Thomas, who are in their mid-70s and live in Cincinnati, spend the winter in Tucson. After many phone calls, the couple were unable to find an internist in Tucson who took new Medicare patients, so they signed with Dr. Knope in 1996. Five years ago, when Mrs. Thomas developed a blinding headache, her husband called the doctor at 8 o’clock one night, and he, suspecting an aneurysm, insisted they get to the emergency room immediately.


The doctor met them and ordered an M.R.I. and a CT scan. The tests revealed an aneurysm, and Dr. Knope found a surgeon who quickly operated. Medicare paid for the emergency room, the surgery and the hospital stay.


“If there were a concierge practice in Cincinnati, I’d be part of it there, too,” Harold Thomas said.


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Skills to Learn, to Restart Earnings

Posted on April 3, 2009 by admin

The New York Times – April 1, 2009


Justin Williams worked as an engineer at Honeywell International for 31 years, and when he retired last April, he knew he could not afford to stop working. His home in suburban Maryland, on which he had spent his 401(k) savings, was losing value, and his pension did not replace enough of his former income.Mr. Williams, 65, took stock. He did not want another job in engineering. In past years he had volunteered in public schools, helping young children learn reading and math.


Then he did what increasing numbers of older Americans are doing, especially as the economy sours — he enrolled in community college.


“I realized there was a need for educators,” in large part because so many teachers are retiring, he said of his choice, an accelerated program in early education at Prince George’s Community College in Largo, Md. “I saw things I could do as well or better.”


The impact of the economic and stock market declines on retirees and workers about to retire has been especially pronounced. While younger workers have time to recover some of their losses, many older workers and retirees have to follow Mr. Williams’s example and remake themselves for the job market.


In many cases, they find that their skills, experience and contacts are not enough. So they send themselves off to community colleges or training programs, where they are often surrounded by people far younger, and they have no realistic expectation that whatever new job they might find will produce income comparable to their previous one. In all, it’s daunting.


“Major professionals we’re seeing are going back to work for lower salaries” and often downplaying their accomplishments on their résumés, said Margo Brewer, senior educational director at National Able Network, a nonprofit counseling, placement and training service based in Chicago that receives public and private financing. “The upper-income jobs just are not as available as they once were. And a lot of companies are hesitant to hire full-time staff,” so they are instead creating temporary jobs.


Many community colleges have started to cater to older people, offering incentives that include free tax preparation and valet parking, said Susan Porter Robinson, vice president of lifelong learning at the American Council on Education. Often employers in an area work with community colleges to develop curriculums geared toward actual job needs, sometimes providing scholarships or promises of jobs after graduation.


Coursework tends to be focused and practical, and tuition well below that of universities, Ms. Robinson said.


“Older adults tell us they’re interested in certificate training that will be quick,” she said. “They don’t have two years. What they may be missing are what I call skill-ettes. Right now there’s pressing needs for people in fields like teaching and the health sciences, so that’s where a lot of the classes are.”


The hot fields for older workers are the same as those for younger ones: health care, alternative energy and education, and the economic stimulus program is expected to create jobs with the federal government, said Charlene M. Dukes, president of Prince George’s Community College.


Both employers and schools are recognizing older workers as an untapped resource, said Laura A. Robbins, director of the program on aging in the United States for the Atlantic Philanthropies, which provides grant money to community colleges and other programs for retraining workers over age 50. “You can get community colleges, universities, volunteer networks and employment agencies all in a unified network like a wheel with spokes. But I can’t tell you that there’s a silver bullet right now.”


Like others interviewed for this article, Dr. Dukes said available job opportunities were clustered around the national median household income of $51,000. The school discourages six-figure expectations, she said.


“There’s not currently a lot of pathways to help older adults go to the next thing,” Ms. Robbins said. “It’s not just a short-term emergency problem.”


For Mr. Williams, the path began at a friend’s birthday party, where he learned that the community college provided nearly free tuition to students over age 60 and that it had a one-year program leading to an associate’s degree in early education. Now back in school, Mr. Williams and his wife, Cookie, are providing day care in their home, which they hope to expand to a day care center and eventually a private school.


“I enjoy going back to school more than I did in the early days,” he said. “It’s a pleasure, though I’m usually the oldest person in the class.”


He said he was happy to be active and building a business — one not at all related to his previous professional experience. “I never saw retirement as laying back on a beach,” he said. “It can’t replace the money I made at Honeywell, but my lifestyle is such that I don’t need to replace it all.”


For job-seekers of any age, the market is tight but not impossible, said Ms. Brewer of National Able Network. “It appears there are jobs everywhere but in limited numbers,” she said. “It’s a matter of matching skills.”


One retiree who came through Ms. Brewer’s program is Rae Lynn Schneider, 61, of Chicago.


Ms. Schneider taught in Chicago’s public schools for 34 years and retired in 2003 with full benefits. She thought her pension and savings would provide enough for her to live comfortably, including travel overseas. But now her annuity no longer looks certain because it’s invested in the stock market.


She did not want another teaching job, in part because she wanted to work close to her home, so she took an eight-week class in basic computer skills and earned a certificate in customer service.


With that in hand, Ms. Schneider found a seasonal job at an American Girl store near her home, and she discovered that her skills as a teacher transferred well to retail: she was used to being on her feet, she was a good communicator and comfortable speaking in public, and she was punctual and orderly.


“In this job market, I said, ‘How am I going to get in?’ ” she said. On the advice of friends and job counselors, she dyed her gray hair blond.


She said the training she got at National Able Network gave her self-confidence, as well as contacts.


“The group I was in really bonded, just in studying the material, which was not easy,” she said. “It was mostly women in their late 50s and early 60s. We have similar problems.”


Ms. Schneider’s job ended in January, but she is hoping to be rehired this summer. Though the income is below what she earned as a teacher, it is a welcome supplement to her pension, she said. And when the economy recovers, she may be in a good position to earn more, she said.


Peter Cappelli, director of the Center for Human Resources at the Wharton School of the University of Pennsylvania, said he did not recommend retraining for workers who had successful careers. Instead, he suggested that they consider part-time or contract work in their fields, where they can use their experience and skills to their advantage.


“If someone has I.T. experience but they haven’t programmed in a while, it might make sense to take a couple classes,” he said. “Or if a C.P.A. has mainly been in management, he could go back and get his accounting skills up to date. But if you’re an accounting guy and you want to go to school to learn marketing, then you’re not making use of the skills you acquired over the years. You’re going to be competing in the job market without a competitive advantage.”


The good news for older workers, he said, is that they may be more flexible about taking part-time or seasonal work, unless they have to replace a large income. In surveys, older workers and retirees say they want jobs without the time demands or pressures of their old career tracks.


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