Archive for November, 2010 Page 2 of 3

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Will This Help You Retire Rich?

Posted on November 22, 2010 by Jason

The Motley Fool, November 22nd, 2010

In the quest to retire rich, investors
are always looking for an edge. Given the turmoil in the markets two
years ago, one major consideration that retirement investors keep front
and center in their investing strategy is making sure that their
nest-egg principal is protected.

One way that investors protect themselves against principal loss is
by using variable annuities. Although these specialty investments can
indeed limit your downside in the event of a market collapse, they
aren’t foolproof — and they also aren’t cheap.

The state of the variable annuity

Variable annuities are insurance
products, but in many ways, they closely resemble mutual funds. When
you buy a variable annuity, you can choose from several investment
options; your money is then invested according to whichever option you
choose, just as a mutual fund would.

What makes variable annuities different from mutual funds are two
things. First, variable annuities are tax-deferred, meaning that as long
as you keep your money within the annuity, you don’t have to pay tax on
the income or capital gains that it generates. Second, the insurance
aspects of variable annuities give you additional features that mutual
funds lack, such as the choice to lock in guaranteed minimum income
payments even if the value of the annuity’s investments goes way down.

For those close to or already in retirement, that combination of
features sounds perfect. But it isn’t that simple. As with equity-linked
structured notes that Morgan Stanley, Citigroup, and several other Wall Street banks have offered over the years, the protection that variable annuities offer doesn’t come cheap. According to the Wall Street Journal,
variable annuity owners pay annual fees that often reach 3.5%. That’s
well in excess of what 10-year Treasuries pay, requiring the annuity’s
investments to perform quite well to overcome the drag of annual
expenses.

Annuity Advice for Retirement:  If you’re considering an annuity, then it’s important to understand all the options open to you.  Consider the options at NewRetirement.com

Should You Use a Reverse Mortgage in Retirement?

Posted on November 19, 2010 by Jason

US News & World Report, November 12th, 2010

Seniors strapped for cash might want to consider a reverse mortgage
in retirement. These loans have become a popular tool for retirees who
found their retirement savings hammered by the down market. Over 100,000
people took out a reverse mortgage in the U.S. last year. But a reverse
mortgage isn’t necessarily a good idea for everyone. Here is how to
tell if these loans are right for you.

Reverse mortgage basics. Reverse mortgages are not
actually a mortgage, but a loan. These loans are available to homeowners
who are at least 62 years old and who have significant equity in their
homes. The loan basically taps your home’s equity, and the lender gives
you the money either as a monthly payment, lump sum, or line of credit.

You will still be responsible for maintenance on the home, insurance, and property taxes.
If you don’t pay those things, the lender can foreclose on your
property. Since interest is always accruing over the full term of the
loan and home values can fluctuate, the reverse mortgage debt can end up
exceeding your home’s value. Plus, if you move out or sell the house,
the loan becomes due.

Going into debt. You are taking on debt when you do this deal. One of the worst things you can do in retirement is go from a debt-free situation to being in debt. This is not the time in your life to take on a loan if you don’t have to.

Stay in your home. This financial move isn’t for a
home owner considering a move anytime soon. To justify the costs
associated with this loan, you would need to stay in the house several
years. If you take the lump sum, you could end up having to stay in the
home until you die.

Costs. The fees on reverse mortgages can be
expensive. You usually have to pay an origination fee, closing costs,
mortgage insurance premiums, a mortgage insurance servicing fee, and
fees for mandatory credit counseling. Recent legislation has put a stop
to the over-the-top fees, but there are still many expenses associated
with these loans.

Alternatives to reverse mortgages. There are times
when a reverse mortgage does make sense for some people. But a reverse
mortgage should really be a last resort. Here are a few suggestions for
managing cash flow problems without using this financial product.

Read more of this article.

About Reverse Mortgages:  This article is an excellent primer on the reverse mortgage program.  If it sounds like something you might find useful, then learn more about this retirement financial tool, so that you can make the best decisions possible for your retirement.

Facts About Getting a Reverse Mortgage

Posted on November 19, 2010 by Jason

San Francisco Chronicle, November 14th, 2010

  • Overview

    The reverse mortgage program is a federal
    government program available exclusively to senior citizens. The program
    allows borrowers to access a portion of the equity they have in their
    home as either a lump sum, monthly income or as a credit line. Unlike
    with a traditional mortgage, where borrowers make payments to the
    mortgage holder, with a reverse mortgage, the mortgage holder actually
    makes payments to the borrower. Getting a reverse mortgage is easier
    than a regular mortgage, but there are a number of factors to consider.

  • Age Requirement

    Every reverse mortgage borrower must be at least
    62 years of age. If two or more people own the home, and each of the
    owners wishes to remain on title, each owner must be at least 62 years
    old. The alternative would be to take the owner who has not yet reached
    62 years of age off of title. Title would therefore vest only with the
    owner who is 62 years old or older. If more than one owner qualifies,
    the age of the youngest owner is included in the calculation of how much
    money is available under the program.

  • Property Value

    Because the reverse mortgage program utilizes a
    portion of the equity in the residence, property value is important to
    determine how much equity is available. To determine value, a specially
    licensed property appraiser is used. However, to avoid appraiser
    shopping, whereby a number of appraisals are collected and the appraisal
    with the highest value is used, potential borrowers and loan
    originators are no longer permitted to select the appraiser. The loan
    originator instead orders an appraisal through an appraisal management
    company, which then selects one of its retained appraisers.

  • Interest Rates

    Reverse mortgages are available with both an
    adjustable and a fixed interest rate. The adjustable interest rate is
    lower than the fixed rate, and allows the borrower to receive the money
    as either monthly income or a lump sum. The adjustable rate program also
    offers a credit line, whereby the money available sits on a credit line
    and earns interest until it is used. The fixed interest rate program
    does feature a higher interest rate and borrowers must take all the
    money available as a lump sum. However, the amount available under the
    fixed rate program is greater than that available under the adjustable
    program and, as its name suggests, the interest rate is not subject to
    fluctuation.

  • Required Counseling

    To protect seniors against any potential undue
    influence of mortgage originators and lenders, the federal government
    requires that all potential reverse mortgage borrowers receive
    counseling. A number of counseling agencies exist, and the vast majority
    of counseling sessions take place over the telephone. The counselor is a
    neutral third party whose job is to ensure that the potential borrower
    understands the program and is made aware of other potential financing
    options.

Read more of this article.

About Reverse Mortgages:  The Reverse Mortgage is an excellent financial tool for seniors who wish to continue living in their homes for the rest of their lives and fear to wind up without the means to do so.  Consider the benefits and drawbacks at NewRetirement.com

New Way To Pay For Elderly Care: ‘Reverse Mortgage’ On Life Insurance

Posted on November 19, 2010 by Jason

The Los Angeles Times, November 16th, 2010

People typically pay for expensive nursing-home care or in-home care
with money from long-term care insurance or cash received from a reverse
mortgage, but The Hartford is having success selling a new alternative.

It’s a rider on a permanent life insurance policy that allows the
policyholder to draw down on the amount of money that would be paid at
death to a beneficiary. For example, if you are paying premiums on a
$500,000 permanent life insurance policy, some or all of that amount
could be withdrawn if you become chronically ill. It works a little
something like a reverse mortgage in that the policyholder is
withdrawing from the total value of an asset.

To withdraw money from the death benefits, the policyholder must be
“chronically ill” for the rest of her or his life, which has to be
affirmed annually by a doctor. The rider doesn’t require a policyholder
to submit receipts to verify expenses, a requirement with most long-term
care policies.

The Hartford Financial Services Group
defines chronic illness as either a cognitive impairment that requires
substantial supervision to protect a person’s health or safety, or a
condition that renders a person unable to perform at least two
activities of daily living for 90 days or more — such as bathing,
dressing, going to the toilet or eating.

The LifeAccess rider was first sold by The Hartford
in May 2007, but it wasn’t offered in Connecticut until September. So
far, it’s been a popular alternative to long-term care insurance, said
Robert Pokorski, The Hartford’s chief medical strategist.

Read more of this article.

Long Term Care Insurance:  This new program promises to take the place of Long Term Care Insurance, and for many it will likely do so.  At NewRetirement, we don’t endorse one program over another, and so we recommend you look into all the options to decide for yourself.

When a Safety Net Is Yanked Away

Posted on November 15, 2010 by Jason

The New York Times, November 12th, 2010

November is long-term care awareness month, and to celebrate, a big player in the long-term care insurance industry announced on Thursday that it wanted to get as far away from the business as possible.

Citing well-known challenges to the long-term care insurance industry (but without really saying what they were), MetLife
said that it would stop underwriting new long-term care policies for
individuals after Dec. 30. The company will also cease new enrollments
to group and other plans, say, through an employer.

The company added that it would continue paying claims on existing
policies as long as customers continued paying premiums. Many of them
may not, however, since MetLife recently asked state insurance
regulators for permission to raise premiums on many policies by as much
as 44 percent.

It wasn’t the only company not charging enough for its policies. The two
leading players in the industry are trying to raise prices, too.
Genworth Financial is seeking an 18 percent increase on older policies
held by about 25 percent of its customers. And John Hancock has filed
for permission to raise premiums for about 80 percent of its customers
by an average of 40 percent. It has also temporarily stopped offering
new long-term care insurance plans through employers while it tries to
figure out what to charge.

State regulators may not bless these requests. But it suggests how far
off the companies were in pricing their products.

So now that you’re aware of the situation, a question presents itself: Is long-term care insurance doomed?

Let me start by saying that this is a separate question from whether you
should plan ahead for the possibility of many hundreds of thousands of
dollars in long-term care costs. You should. One big risk here is facing
down a $100,000 annual care bill for years on end and having no savings
or insurance. Even if you have a decent amount of savings, you could
spend everything and leave your spouse (more often than not a woman)
with nothing to live on.

Wealthy people can pay for their own care. And Medicaid
covers long-term care for people with no assets, though they may not be
able to get the care they want where they want it.

Everyone else either has to save for the possibility that they’ll need
care for years or buy insurance to cover the cost. If you’re wondering
how likely you may be to make a claim, well, the insurance industry has
had some trouble figuring that out, too.

Want some evidence? In the last decade, 11 companies that were once in
the top 10 in market share in this area have bailed out, according to
Limra, an industry research group.

A MetLife spokeswoman, Karen Eldred, didn’t want to add to the company’s statement from Thursday. She was more communicative earlier this month when I was finishing a column about long-term care planning.

Read more of this article.

Long Term Care Insurance:  What does this upheaval mean for those looking to purchase Long Term Care Insurance?  The market for programs is becoming tighter, and it might now be a good time to consider pulling the trigger on this insurance product.  Consider the options at NewRetirement.com

MetLife Steps Back From Long-Term Care Market

Posted on November 15, 2010 by Jason

The Wall Street Journal, November 12th, 2010

MetLife
Inc. said it will halt sales of long-term-care insurance, a type of
coverage that repeatedly has flummoxed insurers and forced some to pay
significantly more in claims than they expected.

MetLife is among the bigger sellers of the coverage, with about
600,000 policyholders, or about 8%, among the eight million who have
long-term-care insurance in the U.S., according to the company and an
industry trade association.

MetLife joins a parade of insurers that have exited the business
rather than try to fight for customers in the small market. Many life
insurers, having suffered losses in the financial crisis, have been
rethinking product lines from long-term care to retirement offerings to
reduce their exposure to volatile markets.

In addition, they said, customers have held on to the policies at a
rate many insurers didn’t expect. Those lower lapse rates in the first
years of the policy translate into more people filing claims years
later.

“In any environment, it’s expensive for the companies that sell it,
and it has tremendous future risks associated with it,” he said. “The
current economic situation makes this an especially difficult business
right now.”

Allianz SE and Minnesota Life Insurance Co., a subsidiary of Securian
Financial Group Inc., are among the companies that halted sales of
long-term-care insurance in the last two years. Cutting off new sales
doesn’t affect existing customers as long as they keep paying premiums.

Policies sold years ago still are creating problems for some companies. CNO Financial Group
Inc., formerly Conseco Inc., spun off a long-term-care company with
more than 140,000 customers to an independent trust in 2008 to cap its
losses after plowing more than $1 billion into the unit that sold the
policies.

Read more of this article.

Long Term Care Insurance:  With Metlife out of the game, the remaining providers of long term care insurance will be restructuring to try and capture some of that new market.  As a result, this may be the proper time to inquire about Long Term Care Insurance.  Find out more at NewRetirement.com

Giving a Gift and Getting a Return

Posted on November 11, 2010 by Jason

The New York Times, November 10th, 2010

FOR retirees increasingly worried as interest rates on their savings
accounts and money market funds have plunged below 1 percent, an appeal
from their alma mater or a respected charity, offering a return of 5
percent or more on a charitable gift annuity, can seem like a rare
opportunity.

Is it? Or is there a catch? The answer to both questions is no. But the questions are simplistic.

Better to ask yourself: “Do I want to support the charity?” and “Is a
gift annuity a wise choice for me?” If you answer the first one with a
yes, then you need to assess your finances and understand what
charitable gift annuities are and how they work.

“Some people assume it’s like a bank account,” said Avery E. Neumark, a
retirement specialist and partner in the New York accounting firm Rosen
Seymour Shapss Martin & Company. “But it’s not. It is just what the
name says — a gift. You give away the principal, and you get a
guaranteed lifetime income. You can’t compare that with today’s money
market rates. The downside is you are locked in.”

The rates, which far exceed today’s annual 1.1 percent inflation rate,
might seem low years from now if inflation heats up.

For the choice to be a wise one, Mr. Neumark said, people should
generally be nearing retirement and charitably inclined, have liquid
assets and other income and have taken care of other needs. “I had one
client who did very well,” he said. “He was 90 years old, so the rate
was very high, and he lived until he was 103.”

The American Council on Gift Annuities
defines the product as a contract under which a charity, in return for a
gift of cash or property, agrees to pay a fixed amount over the term of
either one or two lives, usually the donors’. Most reputable charities
use rates recommended by the council, which vary with the annuitants’
ages and whether there are one or two. Because of the charity, there are
tax benefits.

For a single life, the latest rate table called for a 55-year-old to
receive 5 percent a year, a 60-year-old 5.2 percent, a 65-year-old 5.5
percent, a 70-year-old 5.8 percent, an 80-year-old 7.2 percent and
someone 90 or older 9.5 percent.

Read more of this article.

Annuity Advice for Retirement:  Even if a charitable gift annuity isn’t right for you, a standard annuity can provide many of the same benefits without some of the downsides.  Consider whether an annuity is the right move for you at NewRetirement.com

Action, not talk: Deficit panel pushes Dems, GOP

Posted on November 11, 2010 by Jason

The Associated Press, November 11th, 2010

The leaders of the deficit commission are baldly calling out the
budget myths of both political parties, challenging lawmakers to engage
in the “adult conversation” they say they want.

Their plan —
mixing painful cuts to Social Security and Medicare with big tax
increases — has no chance of enactment as written, certainly not as a
whole. But the commission’s high profile will make it harder for
Republicans and Democrats to simply keep reciting their tax and spending
talking points without acknowledging the real sacrifices that progress
against government deficits would demand.

It’s time for both
conservatives and liberals to “put up or shut up,” says Jon Cowan, head
of the centrist-Democratic group Third Way, which praised the bold new
proposals and urged politicians to show courage. Republicans failed to
produce their often-promised deficit reductions when they controlled the
government, Cowan said, and Democrats refuse to acknowledge that
entitlement programs such as Social Security and Medicare must be
trimmed.

Already, some top elected officials — House Speaker Nancy
Pelosi, for one — have declared Wednesday’s proposals by President
Barack Obama’s bipartisan commission unacceptable. Others still say
deficits can be reduced in relatively easy ways, a notion that few
mainstream economists accept.

There’s no need to trim Social
Security, Sen. Jim DeMint, R-S.C., a tea party favorite, said Sunday on
NBC’s “Meet The Press.” ”If we can just cut the administrative waste,”
he said, “we can cut hundreds of billions of dollars a year at the
federal level.”

Well, no.

As amply demonstrated by the
panel’s co-chairmen — former Clinton White House chief of staff Erskine
Bowles and retired Sen. Alan Simpson, R-Wyo. — taming the deficit
requires real pain all around. One person’s government “waste” is
another’s essential program.

Read more of this article.

Social Security Optimization:  Whatever is done to Social Security in the future, it is never a bad time to get the most out of the program.  Learning how best to use the rules of Social Security to your advantage is key to maximizing your gains from this most important of government social programs.

Making Mortgage Lending a Family Affair

Posted on November 10, 2010 by Jason

The New York Times, November 4th, 2010

MATT RADO is in the market for his first home, but the 41-year-old in Santa Ana, Calif., does not plan to get a loan
from a bank. Instead, Mr. Rado, who works in sales for a technology
company, plans to have his retired parents lend him the money.

The idea behind the lending strategy is this: Mr. Rado, who is preapproved for a 30-year fixed mortgage
at about 4.75 percent from a commercial lender, will get at least as
favorable a rate from his parents along with lower closing costs. At the
same time, his parents will get a higher rate of return than is offered
by a traditional savings vehicle like a savings account.

In addition, the mortgage payments will function like the annuitylike investments
that Mr. Rado’s 71-year-old father had been considering. “I just feel
better about the money going to my dad as opposed to going to some
bank,” Mr. Rado said.

With credit tight and interest rates at historic lows, such intrafamily
loans can be a win-win for parents and children. “It’s an absolutely
terrific time to make an intrafamily loan,” said Carol G. Kroch, head of
wealth planning for Wilmington Trust.

Such loans, whether for a home, car or education, are essentially family bonds that could protect money from risky behavior by others.

Rick Kahler, a financial adviser
in Rapid City, S.D., who has experience in the real estate industry and
is the author of four books on financial planning, said such loans
could potentially deliver higher returns than a double-A-rated 10-year
corporate bond, which he said was returning about 4 percent; a triple-A
bond, which he said was delivering around 3 percent; or a certificate of
deposit, which has rates that are even lower. Still, he said, the
intrafamily loans are much riskier than such investments, and so are not
necessarily equivalent to them. With an intrafamily loan, parents are
betting that their children and their children’s significant others will
have the income to repay the loan. And even if the children have
excellent credit scores
now, their status could change drastically — much faster than a
corporation’s — if a job loss or illness were to occur. To help lessen
these risks, financial planners have specific recommendations about who
should make and get such loans.

Read more of this article.

Discussing Family Money Without the Family Drama

Posted on November 10, 2010 by Jason

The New York Times, November 4th, 2010

Editor’s note:  This article, and those to follow, are from the New York Times’ report on the “Sandwitch” generation, a generation of working adults forced to care both for aging parents and children at the same time.  We strongly recommend checking this entire series out, for ideas as to how to cope should you find yourself a member of this generation.

LOVE, Erich Segal wrote in 1970, means never having to say you’re sorry.
The same can be said about the money amassed by the baby-boomer
generation in the last four decades, or about their heirs’ view of it.
Many parents remain reluctant to talk about how much money they plan to
leave their children, and that can lead to conflict among siblings and
hurt feelings long after the parents are gone.

While talking about money has long been taboo, not discussing what you
have — particularly when you have a lot, or if your children think you
do — is not going to make the problem go away. In most cases, advisers
and psychologists say, it just makes things worse.

“The major problems happen when money is not talked about,” said Eric
Dammann, a psychoanalyst in New York City. “They’ll set up this whole
estate plan, but won’t talk to the kids about it. Then Mom and Dad die
and there’s a reading of the will and it’s a surprise.”

Mr. Dammann said that the worst situations were when the parents knew
one child had been more or less financially successful than another.

In those cases, an estate can be more than a sum total of assets. It
often becomes about love or lack of it, control, power and many other
emotions you would rather not have arise after your death.

“When you don’t have those discussion, you use money as a lens to see
all these other issues,” said Coventry Edwards-Pitt, managing director
for Ballentine Partners. “It becomes a proxy for so much else.”

So what is the best way to talk about what you have?

For an industry that spends so much time talking about estate planning,
its answers were remarkably thin. Advisers agreed that having a
conversation was important, but stressed that this was not as easy as it
sounded.

“The older generation is tough,” said Lisa Roberts, managing director
and head of the northern California region for Citi Private Bank.
“They’re in the mind-set of, ‘Let’s create a trust and you get a third
at 30, a third at 35 and a third at 40.’ ”

Ms. Roberts said her younger Silicon Valley clients were more open to
the discussion, asking her what the right age was for discussing the
wealth they had and what their children might expect.

Again, though, her answer did not provide an easy script to follow: “We
say, ‘What are the capabilities you want them to have, and what
confidence do you want them to demonstrate with money?’”

Read more of this article.

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