Archive for January, 2011

For Governors, Medicaid Looks Ripe for Slashing

Posted on January 31, 2011 by Jason

The New York Times, January 29th, 2011

Hamstrung by federal prohibitions against lowering Medicaid eligibility, governors from both parties are exercising their remaining options in proposing bone-deep cuts to the program during the fourth consecutive year of brutal economic conditions.

 Because states confront budget gaps estimated at $125 billion, few essential services – schools, roads, parks – are likely to escape the ax. But the election of tough-minded governors, the evaporation of federal aid, the relentless growth of Medicaid rolls and the exhaustion of alternatives have made the program, which primarily covers low-income children and disabled adults, an outsize target.

 In Arizona, which last year ended Medicaid payments for some organ transplants, Gov. Jan Brewer, a Republican, is asking the Obama administration to waive a provision of the new health care law so that the state can remove 280,000 adults from the program’s rolls. In California, the newly elected governor, Jerry Brown, a Democrat, proposes cutting Medicaid by $1.7 billion, in part by limiting the beneficiaries to 10 doctor visits a year and six prescriptions a month.

 In the budget he will unveil on Tuesday, Gov. Andrew M. Cuomo of New York is expected to propose cutting even more – at least $2 billion from projected state spending on Medicaid, which totaled about $14 billion this year.

And Gov. Nathan Deal, the new Republican leader of Georgia, proposed this month to end Medicaid coverage of dental, vision and podiatry treatments for adults. South Carolina is considering going a step further by also eliminating hospice care.

The governors are taking little joy in their proposals. And many of them, particularly the Republicans, are complaining about provisions of last year’s health care overhaul, and of the stimulus package before it, that require the states to maintain eligibility levels in order to keep their federal Medicaid dollars.

Read more of this article.

For Many Entrepreneurs, Life Begins at 50

Posted on January 31, 2011 by Jason

MSN news, January 30th, 2010

There’s
a lot of chatter these days about how eagerly Gen Y is embracing
entrepreneurship. But you don’t hear nearly as much about the other
demographic that’s also pursuing business ownership, driven more by
purpose than passion.

 

There’s
been a surge of people aged 50-plus starting businesses, and it’s
happening for a number of reasons. But today’s driving factor, according
to the Staying Ahead of the Curve 2007 survey from AARP, appears to be “financial need.”

 

Americans
over 55 were particularly hard hit by this past recession. Not only did
their jobless rate hit record levels, but their average length of
joblessness, according to the U.S. Bureau of Labor Statistics, was over
35 weeks, compared to 30 weeks for workers ages 25 to 34. (These stats,
provided earlier this year, were the latest supplied by the bureau.)

 

According to a report titled “What’s the Matter With the U.S. Job Market?” — part of the UCLA Anderson Forecast,
an economic outlook released last December — about 5.5 million lost
jobs are not coming back. So instead of seeking jobs that don’t exist,
older Americans are starting businesses. In fact, the Kauffman
Foundation reports there’s an entrepreneurial boom among 55- to
64-year-olds, who are now nearly twice as likely to start successful
businesses as 20- to 34-year-olds.

 

Assessing the risk

But
before you jump into reinventing yourself as an entrepreneur, remember
that starting and running a business both entail risk. And the older you
are, the lower your tolerance for risk is likely to be. Obviously,
success in business is not guaranteed, and younger entrepreneurs have
more time to regain any money lost from investing in a venture gone bad.

 

Late last summer, Newsweek
reported that Vivek Wadhwa, a self-described “academic, researcher,
writer and entrepreneur,” conducted a study of over 500 successful
technology businesses and found that older startup entrepreneurs were
actually more successful than younger ones — despite common perceptions.
Wadhwa credits their expertise, customer experience and relationships,
and established network of supporters for their success. Still, you’ll want to mitigate as much of the risk as possible. You can do this in several ways:


Read more of this article.

Working in Retirement:  Whether as an entrepreneur or simply an employee, many seniors are turning to the working world to cement their retirements.  Consider the options, benefits, and drawbacks, at NewRetirement.com.

Retirements Swallowed by Debt

Posted on January 27, 2011 by Jason

The New York Times, January 26th, 2011

Bill Freedman, 86, felt financially secure. He had a comfortable
income from Social Security, an I.R.A., investments and an inheritance.
But when he took a fall last October, his daughter, Nancy Freedman, went
to his Manhattan apartment and found several credit cards piled up in a
desk drawer. After making a few phone calls, she discovered he was
$15,000 in debt.

“I read him the riot act,” said Ms. Freedman. Her father maintains
that his finances were manageable. Still, he thought it was a good idea
to hand over the reins to his daughter, who now has power of attorney.
His bills and statements are mailed to her apartment.

“I urge everyone to have that conversation with their parents” about
money, said Ms. Freedman. “I also think it is the parents’
responsibility to tell their children.”

Is it? Study after study shows that more elders are living with heavy credit card debt,
regularly swiping cards to pay for things like gas and groceries. And
as the balances pile up, the elderly cope in a number of ways. Some,
like Mr. Freedman, permit their adult children to step in, while others
seek outside counsel in an effort to preserve their independence. Some
elderly debtors are trapped in limbo, too proud to ask for help but too
strapped to pay off the debt.

No wonder growing numbers of the elderly have or want jobs. A report from the Sloan Center on Aging and Work at Boston College found that 30 percent of unemployed workers over age 55 have more credit card debt than retirement savings; 41 percent have as much. The situation for employed older workers is less grim, but not by much: A study by researchers at Rutgers University
found that 22 percent of older workers, the vast majority of them
employed, reported increased credit card debt, and 12 percent said they
had missed a credit card payment because of the economic downturn.
Experts say many older Americans face the very real possibility of
starting retirement in the red.

“They don’t have anything to fall back on,” said Carl Van Horn, a
public policy professor at Rutgers University and co-author of the
study. “They can’t sell their house, their retirement savings are
nonexistent, they owe all this money in credit card debt — and that’s a
bleak future.”

The growing reliance on plastic has driven the average credit card debt for people over 65 to $10,235, according to a July 2009 study by Demos, a public policy research organization in New York.

José Garcia, associate director of research and policy at Demos, said
the increase in the number of older Americans getting new credit cards
outpaces that of any other age group.

Read more of this article.

Debt Consolidation:  Retiring with debt is almost a guarantee that your retirement plans are going to miscarry.  Credit Card debt is widely considered the worst form of debt to have, due to the exorbitant interest rates associated with it.  If you have debt in retirement, or believe you will when you retire, it’s time to consider a comprehensive plan to eliminate that debt.

How Baby Boomers Can Retire Despite A Downturned Economy

Posted on January 27, 2011 by Jason

Seattle Medium, January 25th, 2011

More than 10,000 baby boomers will turn 65 each day during the next two
decades, says AARP, the nation’s leading organization on elder issues.
The generation that grew up with changes in social mores, music, and
more now faces a particularly challenging time to leave the workplace.

But what’s a person to do with the rest of their lives, if they were
born between the years of 1946 and 1964? Especially when current
economic trends and measures are more down than up, who can really
afford to retire?

Kiss goodbye the days of secure pensions and
gold watches for decades of service. According to the Employee Benefit
Research Institute, only 15 percent of the workforce today has a
traditional pension plan. Instead, 401(k) s in the private sector and
403 (b) s in public and not-for-profit organizations are the likely
alternative plans. These benefits are tied to stock market performance.
When the market performs well, benefits boom; but conversely, benefits
diminish when the market performs poorly.

Also gone are the
days when owning a house meant sure-fire wealth building. Eleven
million Americans now owe more than their home is worth. Boomers hoping
to downsize to smaller spaces may find that while unemployment hovers
near 10 percent, prospective homebuyers may be waiting for the job
market to improve before making such a large and long-term investment.

When disposable funds are fewer than in workplace years,
older consumers can be particularly at-risk to incur debts that tarnish
the golden years. Or as the O-Jays sang, it’s that ‘almighty dollar’
that can change you – especially when there’s not enough to provide for
yourself or your family.

For example, long-time homeowners
with title to their homes or nearing the end of mortgage payments might
be lured into a reverse mortgage. As a loan against market value,
reverse mortgages can be a transaction that enables borrowers to turn
that value into ready cash without selling the property.

However, before signing on the dotted line for a reverse mortgage,
borrowers should clearly understand that they are signing an end of life
loan. Full repayment is required when either the borrower passes away
or no longer lives in the residence for more than a year. Any absence
due to year-long extended health care, such as rehab or assisted living
facilities will make the loan due.

Overdraft, another debt
trap, may offer a convenient way to pay for purchases; but if there is
no cushion in the account or consumer checkbooks aren’t accurately
balanced, overdraft fees that average $34 per transaction can quickly
siphon off disposable income. Even worse, consumers only learn of the
charges after the statement arrives. Rather than incur the risk of
overdraft fees that each year strip $23.7 billion from checking account
holders, it is better to decline overdraft than to accept it.
Unauthorized overdrafts strip fees from Americans 55 and older at the
level of $4.5 billion per year. Nearly $1 billion of that comes from
people who are heavily dependent on Social Security income.

Even
worse than overdraft fees are payday loans that promise quick and easy
cash without credit checks. In recent months, many payday lenders began
accepting unemployment checks or disability benefits as income. Yet
what the marketing and advertising do not share is how only a very small
percentage of payday borrowers are actually able to retire their
short-term loan in two weeks. The vast majority of payday borrowers –
12 million each year — become trapped into a turnstile of repeat loans
and high-cost fees that result in more money being paid for interest and
fees than the amount borrowed. Meanwhile, payday lenders reap $5
billion annually.

Read more of this article.

SMART MONEY: No need to file, they already are bankrupt

Posted on January 27, 2011 by Jason

The Oakland Press, January 27th, 2011

DEAR BRUCE: My parents, both 80, have lived for years on their
credit card, running up the balance and paying it off every month. This
works great when you have ample income to cover it. For whatever
reasons, they have no investment income left and are living on
retirement and Social Security now. While they live in their own home,
they have two reverse mortgages on it and I think they exceed the
current value of the home, so selling it is not an option. They have
reached the point where not only are they running up the credit card
every month, they have maxed out two substantial lines of credit on
other cards as well. The interest alone runs them $700 per month. While
they have no mortgage or car payments, they have substantial medical
expenses (prescriptions). They cannot meet the interest obligation every
month. I estimate their credit to be about $20,000. Dad is talking
bankruptcy. I am not in a position to assist them in any meaningful way.
Is this a good alternative for them? Or should they seek credit
counseling/debt consolidation? They are in the position of NOT being
able to stop using the credit card because it takes up literally all of
their income each month. I hope I’ve given you enough information to
put forth an opinion. — Jennifer, via e-mail

DEAR
JENNIFER: Technically, your mom and dad are bankrupt. Having financial
obligations and no resources to cover them. The house isn’t an asset
given the fact that it has reverse mortgages and very likely the house
is upside-down. This has no adverse effect on them as long as they
continue to pay the taxes and insurance, this will allow them to live
there until they pass away. Their Social Security income is not
attackable so they can depend upon that. As far as the credit cards,
sooner or later they will not be able to make a minimum payment and
then the whole house of cards will collapse. I don’t see credit
counseling or debt consolidation having any value. The only positive
thing they can do is write to the credit card companies and explain
that their assets have been completely exhausted, their only income is
Social Security and they would like to close out the accounts, but they
are not in any position to reduce the outstanding balances. After
investigation, chances are the credit card companies will write the
debts off.

DEAR BRUCE: My mother carried the note on my
house, which was forgiven upon her death. I paid monthly interest,
which stopped when she passed away in 2009. Because I no longer owe
anything on my house and it is fully paid for, how do I get the deed? —
Meredith

Read more of this article.

You’ll Pay More for This Must-Have Protection

Posted on January 26, 2011 by Jason

The Motley Fool, January 25th, 2011

Insurance is designed to protect you from unexpected tragedies that
would otherwise wreak devastation to your finances. Unfortunately, with
one type of insurance that older investors have increasingly relied on
for financial security, the insurance companies that offer it are the
ones suffering financial devastation — and they’re doing their best to
pass the costs on to you.

For many, long-term-care insurance
is must-have protection for their retirement nest eggs. But just as
increasing medical costs have forced health insurance premium increases
and put programs like Medicare under the threat of long-term insolvency,
the insurance companies that offer long-term-care coverage also have to
deal with changing conditions in the industry that are crushing their
profits.

Why you need it
Many people assume that once they
retire, Medicare will pick up the tab for all of their medical
expenses. But even with a good Medicare supplemental insurance policy,
many needs that seniors have aren’t covered in full. With those services
that aren’t deemed medically necessary, including assistance in taking
care of basic personal needs, you can’t expect Medicare to cover the
tab.

That’s where long-term-care insurance comes in. Long-term-care
policies often provide benefits to pay not just for traditional
facilities like nursing homes but also for relatively new innovations
like home health care and assisted living facilities. Given that care can cost hundreds of dollars per day in some areas, paying relatively modest premiums can save you a fortune later on.

A big mistake by insurers
The problem that
long-term-care insurance is facing now is that insurance companies
underestimated the amount of money they’d have to pay out on
long-term-care policies. Several factors combined to create the
shortfall, including higher medical costs and an increasing number of
claims, as well as low interest rates that have reduced investment income for insurance companies.

As a result, Manulife Financial‘s (NYSE: MFC) John Hancock division is asking for rate increases of 40%, while Genworth Financial (NYSE: GNW) wants an 18% increase for some of its long-term policies. MetLife (NYSE: MET) has taken the even more dramatic step of no longer marketing new long-term-care policies.

Read more of this article.

The Financial Nightmares Facing Boomers

Posted on January 26, 2011 by Jason

Yahoo Finance, January 16th, 2011

This month, the first baby boomers officially reached retirement age,
and they’re in a gloomy mood. A Pew Research Center survey last month
found that 80 percent of the nation’s 79 million boomers are
dissatisfied with the way things are going today — more than members of
any other age group. This may reflect that 60 percent of Americans aged
50 to 61 think they might need to delay retirement because of the
recession, according to a May 2010 Pew survey. Fully 57 percent of
boomers said their household finances have deteriorated in the past few
years, more than any other generation surveyed.

Sinking home equity, rising health-care costs, and low returns on most
investments have left boomers near retirement confronting a pile of
financial worries instead of happy visions of golf, grandchildren, and
travel. Here are some potential financial disasters facing this
generation — and tips on how to avoid them.

Inflation

The U.S. cost of living rose just 0.1 percent in
November 2010, according to a Dec. 15 Labor Dept. report, but inflation
could be a serious concern in the future. Recent efforts by the U.S.
Federal Reserve to stimulate the economy have drawn criticism from GOP
leaders. Four of them, including new Speaker of the House John Boehner
(R-Ohio), sent a letter to the Fed on Nov. 17 warning that so-called
quantitative easing could lead to “hard-to-control, long-term
inflation.” An annual inflation rate of 7 percent running for a decade
is enough to cut a dollar’s purchasing power in half.

How to Avoid: The usual recommended hedges against inflation are
investments in commodities, real estate, and Treasury Inflation
Protected Securities, or TIPS. Princeton University economics Professor
Burton G. Malkiel advises buying securities in countries rich in natural
resources, such as Brazil and Australia.


Read more of this article.

5 Reverse Mortgage Scams

Posted on January 26, 2011 by Jason

Financial Edge, January 21st, 2011

Staying vigilant against computer scams and other fraud has become a
natural part of life for many consumers, yet scams are successfully
perpetrated every day. One reason: Individuals who intend to commit
fraud have become more creative than ever, and they choose their targets
with care. One group of people that scammers like to target is the
elderly, believing that older people are less quick
to catch on to a potentially harmful scheme than younger people may be.
In recent years, as the number of senior homeowners who opt for a reverse mortgage has risen and so has the prevalence of reverse mortgage scams. (For related reading, also take a look at The Reverse Mortgage: A Retirement Tool.)

IN PICTURES: Digging Out Of Debt In 8 Steps

The Home Equity Conversion Mortgage
(HECM) is the FHA’s reverse mortgage program, which is available to
homeowners age 62 and older and can be a valuable financial tool for
tapping into home equity and providing income for retirees. Homeowners
working with a legitimate reverse mortgage lender will be required to participate in financial counseling to ensure that they understand the loan and how it works.

If you are considering a reverse mortgage, watch out for these potential scams:


  1. Foreclosure Scams
    In this scam, the perpetrators go after seniors who are in danger of losing their home to foreclosure. They artificially inflate the value
    of the home with the help of a dishonest appraiser, and then obtain a
    reverse mortgage on the property. After the mortgage approval, the
    scammers have the seniors transfer the title to them and the seniors are
    left without a home and without the funds from the reverse mortgage.
    Another way of defrauding the senior homeowners is to work with a fake
    financial institution that will inform the owners that they cannot
    qualify for a reverse mortgage but that they can have a different type
    of loan. During the closing, the title to the property will be
    transferred away from the homeowners.

  2. Equity Theft Scams
    These
    complicated schemes often involve several individuals who work together
    to buy a distressed property or a foreclosure, then obtain an inflated appraisal
    and then recruit a senior to repurchase the property and take out a
    reverse mortgage on the property. Usually the settlement attorney for
    the reverse mortgage is also in on the scam, so all of these individuals
    abscond with funds from the reverse mortgage at settlement, leaving the
    seniors with little or no equity and no cash.

  3. Free Homes
    Scammers
    and con-artists use advertising to recruit seniors to live in a home so
    that a reverse mortgage can be obtained on the property. The scammers
    keep the reverse mortgage proceeds and the seniors pay the property
    taxes and insurance on the home. Generally, the reverse mortgage is
    obtained on a false, inflated appraised value. Once the seniors pass
    away or move, the reverse mortgage lender is stuck with a loss due to the lack of true value in the home.

Read more of this article.

About Reverse Mortgages:  The best possible defense against scams is to understand the program in question yourself, backwards and forwards.  NewRetirement.com’s information resource can help you do just that.

With Retirement Savings, It’s a Sprint to the Finish

Posted on January 24, 2011 by Jason

The New York Times, January 21st, 2011

What would you do if your financial planner prescribed the following advice? Save and invest diligently for 30 years, then cross your fingers and pray your investments will double over the last decade before you retire.

You might as well go to Las Vegas.

Yet that’s exactly what many professionals and fancy financial calculators have been telling consumers for years, argues Michael Kitces, director of research at the Pinnacle Advisory Group in Columbia, Md., who recently illustrated this notion in his blog, Nerd’s Eye View.

The advice is never delivered in those exact words, of course. Instead,
this is the more familiar refrain: save a healthy slice of your salary
from the start of your career, invest it in a diversified portfolio and
then you should be able to retire with relative ease.

The problem is that even if you do everything right and save at a
respectable rate, you’re still relying on the market to push you to the
finish line in the last decade before retirement.
Why? Reaching your goal is highly dependent on the power of compounding
— or the snowball effect, where your pile of money grows at a faster
clip as more interest (or investment growth) grows on top of more
interest. In fact, you’re actually counting on your savings, in real
dollars and cents, to double during that home stretch.

But if you’re dealt a bad set of returns during an extended period of
time just before you retire or shortly thereafter, your plan could be
thrown wildly off track. Many baby boomers know the feeling all too
well, given the stock market’s weak showing during the last decade.

“The way the math really works out is unbelievably dependent on the
final few years,” Mr. Kitces said. “I just don’t think we’ve really
acknowledged just what a leap the very last part really is.”

Consider the numbers for a 26-year-old who earns $40,000 annually, with a
long-term savings target of $1 million. To get there, she’s told to
save 8 percent of her salary each year over her 40-year career. (We
assumed an annual investment return of 7 percent, and 3 percent annual
salary growth, to keep pace with inflation). Yet after 31 years of
diligent savings, her portfolio is worth just slightly more than
$483,000.

To clear the $1 million mark, her portfolio essentially must double in
the nine years before she retires, and the market must cooperate (unless
she finds a way to travel back in time and significantly increase her
savings).

Read more of this article.

How do you know if a reverse mortgage is right for your parents?

Posted on January 24, 2011 by Jason

HSH Blog, January 21st, 2011

Jane Blume’s story is one many middle-aged Americans can relate to:
Her aging parent was beginning to run out of money. The money her mother
spent her whole life saving was quickly dwindling. When Social Security
was no longer enough to help Blume’s mother cover her bills, maintain
her home and pay for her every-day expenses, she suggested her mom apply
for a reverse mortgage.

“Older Americans born in the pre-war era have a stigma about reverse
mortgages,” says Eric Declercq, national retail leader for reverse
mortgages at MetLife. “They [don't] want to strip their equity.”

It’s true, many older Americans have a lot of fears and questions
surrounding a mortgage product that many feel will leave their loved
ones with a pile of debt. While it’s true, a reverse mortgage isn’t for
everyone, and it is possible to outlive the proceeds, children need to
know how to approach and discuss at least the idea of applying for a
reverse mortgage and dispelling the notion of leaving them with only a
pile of debt.

Suspect money troubles? Start the conversation

Talking about a parent’s finances is never easy, especially if you’re
not sure how big the problem is. There are usually red flags that
alert you to trouble ahead. For instance:

  • You may know that your parent has limited assets.
  • You may be aware that your parent is reliant on Social Security.
  • Your parent may be racking up significant healthcare costs.

These are all tip-offs that open the door to financial discussions.

“Find the right time to talk to a parent,” says Declercq. “Look at
the quality of their lives. How are they living? Are their cupboards
full? What’s their health like?“

Read more of this article.

About Reverse Mortgages:  It helps, when discussing the program with parents, to know all the facts about reverse mortgages ahead of time.  At NewRetirement, you can find out what the advantages and disadvantages of the program are so as to arm you for your discussion with your parents.

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