Answers for a Twitter (X) Chat About Long-Term Care

I periodically participate as a panelist in Twitter (X) chats to answer questions about personal finance topics. Below are seven questions that I answered recently during a #creditchat about long-term care: 

What is long-term care planning, and why is it important for financial security as we age? 

Long-term care (LTC) planning is planning for a time in our life when we may no longer be able to perform activities of daily living (ADLs) such as eating, bathing, dressing, using the toilet, walking, and getting in and out of a bed or a chair (transferring). Without a LTC plan, people can deplete their financial resources paying for LTC services in later life.

At what age should people start considering long-term care planning, and why is it beneficial? 

Certainly by your 50s, you should develop a LTC plan although some people could need LTC services earlier (Think: Christopher Reeve’s severe injury). Early planning is useful for peace of mind. In addition, LTC insurance premiums are cheaper in your 50s or early 60s vs. later life.

How can long-term care planning help reduce the financial burden on family members? 

Unfortunately, some people expect their children to be their LTC plan and never discuss this expectation with them. Caregiving is a major financial and emotional burden. Caregivers often lose income, retirement savings, and even jobs to care for a family member. This burden often falls on women, many who can least afford to lose jobs, income or Social Security work credits.

What types of services are typically covered under long-term care insurance? 

It depends on the specifics of the policy contract so you need to review it carefully. LTC policies typically cover skilled nursing home care, assisted living, home health care, adult care, and respite care. Policies typically pay daily amounts for services up to policy limits (e.g., 3 years).

What are differences between LTC insurance, Medicare, and Medicaid in covering LTC needs?

LTC insurance is an insurance company contract; Medicare and Medicaid are government health care programs. Medicare does not cover non-medical LTC (custodial care services) unless medical care is needed. Very specific rules apply. Medicaid does cover LTC services for people with limited income and assets. Guidelines for Medicaid assistance vary among states.

Where can people go for advice about long-term care planning and its potential costs?

A licensed insurance broker, a certified financial planner®, and a local State Health Insurance Assistance Program (SHIP) office with trained volunteer insurance counselors are good resources. For info about how to find SHIP programs in every state, see https://www.shiphelp.org/. 

What are some common misconceptions about long-term care planning?

People think they won’t need LTC services. In reality, 70% of people turning 65 will need some type of care. Also, people think they have to buy LTC insurance but there are other options (e.g., self-insurance and a continuing care retirement community). The important thing is to make a plan!

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Strategies to Achieve Financial Peace of Mind

I recently attended an estate planning class called “How to Achieve Financial Peace of Mind.” Below are ten key take-aways that stood out to me from this presentation:

Plan For the Future- Prepare legal documents that specify how your estate (i.e., property, savings and investments, and other assets) will be managed when you die and how your health care and financial decisions will be made if you are incapacitated. Documents to prepare with assistance from an attorney include a will, durable power of attorney for finances, and a living will. Be sure to share copies of these documents with the people named as your personal representatives.

Create a “When I Die File”- Assemble in one place documents that someone (e.g., spouse, family, executor, attorney) would need in the event of your death or incapacity. These documents can be in digital and/or paper form. Items to include are a current net worth statement, list of people to contact, list of who gets your untitled property, list of automatic bill payments, and a draft obituary.

Fund Your Trusts- Retitle personal assets held in your name (e.g., bank accounts and securities) into the name of your trust if you decide to create one. It is critical that trusts be funded to be of value and it is a common error when they are not. Expect that doing this will take some time and paperwork. 

Reconsider Trusts- Consider other ways to distribute property to others and avoid probate without using a trust. Interestingly, the program speaker noted that “trusts are oversold” and recommended using payable on death (POD) designations for bank products (e.g., savings accounts and certificates of deposit) and transfer on death (TOD) designations for investment accounts to transfer property.

Lend Money Carefully- Prepare a promissory note if you lend money to others. It should be signed and dated by both you and the borrower with specifics about the loan agreement including the amount borrowed, the loan timeline (e.g., two years), and penalties for late payments.

Leave a Paper Trail- Tell trusted loved ones about your “When I Die File” and where it is located as well as the location of other important papers (e.g., in a desk, dresser drawer, or file cabinet) and the original and copies of the legal documents described above. For added security, consider a waterproof and fireproof safe (be sure to tell trusted loved ones the combination).

Talk With loved Ones- Communicate with loved ones about the content of your advance directive documents. For example, your desire to not have your life prolonged via a feeding tube or other artificial means. By understanding your wishes, they will be able to be better spokespeople for you if and when the time comes that they need to advocate for your wishes.

Prepare a Digital Assets Inventory- Make a list of the username and password for digital accounts including access to your cell phone and laptop and online accounts. Like the “When I Die File,” be sure to share this list with trusted loved ones. 

Make Your Own Final Arrangements- Prepare a letter of last instruction that includes your wishes for burial or cremation, a funeral or memorial service, special prayers and songs, charitable bequests in your name, and other important (to you) details. Place it in your “When I Die File.”

Review and Revise- Review your estate plans annually or when any major life event occurs such as the death of a personal representative or beneficiary. 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

Answers to a Reporter’s Questions About Savings Bonds

I am frequently contacted by reporters to answer questions about personal finance topics. Below are three questions that I answered recently about U.S. savings bonds:

What happens to savings bonds if the original owner is deceased?

It depends on how the bonds are titled (this will be shown on the front face of the bond). If there is a named beneficiary, a bond will go directly to the beneficiary and is not part of the probate estate. If there is a surviving co-owner, that person becomes the sole owner of the bond. If there is no beneficiary or co-owner, savings bonds become an asset of the deceased bond owner’s estate, which will be settled via the terms of a deceased person’s will or state intestacy laws if there was no will. Note that there is no stepped-up basis on inherited savings bonds as there is with stock.

What should someone do if they have lost paper savings bonds?

The government has a six-page form for this: FS Form 1048 issued by the Bureau of the Fiscal Service. However, to complete the form, you must provide the issue date, face amount, and serial number of the bond. Therefore, it is imperative that you create a list with this information and keep it with your financial records. I personally use the savings bond inventory tool on the Treasury Direct website to create and update my bond inventory. Other people scan their bonds for a digital record or make a paper copy with a copier. FS Form 1048 also requires a signature guarantee by a financial institution such as a local bank. Wait to sign the form in the bank officer’s presence. 

I honestly do not know what happens if people do not have the necessary information required to complete FS Form 1048. I told the reporter to recommend that her readers contact the Bureau of the Fiscal Service, Forms Management Officer, Parkersburg, WV 26106-1328 and to provide whatever information and/or documentation they do have about the missing bonds. Questions on FS Form 1048 include: who had the bonds last and why? and when were the bonds last seen?

When you cash savings bonds in at bank, does the bank take out withholding for income taxes?

No, which is why people need to do proactive tax planning for tax years when they cash in paper savings bonds at a bank. As a reminder, savings bonds reach full maturity and stop accruing interest 30 years from their purchase. Some ways to “handle” the tax liability include over withholding on income from a paycheck, pension, or Social Security or making quarterly estimated tax payments to the IRS using Form 1040-ES. In addition, if people own multiple savings bonds that were purchased in the same year (e.g., 2001), they might consider cashing them in over several years to minimize the tax bite instead of cashing in all of the bonds in the same tax year. I am doing this myself, personally.

Just Do Ten Things Right

Recently, I was hired by the Marion County (FL) Medical Society to do a keynote presentation at their meeting. A pre-program survey of their members indicated they wanted to learn about a variety of financial topics in 45 minutes. What to Do? I remembered the book, The Index Card, where ten tips related to many aspects of personal finance were shared on an index card. 

I titled my presentation “Just Do Then Things Right.” Below are the ten recommended action steps that I discussed with my audience that I consider essential for financial well-being:

Spend Less Than You Earn- Live below your means with positive cash flow; i.e., where income is greater than expenses. You can’t save, invest, or build wealth for retirement if you don’t get this foundational action step right. Spending plan (budget) worksheets are a useful resource.

Strive to Pay Credit Card Balances in Full- Try to pay credit card balances in full every month as a convenience user so no interest is charged. If this is not possible, pay more than the minimum payment to reduce the cost of interest and shorten debt repayment time.

Try to Save At Least 15% of Your Income- Save as much as you possibly can and gradually work up to a 15% savings rate if you cannot save that much now. Studies have shown saving 15%+ of income can result in a significant nest egg- sometimes as much as $1 million- in later life.

Invest for the Long Term- Consider investing in equities (e.g., stock, growth mutual funds, stock exchange-traded funds) for financial goals that are five or more years away. Buy inexpensive securities with low expense ratios and beware of pitches for fraudulent investments.

“Max Out” Tax-Advantaged Retirement Savings Accounts- Contribute as much as you can afford, up to annual IRS maximum limits, to retirement savings accounts including traditional (pre-tax) and Roth (after-tax) IRAs and qualified employer plans (e.g., 401(k), 403(b), TSP).

Diversify x 3 (D3)- Diversify investments three ways: 1. Investment diversification (different asset classes; e.g., stocks, bonds, and cash), 2. Time diversification (hold investments over time to reduce their volatility), and 3. Tax diversification (mixture of tax-deferred, taxable, and tax-free securities).

Protect Yourself With Adequate Insurance- Insure against large financial risks including disability (to protect your earning ability), liability, and property damage. Consider adding an umbrella insurance policy if your assets (not exempt by state law against judgments) total $1 million+.

Practice Tax Avoidance- Take advantage of legal strategies in the tax code to reduce your tax liability. Specific strategies include retirement savings plan contributions, Roth IRA conversions, tax deductions and credits, tax loss harvesting, tax-free investments, and gifting to qualified charities.

Get Your Estate in Order- Prepare legal documents (e.g., will, living will, power of attorney) and update them as needed, discuss end-of- life wishes with personal representatives, review beneficiary designations on insurance policies and retirement plans, and prepare a digital assets inventory.

Keep Learning About Personal Finance- Learn one new thing every day about a personal finance. Ways to do this include books, newspapers and magazines, blogs, podcasts, seminars, social media platforms, and traditional media outlets (e.g., radio and television). 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.

More Q&A About 2024 Events and Trends

 As I noted in last week’s post, I recently presented a 90-minute 2024 Personal Finance Year in Review webinar for OneOp, and, after the webinar, answered follow-up questions from webinar participants. Below are some additional questions that were asked and my responses: 

What was the purpose of the 10 year requirement where non-spouse beneficiaries must take RMDs annually during  a 10-year payout period?

Congress and the IRS know that many owners of tax-deferred retirement accounts (e.g., traditional IRAs, 401(k)s, 403(b)s, TSP), especially “super-savers” with $1 million + balances, will die and leave money in their plans. Prior to passage of the first SECURE Act in 2019, non-spouse beneficiaries could stretch required minimum distribution (RMD) withdrawals over their own life expectancy (i.e., the so-called “stretch IRA”). Now they have 10 years to withdraw inherited funds. 

The part of the 10-Year Rule that was finalized in 2024 applies to RMD withdrawals from tax-deferred accounts by non-spouse beneficiaries (e.g., adult children). Non-spouse beneficiaries must now take RMDs annually during the 10-year payout period following the account owner’s death if the account owner died on or before his or her required beginning date (RBD), which is April 1 of the year following the year that the account owner turned 70½, 72, or 73 (depending on birth year).

What is the purpose of this requirement? Very simply, income for the federal government. With the 10-Year Rule, the U.S. Treasury gets non-spouse beneficiaries’ money faster. Instead of having to wait for a life expectancy of, say, 40 to 80 years (e.g., young grandchild), they get it within a decade.

A 2024 financial term was “spaving” (spending to save money). How does “spaving” work? 

Some common examples of “spaving,” where shoppers must spend money to save money and often overspend by buying more items than they need, include the following:

• BOGOs: buy one item, get one free

• Buy one full price item, save 25% or 50% on the second item

• Reaching a certain spending threshold (e.g., $50) to qualify for free shipping

• Buying items in bulk to get a significant amount of savings

• Tiered loyalty programs where shoppers get better rewards when they spend more money

Re: the National Association of Realtors (NAR) settlement. Does that mean that commissions will remain standard unless a buyer negotiates it? How do home buyers find an agent?

The NAR settlement that went into effect on August 17, 2024 eliminated the standard 6% commission and sellers are no longer required to automatically pay a commission to the buyer’s agent as part of a listing agreement. As a result, sellers may avoid having to pay for a buyer’s agent and keep more profit from the sale of their home for themselves. Homebuyers could still ask for concessions from sellers, however, and sellers may agree if they need to move quickly or the housing market is slow. Buyers now have more control over the agent that they work with and their compensation. Home buying and selling has ALWAYS required negotiation and now even more so. To find a reliable realtor, buyers and sellers can ask for personal referrals from friends and family or search websites like Realtor.com, Zillow, and the local multiple listing service (MLS). 

This post provides general personal finance or consumer decision-making information and does not address all the variables that apply to an individual’s unique situation. It does not endorse specific products or services and should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.