Long-Term Care Need to Knows

 

I recently attended both a seminar and a webinar about long-term care (LTC) planning. Below are nine key take-aways from these presentations:

LTC Definition- A range of medical and personal care services required due to illness, disability, and dementia when people cannot perform activities of daily living like eating and bathing. About 70% of people age 65+ are expected to need some form of LTC at least once during their lifetime.

 

Not Just for Old People- Over a third (37%) of all people receiving LTC in the U.S. are adults under the age of 65. Reasons include traumatic injuries, severe disabilities and autism, and chronic illnesses. LTC typically does not include treatment of the underlying illness or injury.

 

Benefits of LTC Planning- More time to research options (e.g., assisted living or skilled nursing), more flexibility to choose a preferred type of care (vs. decisions during a health care crisis), an opportunity to prepare financially for the cost of LTC, and time to inform and involve loved ones.

 

LTC Settings- The three primary settings where LTC takes place are in a patient’s home (e.g., visiting health aides), in the community (e.g., adult day care), and in a facility (e.g., assisted living, memory care, nursing home, and continuing care retirement community).

 

Nursing Home Length of Stay- The average nursing home stay is three years and, for patients with dementia, seven years. Medicaid is the primary payer for over 60% of all nursing home residents. Many start by paying out-of-pocket and transition to Medicaid once personal assets are depleted.

 

LTC Funding Options- Three primary funding sources are LTC insurance, personal and family resources, and Medicaid, for which patients must spend down to $2,000 to qualify. Medicare only pays for short-term care that is medically necessary.

 

LTC Insurance- LTC policies are a reimbursement for out-of-pocket expenses paid. Popular policies sold today are hybrids that combine life insurance or an annuity product with LTC insurance. If only a portion of policy benefits are used for LTC, beneficiaries receive a guaranteed death benefit.

 

LTC Insurance Features- Three determinants of the cost of coverage are monthly benefit amount (maximum monthly reimbursement), the benefit period (maximum number of years of coverage), and the elimination period (length of time to pay out of pocket before benefits begin).

 

Impact on Caregivers- The average age of caregivers is 49 and most caregivers provide six or more hours of care per day. In addition to out-of-pocket caregiving costs, the impact of lost wages, Social Security benefits, and retirement savings when a caregiver leaves the workforce is substantial.

This post provides general personal finance 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.

Financial Planning Tips for College Graduates

 I was recently a panelist for an Experian #creditchat titled Graduation Season: Credit and Money Moves Every New Grad Should Make. Below are six questions that were asked and my responses:

What are financial moves that every new grad should prioritize as they get ready to graduate?

Build a starter emergency fund. Aim for $1,000 quickly and then 3–6 months of expenses over time. Also, track income and fixed and variable expenses and create a simple spending plan (budget). Third, make sure that you have health insurance through your parents policy, the healthcare Marketplace (Obamacare), or a new employer’s benefit package.

How can new grads start building credit responsibly if they have a limited credit history?

A secured credit card (where you put down a deposit to secure your own debt) is a good entry point.

After 6–12 months of on-time payments, ask to move from a secured to an unsecured credit card. Another strategy is making timely payments on a small “credit-builder” loan from a bank or credit union to help build a positive credit history.

What role does credit play in major life milestones for recent graduates?

Most landlords run a credit check to gauge a potential tenant’s repayment reliability. A strong credit score can mean easier approval. Electric, water, internet, and phone providers may also check credit and good credit can waive or reduce deposits. In many states, insurers use credit-based insurance scores to set rates for auto and renters insurance. Also, certain employers, especially in finance or roles involving money, may review an applicant’s credit report.

 

How should new grads create a realistic budget when transitioning from school to work?

Start with net income, not salary. Paychecks are reduced by taxes, health insurance, and other payroll deductions. Use a simple framework like 50/30/20 (needs/wants/savings & debt repayment) as a starting point. Plan for irregular expenses (e.g., insurance premiums) by setting aside 1/12 of the annual cost each month. Finally, treat savings (e.g., emergency fund, retirement contributions) like a bill and build it into you budget.

 

When evaluating job offers, what benefits really matter for a new grad’s financial future?

The salary for a job is important but benefits like 401(k) plan match and health insurance often have a larger long-term impact. Key benefits include retirement savings plan match, insurance (health, life, disability) benefits, paid time off, and tuition reimbursement. It is very beneficial financially to get free money (match), protect against risks (insurance), and invest in human capital (education).

 

What are some common financial mistakes new grads should watch out for?

Lifestyle inflation with a first “real” job, leading to bigger apartments, fancier cars, and frequent overspending. Also, carrying balances on credit cards and ignoring rapidly increasing high-interest outstanding debt balances. Finally, not contributing enough money to receive the maximum 401(k)/403(b)/TSP retirement saving plan match. This is like walking away from free money.

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.

 

How to Protect Yourself in Today’s Scary Economic Environment

I recently presented a 90-minute webinar for a new client with the same title as this blog post. Below are nine key take-aways about dealing with challenging times and current economic uncertainty:

 

Financial Tornado- There are currently many economic concerns stirring these days: recession fears, high inflation, record high vehicle prices, volatile stock values, increased costs for food/utilities/gas, a challenging housing market for buyers, layoffs, a tightening job market, and record high credit card debt. 

 

Consumer Price Index (CPI)- Inflation, as measured by the CPI, has been above the Federal Reserve’s 2% target for five years and consumer prices are about 25% above where they were five years ago. Not surprisingly, affordability is a top concern for people of all income levels.

 

Control What You Can- This is the best response to scary events. Specific strategies include spending less to offset higher fixed expenses, accelerating debt repayment, diversifying investments, building an adequate emergency fund and a buffer account for retirees to hedge sequence of returns risk, and healthy living habits to avoid costly future medical expenses.

 

Behavioral Finance Biases- Studies show that people feel losses 2 ½ times more intensely as equivalent gains and extrapolate current and short-term events into the future (recency bias). When our sense of control is threatened, we tend to believe whatever information we have is reliable.

 

Knowledge Provides Perspective- Investment history is important to know. Stock market volatility is normal. Studies show that market timing (jumping in and out of equity investments) is futile and that, over time, stocks have outperformed all other asset classes (e.g., bonds and cash equivalents).

 

Laddering is a Risk Hedging Strategy- Laddering is where you divide money across multiple certificates of deposit (or bonds) with staggered maturity dates. It provides access to cash (to spend or reinvest) at regular time intervals and a series of market-based interest rates instead of one.

 

Debt Makes Everything Harder- Income loss is more dangerous with debt as essential living expenses may compete with debt obligations. Also, inflation will raise interest rates on variable rate credit cards and loans. There is also an increased risk of default and collections and emotional stress.

 

Debt Mitigation Strategies- Contact creditors to arrange a comfortable repayment schedule. If this is not enough, consider working with a reputable non-profit credit counseling agency to create a debt management plan (DMP). Chapter 7 or 13 bankruptcy is a final option if debt is overwhelming.

 

Annual Financial Checkup- Keep tabs on your finances by reviewing your net worth statement (assets-debts), cash flow statement (income and expenses), spending plan (budget), credit report and score, income tax withholding, and any changes that affect your personal finances and taxes.

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.

 

Questions and Answers About Credit Scores

I was recently a panelist for an Experian #creditchat titled Credit Confidence: Understanding Credit Reports, Scores, and How to Improve Them. Its purpose was to take a deep dive into credit history metrics and actionable strategies to build credit confidence and strengthen a credit profile.

Below are six questions that were asked and my responses:

What does “credit confidence” mean and why is it important for overall financial well-being?

Credit confidence is how comfortable and knowledgeable someone feels about using credit. A person with high credit confidence knows basic credit terminology, keeps credit card balances low, pays bills on time, and builds a strong credit history.

 

Why should people regularly check their credit reports, and what should they look for?

First, to catch errors. Credit reports can contain errors such as accounts that aren’t yours or incorrect balances. Second, to detect identity theft. Errors will show up if someone opens fraudulent credit accounts in your name. Also, before making major purchases, such as a home or car. so there are no surprises where credit could be denied.

 

What factors have the biggest impact on your credit score, and what systems or habits can you put in place to avoid negative impacts over time?

Payment history is the #1 factor in a credit score (weighted 35%) followed by credit utilization ratio (weighted 30%). The latter is the amount of outstanding credit someone has divided by their total available credit. Example: $2,000 ÷ $10,000 = 20%. Systems and habits can include automated payments, text alerts, and personal decision rules regarding spending.

 

What is some bad advice about credit scores that can be harmful to someone?

“Carry a balance to build credit”- You do not need to carry a balance or pay interest to build a strong score. Simply pay at least the minimum due by the due date.

“Close all old credit cards that you don’t use”- Doing this will shorten your credit history and reduce your available credit.

“Checking your credit score hurts it”- Checking your own credit is a soft inquiry and does not affect someone’s credit score

 

What are some tips that can help someone who is trying to build credit for the first time?

Use your credit card regularly for small purchases that you pay for in full on time the following month. Also, keep your balances low and stay under 30% of your available credit (i.e., credit utilization ratio) and 10% is even better. Finally, think of your credit card like a debit card and only spend money that you already have.

 

What is a credit mistake people make that can be hard to recover from, and how to avoid it?

Missing payments (30+days late). Late payments can stay on a credit report for up to 7 years and drop someone’s credit score significantly. Avoid this error with automatic payments, e-mail and calendar reminders, and text alerts.

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.

 

Take-Aways From a Seminar About Fraud

 One of the activities that I pack into my busy schedule is volunteering as a room host for the same non-profit educational foundation, Master the Possibilities, that I am a paid instructor for. In short, I take attendance at other faculty members’ classes and get to learn a lot of interesting things for free.

I recently attended a class about fraud and below are my key take-aways:

 

Multiple Channels of Fraudulent Outreach- There are many ways that fraud victims are contacted including by phone, text, and e-mail. Also, pop-up messages on a computer with fake virus warnings that trick people into taking action that exposes personal information. The pop-ups may tell victims to call a “tech support” number and then panic them into providing remote computer access, personal identification information, or payment for fake fixes.

 

Fraud vs. Scam- The terms fraud and scam are closely related, but they aren’t exactly the same. Fraud, a broader term, refers to intentional deception used to gain something of value (like money, property, or identity) from someone else. Fraud can happen in many settings. Scam is more of an everyday term. It refers to a specific trick or scheme designed to deceive a person directly, often online, over the phone, or in person, to steal money or information. Scams are a type of fraud.

 

Skimming Devices are Passe’- Bluetooth technology is increasingly being used in place of traditional skimming devices to steal credit card information. Criminals discreetly install Bluetooth-enabled skimmers on card readers or gas pumps and retrieve data wirelessly (think laptops in a parking lot) from a 30 foot range away. Bluetooth skimming makes detection harder, allowing thieves to collect card numbers remotely and avoid frequent physical recovery of devices.

 

Tap to Pay- Tapping a credit card (i.e., contactless technology) is the safest and fastest way to pay for purchases. It uses encrypted technology that protects your credit card number. Transactions are completed in seconds, reducing time at checkout and limiting exposure to fraud. Tap-to-pay cards generate a unique, one-time code for each transaction, which helps prevent hackers from reusing stolen data. This feature makes it much more secure than swiping or inserting a chip card.

 

Keep Your Credit Card Close- Follow a personal decision rule that states “nobody ever takes my credit card out of my sight.” While most employees are honest, dishonest waiters or clerks have an opportunity to skim a card or snap a cell phone photo of card numbers and misuse your data. Three alternative payment options at restaurants are 1. pay with cash, 2. request a remote credit card payment device, or 3. follow a waiter to a cash register to oversee the transaction. Granted, the last two can be awkward but they do reduce the risk of fraud.

 

Three More Things- 1. Don’t do Facebook games or quizzes (e.g. “Find a dog that looks like you”) that require answers to questions that could also be security questions, 2. Pull your credit report at least once a year to check for errors and evidence of identity theft, and 3. Freeze (block) your credit to prevent new (fraudulent) credit from being opened in your name and thaw (unlock) your credit for 24-48 hours if you need to borrow money, open a bank account, or get a new utility service.

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.