Cent’ anni (pronounced “chen danni”) is a traditional Italian toast that means “may you live 100 years.”
That’s a terrific goal, but that kind of longevity comes with a price.
Health care costs often make longevity a two-edged sword
Traditional financial planning rarely goes beyond age 90. The combination of a lack of money and added health care costs means living to age 100 and beyond may not be affordable. So what do you do?
The simple answer is to save more and spend less - but this is the standard answer that applies to most financial plans.
Another solution that is gaining popularity rather quickly is what I call longevity insurance. Longevity insurance is not a real product, it is a concept about protecting yourself from the byproducts of living well into old age. The product that helps plan for longevity is actually an annuity. Often maligned in the popular press, annuities are among the most commonly used financial products because of the guaranteed income stream for life.
Annuities come in many shapes and sizes, but for purposes of this discussion I am talking about immediate fixed annuities. In effect, you give an insurance company a check and they guarantee you a stream of income for as long as you want - including for your entire life, no matter how long you live.
When you choose your income stream options, you can guarantee a minimum period of payments such as 10 or 20 years or forgo any minimum guaranteed period and simply elect a lifetime payment with no guaranteed minimum period. With a lifetime-only option, you will obtain the highest monthly income, but it disappears as soon as you do. The minimum period election means that if you die in year two, that your beneficiary will continue to receive that income stream for the remainder of the guaranteed period. In all cases however, if you live to 150, the insurance company keeps sending the check.
If longevity protection is what you are looking for, long term care insurance is something to consider. Look for details in next week’s column.
With the stores full of turkeys and cranberries, I am reminded that not all people love the holidays. It reminds people of lost loved ones, family grievances, or simply tolerating some of your least favorite people for your entire day off. But in celebration of Thanksgiving Day this year, I am going to ask you to shift your focus from what you do not like to what you do like and appreciate.
One of the coping techniques adopted by financial professionals during last year’s financial turmoil is focusing on the positive things that are going well in order to shape a better attitude and to find the strength, creativity and motivation to deal with what is not going well.
For example, if you are not employed and feel like your battle is raging on forever, let’s approach it from the positive side. Think of the things that you have liked about previous jobs and the types of tasks and work relationships that you’d like to see more frequently in your life. This can give you a frame of reference that will steer your thoughts towards opportunities that may offer the same satisfaction level. It may also open your mind to the possibilities of work that you hadn’t considered before. The same may be true if you hold a job that you really do not like; using your positive focus to find something that you may really like will help.
If you are unhappy with your financial advisor, recall the feelings and the advice that you have received over the years that worked out well. Instead of focusing on what you do not like about your advisor, think about the attributes that you appreciate most and look for those in a new relationship.
For me, Thanksgiving is a holiday where we put aside religious preference and take time out with people that we are supposed to enjoy being with. Some of my best clients have shared with me some of the family activities that they use to focus on the best that guests have to offer. One family has what they call a gratitude box. Inside this box go little notes about things that you really appreciate about your family or other guests. At some point, you can read these together or simply give out the note to the intended party for them to read in private.
Happy Thanksgiving.
You’ve seen the decorations in the stores. That tells me that the year end is approaching and there may be some last-minute financial moves worth considering.
Let’s start with the portfolio. Do you still have losses that you may be able to harvest by selling a losing investment and perhaps getting some tax benefit? Remember that you can deduct investment losses up to $3,000 per year against any other type of income. If you have gains from funds or other investments that you’ve already sold or are thinking about selling this year, selling investments with losses before the year ends could significantly reduce or eliminate the taxation.
On the flip side, if you have losses from previous years, perhaps there is an opportunity to create losses this year to eat up those carried-forward losses.
Retirement contributions are not only a great way to save current income taxes, but obviously a great way for you to save. Consider maximizing your 401(k) contributions for the remaining six weeks of the year, or contributing to any other plans offered by your employer. If you are eligible for an IRA contribution, you have until the date that you file your 2009 tax return to make that contribution, but why not make it as soon as possible? Having the money invested early can work out well if you are otherwise earning taxable interest or gains with that money.
I think that for this year, making nondeductible IRA contributions makes a lot of sense. Obviously, this is just another way to stash away money for the future, but it can also turn into tax-free money at the stroke of midnight 2010 by making a Roth conversion on these funds. Roth IRAs are eligible to all taxpayers in 2010 regardless of your tax bracket. Combine this with the likely small growth from now until the conversion on your 2009 nondeductible IRA, and you’ve got a smooth way to get more funds into the tax-friendly world of Roth IRAs.
If you own a business, there are a few more things to consider before the year ends. Consider terminating the company retirement plan if employee and profit levels have declined in the past year. Has the company expanded this past year and is looking for ways to shelter income through greater retirement plan contributions? If the answer is yes, you may need to change that plan before the year ends to increase the amount that you want to contribute.
Whenever the topic of insurance for property damage or theft comes up, it commonly gets directed toward homeowners. But renters of houses and apartments need insurance, too. This is commonly referred to as renters insurance.
The landlord, of course, is responsible for damage to the building through the ordinary-covered perils of fire, theft etc. But whatever your landlord does to protect his or her interests will not work to cover your contents of any liability issues that may arise while you are living in that rental unit.
Because you are not covering the building, renters insurance is also a whole lot cheaper than homeowners insurance. The basic renters insurance will cover the interior of your apartment, meaning carpets, walls, built-in book cases or cabinets, kitchen appliances and any other contents that you’d like to cover. The amount of coverage you may buy is similar to how it works for homeowners. You can have a large deductible or a small deductible. You may insure the property for a certain amount, depreciated value or full replacement cost. Look at prices for the full range from low to high benefit coverage and make your decision based on your budget for coverage and the value and quality of your contents.
Beyond the “stuff” part of renters insurance, there are other major components worth noting. First is the liability part. Replacing your stuff from a fire would sure be costly, but it may pale in comparison to a liability that could arise if anything in your apartment was a cause of the fire. And like homeowners insurance, that liability coverage may extend to you for liabilities that arise outside of the rental property. This liability component may also be an integral part of your overall umbrella liability policy. Remember that your umbrella liability policy only kicks in and pays benefits after the maximum possible underlying limits from homeowners or auto coverage are exhausted.
Another important component is alternate housing insurance. If your dwelling becomes uninhabitable because of a covered peril, you will be covered for extra expenses incurred while your residence is repaired or you find alternate housing.