Retirement Planning Doesn’t End at Retirement by Grant Barra

            As millions of Americans transition from full-time work to retirement, they move from the life stage of asset accumulation to a new stage – distribution planning. Instead of trying to acquire and build up savings for retirement, they are now repositioning their assets to provide an income they can rely on for the rest of their lives.

            The impact of this shift, which is beginning right now for the initial waves of millions of baby boomers, cannot be overestimated. Born between 1946 and 1964, these boomers will need to plan for a retirement that could last for more than 30 years. So, it’s not only those close to retirement, but an entire generation that may need professional help to ensure that their portfolios will provide an income throughout their lifetimes.

            There are several key risks that can undermine the success of a retirement plan – longevity, inflation, asset allocation, fund withdrawal rate and last, but certainly not least, health care expenses.

Underestimating the Risk

            Many people underestimate what their life expectancy is and therefore risk outliving their assets. The facts indicate that at least half of the population may outlive the average life expectancy. A successful lifetime income plan can help retirees prepare for living well into their 90s as there is a very real possibility that people will live 20, 30 or even 40 years in retirement.

            The anticipated longer retirements and the impact of inflation make it more important than ever that portfolios include investments with the potential to outpace inflation. It’s also of paramount concern to provide income protection for the surviving spouse in the event of long-term care needs for an unhealthy partner.

            Many retirees think they need a conservative portfolio. But, given the anticipated length of their retirement, this could create a heightened risk of outliving their assets. A key to long-term success may lie in balancing portfolio income with portfolio growth.

            Obviously, a conservative withdrawal rate would dramatically increase the likelihood of retirees not outliving their assets. A good financial advisor can help people understand how much they need to save to meet their lifestyle goals, and what is a realistic withdrawal rate.

            Rising health care costs coupled with inadequate medical insurance coverage can have a devastating impact on a lifetime income plan. Addressing this risk may mean targeting savings specifically for health care and purchasing long-term care insurance.

Sporty Forties

            Looking at the differing needs for various segments within the baby boomer generation may make more sense if we divide them into age groups. Let’s consider the first group as those who are currently ages 40-49. These are the youngest baby boomers. They are too busy to think too much about retirement planning right now. They have multiple financial goals, including college savings, retirement, children’s needs and housing costs.

            The important risks for this group to consider are longevity and asset allocation. These people really need to understand the value of extra years of compounding on their savings. They also should look into a growth-oriented portfolio so they can take advantage of long-term equity performance. Some questions to consider:

• What events could capsize your current retirement savings plan?
• Has market volatility impacted your savings?
• Will you be paying college tuition for your children?
• How would you prioritize all of your different financial goals?

Possible solutions to these issues are: risk tolerance and subsequent proper asset allocation, college savings planning, health insurance, life insurance, disability insurance and deferred variable annuities.

Nifty Fifties

            The next segment includes those who are currently ages 50-59. They are now beginning to think about retirement and are uncertain whether they have saved enough. They probably don’t know how to put together a retirement income estimate themselves, and they are concerned about life’s changes: kids leaving home, aging, new goals and directions.

            These individuals should be thinking about longevity, an appropriate strategy to provide for growth until retirement age and how they will meet their needs during a long retirement. They should be looking at transitioning their asset allocation plan to take advantage of the next 5-15 years before retirement.

            Now is the time to discuss life and health coverage in retirement, including obtaining long-term care insurance, discontinuing disability insurance and looking at the options for supplemental health insurance coverage at retirement. Questions to consider:

• Your retirement could last 25-30 years or more. Are you prepared financially?
• Do you know how much you will be spending in retirement?
• How is your long-term portfolio holding up?
• Do you feel comfortable about your retirement savings plan?

Possible solutions for people in this age group include reviewing their asset allocation plan, taking advantage of catch-up provisions in their IRAs and employer-sponsored plans, consolidation of assets for more efficient management, and fixed or variable annuity products. Now might be a good time to also consider living benefit riders on variable annuities.

Super Sixties

            Finally, those individuals who are 60-69 years of age. Their key concerns might be wondering whether they have saved enough for retirement, wondering about their health prospects and concern about taking care of children and grandchildren financially.

            Issues to consider include planning for the possibility that they will live longer than they think, asset allocation review, health coverage and the risk of inflation eroding their spending power. Questions to consider:

• How much can you expect to receive from Social Security or your pension?
• Would you like to help fund your grandchildren’s education?
• Have you thought about protecting your spouse or partner if something should happen to you?
• Can we discuss the retirement income potential of your portfolio?

Possible solutions to these issues: asset allocation and diversification, catch-up provisions for IRAs and employer-sponsored plans, consolidation of assets for more efficient management, assessing your life insurance coverage, long-term care insurance needs or annuity laddering. Conversion to a Roth IRA might be considered. Additional considerations:

• Checking your beneficiary designations for all accounts
• Discussing required minimum distribution options
• A health care power of attorney, or living will
• Systematic withdrawal plans
• Estate planning considerations

The transition from full-time work and asset accumulation to retirement and asset draw-down brings a new set of financial decisions. The main challenge – achieving potential lifetime income solutions – is a serious one.

Education is of paramount importance. No matter which age group you currently are in, understanding how to, and adequately planning for, your retirement takes effort. It’s important that you understand the issues you currently are facing and the issues you will face as you get closer to retirement.

It’s education that will last a lifetime.

- Grant Barra

Grant M. Barra, LUTCF, CLF®
Connect with me at www.linkedin.com/in/gbarra

Long-Term Care: Don’t Underestimate Your Need For Coverage by Grant Barra

            Aging baby boomers and new medical technology that prolongs life have increased the need for long-term care. Long-term care is something Americans of any age should be thinking about, but most people are not aware of or prepared for the cost.

            Long-term care refers to a wide range of medical and non-medical services – including custodial help with daily activities, nursing care and skilled nursing services – for people who are physically or mentally unable to care for themselves. Home health care, adult day care, respite care, assisted living and nursing home care all fall into the category of long-term care.

Long-Term Care Insurance Critical for Any Age

            A long-term care insurance policy can help cover the expenses incurred for long-term care. Many people mistakenly assume that long-term care insurance is only for the elderly, but a third of all individual long-term care policies are purchased by people younger than 65. The coverage is critical for a person of any age; plus, it can be more economical to purchase such coverage when younger.

            Anything can happen to anyone at any time resulting in the need for some sort of care. It is not uncommon to find a person in their 30s in a nursing home because of a debilitating accident.

Other Coverages Inadequate

            Other types of insurance or government programs don’t provide the amount of coverage available in a long-term care policy.

1. Health insurance policies typically do not cover long-term care costs such as nursing homes or assisted living facilities. Also, most policies don’t pay for adaptive equipment, special transportation needs or home modifications.
2. Many Americans assume that Medicare will cover these costs. However, coverage is limited and may still require large out-of-pocket expenses. Also, Medicare pays for skilled nursing facility care only after a discharge from a three-day hospitalization. It does not pay for custodial or intermediate care, and the majority of care provided in nursing homes is custodial, which includes assistance with dressing, eating and moving around.
3. After an individual has exhausted all of their assets, they may qualify for coverage under Medicaid. However, with Medicaid an individual and their family members lose choice over the care received.

            A long-term care policy can save you from having to deplete your assets for care and can prevent you from being at the mercy of the state. In some sense it’s lifestyle preservation to ensure you have a choice in your care. At the same time, it’s asset preservation – it allows you to pass something to your heirs.

It Pays to Shop Around

Here are some things to look for when shopping for a long-term care policy:

1. Purchase a policy from a company that is financially strong. Be sure they will be there when you have a claim.
2. Select an agent who is experienced with long-term care and with whom you feel comfortable. 
3. Consider purchasing compound inflation protection because the cost of care is expected to increase considerably over the next 10-20 years.
4. Weigh the difference between a lifetime policy and a limited benefit policy. In many cases, the premium difference between a five-year policy and a lifetime policy is minor.

- Grant Barra

Grant M. Barra, LUTCF, CLF®
Connect with me at www.linkedin.com/in/gbarra

Life Insurance Essential in Estate Planning by Grant Barra

You need estate planning. It doesn't matter how much you make. It doesn't matter where you work. What matters is whether you want to decide where your assets - no matter how great or small - end up after you die. Or would you rather have someone else make those decisions?

Estate planning is how you make sure that your assets - your lifetime accumulations - pass to your heirs in a manner of your design. It's how you make sure your family is secure, and your assets end up where you want them. It's taking care of your family, your business - whatever is important to you.

Proper estate planning, whether through a will or some other vehicle, will make sure you, and not the state, decide where and how your assets are distributed after your death. Life insurance can give you options that make your planning an easier process. There are two basic ways in which life insurance can assist in your estate planning:
1. Estate Enhancement - primarily for younger families and those families with children. Adequate life coverage that protects a family from financial loss due to a premature loss of life can help pay for future college tuition, mortgage payments, medical bills, etc. Tax-free life benefits can help the surviving spouse and children maintain their standard of living.
2. Estate Liquidity - primarily for older folks with somewhat larger estates. Those individuals who are worried about federal and state death taxes can use life insurance proceeds to help pay those taxes. Many times, people with significant assets have those assets in "hard" form - they are hard assets, meaning that they are not easily or quickly sold. Your home, jewelry, artwork, cars and other material possessions are some examples. If those assets must be sold quickly to pay taxes that are due a few months after death, chances are you are not going to get top dollar for those assets. Life policy can remove that concern.

There are more advanced uses of life insurance, many of which are geared toward business owners. Some of those examples follow:
• Estate Equalization for Family-Owned Businesses - Family businesses operated by parents with one or more children are often in need of liquidity when the parents die, as a majority of the estate is "tied up" in the business. A Life policy provides a way to pass the business to interested heirs while being fair to those children outside the business.
• Buy-Sell Funding - Life coverage can be an indispensable tool enabling surviving co-owners of a business to own and continue the business without outside intrusion, while the deceased owner's heirs obtain debt-free assets from the estate.
• Key-Person - Business owners use "key-person" policies to help replace earnings associated with the loss of employees whose unique talents and knowledge made them valuable assets of the business.
• Credit Enhancement - Life insurance is often used to stabilize a business concern's financial position and serves as a valuable asset to pledge as collateral.
• Informal Funding for Deferred Compensation - An important ingredient in any deferred compensation plan that is "non-qualified" is life insurance. Such policies owned by and payable to the employer remain a primary building-block of all such plans.

For more information on how life insurance can play a valuable role in your estate planning, be sure to visit with your financial advisor.

Grant M. Barra, LUTCF, CLF®
Connect with me at www.linkedin.com/in/gbarra