Planning for Long-Term Care: The Costs and Potential Issues

A special "thank you" to Hazel Bridges who has written another informative article on long-term care. 

Long-Term Care

Planning for long-term care can be tricky, to say the least; you never know what might happen in the next five or 10 years, and it can be difficult to think about financial planning when you’re unsure of what the future may bring. For seniors, however, it’s imperative to start thinking about how you might pay for your care should you need to stay in a hospital or nursing facility for an extended amount of time. Health insurance and Medicare are wonderful resources, but they only cover so much of the cost associated with long-term care.

For now, think about how to boost your savings and ensure that you are doing everything in your power to prevent issues down the road. This means making your health and mobility a priority and making changes to your home to make it more accessible. This will ensure that you are able to live in it longer, even if your health should fall into decline, and that you will stay safe.

Keep reading for some great tips on how to plan for long-term care.

Turn Your Home Into a Safe Haven

Prevention is one of the best ways to ensure that your health and safety are a priority. Making changes to your home is a great way to start, as it will help you remain there longer without the need for an assisted living facility. For example, you might add grab bars in the shower, place sturdy railings on both sides of the stairs, widen doorways to allow for medical equipment, add lighting to prevent falls, or remove loose rugs or carpeting that can be trip hazards. Think about what each room in your home needs in regard to safety and comfort, and do a little research to figure out what the cost will be to make the changes. Check out this guide for some great tips on which changes you should make and how to get started.

Know Your Policies

You may have a health insurance policy that will help pay for care down the road, but how much will it cover in the long term? Take a good look at your policy, and carefully read over your Medicare or Medicaid paperwork to see exactly what you will be responsible for should you need long-term or daily care due to an injury or major health issue.

Consider Selling Your Life Insurance Policy

If you need a large sum of money to cover care costs, or if you just want to pad your savings account, consider selling your life insurance policy or see if your policy offers a cash value option that would allow you to take money from the total benefit amount now. This will reduce the amount that your loved ones would receive in the event of your death, but it could be a viable option if you need cash to pay medical bills or to put aside for your future needs.

Make Lifestyle Changes

Along with the changes to your home, you can make changes to your lifestyle that will allow you to stay healthy, which, in turn, can possibly reduce the risk that you will need long-term care down the road. This includes eating right, getting daily exercise, and eliminating bad habits, such as smoking or using substances such as alcohol to excess.

Planning for long-term care does not have to be stressful. By starting now, you are on the right track toward ensuring that your healthcare needs won’t be overwhelming in the future. Make the necessary changes to help your body and mind stay healthy, and remember to ask for help when you need it.

Photo via Pixabay by Sabinevanerp

Financially Prepare For Assisted Living

Today's topic is a guest post by Hazel Bridges (hazel@agingwellness.org). Planning for the future is important to most of us living with Kennedy's Disease, but also for any family with senior citizens liiving at home. Thanks, Hazel.

7 Things You Can Do to 

Financially Prepare For Assisted Living

By Hazel Bridges

Medicare is useful in many ways. However, Medicare doesn’t cover very much when it comes to assisted living. As a result, you will need to be prepared for whatever circumstances you might run into in the future. Here’s how you can plan financially for you or a loved one so you can be prepared for whatever curveballs life might throw your way.

Figure Out Which Kind of Housing Is Necessary

As pointed out by a recent Forbes article, when most people think of long-term care, their first thought is nursing homes. However, there are a variety of assisted living facilities that also provide substantial benefits. The trick is finding out which ones are best. Assess your loved one’s needs and see which facilities suit it best. Try to get it right the first time, since moving from home to home can be difficult.

Upgrade Parts of the Home

When it seems like assisted living might be part of the inevitable future for your loved one, consider ways that you can upgrade the home they live in to help them maintain a little bit of independence and keep things easier for everyone. Do small things like installing grab bars in bathrooms, removing loose rugs or carpet on the floor, or installing a chair lift. This helps your loved one live in their home a bit longer, which can free up money for care.

Leverage Life Insurance

Some life insurance plans can be used for what are called advanced death benefits (ADBs), which can help in paying for your loved one’s care. The US Department of Health and Human Services describes ADBs as life insurance features that allow a tax-free advance on your life insurance policy while you are still alive. If you’re unfamiliar with your insurance policy or aren’t sure about the terms of ADBs, talk with your provider about the details of the benefits.

Talk to a Financial Advisor

Many seniors wonder where they can get sound financial advice that can help them or their families financially prepare for an assisted living scenario. A couple of good resources to consider are banks, community center events, and the AARP, all of which will likely have financial advisors who can assist for little to no cost.

Look Into What Tax Breaks You Can Take

Tax breaks are available to seniors whose medical expenses, including some of their assisted living costs, exceed 7.5 percent of their adjusted gross income. If you care for your loved one, you should look into some of the tax benefits that you qualify for because of your role.

Consider Government-Assisted Programs

There are programs like Section 202 Supportive Housing for the Elderly that provide subsidized housing options where seniors can get assistance with tasks like cooking, cleaning, and transportation. One disadvantage of many of these programs is that they have lengthy waiting lists, so if you’re looking into it, get on them now.

Consider a Reverse Mortgage

If your loved one owns a home, they might be able to afford some long-term care by using a reverse mortgage. A reverse mortgage allows the homeowner to borrowmoney against the equity that they have in their home. This money doesn’t have to be paid back to the bank until a future time. However, the amount due on the loan must be paid if your loved one dies or changes their primary residence. A reverse mortgage isn’t right for everyone, so be aware of the financial implications of receiving one and get familiar with the unique contract wording.

It’s important to secure your future. Change can come eventually, or it can come tomorrow. Work regularly to do what you can to ensure you or your loved one’s financial security so you can live worry-free. 

Image via Pixabay

Critical Illness and Long Term Disability

October 3rd I reported about Royal London Insurance adding Kennedy's Disease to their list of Critical Illness Coverage. I felt this was an important step and hoped other companies would follow in their footsteps.

This afternoon I read a nicely written piece on Royal London's goal of improving and simplifying the definitions of critical illnesses. Once again I applaud their efforts to improve the experience of customers shopping for this coverage.

You can read the entire article by following this link in Money Marketing: Enhance Simplicity.

Here is an excerpt of the article.

"Fortunately, things are improving with providers recognising the need to create simpler definitions. Earlier this month, we announced enhancements to our critical illness cover. The main change is to cancer cover; over 60 early stage cancers are now covered under nine definitions. By removing a long list of specified cancers, these changes provide clarity for advisers and customers and will result in more claims being paid.

In addition, our new Parkinson's definition now includes Parkinson's-plus syndromes that incorporate multiple system atrophy and progressive supranuclear palsy. Our motor neurone disease definition has been updated to include Kennedy’s disease, making the definition ABI+.

We could have listed numerous in situ cancers and shown Kennedy’s disease and the five Parkinson's-plus syndromes as stand-alone conditions but we didn’t want to play the numbers game."

On a personal note: Thirty years ago I took out disability insurance coverage while hoping I would never need it. Seventeen years later I was forced to go on long term disability. We were so thankful we had the coverage. It made making the difficult decision much more palatable. 

Affairs to Remember

I read an interesting article the other day titled, “What You Owe Your Loved Ones.” by Manal. It had three sections and for today’s article I focused on the section on organizing your family and financial affairs.

A few years ago I wrote a financial planning guide about preparing for early retirement. Manal’s article discusses some of the topics in the guide plus some other considerations. I cannot emphasize enough how important it is to ‘put your house in order’. It could be one of the greatest acts of love you will ever do for your family.

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Arrange your affairs
 
Right now I feel that not only do I have an obligation to leave my finances in the simplest form possible but also all of my affairs. The more organized and clear you are about what would happen after you’re gone, the easier it is for your family to deal with it—and that is an act of love and kindness on your part that they will appreciate.

To organize your life start with the following actions:

A. Simplify your finances. I will write about this in more detail in the future but for now focus on these two steps:

• Prepare a list of your bank/investing and retirement accounts. Write down the access codes and details that someone would need to know.
• Create another list of the bills you pay and online access if needed. Add to that list any loans/mortgage you have.

Between those two lists someone should be able to tell what you own and owe. Don’t leave these documents on your computer. Keep a physical copy, preferably with your will.

B. Simplify your possessions. If you have a lot of stuff that you think would be a pain for your loved ones to deal with, get rid of as much as you can now. Use the usual system of throw out, give away, or sell.

If you want to keep some stuff to give away after you’re gone, organize such items in a way that can be easily picked up and make sure to include the instructions in your will.

C. Prepare a will. This is something I did a few years back. It was tough to do I admit. No one likes to think about death and its aftermath. But if we want to be honest with ourselves, it’s going to happen no matter what. The sooner we accept this fact the better.

In your will you will address the disposal of your possessions, name your executor and beneficiaries as well as specifying funereal arrangements. Your will can be modified any time.

If you don’t have an overly complex estate, you can buy one of those legal kits and use it or you can work with a notary public. If things are more complicated, spend some time and money working with a professional to get your affairs in order.

D. Consider a living will. I’m not sure what the legal term would be in other countries. Also, this document may not be legally enforceable. But it can give your loved ones clarity about your wishes.
It basically states what you’d want if you ever need life support and if you don’t wish to be kept alive by artificial means.

This is one of the toughest documents to sign, but it’s a relief for you and your family. They’ll appreciate you absolving them from making one of the most painful decisions.

You may also add a power of attorney naming someone to act on your behalf if you don’t have a next of kin. Please note that a power of attorney won’t be valid after death. It’s useful in situations when you’re alive but incapacitated.

Arranging your affairs is something that might trigger pain and fear. But it is worth it; you’re doing it to make life easier for others around you. It’s a wonderful act of kindness and love. Remind yourself that the peace of mind is worth the pain of getting a few things done now.

Social Security – Disability almost insolvent

I read this headline the other day and immediately clicked on the link to read more.  I am on Social Security – Disability (SS-D) and insolvency does not sound good.


Because of the number of laid-off workers and the aging baby-boomers (watch it … I resemble one of them) that SS-D is being flooded with claims.  The system was already in financial difficulty and this new surge has applications up over 50% this decade.  The growing number of applicants has further clogged the application approval process.  Some applicants have to wait up to two years for approval and this puts an even greater financial strain on families.

2017 is the date

A new congressional study shows SS-D could run out of money by 2017.  In recent years the focus has been on fixing the Social Security – Retirement program.  The problem is that SS-D is in much worse shape and there are no easy solutions.  Three major problems have crippled the system:

1. Claims for SS-D always increase during a bad economy because the disabled find it much more difficult to find jobs that fit their abilities.
2. The number of baby-bummers getting ready to retire at age 66 or 67.  However, if the person qualifies for disability, he or she can get full benefits earlier.
3. If a person qualifies for SS-D, he or she is also eligible for Medicare after a two year waiting period.

The article goes on to say …

“As policymakers work to improve the disability system, they are faced with two major issues: Legitimate applicants often have to wait years to get benefits while many others get payments they don't deserve.
 
Last year, Social Security detected $1.4 billion in overpayments to disability beneficiaries, mostly to people who got jobs and no longer qualified, according to a recent report by the Government Accountability Office, the investigative arm of Congress.
 
… the application process can be a nightmare for legitimate applicants. About two-thirds of initial applications are rejected. Most of these people drop their claims, but for those willing go through an appeals process that can take two years or more, chances are good they eventually will get benefits.”
 
Patience is a virtue, but it is difficult to be patient when your financial wellbeing is crumbling around you.  
 
 
If you are considering applying for SS-D, consider reading the “Social Security -Disability Guide” that can be found on the KDA website.  Many people have used the guide and found that it worked for them.  And, most importantly, a denial does not mean “NO”, it just means you have to appeal the denial and prove your case.

Your “Emergency File”

In the September/October 2010 “AAA Going Places” magazine there was an excellent article by Sandy Klim called, “What happens if the unexpected occurs?”  I recommend that you take the time to read this article because it could make a difference when something does happen.  As the article mentions,“compiling (and copying) all of this information can seem daunting, but imagine the alternative.  Your family would have to piece together all this information (within days) without your in-depth knowledge.  The best bet is to gather this information (and update it annually), store it in a safe place, and continue to enjoy life.  It could be years or even decades before someone needs to access your emergency file, but in the event something does happen, you’ll have made the transition easier for the ones you love.”

As I read the article, I reviewed where my information was and found that everything was were I thought it was, but could someone else easily gain access to all the information when it was needed and I was not there.  I needed to become better organized and then let my wife and our executor know where the original documents are, contact information, etc. 

The basic documents that you should have in your “Emergency File” are:

• Up to date health insurance policies
• Advance directives can include:
• A living will
• Do not resuscitate (DNR) order
• Durable power of attorney for health care
• A current and valid copy of your wills
• A copy of your organ donor card (if you intend to donate an organ)
• Copies of the following documents:
• Birth certificates
• Marriage license
• Divorce decrees
• Social Security cards
• Mortgages and deeds
• Registration and titles for vehicles owned
• Family and friends contact list
• Clear wishes in regards to cremation, burial, religious ceremonies, and other memorial arrangements (headstones, markers, donations in lieu of flowers, etc.)
• Copies of life insurance policies
• Copies of 401(k) and IRA account information
• A listing of financial and investment account information (other than those shown above)
• Checking
• Savings
• CDs
• Outstanding loans
• Religious or spiritual affiliation and contact information (if desired).

The article mentions that this file can be stored in a fireproof safe at home, with your attorney, in a safe deposit box, or with a loved one (not living in your home).   I do have a concern of storing some of the information in a safe deposit box or with your attorney because emergencies do not always occur during banking hours.  If you have copies of the information with the original documents stored at one of these two locations, it would help.  The key is letting those close to you know where the files are at and who has permission to access the files.

Of course, those of us living with Kennedy's Disease might also want to include information on Kennedy's Disease, anesthesia information, tissue donation forms (should that be your wish) and a contact list for doctors.

Has the article forgotten anything else that needs to be included in this emergency file?

The guide is now available

Over the last couple of weeks I published several articles about financial planning and documenting everything. I incorporated this information (and added more detail, background, examples and images) into a document (PDF) I now call, "Preparing for Early Retirement; A Financial Planning Guide."

The guide is an eighteen-page document that will help anyone interested in possibly retiring early. There are also other recommendations, considerations and tips to help you prepare for the future.

Throughout the guide I relate some personal experiences that my wife and I went through while working this process. In the Background section, I explained "Twenty-three years ago, when my wife and I realized that my career might be cut short because of Kennedy's Disease, we developed our financial plan using the process shown below. It was a wakeup call. We discovered that based upon our current situation (savings, employee benefits, etc.), we would not be able to retire early unless something changed dramatically. Within a year, I had changed companies. The new company offered a pension, 401K, disability insurance, stock options, as well as other benefits. Seventeen years later we retired debt-free after exceeding our retirement goals."

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Table of Contents


Disclaimer    3

About the KDA    3

Background    4

Overview of the Financial Planning Process    5

The Seven-Step Financial Planning Process    7

1.    Evaluate    7

2.    Analyze    10

3.    Establish a Target and Goal    12

4. Execute the Plan.    12

5.    Measure Performance    13

6.    Review Results    13

7.    Adjust the Plan.    13

 
Other Planning Considerations    15

1.    Document Everything    15

2.    Short and Long-Term Disability Insurance    17

3.    When to begin discussions with your company    18

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If interested, the PDF guide can be downloaded from the KDA website. While there, also consider downloading the Social Security – Disability guide to learn more about the requirements, resources, and support needed to complete the application process.

Document Everything – Part II

In my Financial Planning Guide, I included three other planning considerations. One of these was "Document Everything." I mentioned that it is very important because you tend to forget or misplace things as the months and years pass. All of this information will become important as you begin the application processes for Social Security-Disability (SS-D) and short/long-term disability insurance. It will also be useful in justifying the need for mobility equipment (canes, walkers, scooters, wheelchairs, etc.). In addition, if you ever move or have to change doctors, having your medical history in one location is an excellent way to update people on your condition and other health considerations.

 
The best advice I ever received on this subject was from a doctor at my company who reviewed short and long-term disability applications. He commented that I needed to treat the application process like any other business activity. Keep it professional and take the emotions out of it as much as possible. Understand the process, rules, restrictions and guidelines, and document everything.


Task:

1. Incorporate all the information mentioned in these two articles into a three-ring binder.
   
2. Have a tab for each section mentioned.
   
3. Update the information regularly.  

  
In Part I of "Document Everything" I reviewed two important spreadsheets, "Fall History" and "Medical Tests History." In today's article we will cover the other information I found to be useful.


"Physician's Statements and Medical Records" is a history of all doctors' visits and reports. Every time you visit your primary care physician or a specialist, ask for a copy of your medical report (the notes he makes during your visit) as well as any letters he writes on your behalf. When first developing your binder, ask your doctor for copies of all previous reports, tests, and correspondence related to Kennedy's Disease or any other health issues. Some doctors will ask to be reimbursed for the copying costs. It is worth the small investment.

"DNA Blood Tests" is a section for a copy or copies of any DNA blood tests for Kennedy's Disease. Also include in this section any other neurological test results indicating some type of neurological issues.

"Current Health and Symptoms" is a place to document all of your current symptoms and health issues (not only those for Kennedy's Disease). This is especially important since we often forget about symptoms if they are not present the day we are filling out an application or profile.

"Family Health History" should document all health issues of other family members. This can be for any type issue, not just neurological. It is important for your doctors to know if diabetes, heart disease, high blood pressure, cancer, etc. runs in the family. It also might help diagnose a health concern that is not directly related to Kennedy's Disease.

"Work History" documents your employment history including addresses, phone numbers, managers' names, position, etc. This will come in handy when filling out SS-D or long-term disability applications.

"Kennedy's Disease Background Info" is a section where articles on Kennedy's Disease are placed. Find good articles on the internet that explain the disease and its symptoms, reference no known treatment or cure, and gives a general prognosis for the progression of the disease. Attempt to find articles that are well written (easily understand by a nonprofessional). I would definitely include the study on the "Natural History of Spinal and Bulbar Muscular Atrophy."

"Disability Process" is where you keep information such as copies of applications for SS-D, long-term disability insurance, etc. Also include addresses, phone numbers, contacts, dates, summary of conversations, approval or denial letters, etc. I have found that quite often Social Security or another agency wants to know when I retired and when I began receiving SS-D and Medicare. Only having to look in one place to find all of this information is quite helpful.

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Once completed, this three-ring binder becomes your reference guide for anything related to your health and disability. It is important that you keep the information updated. Every six months or so update your "Current Health and Symptoms" section. Update your fall history whenever one happens. Continue to collect copies of your doctor's reports and test results. Whenever you receive correspondence from the Social Security Administration, or any other company/agency related to your disability or health condition, place it in the binder. Do not wait until you need the information to bring it up to date.

When I applied for Social Security-Disability, I brought my three-ring binder to the interview with the local Social Security representative. Almost any question asked, I could answer or find the answer in the binder. Almost every report she needed copies of, I also had in the binder. This simplified the application process and allowed the representative to complete the forms and submit them almost immediately. As I mentioned in an earlier blog, the approval arrived in six weeks.


 

Financial Planning – Part III

This is the final article on Financial Planning. Today we begin with establishing an annual target and a long-term goal, and finish up with adjusting the plan, as needed, to achieve your goal … retirement preparedness and peace of mind.

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The Seven-Step Financial Planning Process (continued) 

3.  Establish a Target and Goal: There is an old business saying, "If you cannot measure it, you cannot manage it." Now that you know how much is needed in retirement savings and over what period of time, creating achievable goals including annual targets becomes important. Goals and targets should be specific, measureable, actionable, reasonable, and time bound. For my wife and I, we focused on saving 15-20% of our income every year (depending upon bonuses, other compensation, and interest/dividends).   

4.  Execute the Plan: Plans are not very good unless you implement them. Develop an action plan with specific steps that need to be taken and the timing to achieve the targets and goals. Steps that are not measured or assessed cannot be managed because there is no objective information to determine its value. Desired performance outcomes must be established for all steps in the plan.  After you and your wife are both comfortable with the plan, execute it

Fortunately, our company offered a 401K program that we max'd out each year. We also max'd out our IRA contributions. We were also able to defer a portion of our income and bonuses. Whatever the shortfall was between our annual savings target after the 401K and IRA contributions, we invested (stocks, bonds and CDs).

5.  Measure Performance: Schedule time each quarter (or at least semi-annually) to review how you are doing in reaching your short-term savings target. If you are not on track, determine what needs to be done to get you back on the right path. 

6.  Review Results: Circumstances change, so it is important that you review your plan annually. Ask yourself how well you did the previous year in regards to your long-term goals and short-term target. Have your expectations (wants and needs) changed because of health concerns, family circumstances, employment considerations, or economic issues? 

7.  Adjust the Plan: This is just as important as the initial planning process. If anything changed or you did not achieve your target for the previous year, you need to revise your plan.

Because the stock market, interest rates, bonuses, salary increases, stock options, etc. are not consistent (or do not always follow your plan), you will most likely have to revise the plan and set a new target every few years. You might also have to change your goal if something catastrophic occurs. If you are ahead of your plan and want to grow your retirement "nest egg" even further, you might decide not to modify the plan. The key is not to take your eye off the goal (i.e., your total needed retirement savings).

As I mentioned in Part I, Social Security-Disability is all well and good, but it does not help answer the question whether you can afford to retire. Financial planning is important at any age, but it becomes critically important when diagnosed with Kennedy's Disease because you might have to retire earlier than expected. 


I realize the planning process and recommendations included in this article might sound difficult to complete, but just take it one step at a time and it will all fall into place. Remember, you can always hire a financial planner to help you with the task. What is important is that you just "Do It!"

 

Other Planning Considerations

1. Short and Long-Term Disability Insurance: If you have not already done so, you need to check with Human Resources to see if something similar is offered through your company. Disability insurance will replace a portion of your lost income when you are no longer able to work.
   
   
   
   
   Although this insurance receives less attention than health insurance, it is equally as important if forced to retire early because of a disability. Wikipedia has a nice article explaining the different types of disability insurance. The monthly premiums were well worth the sacrifice for me. If your company does not offer these type programs, check to see if you can afford to purchase one on the open market. Fortunately, my company offered disability insurance.
   
   
   
2. Document Everything: Once you have your plan and are reviewing it regularly, prepare for the future by documenting everything associated with the disease. This is very important because you tend to forget or misplace things as the months and years pass. All of this information will become important as you begin the application processes for Social Security-Disability and short/long-term disability insurance.
   
   Document everything related to your experiences with Kennedy's Disease including test results and doctor's visits. Ask your doctors for copies of all examinations and tests. Set up a spreadsheet that records all of your falls and injuries (date, at work or home, reason, injuries, etc.). Incorporate all this information into a three ring binder with tabbed sections.
   
   
   
3. When to begin discussions with your company: You do not need to do this right immediately and the timing depends a lot upon your relationship with your manager and human resources (HR). At some point, however, you need to bring them up to date on your situation and request their support.
   

• Regularly evaluate your current work experience (capabilities and concerns) and decide the best time to begin these discussions. Your safety is important to you, your family, and the company.
  
  
• Human Resources will be able to review programs available and, when you are ready, early retirement options. For me, after I made the initial ovation, I found HR and my manager were willing to work with me to help prepare for the future.
   
• Since Kennedy's Disease is a RARE disorder, I found it important to educate my manager and HR as to what to expect. I provided them with articles from the internet concerning symptoms, progression, etc. Just mentioning the health issue will make them begin to ask questions that they will need answers to regarding plans for any future transitions in workload, responsibilities, etc.

• Since they know nothing about Kennedy's Disease, some reassurances will be necessary as to current and future capabilities. Fortunately, Kennedy's Disease does not affect cognitive powers and it is a slowly developing disease. Your positive attitude and assurances that you will keep them apprised of any changes is important.
  

 
Note: I plan to develop a PDF guide on this subject in the future. The guide will be available for download on the KDA website.

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As always, should you have any questions, please do not hesitate to ask by commenting below or sending me an email.


Okay, now it is your turn. What did I forget? What do you not agree with?  Do you have a better process you can recommend? Any comments and considerations are appreciated. Working together, we can make a difference.

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Upcoming Article: Check out Sunday's article on the natural history of spinal and bulbar muscular atrophy (SBMA). I will summarize the research report as well as provide a link to a site to download the study if you want to read it.


 

Financial Planning – Part II

This is Part II of a three-part article on Financial Planning. In Sunday's post, I provided a summary of the steps to developing a financial plan. In today's article I will provide a little more detail as to the process that my wife and I went through twenty-five years ago. Unfortunately, the length of this article requires me to break it down into two sections. The final segment (Part III) will be posted Thursday.

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The Seven-Step Financial Planning Process

When my wife and I realized that my career might be cut short because of Kennedy's Disease, we developed our financial plan using the process shown below. Part II and III are an overview (even though it will not seem that way) of the steps involved. In today's post I will cover Steps 1 – Evaluate and 2 – Analyze.

1. Evaluate: This is the most difficult part of the process, but also the most critical. I recommend developing a retirement plan that includes several scenarios in case plans change (e.g., you work longer or have to retire earlier, you live longer, a recession occurs, etc.). Fortunately, on the internet there are some good tools available to make the process easier and more manageable.
   
   
   
   
   
   • First, make an educated guess as to when you might have to retire (e.g., at age 50, 55, or 60). I guessed 55, but worked until I was 57.
     
   • Next, develop a retirement budget (best guess). We decided what we thought we would need (in annual income) to live comfortably if I had to retire early. This is a difficult task because it is like looking into a crystal ball fifteen or twenty years out. We used current dollar values and then applied a reasonable inflation factor (another best guess) afterwards.
     
     There are some general rules for how much money you will need to live comfortably when you retire. One such rule projects that you will need 70% of your annual pre-retirement income (inflated to future dollars). Based upon your wants (travel, vacation home, etc.) and needs, however, you might need 100%.
     
     
     
     
     
     1. One way to begin estimating your retirement costs is to take a close look at your current expenses, and then estimate how they will change (e.g., will your mortgage be paid off by then, will you be driving as many miles, will your health care costs likely rise, etc.).
     2. Use this retirement calculator to help you with the process. Click on each major category (e.g., housing) and it will take you to a more detailed worksheet. The program will apply a reasonable inflation factor based upon your age and other criteria.
        
        
        
        
        
        
        
        
        
        
     3. In this budgeting process we separated "wants" (e.g., vacations, new cars, second house, fishing boat, etc.) and "needs" (e.g., mortgage, cars, household expenses, auto expenses, food, health and life insurance, other maintenance expenses, etc.) to come up with the minimum needed retirement savings we were both comfortable with. Having both my wife and I work the numbers helped us reach an agreement on lifestyle expectations.
        
        Any amount over the minimum required savings can be applied towards additional "wants". On the other hand, if you find that you cannot save enough before retirement, you might have to reduce some "wants" and "needs" (e.g., keep the cars longer, downsize house, etc.), or, increase your potential returns by making riskier investments in your portfolio (I do not recommend this), or by moving out your retirement date.
        
        
   • Make some projections as to life expectancy for your wife and yourself (e.g., 75, 80, 85, or 90 years old). Currently, the range for Americans is 77.5 to 80 years old. There is a good (but a more detailed) life expectancy calculator on the MSN.com website. I said 80 for me and 90 for my wife.
     
   • Now, estimate the interest rate factor for the scenarios (another educated guess). We ran three scenarios using different rates (4, 6, and 8%). We also assumed that as costs increased, so would my salary, interest and dividends. However, we never assumed that health insurance costs would increase at the rate it recently has. In the end, our annual inflation rate averaged 4.7%. The retirement calculator link in "b" above will assign an inflation factor and you can use that as a starting point.
     
   • Capturing all this data becomes difficult if you do not use a spreadsheet. It is almost imperative that you use one when putting together multiple what-if scenarios.  Except for a few tweaks, I am still using the same spreadsheet today to track our performance. 
     
   
   
2. Analyze: Once you agree upon the budget numbers, review your current savings, investments and expected retirement benefits (e.g., IRAs, pension, Social Security, long-term disability, etc.) and other potential income (e.g., savings, stocks, interest/dividends, etc.). This step will help determine the gap (the shortfall) in savings. You will develop this for each early retirement age stipulated (e.g.50, 55, and 60). This was another daunting task, but we are able to receive some help from the Social Security Administration (current benefits available) and Human Resources (pension estimates). Use the Retirement Income Calculator to help you with this task.
   
   An important factor that needs to be taken into account is "compounding." Compound interest arises when interest is added to the principal, so from that moment on, the interest that has been added also earns interest. The value of compounding interest is shown in the example below.
   
   
   
   
   
   1. You plan to retire in twenty years and you estimate that you will need a million dollars in savings when you retire.
      
   2. You currently have $100,000 saved in your 401K and IRA.
      
   3. However, you will be generating interest on your current savings. If you average 4% annual interest over the twenty years, the $100,000 when compounded has more than doubled in value. Now your gap is actually only $800,000.
      
   4. You estimate that your pension will be worth $200,000 (lump sum benefit). Your gap, in today's dollars, is now less than $600,000.
      
   5. If you put aside an additional $10,000 a year for the next twenty years, you would have over $300,000 saved after applying that same 4% interest rate (compounded). The gap is now only $300,000.
      
   6. You now focus on any other investments (stocks, bonds, CDs, etc.) to further narrow the gap.
      
      
   Even more interesting is what happens after you retire. If you only spend what you make in interest each year, you would never draw down on your retirement savings. For example, if you had a million dollars saved at retirement and it continues to generate 6% interest, you could spend $60,000 a year. Along with your SS-D (e.g., $20,000), you would now have $80,000 (pre-tax) income every year. Again, this is only an example to show what could happen with careful planning.
   
   What if you need $100,000 a year when you retire? After the $20,000 SS-D, you need another $80,000 from retirement savings (8%). If your interest rate averages 6% a year, after twenty years of retirement you will still have $400,000 in savings.
   
   This all sounds wonderful, but realistically your costs after retirement will also continue to escalate (due to inflation). $100,000 in year one will not have the same buying power in year five, ten or twenty. The retirement calculator mentioned above will show you the impact of inflation on your savings over several years. For example, if you need $100,000 in year one; twenty years later the very same expenses could easily inflate to over $225,000.
   
   
   
   
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That is it for today. Fortunately, the Evaluate and Analyze steps are the most difficult part of developing a viable plan. In Thursday's post, I will conclude the financial planning article by covering: Executing the plan, Monitoring performance, Reviewing performance, and Making needed adjustments to the plan. I will also discuss three other items that need to be worked to ensure you are ready for early retirement.

Financial Planning – Part I: Plan your work and work your plan

Recently a reader recommended that I write about financial planning for families living with Kennedy's Disease. 


I did write about applying for Social Security-Disability (SS-D) compensation last year (Part I and Part II). Both of these articles discussed several important responsibilities and considerations before and during the application process. Along with other tips and recommendations, I emphasized these three points:

• Document everything. The more information you can provide up front, the smoother the process will go.
  
• Take the time to educate the reviewer. Do not expect the reviewer to understand Kennedy's Disease or your specific situation. The reviewer can be an excellent advocate if he/she understands Kennedy's Disease and your specific disability.
  
• Be prepared. The more prepared and organized you are, the better the chance for approval. (e.g., my award was approved in six weeks)
  

Part II of the SS-D article focused on the preparation aspect of the process. A few years ago I wrote a guide that is useful when applying for SS-D. You can download the PDF guide by clicking on this link.

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The Financial Planning Process

Social Security-Disability is all well and good, but it does not help answer the question whether you can afford to retire. Financial planning is important at any age, but it becomes critically important when diagnosed with Kennedy's Disease because you might have to retire earlier than expected. 


Wikipedia: A financial plan is an estimate of future income, expenses and assets.

In this three-part article, I will provide several key steps to developing a financial plan. In today's post, I will summarize the planning process.


Since I am not an expert or someone with a strong financial background, everything discussed in this article is based upon my experiences (the good, the bad, and the ugly). Of course, you can hire a financial consultant, but I feel that the benefits of going through these steps are important to the "buy-in" process. If you do decide to take this journey, I recommend that you review your assumptions and results with a qualified financial planner. A good financial planner should not ask you to invest in specific stocks, bonds, annuities, insurance, or other securities. His role is to just review your plan and provide insight into options for achieving your goals. 


I am certain there are others out there better informed and more qualified to write about this subject. I am hoping they will add their two cents in the comments section below or by sending me an email. I will then update these documents. 


The keys to any good financial plan are summarized in this seven-step process:

1. Evaluate future needs (Develop a retirement budget)
   
2. Analyze current conditions (Retirement savings, regular savings, pensions, disability income, and other investments and assets)
   
3. Establish targets and goals (Target = Annual projected savings; Goal = Savings needed for early retirement)
   
4. Execute the plan (Develop a plan, gain consensus,and put your plan to work)
   
5. Measure performance (Quarterly reviews - How are you doing?)
   
6. Review results (How well did you do in achieving your annual target?  Are you still on track to achieve your goal?)
7. Adjust the plan, as needed (Evaluate, analyze, reset targets, execute, measure and review the revised plan)

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In Tuesday and Thursday's posts I will provide the actual steps my wife and I used to prepare for our future. This approach helped us achieve a reasonable level of financial independence and provided me with peace of mind.


As always, should you have any questions, please do not hesitate to ask by commenting below or sending me an email.