According to Schwab’s 2018 Modern Wealth Index, millennials have their financial act together more than the average person might suspect.  The study revealed that 31% of millennials (defined as people born between 1981 and 1996) have determined their financial goals and have a written plan.

Before you scoff at what might appear to be such a low percentage, consider that the study also revealed that just 20 percent of generation X (born 1965-1980) and 22 percent of baby boomers (1946-1964) said they had accomplished both of those goals.

Another interesting tidbit revealed that 36% of millennials have specific savings goals compared to 25% of generation X and 17% percent of baby boomers.

Despite this encouraging news (at least for millennials), still, only about one in five millennials work with a financial planner to achieve their long-range goals.

What is a financial plan, and why do millennials need one?

As of 2017, millennials became the largest segment of the U.S. workforce, with 56 million members either working or actively looking for work.  That outpaced 53 million gen X’ers and 41 million boomers.

With this much economic impact and as a growing force in the economy, the need for millennials to take care of their hard-earned money is more important than ever before.  Many can expect significant upswings in their careers and their disposable incomes in the coming 20 to 30 years.

Many millennials are on the road to becoming more financially savvy.  They are opting to self-educate and make decisions on their own.  But as millennials grow older, the stakes are raised as their salaries grow and the time they have left in the workforce declines.

Millennials need a financial plan if for no other reason than to deal with their debt issues.  Approximately 25% are carrying more than $30,000 of debt and 11% with a staggering $100,000+ of debt.  Paying off student loans was cited by a third of survey respondents as having a significant impact on their ability to save money for the future.

Debt is also putting off other major life milestones like buying a home or getting married.

The same Schwab study also revealed that debt isn’t the only thing that’s causing millennials to delay their long-term savings goals.  It comes as no surprise that millennials are squarely focused on short-term spending on things like vacations, entertainment, and life experiences, even if it delays retirement that is still decades away.

Other research supports this.  Millennials eat out more often than other generations, and 87% say they’re willing to splurge on a nice meal, even when money is tight.

LendEdu surveyed 1,000 millennials in 2018 and found that more than 25% spend more on coffee each month than on retirement savings.  Also, about one-third spend more on clothes than on retirement, while almost half spend more on dining out than on retirement.

To change spending habits like these, pay down debt, and begin saving for the future, its essential for millennials to create a financial plan and then approach it with discipline.

The one advantage millennials have over other generations is time.  Here’s an example of how time can work in a young person’s favor.

If you’re 18 and want to build a million-dollar nest egg by the time you’re 70, investing just $71 per month at a 9 percent average annual return should do it. But, if you wait until you’re 28, it’ll take $176 per month, and if you wait until you’re 38, it’ll take $448.

While millennials have the advantage of time, the amount of changes they tend to go through in their 20s and 30s is more significant than people who are in their 40s and 50s.  Older demographics have settled into their personal and professional lives for the most part. They can concentrate more on saving for retirement, especially if their income levels have risen.

Financial planning for an older demographic is different than for a millennial.  Goals are much different.  There is more emphasis on asset allocation and protection of capital through more conservative means.  Younger people can be more aggressive in their approach, and financial planning will take on a different look for them as a result.  The discipline of spending, saving, and investing regularly is most critical at this stage, as opposed to the size of the investment.

Identifying short- and long-term financial goals

Financial planning requires establishing several long-term and short-term financial goals to get you to that big-picture goal.  You have the advantage because you’re young, but as you move through life, time can slip away quickly.  Before you know it, time becomes the enemy and not your ally.

Consider the following steps to take as you begin charting healthy long-term financial security goals for you and your family:

Stop living paycheck to paycheck.  You need a cushion, even a small one, to insulate you from the unexpected.  Trim expenses.  Don’t acquire large sums of debt.  Create a budget.  And stick to it!

Develop an emergency fund.  Most experts recommend starting with three months’ pay as a guideline.  If you can grow this to a more substantial amount for a bigger cushion, you’ll protect yourself even more from downturns.

Diversify your investments.  As you start putting money into various investments, diversify your funds to help reduce risk.  When the market drops, you may minimize your losses this way.  Also, don’t panic and sell when the market does fall.  Because you are young, you have time to recover from the drops that are inevitable from time to time.

Take care of your family. Consider term life insurance in case something happens to you.  Create an estate plan.  It doesn’t need to be complicated.  Having a will or a living trust in place can save your loved ones a lot of trouble at a time when they’ll least be able to handle it.

Keep your investments simple.  Fancy investments may produce dramatic results, but you may also lose your shirt as well.  Stick to mainstream investments, and remember to let time do the work for you.  Figure out what level of risk you’re willing to take for your lifestyle and match investments to that level of risk.

Consider the 50/30/20 rule.  As your savings grow, you can allocate money to various parts of your life while still protecting your long-term goals.  The 50/30/20 rule states that 50% of your income should go to necessities, such as your house and taxes, 30% toward discretionary items, like vacations and meals out, and 20% toward savings.

Establish a relationship with a financial planning professional. At some point, you’ll want the benefit of a professional’s advice. A significant life change, such as having a child, or getting a job with a big bump in pay, may trigger the need.  Don’t go it alone.  The stakes are too high to make errors that you may never be able to recover from.

Formulating and implementing spending and savings plans for millennials

The first thing you need to do is to build a buffer that will protect you from unexpected downturns.  That could be a major car expense, getting laid off, a health issue, or any number of unforeseen incidents.

But how do you build that buffer if you’re already stretched thin?

The simple rule is to save before you spend… pay yourself first!

Just like taxes come right off the top of your paycheck, so too should a dedicated amount for savings.  If you can, set up a direct deposit of a portion of your earnings, so you don’t even see that money.  Participate in your employer’s retirement plan, such as a 401(k).  You’ll be surprised at how quickly money can build from one year to the next when you aren’t thinking about it every day.

Spending and savings plans are the results of habits that you build.  The earlier you get into proper habits, the easier it is to protect yourself financially.  Even if it’s just $20 a paycheck, always try to stash a little something away.

The other key is to live within your means.  Credit card companies target millennials with attractive offers to get them hooked into a long-term relationship.  A little credit is a good thing.  Too much credit, used poorly, will kill you.  Stick with just a few cards with attractive terms, and pay off the entire balance each month.  If you can’t do this, you aren’t being financially honest with yourself.

As far as big-ticket items go, don’t get sucked into buying too much car or too much house early on.  If you’re responsible, make those long-term goals, not short-term goals.  Don’t become car poor or house poor for any reason.

You can make it easier on yourself if you start early, develop good habits, and allow the magic of compounding to work in your favor for as long as possible.  You might think it a bit crazy to be thinking of retirement while you’re in your 20s and 30s, but that is precisely the time to use your advantages to your favor.

Tips for paying off debt

Paying off debt is a function of discipline and time.  With so many things competing for your attention, it’s easy to lose control and run up bills that can leave you with monster financial hangovers.  The first battle you have to win is with your desires.  Understand when you delay a little gratification now, you can enjoy a lot more later, especially when your personal balance sheet is clean and in order.

If you’re at a loss at where to start, here are some commonsense ideas that may help you.

• Don’t spend more than you have. Obvious, right?  In theory, it is, but when you’re out on the town, shopping or dining out, or taking weekend road trips or indulging in a pricy bottle of wine, you can easily run your bottom line into the red.  Credit has its place in your life, but that should be for big-ticket items, like a car, a house, or investing in your education.  As for all the small stuff, only sweat it if you buy it and can’t afford it.  Discipline starts here.
• Build a cash buffer. It doesn’t have to be much, but at least have an emergency fund on hand for those unexpected hits that should always be expected.  Start with $500.  Build it to $1,000.  A little bit of insurance can bring you a lot of peace of mind.
• Make at least the minimum payments on all debts every month. You’ll make a bad situation much worse if you don’t make minimums because you could do some long-term damage to your credit score.  Be diligent, and if you can afford to pay more than the minimum, then do so.
• Start budgeting. Add up all your expenses and compare them to your income.  Track your essentials vs. your optionals.  If you can pay more toward debt each month, you’ll save money because you won’t be incurring interest charges, which can turn a $100 item into a $150 item quite easily.  Be realistic, so you’ll stick to your budget and not get frustrated when you don’t meet your goals.  Habits, even good ones, are hard to break once they’re established.
• Choose either an avalanche or a snowball payoff strategy. That involves paying more than the minimum each month.  The avalanche method is also known as debt stacking.  After paying minimums, you aggressively focus on and pay off one loan at a time.  Focus on your high-interest debt first.  That’s what saves you the most money until you get to zero.

With the snowball method, you pay off your lowest-amount loans first before moving onto bigger loans.  Interest rates do not factor into your order of payoffs.  You will pay more money over the long-run and will be paying off the debts over more time, but you gain the satisfaction and momentum of knocking out those smaller loans upfront.

Both methods work.  It’s up to you to pick the one that’s easiest for you to live with, depending on your habits and willpower.

• Pay debts with compound interest first. Compound interest means that the interest you are charged is added to your existing debt (i.e., credit card debt).  It builds over time, sometimes at a faster rate than you can pay it down if you only make minimum payments.  In effect, you could end up paying interest on interest.
• Debt with simple interest (i.e., student loans) means the interest you’re charged is only calculated off the amount of money you initially borrowed or the principal.
• Automate payoffs when possible. The less you think about it, the less likely you will be to deviate from your plan when your willpower and discipline waver.  Consider automating payments if you’re comfortable doing so.

What are the main categories of debt?

There are many forms of debt, but all fall within four main categories:  secured debt, unsecured debt, revolving debt, and mortgages.

Not all debt is created equal, so you should be familiar with the different categories and how they function.

Secured debt is backed by an asset that serves as collateral.  For example, you buy a car on credit, and the vehicle is the collateral against the loan.  A lender will supply you with the cash necessary to purchase it but also places a lien, or claim of ownership, on the vehicle’s title until the debt is paid off.

Unsecured debt does not have any collateral.  Lenders rely on good faith with your promise to pay back the loan.  A contract binds you, but the only way to reclaim money is to file suit against you if you default.  Credit cards and medical bills are typical examples of unsecured debt.

Revolving debt is an agreement that allows a consumer to borrow up to a maximum amount on a recurring basis.  Credit cards and lines of credit are good examples of revolving debt.  Revolving debt can be unsecured (i.e., a credit card) or secured (i.e., a home equity line of credit).

Mortgages are loans made to purchase homes.  The real estate is the collateral for the loan.  A mortgage typically has the lowest interest rate of any consumer loan product  Loans are normally issued at 15- or 30-year terms to keep monthly payments affordable for homeowners.

Understanding your credit score and why it’s important

Credit scores impact your finances in many ways.  Scores affect what kinds of loans we get, at what rates, whether or not we can rent an apartment or buy a house.  In some cases, they are used by employers in deciding whether to hire someone or not.

Take the time to understand your credit score.  Credit scores are often referred to as a FICO credit score.  That is because Fair, Isaac, and Company, founded in 1956, focused on credit scoring services.  Since that time, it has evolved to become a measure of credit risk for consumers and is considered a standard in the United States.

Your credit score is based on items found in your credit report.  That includes your past and present credit accounts, who you owe money to and how much, and most important if you have paid on time or not.

Your FICO score evaluates risk by dividing your credit information into five parts:

• Payment history
• Amounts owed
• Length of credit history
• New credit
• Types of credit used

Your payment history and the amount you owe are weighted more heavily than the other three categories.  Potential new creditors are most interested in knowing whether or not you have paid other creditors on time in the past.  Also, the amounts you owe carry different levels of importance based on what kind of accounts they are.  For example, student loans and other installment loans don’t negatively impact your score like high balances on revolving accounts such as credit cards.

Overall, FICO wants to see you consistently bringing your total debt level down and maintaining a low utilization ratio.  A utilization ratio is the amount of total credit you have versus the amount of credit debt you ow.  For example, if you have $10,000 in total credit and have $3,000 of credit debt, your utilization ratio would be 30%.

The amount of weighting in each category will also vary from consumer to consumer.  For example, younger consumers who have not had credit for a long time might have credit scores that emphasize payment history more than the length of their credit history.

FICO scores typically range from 300 to 850. Generally, a score above 670 is considered a good credit score on these models, and a score above 800 is deemed to be exceptional.

Essentially, the better your credit score, the better the terms you will receive when you borrow money.  Better terms mean lower interest rates and loans that are easier to repay.  Consumers with higher credit scores will also be offered opportunities that those with lower scores won’t.  That can mean the difference between getting a home loan or not or taking out a loan to buy or grow a business.

The three major credit bureaus are TransUnion, Experian, and Equifax.  Each uses slightly different criteria to develop a consumer credit score, but they are generally pretty close in the end.  Many creditors report consumer credit activity to all three bureaus, which is then used to generate a credit score.

By law, you are allowed one copy of your credit report from each of the three bureaus annually. You can get this at www.annualcreditreport.com.  You can also pay a fee if you want to see your credit report more frequently.  Many people spread out the free reports and request different copies every four months to check for errors that may appear.  If errors do pop up, its best to dispute these errors immediately and get them resolved, so your score doesn’t take a hit.

In recent years, free credit services such as Credit Karma, Credit Sesame, and Quizzle have started offering free web-based tools to track credit scores.  While this can give a general indication of a credit score, the caution here is they do not use official FICO scores.  As a result, they may not be as accurate and reliable.

Also, VantageScore is another credit score model that is a direct competitor to FICO.  VantageScore is more inclusive than FICO because it puts a greater emphasis on recent credit history.  That can be important for millennials who are new to the world of credit.   It is also more open to incorporating “non-traditional” data into its model, such as rent and utility payments.

Investing for millennials: Understanding different investment options

The goal of investing is to maximize your reward while simultaneously minimizing your risk.  But how to best go about this?

Some people continue to think that investing is gambling.  But just the opposite is true because you can control the amount of risk that you take.

There are more choices than ever before on where and how a millennial can invest to meet short and long-term goals.  That can be both a blessing and a curse.

Understanding different types of investment options is critical to creating optimal investing opportunities.  About one-third of millennials cite cash as their favorite long-term investment, which lags quite a bit behind other generations who are more diversified in their approach.

Money in savings accounts is safe but provides a low rate of return.  It can become stagnant and subject to rising inflation.  Conversely, stock market investments can compound over the years.  For example, large capitalization stocks returned 10% compounded annually from 1926-2018.  That creates a snowball effect on your money.

According to the National Institute on Retirement Security, saving for retirement, budgeting, and establishing a financial plan remains a challenge for millennials.  Nearly half of all millennials are already concerned about their ability to retire when they choose, and two-thirds are worried about outliving their retirement savings.

To achieve more financial independence, millennials will need to do a better job of educating themselves on what options are available to them and diversify accordingly.

Millennials should start by calculating how much debt they have.  Next, they need to determine how much risk they want to undertake and then decide where their investment funds will come from.

Understanding different types of investments should be the next step.  That ongoing process should include learning about:

• Mutual funds
• ETFs
• Bonds
• Money market accounts
• Certificates of deposit
• Individual stocks
• Stock options
• Equity index funds
• 401(k), 403(b), and 457(b) accounts
• IRAs
• Roth IRAs
• Various short-term investments
• Various long-term investments
• Various retirement investments
• Company match funds

Why millennials need a financial advisor

Millennials love technology, so using technology for financial planning seems like a natural extension.  While it does have a place as part of an overall strategy, millennials should not overlook developing a relationship with a financial advisor.

A human advisor brings another dimension to investing and financial security.  A truly comprehensive approach to financial planning also must include estate plans, tax strategies, risk assessments, and retirement plans.  Building these factors into an overall plan needs a human hand to custom tailor the best course of action for each person’s needs.

A technology-based mindset can bring a wealth of information to a consumer in an instant.  But where technology misses the boat is with the give and take of ideas, using intuition, feelings, and personal values also to drive results.

A human advisor can challenge and react better when your life changes.  Couples get married, have children, buy homes, and send kids to college.  Each of these and so many other life events can have a dramatic impact on family finances.  Building a relationship with an advisor early in life means you will have a long-term partner with institutional knowledge of you as a person as well as your financial portfolio.

Top athletes and entertainers have teams of coaches to protect their interests, and so should you.  It’s one thing to set a plan in motion, but quite another to have someone challenge you on tough questions, hold you accountable, and help you change course when needed.

Planning for the future: Will millennials be able to retire?

Yes, of course, they will.

But don’t think it will happen by accident.

Setting up a financial plan is only half the battle.  Working the plan takes discipline over a long period.  But the rewards are worth it.

If you’re a millennial and you want to retire, consider following these simple steps to start charting a course to retirement:

Figure out how much you can invest regularly.  Even little amounts can add up over time.  Consider paying yourself first.  You can automate this by putting your money in a 401(k) or IRA automatically through a payroll deduction or as soon as it is deposited in your bank account.

Allocate funds to both short-term (5 years or less) and long-term (more than five years) investments.  An example of money you might need in the next five years or less is a down payment on a home, education expenses, or money for a car or other major purchase.  Long-term a Roth IRA is the best deal for young investors and will have significant tax advantages over time. You can open a Roth IRA or a Traditional IRA for as little as $10 a month.

Decide on your level of risk.  Experts advise that if you’re under 35 and are starting to invest in a 401(k), it is best to invest in an aggressive growth portfolio heavily weighted in stocks.  If you are older, go a more conservative route.  A typical asset allocation that makes sense for a millennial is around 90% stocks and 10% bonds.

 Invest heavily in tax-advantaged accounts.  Choosing vehicles that minimize your taxes over time is important.  Getting into tax-advantaged accounts early in life means your money can grow tax-free over an extended timeframe.  Most companies also offer an employee match.  That occurs when an employer contributes to your retirement account, up to a certain percentage of your income.

Start early.  Even if it means starting with just a few dollars every pay period, getting the investment habit early in life gives the power of time to work its full magic.

 

 

According to the Federal Reserve, about 20% of all households headed by individuals who are 65 or older have about $700,000 in assets.  About half of these have assets of $1.5 million or more, making this age group the wealthiest of all demographics.

But other studies indicate that about a quarter of Americans whose parents are growing old expect to have to support them in their golden years.  Rich or poor, that means financial planning for America’s senior population creates several sizable challenges.

How is financial planning different for the elderly?

When people grow older, their financial issues shift from the responsibilities associated with raising a family and maintaining a job to other post-work life considerations.

• Medical costs are likely going to rise. These costs may be minimized to some extent by Medicare or Medicaid, but they will still impact seniors. Prescriptions and medical equipment costs should also be a concern.
• While you may no longer have a house payment, home expenses will not stop. You’ll still have to deal with annual property taxes, insurance, maintenance costs and emergencies such as plumbing, electrical or any number of issues that could crop up unexpectedly.
• You may also consider hiring a housekeeper, gardener, snow removal service or handyman for the first time who can better perform tasks than you. And, if you’re spending more time at home in retirement.  For your peace of mind, you might also consider a home security system for the first time as well.
• What about getting the car of your dreams? With that dream may come a monthly payment. Or, if you decide to keep your trusty old and reliable paid-for vehicle, you’ll still need to budget for ongoing maintenance. Aside from vehicle costs, you may also experience a jump in car insurance rates as well.
• One financial planning line item you shouldn’t overlook is a budget for travel, trips and entertainment. It may be weekly golf, trips to the beauty parlor, regular dinners and a movie date, visiting your kids twice a year across the country or that annual cruise you’ve been taking for some time now.  You have earned the right to enjoy retirement, but it all takes money.
• As a senior, you’ll also need to be concerned with long-term care costs, getting the most out of Medicare, budgeting on a fixed income in the midst of inflation, figuring how Social Security is a part of your retirement mix, and especially important, making sure you don’t fall prey to scammers who target seniors and their large nest eggs.

Finding a good financial advisor for the elderly

You will need to have some goals in mind before you start your search for the right financial planner.  If you need extensive help with retirement planning and investments, that could require a different level of service than someone who you just need to run a few questions by from time to time.

Consider tapping the following resources once you have an idea in mind about what you’ll want to accomplish:

Ask for recommendations.  This may seem obvious, but a great place to start is to talk with friends, family members or colleagues.  Try to find people who have similar goals and are in a similar financial position as you are so that you can tap into a professional appropriate for your needs.

The National Association of Personal Financial Advisors maintains a website that will let you search for a financial advisor near you.  These listings tend to be for advisors who handle larger estates, but it is still worth looking into to see who might be available to help you.

Another good resource is The National Association of Personal Financial Advisors which also has a search tool on its website.  This may be a more appropriate place to search if you’re estate is a bit smaller.

Major brokerages such as Fidelity, Schwab, TD Ameritrade, T. Rowe Price and others have automated investment management services known as robo advisors.  Based on your financial goals, computer algorithms are applied to help produce investment and allocation goals that are free from personal biases and the fees that may go with them.

Another good resource, especially if you fall solidly in the middle class, is to find resources through the Garrett Planning Network.  The site maintains a nationwide membership directory of independent, fee-only financial planners that provide advice to people from all walks of life, without minimum account requirements, sales commissions, or long-term commitments.

The Certified Financial Planners (CFP) website maintains a directory that has listings that allow you to search for results by specialties including elder care, retirement income management and retirement planning.

How older adults can steer clear of financial scams

Seniors are often seen as targets of opportunity for scammers due to larger nest eggs and possible diminished mental capacities.  Common scams are widespread and include preying on unsuspecting victims in a number of areas such as taxes, banks, investing, credit cards, charities, posing as the IRS, money transfers and online dating.

Scammers use impersonation, identity theft, phishing, ransomware and other techniques to bilk millions of dollars each year from victims.

The best way to protect yourself is to slow down and think if you’ve been contacted by anyone requesting any kind of personal information or money from you.  Scammers thrive on panic and fear and they are specifically experienced in talking you out of your money and your personal information.

When in doubt, don’t take action.  Investigate thoroughly.  Don’t open unsolicited email attachments or documents from a website, even if it is from someone you know.  Scammers use the internet and email to hijack information all the time.  Also be careful about conducting sensitive business over a public Wi-Fi network which can be hacked by fraud perpetrators.

If you’ve got doubts, run the contact by someone you trust.  Also, put your phone number on the National Do Not Call Registry to make it harder for the bad guys to find. And, zealously guard your personal information.  Never authenticate yourself to someone who contacts you.

Analyzing investment accounts

Your investment accounts should be reviewed on a regular basis, but as you get older, you should start to shift in the kinds of things you look at and the goals you want to achieve.

If you are a senior, your primary goal should be to manage risk to ensure your investments are protected. This means you may want to shift more of your portfolio out of stocks and into more conservative/ investments.  Consider corporate or government bonds, money market accounts or bank CDs as safer place to stash your cash.

Asset allocation should be based on diversification.  It’s the best protection against risk when an older investor cannot afford to take heavy losses in more than one asset.  The level and nature of diversification should be based on the amount of risk a senior wants to take and to some degree, the size of their nest egg.

Seniors will also be influenced by how much current income they want to receive in the form of interest income from bank accounts and their investments.  Based on their risk tolerance, seniors should balance the amount of their portfolios they need safely stored in bank accounts and bonds with stocks that could potentially provide a higher rate of return. Some stocks offer regular dividends.

Also consider tax implications when reviewing accounts and a portfolio.  Interest, dividends or capital gains produced by an investment portfolio are usually taxable in the year they are earned unless they are in a tax-sheltered retirement account.

Reviewing Social Security benefits

Before you apply for retirement benefits, there are certain Social Security “basics” you should know about:

• Your “full retirement age” – Depending on your date of birth, that may be between age 66 and 67. This could affect the amount of your benefits and when you want the benefits to start.
• When you can start benefits – You may start receiving benefits as early as age 62 or as late as age 70.
• Benefits are reduced for age – Your monthly benefits will be reducedif you start them any time before “full retirement age.”
• Working while you receive benefits – If you elect to receive benefits before you reach full retirement age, you should understand how continuing to work can affect your benefits.
• Delayed retirement credits – Delayed retirement creditsmay be added to your benefits if they start after your full retirement age.
• Life expectancy – Many people live much longer than the “average” retiree, and most women live longer than men. Social Security benefits, which last as long as you live, provide valuable protection against outliving savings and other sources of retirement income.
• You can use Social Security’s Retirement Estimatorto get an estimate of how much your benefits will be at different ages and “stop work” dates before you apply.

Some of the things you should also think about before you decide include:

• how long you think you will receive benefits
• your health
• whether anyone else in your family can get benefitson your record.

You can find out what documents and information you need to apply by reading Social Security’s “Checklist for Online Medicare, Retirement, and Spouses Applications.”

Medical costs – how to plan for elder care costs

According to the Scan Foundation, “70% of Americans who reach age 65 will need some form of long-term care for an average of three years. An average, middle-income American making a $50,000 salary would have to reserve six years’ worth of income (about $300,000) to pay boarding fees for three years in a private nursing home room that costs $92,000 annually.”

As people age and become more ill, their out-of-pocket expenses will rise.  In fact, nursing home and assisted living care costs are the number one category in this regard, followed by home health care.

This can lead to individuals and families being buried in premiums, deductibles and debt.

About 10% of seniors will put aside at least $200,000 at age 65 for long term care, but even this may not be enough.  For many families, their primary savings is in large investments like their homes which they may need to sell for elder care costs.  Even this may not be enough to make ends meet over the long term.

One option to protect seniors is buying long-term care insurance.  It will help seniors protect themselves financially and can work in concert with Medicare or Medicaid to form a decent shield against high costs of elder care.  Spouses are also protected under this kind of insurance and it prevents family caregivers from placing undue strain and burnout on their own lives, especially since a senior’s health needs can be constant and round the clock.

Reverse mortgages:  Understanding the pros and cons

Reverse mortgages are a loan option that allows homeowners and homebuyers who are 62 or older to live more comfortably in retirement.

Reverse Mortgage Pros

• You can continue to live in your home and you still retain title to it. You must still meet loan obligations and stay current with all expenses such as property taxes, insurance and homeowners’ fees.
• You can take funds from a reverse mortgage as a lump sum, set up a line of credit to tap only when you need it, or take a steady stream of monthly advances.
• You can use your reverse mortgage to pay off an existing mortgage loan. There will still be a lien on your home with the reverse mortgage, but you are not required to make monthly principal and interest payments, freeing you up from that expense.
• No monthly mortgage payments are required as long as you live in the home and continue to meet your obligations to pay your property taxes and homeowners insurance and maintain the property.
• Closing costs and ongoing fees, such as the FHA Mortgage Insurance Premium, can be financed with the reverse mortgage loan — so out-of-pocket expenses can be minimal.
• Loan proceeds are generally not considered taxable income. You should consult a tax professional to make sure this applies to your specific situation.
• For the most part, a reverse mortgage loan will not affect Social Security or Medicare benefits.
• You or your heirs are not personally liable for any amount of the mortgage that exceeds the value of your home when the loan is repaid.
• If your home increases in value in the future, you can refinance your reverse mortgage to access even more loan proceeds.

Reverse mortgage Cons

• If you don’t make payments, the loan balance increases over time as interest on the loan and fees accumulate.
• Because you are using equity in your home, fewer assets are available to leave to your heirs. You can still leave the home to your heirs, but they will have to repay the loan balance. This can be done using other funds or by refinancing through a traditional mortgage.
• Reverse mortgage fees may be higher than with a traditional mortgage.
• Eligibility for needs-based government programs, such as Medicaid or Supplemental Security Income (SSI), may be affected.
• A reverse mortgage loan becomes due and must be repaid when a “maturity event” occurs, such as the last surviving borrower (or non-borrowing spouse) passes away or the home is no longer the borrower’s principal residence.
• The loan becomes due if the homeowner fails to meet other loan obligations, including paying property taxes, insurance, homeowners’ association fees, and maintaining the property.

What to do when a senior is unable to handle his or her own finances

When a senior can no longer handle his or her own financial responsibilities, there are several options that can be implemented:

• A judge will appoint a person or organization to care for the person as well as managing his or her finances.  Conservators are required to report to the court on the conservatee’s status at regular intervals.
• Joint account. A trusted loved one can be added to a senior’s bank accounts allowing them to make financial decisions, write checks, pay bills and other related actions.  This can be a sensible precaution when someone is diagnosed with a degenerative disease such as Alzheimer’s.
• Power of Attorney. A power of attorney is a legal document that allows another person to make financial decisions on their behalf in the event the assignor can no longer make sound decisions on their own.
• Trustee. A senior can set up a living trust and name a trustee to manage financial decisions and keep the trust’s property safe.
• Government fiduciaries. These fiduciaries are appointed by a government agency to manage monthly benefit checks issued by that agency — usually the Social Security Administration or the Department of Veterans Affairs.

Picking a Power of Attorney

Deciding on a financial Power of Attorney (POA) is an important decision that directly impacts the lives of an entire family.

Choosing the right POA ensures that even if you are unable to make decisions for yourself, someone else will have access to your finances and can make decisions on your behalf consistent with your wishes and goals.

A financial power of attorney should not be confused with a medical power of attorney, which allows someone to act as your representative to make medical decisions when you can’t make those decisions for yourself.  The financial POA and the medical POA do not have to be the same person. However, the people you choose might need to work together to make certain that their decisions on your behalf don’t contradict one another.

The person chosen as a POA should be agreeable to performing those duties and have a commitment to taking them seriously.  They should also possess a solid understanding of business and financial issues and be comfortable working with attorneys, accountants and other professionals as needed.

It might be obvious, but the person selected should be somebody who is trusted, understands your values and goals, and will consistently act in your best legal and financial interests.

You should have a discussion with a potential POA before making a decision so that that they fully understand your financial details and are aware of the responsibilities they may take on in that role.

The life settlement option

Many older Americans may discover that life insurance policies that once made sense as part of their financial portfolio no longer meet their needs or are no longer affordable.

When this happens, they can sell their existing life insurance policy to a third party for more than its cash surrender value but less than the net death benefit.  Known as a life settlement option, the policy is transferred to the buyer in exchange for an immediate cash payment.  The buyer of the policy pays all future premium payments and receives the death benefit when the insured passes away.

This provides a viable option instead of letting a policy lapse back to an insurance carrier.

It’s always best to work with members of the Life Insurance Settlement Association (LISA) but at a minimum, to start the sales process of your policy you need to work with a licensed life settlement agent or broker.

Preparing a will or living trust

Wills and living trusts let you to decide how your property will be distributed after death. The primary advantage of a living trust is that it can make it easier to avoid the delays and costs that sometimes arise in probate.

Probate involves filing a deceased person’s will with the local probate court, taking inventory of the person’s property, paying all legal debts, and distributing the remaining assets.  Property transferred into a living trust before death does not go through probate.

Most states have rules that allow small estates to be administered outside of probate or through an “expedited” probate process. Rules are different in each state and you should probably contact an attorney to discuss the best way to accomplish a disposition of an estate.

Preparing a will or a living trust can be complicated.  For more information, consider checking out these resources:

National Academy of Elder Law Attorneys

National Consumer Law Center

Nolo Press

AARP – “10 Things You Should Know About Living Trusts”

Making funeral arrangements

One of the ways to make things easier on a family is to take advance steps in planning for death.  With advance planning, a senior can have an active role in how they would like to be remembered.  Despite several benefits, many people are uneasy about the subject, which is why only about 20% of Americans have talked to loved ones about their funeral according to a 2017 survey by the National Funeral Directors Association.

If costs are a concern, consider final expense or burial insurance, so funeral costs will not be a burden when a person passes.  AARP also provides comprehensive advice and checklists to assist with advance planning efforts.

If you don’t set aside funds in advance, expect to pay $7,000 to $10,000 or more for a traditional funeral.  But costs can easily exceed those amounts depending on the size and scope of the ceremony.

The Funeral Consumers Alliance, a death-care industry watchdog group, has a number of resources you can access as well, including links to itemized lists of funeral costs, by state

Financial programs and resources for the elderly

Here are several resources you can tap into for more information on financial planning and care for senior citizens:

A Place for Mom

American Elder Care Research Organization

Aging Care

The 10 Best Books to Help You Retire Richer, According to Financial Advisors

5 Books to Read Now if You Want to Retire Rich

AARP Health Care Costs Calculator

AARP Retirement Calculator

Department of Labor Lifetime Income Calculator

Life Insurance Calculator

Trusted Financial Advisor

Net Worth Calculator

Social Security Quick Calculator

Social Security Life Expectancy Calculator