Long Term Care Insurance: Protect your nest egg

You spend your entire working career putting aside money in order to have a sufficient nest egg in retirement so that you can do the activities that you enjoy with the people you care about most.

There are risks to that goal that you need to be aware of and you need to take steps to mitigate that risk.

One of those risks is that you or your spouse will become ill and need some type of expensive assisted living care for an extended period of time.

Cost of care in Missouri

In the state of Missouri the average cost of assisted living care is $54,000 a year.  Consider what impact a three year, $162,000 stay would have on your portfolio while a spouse is still living at home with the usual bills.  Or, if you are single, you will often still have your usual day-to-day living expenses because family members are often hesitant to sell your home, in the hopes that you will return, or they are not yet ready for the task of selling.  Now consider the fact that healthcare costs are increasing faster than the standard rate of inflation and you can see how an extended stay could be a risk to your retirement goals.

Purchasing a policy 

A Long Term Care policy can cover different types of nursing care ranging from in home care to a private room with fully-assisted living care.

You can purchase a policy to cover the majority of the cost, or even just a portion in order to help offset the cost, if something were to happen to you.

Purchasing a LTC policy can help preserve your assets so that they can last your lifetime, and help financially protect a spouse should one of you require expensive care.

What is a stock index?

A stock index is a list of stocks that are created to represent a certain segment of the market.

A stock index is not an investment, although there are investments that are designed to mimic stock indexes.  More on that in a future post.   For a definition of a stock, see my prior post where I answered the question “What is a stock?”

Stock index – segmenting the market

Let’s take the United States stock market as an example, it can be segmented many different ways; Large Company stocks, Mid-Sized Company stocks, Small Company stocks, Large Company Value stocks, Small Company Growth stocks, the list could go on and on.  There is even a St. Louis Stock Index called the Bloomberg St. Louis Index.  One or more indexes (or lists of stocks) can be created for each of these segments.

What the purpose of a stock index

The purpose of a stock index is to give you a quick measurement of the performance of that segment of the market that day and over time.

Large Company Stock index

Even within one segment of the market, there can be more than one index created to represent that segment of the market.  Take the United States Large Company stock market for example, three common indexes that represent the US Large Company stock market are:

  • Dow Jones Industrial Average: “The Dow”, 30 companies on the list, does not represent all industries
  • S&P is 500: 500 of the largest companies in the US; covers 75% of the US equities
  • Russell 1000: approximately 1000 of the largest companies in the US; covers 92% of the US equities

Dow Jones, S&P and Russell are all companies that compile the list of stocks that comprise each respective index.

With lists that range from 30 stocks to 1000 stocks to represent the Large Company stock market it is easy to see why the indexes do not move in lock step.

The Dow or S&P 500

According to The Dow Jones Indexes website, the Dow was one of the first market indicators, which is probably why it is quoted every day, it is tradition.  However, 30 stocks is not a very good representation of the overall Large Company stock market, especially considering it is not representing all industries.  That is why you also hear the S&P 500 index quoted as well.  There are some days in which one of these indexes ends the day down, and the other ends the day up, even though they both represent the Large Company stock market.  They can not measure the segment in exactly the same way since they are looking at two different lists of stocks.

Retirement Planning: What do I need to know about my pension plan?

When you retire, your paychecks will stop.

But you want to have fun.  You have been putting off so many things, thinking “When I retire, I am going to {fill in the blank with that thing you really want to do, but have to put off until you have more time }”.   How will you pay for retirement if you are not getting a paycheck?

That is where retirement planning comes in.

The idea is to make sure that the nest egg you have accumulated, plus income from sources like Social Security and pensions will be able to pay for your expenses in retirement.

I have written about expenses to consider in retirement.  If you are fortunate enough to have a pension, let’s look at a few tips to help you when gathering information about your pension to prepare for retirement planning.

Where to find information about your pension

Information can be found in the Summary Plan Description for your pension.  It can usually be found on the website for your pension or from your human resources department.  Or if you are in a union, talk with your union representative.

What kind of plan is it?

Is this a pension or a cash-balance plan?  A pension is not portable, if you leave your employer then the pension will stay with the employer until you are of retirement age.  If it is a cash-balance plan and you leave, it is portable; you may keep it with the employer, or roll it into an IRA.  There are other differences as well.  Consult your Summary Plan Description for the details of your plan.

Important ages or milestones for your pension

Knowing what ages or milestones are significant for your plan may impact your decision about when to retire.  Keep in mind this could also be a combination of your age and years of service.

  • Find out the age at which you become fully vested in your pension.  Vesting means that you keep contributions made on your behalf by your employer.
  • Find out the earliest age at which you could retire with a pension.
  • Find out the age at which you get your full benefit, any benefit taken before that age will be a reduced benefit.

How can you get your money?

Each plan has different options.  Find out what your plan offers.  Can you get a lump sum?  Can you take a partial lump sum and the rest in monthly payments for the rest of your life?  Does your plan offer a survivor option so that if you pass away, your spouse will still receive an income?

Is there a Cost of Living Adjustment?

A Cost of Living Adjustment, or COLA, would mean that the monthly payment would go up each year to adjust for inflation.   This is an unusual benefit, most employers do not offer this on their pension plans.  Many union plans do.  The Missouri Teacher’s pension is an example of a pension that has a COLA.  If your pension has a COLA, find out how yours works.

How much money can you expect?

This is the fun part of the information gathering exercise; finding out the estimate of how much money you would get at retirement.  There is usually a website where you can run pension benefit estimates, if not then talk with your human resources department or union representative.  Find out pension benefit estimates for the age at which you would like to retire and the age at which you get the full benefit.   Also look at other ages so that you can compare the amounts based on different retirement ages.

Does your pension plan set a maximum benefit?

What does it take to max out the pension?  Can you buy credits to increase your pension payment?

Investing time now in understanding your pension will reap rewards in retirement, allowing you to make the most of your benefit.