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Hecht Insurance Advisors, LLC Blog

Baby Boomers and Long-term Care

4/3/2020

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Why LTC Planning Is Essential for Boomers

As millions of baby boomers in the United States reach old age every year, experts predict the number of long-term care patients will double over the next 30 years.

What does that mean for you? It means that if you don't have a long-term care plan in place, you and your family may have to face some tough choices down the road.
Read on to learn why a long-term care plan is critical for every baby boomer. 

Americans
are living increasingly longer lives. Recent estimates give a healthy 65-year-old man a 24% chance of living to at least 90, and a healthy woman a 35% chance of living that long. While this is great news, the longer we live, the more likely we are to suffer from a long-term care event.


​This all means that now is the time to put a plan in place.
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The hefty price tag

If you or a loved one suffers from an illness that requires long-term care, get ready for some sticker shock. A year-long stay in a nursing home typically can cost between $40,000 and $80,000, often more. While prices vary by state and the type of care required, one thing is consistent across the board when it comes to long-term care: it's phenomenally expensive.

Just take a look at the average costs of various types of long-term care in the U.S.:
  • $5,566 a month for a semi-private nursing home room 
  • $6,266 a month for a private nursing home room 
  • $2,968 a month for care in an assisted living unit 
  • $19 per hour for a home health aide. 

As you can see, these costs can quickly add up and eat away at your nest egg. For example, let's say you hire a home aide to assist your husband just three times a week for four hours. At $19 an hour on average, that would come out at $228 a week. That adds up to nearly $12,000 a year. Unfortunately, Medicare does not cover these exorbitant long-term care expenses. 

To top it off, informal home care is simply not a realistic option for most families these days. After all, most children of baby boomers are struggling to balance their own work and family life. They simply don't have the time or resources to care for sick parents.

This is why it's critical for each and every family to plan ahead for a potentially expensive long-term care event. Without the proper protection, such an event could devastate a family's finances.
 
The simple solution: LTC insurance

How can boomers handle the skyrocketing costs of a potential long-term care event? The answer is simple: long-term care insurance. Without LTC coverage, a nursing home stay or another long-term care event could destroy your family's finances.

Because LTC insurance covers many of these expenses, this valuable coverage will not only protect your finances it will also help you to maintain your current standard of living if you or your spouse requires long-term care.
 
The takeaway

Without LTC insurance, the cost of a nursing home stay or a home health care aide could wreak havoc on your finances and whittle away at that nest egg you've worked so hard to build. Don't burden your loved ones with this kind of emotional and financial strain. Create a long-term care plan today to save your family a lot of heartache and stress tomorrow.

​If you want to discuss your long-term care insurance options, call us. A professional can evaluate your unique situation and help you customize an effective plan.
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Lower-Income Gen Xers, Baby Boomers Will Run out of Money in Retirement: Study

3/2/2020

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Lower-Income Gen Xers, Baby Boomers Will Run out of Money in Retirement: Study

Recent research showed that baby boomers and Generation Xers who are in the lower income brackets are more likely to fall short of their retirement goals, which will leave them lacking enough money to live on. 

Researchers at Northwestern Mutual Planning & Progress found that some people may run out of funds within their first year of retiring, and that 22% of Americans have less than $5,000 saved for retirement.
Even some people who fell in the highest income brackets would likely run out of money at some point during retirement.

The outlook for many of their futures remains grim. The survey found:
​
  • 22% of Americans have less than $5,000 saved for retirement.
  • 15% have no retirement savings at all.
  • 56% don't know how much money they need to retire comfortably.
  • 41% are taking no steps to prevent themselves from running out of retirement savings, though many see this as a possibility.

After gathering these findings and analyzing them, researchers point out that people who are in the lowest income bracket are extremely vulnerable.

With the possibility of not only running out of funds but running out quickly, people who are in this category should be concerned and take steps to enhance their retirement preparedness.

People in all categories, however, can find themselves at risk, and each person's likelihood of running low on funds will depend not only on their current financial status, but also on their health status. Not all health issues are predictable, and what exists now may be complicated later.

Some people may need extra funds for health care. Even if health facilities for skilled nursing care will pay 100% of costs, some households will still run out of money far before they should.
 
What to do?

First off, do not expect Social Security to keep you afloat in your golden years. It won't provide enough income for you to live off in retirement. If you're like the typical recipient, your benefits will cover roughly 40% of your previous income, assuming that Congress doesn't move to slash future Social Security benefits.

If you have not started saving for retirement, regardless of your age, start doing so now. Thanks to compounding interest and earnings, the more you start socking away now, the more money you can earn in your retirement funds in the future.

If you begin setting aside a decent chunk of money each month, and continue doing so consistently for the remainder of your career, you have more than enough opportunity to catch up.

The following shows how much money you would have when you retire at the age of 67 if you start putting away $500 a month at different ages:
  • 37 years old: $567,000
  • 42 years old: $379,000
  • 47 years old: $246,000
  • 52 years old: $151,000
  • 57 years old: $83,000

You should review your retirement plan and accounts annually and increase how much you set aside if you feel you are not meeting your retirement savings goals. It's never too late. Update your options as needed, and take into account any long-term changes in health conditions.

To learn more about your options, call us.

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Getting All the Facts for Your Estate Planning

2/27/2020

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​Getting All the Facts for Your Estate Planning

Estate planning laws change from one year to the next. Anyone who is doing estate planning for the first time in 2020 should especially be aware of the current laws, and it is also helpful for people who have planned before but are not sure about current rules to update their knowledge.

These are some of the most important tips to remember for 2020.​

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The threshold for lifetime gift and estate tax increased - In 2020, the amount has risen to $11.58 million for individuals; it is $22.8 million for couples. This is the maximum amount of gifting via money or asset transfer allowed during a person's lifetime without tax consequences. The limit more than doubled in 2019 after tax legislation was signed into law by President Trump.

The annual gift exclusion amount is $15,000 - The annual federal gift tax exclusion allows you to give away up to $15,000 ($30,000 for couples) in 2019 to as many people as you wish, without those gifts counting against your $11.58 million lifetime exemption.

Some types of gifts are not subject to this limit. For example, gifts to a spouse, a medical fund or an education fund are not included. Also, education and medical gifts are not taxable. When making medical or education gifts, transfer the funds directly to the institution rather than sending them to an individual recipient.


Lifetime exclusion amount portability is still an option
- Estate tax laws started allowing surviving spouses to use remaining lifetime exclusion amounts of their deceased spouses in 2011. In addition to simplifying estate planning, this gave couples a way to access exclusion amounts.


Couples can transfer up to $22.8 million of their taxable property to their heirs without estate tax penalties. However, transfers must be made by election in the estate.


The gift and estate tax effective rate is 40%
- If your estate is under $11.8 million, congratulations: The federal estate tax will not apply to your estate. Any amounts over that threshold will be taxed at marginal tax rates that cap out at 40% for an estate worth more than $1 million over the cap.


Remember state gift tax laws
- While the rules covered in the previous sections apply to federal laws, they do not apply to state laws. Many states have laws that require estate and gift taxes. If the taxes include lifetime exclusion limits, they will be lower than the federal limits.


To learn about individual state laws, discuss concerns with an agent. It is not possible to avoid these taxes in the states where they are required.


The takeaway


While estate planning is not something most people think about often, it should be considered every year - and when any major life changes happen. 

A new addition to a family, a marriage, a death in the family, getting a major promotion and big health changes are just a few examples of times when estate plans should be reviewed and changed as necessary. 
Neglecting these changes can cost a person's heirs a considerable amount of time and money. Stay on top of these issues to keep plans running smoothly. 

Call us 540-712-2199 to learn more about optimizing estate planning.


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Five Smart Things You Can Do with Life Insurance Cash Value

2/25/2020

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Five Smart Things You Can Do with Life Insurance Cash Value

If you have accumulated significant cash value within a permanent life insurance policy, congratulations. Your planning and decision to save within such a policy is likely paying off.

Thanks to the tremendous tax advantages that Congress has given to provide incentives for families to protect themselves with life insurance, and to the protection aspect itself, a life policy is a great place to keep money.

​
That said, let's look at some of the most common options for dealing with your policy's cash value:
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Stay put -Let life insurance be life insurance. Your money is growing tax-deferred within the policy. And in the event of your death, an amount much greater than your current cash value will generally pass to your heirs, tax-free.
That's a significant benefit right there, and a compelling reason not just to let your policy grow, but to add more premium to it if you can.

Borrow against the death benefit - You can withdraw accumulated dividends, and then borrow against the rest of it, generally with no tax consequence, as long as you don't completely surrender the policy.
Interest will accrue, but you don't have to repay the loan yourself unless you want to. If you don't pay it back, the insurance carrier will simply subtract the balance due from any death benefit they pay to your beneficiaries.

Cash out the policy altogether
- This option lets you get substantially all the cash in your policy. However, you may be subject to capital gains tax to the extent your cash value exceeds the amount you paid in.


Exchange for another life insurance policy
- If you choose, you can execute a Section 1035 exchange of one life policy for another, tax-free.


You may opt to do this if you find ongoing premiums at a new carrier are lower for some reason, or if you want some specific protections or riders you can't get from your old carrier. 

For example, you may be able to exchange a straight-ahead universal or whole life insurance policy for a policy that also provides a benefit in the event you need long-term care insurance.

 
Exchange for an annuity - You can also exchange a life insurance policy for an annuity, tax-free, under Section 1035.


You might choose to do this if you decide you no longer want the life insurance protection, but you do want regular and reliable income.  


For example, if your beneficiaries are grown up and no longer rely on your life insurance death benefit, you may execute a 1035 exchange to a lifetime income annuity - maximizing your income over your expected lifetime, rather than paying a large death benefit.

You can choose a joint and survivor annuity to guarantee income to your spouse as well.
 
The takeaway
Life insurance is among the most flexible and powerful resources you can have in your portfolio as you grow more established. But to have all of the above options later in life, you must plan ahead now.

Talk to us today. We can help you develop a plan that meets your needs and financial objectives.
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Changes to Retirement Savings Plans

2/6/2020

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New Law Makes Big Changes to Retirement Savings Plans

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​President Trump has signed landmark legislation that will make the largest changes to the U.S. retirement system in years.

The new Setting Every Community Up for Retirement Enhancement (SECURE) Act makes sweeping changes on rules governing individual retirement accounts and employer-sponsored 401(k) plans. They affect not only people enrolled in 401(k)s and IRAs, but also small firms that want to offer 401(k)s to their staff.

Most of the changes the law ushers in apply to the 2020 tax year and beyond, unless noted below. Here are some of the main changes:



IRA required minimum distribution age now 72

The SECURE Act raises the age that retirees are required to start making mandatory withdrawals from an IRA or 401(k) plan to 72, from 70 and a half. Starting in 2020, the new law pushes out the Required Minimum Distribution (RMD) start date for most situations until age 72.

By pushing back the RMD start date, the SECURE Act gives you additional time to allow your IRAs and 401(k)s to grow without being depleted by distributions and taxes.

This change only applies to those who turn 70 1/2 after Dec. 31, 2019. So, if you turned 70 1/2 in 2019 or earlier, you're unaffected.

The change is also good news for anybody who is holding a traditional IRA and is considering converting it to a Roth IRA. The law gives them until the age of 72 to do this, as well.

With a Roth IRA, unlike a traditional IRA, withdrawals are tax-free as long as you meet certain requirements and there are no RMDs during your lifetime. The general goal of a Roth conversion is to convert taxable money in an IRA into a Roth IRA at lower tax rates today than you expect to pay in the future.


Conversion to guaranteed income vehicle 

The SECURE Act will also allow employers to set up retirement savings plans that enable employees to convert their savings into guaranteed lifetime income, through annuities.

The law includes a safe-harbor provision that shields employers against lawsuits if the insurer they choose to make annuity payments doesn't pay claims in the future.

These products will likely not be available until regulations are written enabling them. So, they may not hit the market until late 2020 or 2021.


Small employer options

It's always been difficult for small employers to offer the same types of 401(k) plans as large companies, since they do not have the economies of scale. The cost is often prohibitive.

The SECURE Act paves the way for small firms to form groups to offer multiple employer plans (MEPs). These plans allow them to form a plan that can attain its own economies of scale for the participants. MEPs are currently allowed, but only for businesses with a relationship such as a common owner.

The MEP provision does not take effect until 2021. There may also have to be some rulemaking before it comes into effect.


Part-timers can save too

The SECURE Act also changes the law to allow part-time workers to be eligible to participate in employer 401(k) plans. Under new rules, employees who work more than 500 hours a year for three consecutive years can become eligible to participate in the company plan.

IRA age contribution cap lifted

For tax years beginning after 2019, the Secure Act repeals the age restriction on contributions to traditional IRAs. Prior to 2020, once you turned 70 ½ you were ineligible from making any more contributions to your traditional IRA (the lack of age restriction for Roth IRAs is unaffected and remains in place).
Under the new law, for tax years beginning in 2020 and beyond, you can indefinitely make contributions after reaching age 70 ½.

This law change means a couple over 70 ½ will be allowed to contribute more than $14,000 combined to an IRA in 2020 if both spouses are contributing the maximum of $7,000 a year.

Stretch provisions eliminated

The Secure Act requires most non-spouse IRA and retirement plan beneficiaries to drain inherited accounts within 10 years after the account owner's death, or face tax obligations.

Under provisions that were in effect until the end of 2019, if a traditional IRA was left to a beneficiary, that person could stretch out the RMDs over their own life expectancy, essentially "stretching" out the tax benefits of the retirement account.

The new law exempts surviving spouses, minor children and those not more than 10 years younger than the deceased from the new 10-year provisions.

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