How will the election affect your financial plans?

What now? It’s very early to make predictions but I have at least as good a chance as the pollsters, right? We really don’t know what this incoming president will do, since his policy statements have been so thin, simplistic, and utterly without actionable detail. Nevertheless, some things seem obvious, so here are my thoughts on possible steps.

Never has saving been so important

One thing that seems pretty clear is that support for the vulnerable, the disabled, the elderly, and the ill will be diminished or eliminated. Even under Republican presidents there was opposition to much of the social support network, but now that the mandate seems to be for the ultra-conservative right wing, social programs and benefits are likely to be drastically cut. Certainly we’ll be unlikely to see any new initiatives. This means:

  • You won’t see any assistance to make education more affordable. If you have school loans, you’re not going to get any breaks. If you have children, saving for college will be critical. Without savings, it’s very likely you won’t see your children in college.
  • The incoming president has absolutely no plan to remedy the problems in Social Security. I can say with near certainty that you won’t see any impetus to bring benefits up to an actually livable retirement income. Without your own savings, you’re going to have a bleak old age.
  • Health care costs will be on you. Since the incoming president is unlikely to favor cost containment, single payer options, or public provision of service, we may well see a free-for-all where service providers scramble to snare the people who can actually pay out of pocket. Same goes for colleges, now that I think about it.
  • Charities won’t pick up the slack. The national mood to support the vulnerable seems to have disappeared. One of the most shocking things I’ve learned as a financial planner is how few people give to charities at all, and how small some of our contributions are. Especially in an economic downturn, charitable donations will lessen. Most charities are not able to float extensive programs for continuing care on their own, and depend on public, government support which is unlikely to continue.

Money, as always, gives you flexibility and protects you even in severe economic downturns. If you have to pay, yourself, for all the services most Western democracies provide their citizens, you must have savings.

Try to arrange catastrophic protection on your own

There is unlikely to be any movement toward increasing protection of the elderly and disabled. Long-term care insurance appears to be a necessity for anyone but the super rich. There certainly won’t be any type of long-term care insurance provision at the government level, and most likely no regulation of the industry. Unless you want to face complete impoverishment in needy old age, you should consider the catastrophic protection long-term care insurance provides. Medicaid, for when you’re completely broke, is unlikely to receive enough funding to provide enough care for enough people.

Similarly, disability insurance becomes even more important. Getting Social Security disability, already extremely difficult, will certainly not become easier or more generous. Even those with some savings could easily be wiped out by a disability.

I can’t comment on health insurance, because all the alternatives look so bleak to me that I have no idea what may still be available in the next years. This is a significant drain on entrepreneurship and small businesses. One of the biggest blocks to people starting new ventures has always been the inability to secure individual health insurance. The insurance safety net now becomes more important while simultaneously becoming more damaged.

Review your employment situation

Even if laws protecting workers are still on the books, the federal agencies still have plenty of options on how to enforce them (or not). A professor of mine once said that the most important thing a president does is make the 250 or so critical appointments to agencies that actually run the government. I think it’s pretty safe to say that anti-discrimination provisions, OSHA protections, affirmative action efforts, and environmental protections will be dismantled as much as possible. If you get in an employment situation where legal protections might be important…well, I hope you have the savings and insurance to tide you over a long legal sojourn with a potentially poor outcome. Don’t forget, a president gets to appoint judges and prosecutors.

Do whatever you can to develop your technical skills. The only way to make yourself valuable in a recessionary economy is to acquire skills that are so in demand no one will care who you are: computer, health care, accounting, and engineering come to mind. These are skills that are valuable world wide.

If you’re in college or have children who are, it is with a heavy heart that I say it appears to be a poor idea to concentrate on the liberal arts. My own daughter majored in Anthropology, and my long-ago degree is in Sociology, and I have (all my life) rigorously defended the value of a liberal education. I still believe in it, because I don’t think education should be job-training; it should be developing the life of the mind. However, with the reality of the current developments, any student needs to think about how to add technical or in-demand skills to their education, at least as a minor or certificate program. This is the time to add pragmatic skills to education, because you can’t count on any help or justice except what you can muster on your own.

If you are part of any vulnerable group—women, minorities, immigrants, disabled, LGBTQ, to name a few—this advice goes double. As Cal Newport has said, be so good they can’t resist you. It didn’t work for Hillary Clinton, but I’m hoping your luck will be better.

Stay with diversified investments

I don’t know what the impact will be on markets as yet. I’m guessing socially responsible investments, green energy, and anything dependent on health care funding are going to take a hit, while military contractors will see windfalls. I doubt that defunct industries can be brought back. Will Europe become more attractive? Will the Fed have any tools left? As always, the only mitigation of catastrophe is to have eggs in many baskets.

It all depends on your personal situation, of course, but this may not be the time to pay off a house (locking up your cash). You may need it—it’s easier to lose a house than to go without critical health care. However, it may be the time to nail down a low-interest mortgage, because rates aren’t going any lower.

Take care of yourself

The future looks stressful beyond anything I have encountered in my lifetime, while the quality and availability of health care is almost certain to be drastically impacted. Try to improve what is in your control: lose weight, eat healthy (and don’t be a victim of the corporate manufactured pseudo food complex), try to get exercise. You’re going to need to try to stay as healthy as possible, as long as possible.

I hope it will be possible to compartmentalize some of this, to get relief by pursuing craft, authentic relationships, the pleasure of pets. I almost said the joys of nature, but the impact on our natural world and climate is likely to be catastrophic.

Think realistically about emigrating

 For most of us, it’s not going to be easy or even possible. Without significant money to take with you, and skills so in-demand that you’d be embraced by any country in the world, you’re probably not going to be obtain residency, particularly if you need to work. And if you own a house, who do you think is going to buy it? Those immigrants that are being deported? It’s going to take a lot of planning and forethought to actually accomplish this.

Darn, tried to keep out that bitter tone. Did avoid naming He Who Must Not Be Named. I’ll do my best to help puzzle through how all this relates to your own personal financial picture. It’s never been a better time to shore up and plan for what is in your control, and take steps to protect yourself. Let’s work on this together.

Long term care: pay and pay and pay again

Think you’ve been prudent and taken care of any long term care needs by buying long term care insurance? Okay, good, but now you can start worrying again. As usual, American capitalism has found new ways to extract more bucks out of us hapless suckers, oops I mean frugal, hard working citizens.

The Wall Street Journal last week had an article describing how Medicare tracks and audits hospitals for frequent re-admissions. The idea is supposed to be that if you give correct and adequate care followed up by adequate home care, you shouldn’t be readmitting people for the same thing. Ha-ha.  The reality is that home follow up is just about non-existent except for being handed an information sheet as they wheel you out (don’t want the discharged folks to trip on their way out). Hospitals will do everything they can to get you out in two days because after three days of warming a bed you might actually be eligible for some nursing home/rehab care. Their rate of referring to that is tracked, also—and penalized for MORE referrals, rather than being rewarded, as you might reasonably expect.

But now, some hospitals have found a way to obliterate records of readmits by classifying these stays as “observation” stays, which are technically outpatient visits. Which means  some patients will foot a far higher percentage of the bill, depending on insurance. And Medicare won’t count it as a readmission, even if you are “observed” for three days, so you won’t be eligible for any nursing home care provided by Medicare. Getting Medicare to pay for nursing home care was tough already, but this makes it impossible.

You could theoretically have several “outpatient observations”, then be referred to nursing care, and end up paying over and over again for multiple short stays, and your LTCI wouldn’t cover any of it, since the deductible period is usually either three months or six months. Many people select this because theoretically Medicare can cover up to 100 days, although getting that full term is harder than juggling watermelons.

This hasn’t become prevalent enough to raise a hew and cry yet, but if you or a loved one are being admitted to a hospital, be sure you know under what label the stay is being characterized for your insurance or Medicare coverage. And hope you find a pile of cash under that mattress.

That OTHER insurance you should worry about

 I just got a lovely letter yesterday from Blue Cross informing me that my current health insurance would soon be defunct and I better get online today and pick out a new one. And, what a surprise, replicating my existing coverage is going to cost more. I’m not going to get too worked up about this one, because we all knew something had to change with health insurance, right? But what everyone in the country seems to be trying to ignore is the other big health care crisis—long term care.

Thinking about this is hard, painful even to try to imagine yourself feeble and incapacitated. But, with modern medicine, it’s probably going to happen. As a dog trainer once said to me—if your pet doesn’t get killed in a freak accident, you’re probably going to be faced with some day putting them down. Been true with 2 dogs and 9 cats. The few accidents were the worst. Difficult circumstances are easier to handle with some sort of rational plan. You need one for the point when you’re no longer able to roar around on your motorcycle. It appears, given the fight over basic health insurance, that it’s going to be a long, long time before we get any kind of national consensus about taking care of the very elderly.

Think Medicare will take care of you? Ha-ha. Theoretically, Medicare can cover 100 days of service. Getting that service in actuality is pretty difficult—you have to be making progress on rehab, and you have to have spent 3 nights in a hospital. An awful lot of hospitals will park you in the lobby if you’re not out in two, and extreme old age and frailty is not something you can be rehabilitated out of. And even if you (or your loved one) can work the system, what’s your plan after 100 days?

Wowie-zowie it’s expensive. Think $250-$300 per day at the joints around here, and I’m not talking luxury apartment. Assisted living can be less, but real full-blown nursing care is usually a small room that you may be sharing with at least one other person. The more you can pay, the less you share, but some places don’t even have space for single rooms. Can you pay $100K a year in today’s dollars? Will you have a spouse that still needs to live on your savings and your Social Security? And really, when you need it you really need it.  Unless your retirement portfolio plus Social Security generates at least $100K per person in today’s dollars (or you’re willing to liquidate it all and don’t outlive it), you need long term care insurance. Okay, there are some more factors, but your personal set of facts should be discussed with a financial planner—I’m just giving you the pep talk here.

I’ve seen quotes for LTCI that range from $1,500/year (probably inadequate) to more than $8,000 per year, so I’m going to list the key factors that seem to influence cost. These are the basics you will need to think through:

  1. When to get it. The younger you are, the cheaper it will be, the longer you will pay, and the more likely you can still qualify. People in their 40s may be too young (depends on family history, whether your workplace offers it as a group benefit) and after 60 an awful lot of people develop health problems that make it difficult to qualify at a decent rate.
  2. How long you’ll wait before it kicks in. 90 days? 180 days? How long can you afford to cover 100% of the costs before you cry uncle? Lately, 180 days doesn’t seem a whole lot cheaper than 90.
  3. How much per day it will cover. Establishing your personal minimum and maximum requires some work with a calculator—taking into account other sources of income, and who else (your spouse) might need that income while you’re being cared for. Here’s where the cost of insurance starts to really break out—choosing a higher benefit preserves future assets but eats up current ones.
  4. Whether the benefit goes up with inflation. Nursing home costs have gone up much faster than the Consumer Price Index. What seems like a generous benefit today may be chump change in 30 years. I mean, my tuition at the University of Chicago in 1977 was $3,600/year. No, I don’t believe it either. Plans offer 3% inflation, 4%, 5%, and you also need to choose whether compound or simple.
  5. How long it lasts. Tell the agent when you’re going to croak and you can get the perfect term. Statistics say that most people kick off a little less than 3 years after entering a nursing home. If you’ve ever eaten their food or heard some of the entertainment, well…but, 3 years does give your family time to sell the house and re-arrange other investments if necessary. On the other hand, my daughter volunteered at the Mather for 5 years, and there were plenty of residents who had been around 5-7 years. My unscientific observation from her experience was that people who were single with no family to care for them tended to move into residential care earlier, at a point when they were relatively more healthy and lasted longer. People who had an involved spouse or children tended to be able to put off the move until they were much frailer. So weigh your support network as you select a term.

Do take a look at your own health and family history. But keep in mind that your personal habits and modern medicine might keep you alive much longer. For example, my mother’s siblings and parents all died in their 70s. My mother, who gave up smoking in 1963, kept her weight down, was happily married, and ate pretty well (none of which was true for the rest of the clan) made it to 90. Dad, with a very long-lived family, lived on his own until 8 months before he passed away at 96. I think it’s a pretty good bet I’ll collect on that long-term care insurance. Like most of us, I hope I’ll clutch and keel at an advanced age. But I won’t bet my money on it. Which is why I think LTCI is a pretty worthwhile investment.

Enhanced by Zemanta