We are pleased to have you reading our March 2018 Newsletter. Giving thought to Long Term Care is the focus of the first two articles. As all of us live longer, older people need to plan for less than full “capacity,” and the article argues that oldsters will do well to include their children and younger friends in discussions on the subject. Following those articles is a book review of When Death Becomes Air, an article on looking back at 10 years of stock market ups and downs, one on Global Economics, and one on giving of time, talent, and resources to others. As always, we conclude with Office Matters. The office is a happening place.
While all articles in the Newsletter are something of a team effort, your editor has the main responsibility for most of the articles. However, Deborah wrote the Global Economics article and Susan wrote the article featuring Nickolas Kristof.
David W. Otto, Editor
LONG TERM CARE
Long-Term Care is getting a lot of press these days, as people live longer and fewer people drop dead of the proverbial heart attack. That raises questions not just for older folks, but also for sons, daughters, and friends of those who may eventually need some kind of care in their later years. What options are available? What preferences are high on the list? When is it time to at least look seriously at possibilities or actually make a decision?
We all know of situations where the lives of family members have been quite disrupted for short or long periods of time because of a lack of forward planning. Several instances come to mind.
Bill and Stephanie (all names have been changed), well into their 80s, loved the house in which they had raised their children. But a few years ago, they spent a housebound winter as a result of their infirmities. They had been an active couple ever since they married but failed to anticipate the result of the combined influence of Bill’s deteriorating joint problems and Stephanie’s dementia.
The last winter they were in their home, Stephanie had a stroke, which took her into a hospital for more than two weeks. At about the same time, there was a whopper of a New England snowstorm. Neighbors shoveled Bill out and brought him food, but he couldn’t get out to visit Stephanie. They slowly realized that they should not be living in that house.
They made it through the winter and were accepted into a Continuing Care Retirement Community (CCRC) where they enjoyed independent living for several months. However, they soon needed increased care, for which they were eligible. They were fortunate. Had they had waited another year, it is clear they would not have been admitted.
Continuing Care Retirement Communities, also referred to as Life Care Communities, have accommodations for independent living, assisted living, memory care, and nursing home care. They also have skilled nursing, where a resident is expected to eventually return to independent living. Applicants are required to be able to live independently when they move in to a CCRC, and then it is expected that a person will spend the rest of his life there, moving between levels of care as circumstances change.
Unlike Bill and Stephanie, Frank and Sally waited too long. They lived on the Iowa farm where Frank was born. Their son had long ago taken over the farming operation. After Frank had experienced two heart attacks over five years and was somewhat compromised, they decided it was time to look into where they would move next. Still, they enjoyed their house and continued to live there.
They looked at various options and decided they would like to move to a CCRC outside the nearby city. They had an interview and the Life Care Community agreed to take them, although they would have to pay a premium on their initial deposit because of Frank’s pre-existing condition. But as they made concrete plans for the move, it just didn’t seem right. It seemed crowded, and they decided they would stay in their more spacious home.
Then Frank had another medical issue and Sally could no longer care for him. A phone call confirmed that they were no longer eligible to move to the CCRC. Instead, Frank entered a different care facility and Sally lives on the farm thirty minutes away. Neither of them likes the situation because they are alone for long periods each day. Sally has also had several medical issues. She has been able to care for herself with modest help from her daughter-in-law, but at those times she has been unable to see Frank.
These two stories focus on issues encountered by the older generation. But it is also true that the difficulties of aging parents can have a major impact on their children.
Sandy and her husband lived several hours from Sandy’s parents. Her father, who had a failing heart, had been near death more than once, but each time he recovered, sometimes needing to be in a rehabilitation center for an extended time.
With his last extended illness, however, Sandy’s mom could not care for her husband. During a two-month period Sandy made several trips to support her parents and eventually took a leave of absence from her work, leaving her husband and her home, to be with her father. Difficult as it was, it was what she wanted to do. After three months of constant care by Sandy, her dad died. Sandy returned to her life and her job, still concerned for the well-being of her mother. A lot of responsibility for a daughter.
There is not a “one size fits all” when it comes to planning for living arrangements in old age. But it is increasingly useful as more appealing options become available for people to make decisions when they are healthy.
Here are a number of questions to consider:
1. What are my/our options for where we could live in our older years?
2. What are the views/wishes of other family members?
3. What help should I/we solicit from a financial advisor, attorney, or doctors?
4. What will the timing be if I/we opt to leave our home for another place to live?
5. What can I/we afford?
6. What are my/our priorities? Be close to family? Live in a place that I/we are drawn to? Curtail expenditures?
It is difficult to make generalizations as to the cost of CCRCs and other such care facilities. Most places have a not insignificant lump sum that is required at the outset. The initial amount can vary widely, one factor being the part of the country where the facility is located. Prices are higher for a couple than a single person. Several CCRCs we are familiar with give a decreasing refund on the initial payment, often going to zero after four or five years. Also, CCRCs may give the prospective resident a choice of paying more up front and then being guaranteed of getting money back when they leave or die. There is also a set monthly fee from the time of entry. This fee changes very little when the resident moves to a higher level of care. In that way a Life Care Community serves as a long-term care insurance policy.
It is also possible to choose something else entirely in terms of where to live when added care is advisable. One couple we know has decided to stay in their home because it is less than a half mile from a care facility that could meet their needs adequately. A widow who lived alone has a daughter with a mother-in-law suite in her home. Both her daughter and son-in-law said she would be welcome to come there at any time. In fact, she made the move a couple of years ago.
To summarize: it is easy to delay discussions and put off change. Nonetheless, there are a multitude of good options for living well in our older years. This article makes a case for, at a minimum, having some serious conversations on the subject.
In view of the article above, the question of Long Term Care Insurance is an important one. The insurance industry has created intentionally alarming stories about how much Long-Term Care could cost if you waited too long to buy it. So, do you need it? It can be difficult to get objective advice.
The first thing to acknowledge is that, on average, owners of any insurance policy, including LTC insurance, will often get back less than they contribute in premiums. It cannot be otherwise or the insurance companies would go bankrupt. The guideline for insurance in general is that a person needs insurance for losses that s/he cannot absorb. Many of us would be many dollars ahead if we had never bought homeowners’ insurance, which we may have had for decades. But, we could not afford to replace a house in the case of a fire, or to settle a large liability claim. Still – is it wise to purchase LTC insurance for yourself or someone in your family?
It is true that many people can manage long term care costs without insurance coverage. Rarely does anyone require care over a very long period of time. Also, other costs will go down when a person enters a care facility. A car may no longer be required; vacation costs usually evaporate. Entertainment, clothing, and groceries are greatly reduced. On the other hand, the sale of a home is a potential resource in paying for care. The income side of the equation for this planning process also needs to be considered: things like Social Security benefits, pensions, and investment income normally do not change, meaning that they remain as monetary resources.
Another consideration in purchasing LTC insurance is whether or not you will be able to pay premiums as you age. That matter is often somewhat unpredictable, but should you live a long time and then run low on funds, you could be forced to give up the insurance just as the time draws near that you would need it.
If you in fact decide to purchase a policy, a number of other considerations arise. One is the question of how and when the LTC insurance can be used. Many policies allow for home care, normally at a reduced daily rate. Other issues are: a) selecting the daily maximum payment (people who need LTC insurance normally do not need to cover all potential costs); b) deciding on the elimination period (i.e. the time during which you are eligible for coverage, but are not reimbursed); and c) selecting the maximum number of months and/or the maximum dollar amount the policy will cover. It is also true that Life Care Communities are often geared to make use of LTC insurance when it is an appropriate policy.
One other facet of the LTC question that occasionally arises as we deal with new clients is, if you already have LTC insurance, do you still need it? At that point, a close examination of your policy, your anticipated need, and your resources is advised. Factors such as cost, coverage and your current health will be relevant.
The decision to purchase or not purchase LTC insurance is complicated, as is deciding on the continuation of an existing policy. Of course, we at O&A are glad to help clients think through the pluses and minuses of such a decision.
When Breath Becomes Air is a memoir by Dr. Paul Kalanithi. It begins with Dr. Kalanithi’s student days at Stanford University as he explores English literature, the philosophy of science, and medicine. Ultimately he goes to medical school at Yale, where he meets and marries Lucy. They both become doctors but during Paul’s residency in neurological surgery, back at Stamford, he is diagnosed with metastatic brain cancer.
Most of the book tells of Kalanithi’s work and life while he is a patient. It is a record of his thoughts and interactions with his own medical patients, as well as with his doctors, friends, and particularly his wife. It is a love story as well as a documentary of a life well lived to the very end. It also serves as an inspirational challenge to the reader. Paul dies at age 37, the book all but complete. It concludes with a moving epilogue by Lucy.
This article is being written on Feb. 24 after the market had a mild correction that may seem like the distant past by the time you read it. A “correction” is defined as a stock market loss of 10%. This “Correction” just barely counted because some of the indices did not lose 10%, but it seemed to cause a major upset as judged by media reporting. The media angst is understandable, given the fact that the market marched upward for most of the past nine years and volatility has been unusually low.
It is interesting to note that this past October of 2017, was the 10-year anniversary of the market high which was reached on October 9, 2007. Beginning on that noteworthy day and for the next 18 months, the U.S. stock market lost about 50% of its value. Imagine that you were sufficiently prescient to know on that October day in 2007 just how bad it was going to get – that some major banks and many companies were about to go out of business. Imagine you also knew that unemployment would rise to 10% and that the federal debt would double. Then, pretend that you would be allowed to put all of your investments in only one asset and you could not change that decision for the next 10 years. Your options were: The S&P 500 index fund, a 10-year Treasury Note, gold, oil, housing, or cash. What would your choice be?
At that time, it would have been extremely difficult to pick stocks – the S&P 500 Index – as your choice. Yet, that is, in fact, what did the best in the next 10 years. From the market high of Oct. 2007, to Oct. 2017 the stock market returned 7.2% annually, while gold made 5.7%, the 10-year Treasury Note made 4.7%, home prices increased 1%, and cash returned .4%. The laggard was oil, which lost 4.3% annually. It seems quite remarkable that after losing 50% in 18 months, in the next eight and a half years the market not only made up all of the loss but also made enough more to return 7.2% annually.
So, what is the point? Even if you had known in October 2007 that the market was going to lose 50%, you would still have done best to hang in with the U.S. stock market by choosing stocks for your ten-year investment.
We don’t know if this small recent correction might result in the market continuing to go up or not. We do know the market will have a more significant correction one of these days. It is possible that correction might be large because it could be accompanied by an economic recession. In any case you can be assured that we have not seen the last recession. However, most 10-year periods since World War II have had a reasonable return. We expect the same will be true for the next ten years. Saying “Don’t worry; be happy,” may be Pollyannaish. “Hold onto your hats,” might be more apt. There will be undoubtedly be some trying times ahead but the markets will eventually end up making money.
Even though we thought this talk at the TD Ameritrade conference might make our eyes glaze over or even allow us a much-needed nap, those of us from O&A who attended this big-picture presentation on global politics and economics by Ian Bremmer of Eurasia Group found it very interesting and thought provoking. We are living in an increasingly interconnected world and need to be aware of what’s happening overseas. One example: Bremmer believes China is in the process of becoming a global economic superpower and that 10 years from now we’ll say that this period marked the transition in the world order, including the waning of U.S. influence. President Xi is a very strong leader, the strongest since Mao, taking advantage of weak leaders around the world to advance his country’s power and influence via huge investments in technology domestically, and infrastructure projects domestically and globally.
Ian Bremmer thinks there are only a few other strong leaders on the international scene: Prime Minister Abe in Japan, President Macron in France, and crown prince Mohammed bin Salman (MBS) in Saudi Arabia. He stated that Abe’s economic policies and other reforms are succeeding in lifting Japan out a long-term slump. Macron stands out among other European leaders who are weak or forced to work with coalition governments. He believes that crown prince MBS is the most revolutionary leader in the world today, but he won’t be able to accomplish all he wants, because his country is suffering from declining oil revenues (the US is likely to produce more oil than Saudi Arabia soon), corruption, and a difficult geopolitical environment. The assertiveness of these leaders, Bremmer suggests, is changing the scene dramatically.
Such shifts in regional leadership on a global scale are, according to Bremmer, accompanied by other disrupting factors. Immigration is one of them, especially in Europe; Brexit is another, as is the increased risk from North Korea.
While Bremmer believes that just how the leadership changes will play out is yet to be determined, it will have significant effects on world politics. For the U.S., which has been the world leader so long that few remember when it was otherwise, this will be a radical change.
Deborah L. Maher
Nicholas Kristof wrote an article on February 7, 2018, for the New York Times series called “A Year of Better Living.” This monthly online series for subscribers is designed to “improve your life, community, and world.” The title of Kristof’s February article is “How to Make the World a Better Place,” and his suggestions for where to make financial and other types of contributions were not quite as daunting as the title might suggest. What follows are a few of the ideas that I gleaned from the article, with some personal examples added. If this is a topic that interests you, I would encourage you to read Kristof’s entire article online and follow many of the links that are provided. See the end of this article for a link.
These days the concept of making the world a better place can seem totally overwhelming. It is easy to find excuses – I don’t know where to start; my small amount of money won’t make a difference; I don’t have the time. The reality is that even the smallest efforts can make a difference and, in addition, according to Kristof, “Our efforts to help others may have a somewhat mixed record of success, but they have an almost perfect record of helping ourselves.”
So how can we give our time, talent, and treasure? Here are a few ideas to stimulate your thinking around this question:
Ways to give of your time and talent:
• Donate blood – through The Red Cross
• Mentor a child in school, a refugee, an inmate
• Serve on a board of a non-profit – local, regional, national, or international
• Volunteer for a local organization – a church or synagogue, library, food pantry
• Be an advocate – for those who need added support
Considerations when giving away your treasure:
• Requests for money seem to be on the increase. Having a plan or framework for how you will give money away will help keep you focused. I know of one family who takes the stack of “asks” in early December and separates them into piles that include: NO, low-priority, medium-priority, and MUST GIVE. They decide how much they will give away in total and then figure out how much each charity in the pile can get so that they stay within their budget.
• Kristof cites two online resources that we have used to help evaluate the organizations that you want to give money to: Givewell.org and Charitynavigator.org. These websites help you understand the impact of your gifts, including what exactly your money goes to support, and how much of your money goes to the mission of the organization vs. simply running the organization, which should influence your thinking.
• It is often hard to know whether it is more important to give locally, nationally, or globally. Kristof makes an interesting point that our dollars can have a greater impact internationally. He states, “An aid group abroad can save more lives more cheaply than an organization in the United States, and generally can do more good with less money.” Of course this ties back to the first point about establishing a framework for giving.
• There are many ways to be creative and accomplish more than simply getting money to a charity. Involving children in decisions about giving money to the local foodbank can be a good option. Instead of just writing a check, the parents decide how much they want to give to the food shelf and then go to the grocery store with their kids to purchase the food to be donated. This encourages discussions about budgeting, limited resources, nutrition, and a host of other things.
The areas you can support through volunteering and donating your money are endless. But whether you invest in women and girls, clean water, early literacy, animal welfare, land preservation, or any other worthy cause, the point is to act. Your efforts combined with the efforts of many like you can help to make the world a better place.
The Kristof article with links can be found at: https://www.nytimes.com/guides/year-of-living-better/how-to-make-the-world-a-better-place
, where there are literally three dozen links to other sites. Or go to www.ottoandassociates.com
and then go to the Newsletter tab. Find the March 2018 Newsletter and then find this article. You can then go directly to the Kristof article online.
Susan O. Goodell
For a few days around the beginning of February, David held down the fort in subzero Vermont while the rest of O&A traveled to Orlando to attend the TD Ameritrade Conference. But Kathy didn’t make it to the conference. It turns out she was traveling with acute appendicitis and ended up in the hospital for an emergency appendectomy. She is fine now, after recuperating in Florida. The rest of us attended educational sessions, saw technology demonstrations, and tried to get outside for a few minutes between sessions to enjoy a break from the cold New York and even colder Vermont winter.
In other health news, David is scheduled to have knee replacement surgery in mid-March. He plans to take a couple of weeks off to recuperate, and then hopes to be recovered sufficiently to ride his bike for the Prouty in July.
Late last year, David and Susan attended a NAPFA Conference (also in Orlando) with other fee-only financial planners. The conference had many good sessions on a wide range of topics including cyber security, tax planning, retirement income planning, and the Department of Labor’s Fiduciary Rule. As is always the case, it was an opportunity to chat with other planners and hear new ideas and inspirations.
Deborah’s husband, Damon, was elected to the Westchester County Board of Legislators in November and took office last month. They are very excited about his opportunity to work with the new County Executive to make Westchester an even better place to live!
Other office family matters include Kathy’s oldest child, Molly, getting married. Her youngest child, Grace, will graduate from The College of Charleston this spring. Joan and Susan also have upcoming graduations. Joan’s daughter, Olivia, is graduating from Pace University, and Susan’s daughter, Eliza, is graduating from Oxbow High School in Vermont.
WISDOM OF THE SAGES
“The investor’s chief problem – and his worst enemy – is likely to be himself. In the end, how your investments behave is much less important than how you behave.”
“The function of economic forecasting is to make astrology look respectable.” --John Kenneth Galbraith
“The idea that a bell rings to signal when to get into or out of the stock market is simply not credible. After nearly fifty years in this business, I don’t know anybody who has done it successful and consistently. I don’t even know anybody who knows anybody who has.”
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” --Benjamin Graham
“Invest for the long haul. Don’t get too greedy and don’t get too scared.” --Shelby M. C. Davis
“Far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” --Peter Lynch
O&A POTPOURRI FOR 2018
• TD Ameritrade will be enhancing its Advisor Client website later this year to give you more relevant information in an easier to read format. We are always here to help you navigate the changes.
• Cybersecurity is foremost on our mind at O&A. We continue to seek the most recent software and protocols to protect your information.
• Tax matters: K-1’s are expected by March 31. You will be notified by TD of any corrected 1099s. They are available on the Advisor Client website. Tax filing day is Tuesday, April 17th this year.
• O&A continues to go green and look for ways to avoid paper. Using ZixMail is an important tool as it allows us to securely e-mail documents to you and for you to return documents to us. Stay secure, save paper, save time!
• Remember we are always here to answer any questions you may have. We welcome an email or chat on the phone.