INDUSTRY INSIGHTS | SPRING 2010 EFFECT

Financial Lessons to Help Us Through 2010 and Beyond

by Jerry Felicelli

Our grandparents lived in a world where they stayed with the same company for life, saved a little each month, and retired with a comfortable pension and a big smile. That world no longer exists. Social security benefits are eroding. Health care costs are increasing. College costs are up and cutting into retirement savings. Rising divorce rates force retirement incomes to be divided between two households. Pensions are growing scarce. Our savings and 401(k) probably took some hits in 2009. All these factors force us to evaluate our financial positions and take a proactive role in putting together a plan for retirement, so we are better prepared for the unexpected. We also learned some important lessons.

Lesson 1: plan for increased health care costs

We cannot blindly carry on with our heads in the sand because we currently have adequate health care benefits offered through our employer. As we approach retirement, we must do our homework and budget for health insurance premiums that could double or triple. Mike McConnell, a principal with LarsonAllen Financial, LLC, projects the average couple will need more than $200,000 at retirement age just to pay for out-of-pocket medical expenses for the rest of their lives. Long-term care costs continue to rise as well. An unexpected illness requiring long-term care can drain your “beachfront condo” account all too quickly.

We can help ourselves now by doing everything we can to stay healthy. There are the old favorites; exercise, eat a healthy diet, and consider cutting back or losing one or two vices (coffee, cigarettes, junk food, or alcohol). This is a small price to pay for a proven future benefit. And just to be safe, consider purchasing long-term care insurance in your 50s or 60s—before you are likely to need it—but when it is more affordable. The chart below shows the average monthly premiums for five different plans. Though the largest premium increase occurs between ages 70 and 75, you can realize significant savings by purchasing between ages 50 and 60.

Average Monthly Premiums for Long-Term Care

Age at Purchase	Plan A	Plan B	Plan C	Plan D	Plan E
40	$90	$79	$74	$60	$24
45	$108	$95	$89	$72	$32
50	$130	$114	$107	$86	$43
55	$159	$140	$131	$106	$59
60	$195	$170	$160	$130	$83
65	$248	$216	$204	$165	$120
70	$324	$282	$267	$216	$179
75	$520	$299	$427	$347	$327

Source: U.S. Department of Health and Human Services: National Clearing House for Long-Term Care Information 

Lesson 2: get back to basic financial fitness

Borrowing, spending, and investing are all keys to a solid financial future. When it comes to investing, remember the old line, “If it sounds too good to be true, it probably is.” Don’t fall for the get-rich-quick schemes that lured many into the Madoff fiasco. Look for a safe and solid rate of return in an area you understand. If not, find a financial planner you trust and listen carefully to his or her suggestions—but do your own research before jumping in feet first. Keep your spending within your means. You do not need to max out every credit card you own just to make sure you are driving a luxury car. Reevaluate your priorities. Spend less than you make and put the rest away, and don’t fall for the mistakes of the 90s—using your home’s equity as a never ending line of credit. Only borrow what you absolutely need, and don’t refinance just because the rates are great. It has to make financial sense for you.

Lesson 3: pass your knowledge and experience to future generations

Generation  X and Y have been raised in a “buy now, pay later” world. They need to hear from the earlier generations that life can get tougher and saving and spending wisely is the only way to make it through any crisis. This generation could end up as caregivers to parents, grandparents, and their own children all within the same decade. So, in the words of Crosby, Stills, Nash & Young, “Teach your children well.”

Lesson 4: the continued need for humanitarian thinking

Many of us have found ourselves walking in the shoes of those we previously only saw from a distance. Even those who are considered wealthy are paying closer attention to how they spend, invest, and give. In fact, volunteering, mentoring, donating talent, time, and treasure are more important than ever as we push through this recovery. We need to keep our eyes open a little wider and get involved in our communities to help those less fortunate get through it as well. Being sympathetic to the needs of others adds value to their lives as well as your own.

The situation is not all gloom and doom. Most Baby Boomers plan to work longer than our parents ever considered. Employers have recognized the need to allow flexible scheduling and job sharing as a way of keeping experienced workers. There is also a proven connection between active engaged seniors and better mental and physical health. So, though the times ahead may be tough, well-prepared individuals will have the opportunity to live longer and healthier lives than any previous generation.

2010 holds promise for us all. If we start the year with these lessons in mind, it can only help us be better prepared for what lies ahead.