From: Number Sleuth

I recall one headless chicken that was heading my direction. When I moved to the left, it turned left. I then ran to the right but it started flopping toward the right. As a little guy at the time, I swear that thing was after me!

Sometimes the stock market behaves like headless poultry—and that was certainly the case in 2011 for the US S&P500 stock index.

S&P500 (excluding dividends, rounded)

12/31/2010                     1258

2011 high                       1371

2011 low                        1075

12/31/2011                     1258

Looking only at the start and finish, one could be forgiven for thinking that with a 0% gain/loss it must have been a boring year, right? But look at the high and low—and even that doesn’t tell the full story of the market’s volatility. During 2011, the S&P500 traveled an amazing total of 3240 points, jerking and flopping back and forth.

Euro leaders would hold their umpteenth summit and announce that they agree to agree about something at a future date…maybe…if the stars align…and the stock market would take off flying like that headless chicken. Then reality would set in on the lurking economic icebergs and unsustainable debt and the stock market would flop right back down.

Back and forth, back and forth, with extreme daily and weekly swings. Even seasoned traders were having an impossible go of it. The fundamentals and technicals were tossed out the window and stock markets were instead driven by leaks, lies, and the latest news headlines.

What’s in store for 2012? Nobody knows, of course. But virtually none of the substantive economic problems have gone away. The Euro zone is still a mess. China’s economy is slowing and their real estate values have been crashing. Slowing demand for commodities from China affects Australia, Brazil, and Canada, among others. With their economic problems and demographic challenges, I think John Mauldin has it right that “Japan is a bug in search of a windshield.” And our own country appears to be on the verge of recession right at the cusp of an election year.

We all would probably do well to prepare for another year of stock markets behaving like headless poultry.

© January 2012, Larry McClanahan, CFP®, CASL® – All Rights Reserved.

If I lose…….to recover, I must earn

-10.0%                   11.1%

-20.0%                   25.0%

-30.0%                   42.9%

-40.0%                   66.7%

-50.0%                 100.0%

The S&P500 stock index hit its peak in October 2007. From there, it lost roughly 57% of its value (excluding dividends) into March 2009. So how much gain is necessary to get back to its peak? Try a little over 132% (excluding dividends). As I write, full recovery is still quite a ways off.

Traditional wealth advice recommends that you diversify your portfolio among various asset classes based on your time frame and objectives. Usually this involves various types of stocks, bonds, and maybe some cash. Then you passively ride these investments up and down, tossed about by whichever way the market winds blow. Think back to 2008, when most such “diversified” investments headed south around the same time. Lots of fun, right?

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Rule #1: Never lose money.
Rule #2: Never forget Rule #1. — Warren Buffett

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A wiser approach—especially in long-term bear markets like this one—may be to reduce exposure to overpriced markets and investments, and attempt to sidestep the likely “train wrecks.” Buy good traditional and alternative investments when they appear to be a bargain and can be had at relatively safe prices. This assumes a more active and engaged approach to managing your portfolio than traditional buy-and-hold advice.

Of course, it’s impossible to precisely and consistently time the markets. But who said that you have to?

The investment game is won not by precision—only picking winners at the right time or avoiding all loss—but by avoiding catastrophic losses and then seeking modest gains. When you manage the downside, the upside will often take care of itself. Plus you don’t then need to knock one out of the ballpark just to get back to break-even.

© December 2011, Larry McClanahan, CFP^®, CASL^® – All Rights Reserved.

The amount of money, investments and government support you’ll need to retire comfortably is as individual as you are. Some people plan to work in retirement. Others have health issues or other financial responsibilities—kids’ college bills, financial support for a senior relative—to juggle with the everyday living expenses they’ll face in retirement.

However, one thing is true for every potential retiree. It makes sense to get customized advice from qualified financial, tax and estate planning professionals at least one year before a retirement date is set. Here are some preparatory steps to take before you seek that advice and finally set a retirement date.

Figure out where the money is: The days of single-employer careers have been over for decades. And nearly 30 years into the world of widespread IRAs, 401(k) and other self-directed retirement plans, many potential retirees can’t reliably state where all their retirement resources are. Start pulling together all available paperwork tracking personal, government and employer-based retirement assets get them into order. It’s OK if you don’t know immediately whether you have enough to retire—experts can help you with that. What’s important right now is to identify everything you have so you can properly evaluate alternatives.

Identify debt: If you have significant home or consumer debt, that’s a tough burden to take into retirement because most retirees find their income will be somewhat or significantly lower. That also goes for big car payments, tuition debt, medical debt or elder support. Debt is the first major reality check on retirement for most people.

Adopt a downsizing budget: Too many people wait until retirement to learn how to live like retirees. If you have a budget, review it for unnecessary spending that could mean anything from cutting back on lattes to selling a bigger, more expensive car and going with public transit or a used vehicle. If you’ve never made a budget, now’s the time. Budgeting for retirement doesn’t mean cutting out every treat and luxury—it simply means extinguishing debt, setting priorities and determining which current expenses can be cut or eliminated. As the real estate market recovers, you may want to plan to sell your current home in favor of a smaller one that can be bought for cash or minimally financed, or possibly you might decide to rent. You might want to try “going smaller” with vacations, cars, clothes and other needs or wants that can move to a lower price point. Do this while you’re working, bank the money you save and you’ll have excellent training wheels for retirement.

Evaluate your support from the government: A good rule of thumb is, “If you need Social Security or Medicare to retire, it’s best to keep working.” While both of these programs remain enormous help to many retirees, there’s always a chance of significant change in these programs, not to mention the continued discussion of moving the official retirement age well past 65. Definitely evaluate your government benefits, but do so in the context of what you’ve accumulated privately so you can maximize your government benefits when you need them.

Consider healthcare and long-term care NOW: If you’re lucky, your health is in great shape. But family history and events out of the blue may change that. If you retire before age 65, you won’t qualify for Medicare unless you are officially disabled. That means that you’ll have the responsibility to maintain private insurance that adequately meets your needs without huge financial risks that can come from uninsured care or procedures. Even as healthcare reform adds certain protections for under-65 policyholders, it’s more important now than ever to give attention to health matters and whether your current insurance strategy is adequate. As for long-term care, many Americans still forget that the bulk of home-based and nursing home care must be paid out of pocket. While long-term care insurance exists, age and health needs can potentially make it very expensive, so this is another important financial planning issue.

Find out if your dream retirement really works: It’s important to test your retirement dream. While many people dream of moving to a particular place, it’s important to vet that choice for financial and lifestyle repercussions. A particular location might have cheap housing and great healthcare options, but what about cultural attributes and tax issues? There are literally dozens of factors that should enter into your post-retirement lifestyle decision, and to jog your thought process, Nolo provides a checklist that might help.

© January 2011 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Larry McClanahan, CASL, CFP®, a local member of FPA.

In short, that long-term care costs have proven unpredictable in the insurance industry, a world that definitely likes predictability. According to Genworth Financial, a marketer of LTC insurance, the cost of assisted living has climbed at an annual rate of 6.7 percent over the past five years and the price for a private room in a nursing home jumped 4.5 percent annually over that timeframe. Insurers have been increasing LTC premiums to combat this cost rise, making recession-battered 2009 one of the worst years for policy sales.

It’s unclear whether other major carriers might join MetLife, but their decision adds some uncertainty to the picture for long-term care planning, one of the most important ways to protect retirement funds. For some needed perspective, it makes sense to visit a qualified financial planning expert who can look at your complete financial picture and make a recommendation. Here are some of the questions you need to answer before investing in long-term care insurance or other options:

What resources do you have? We’re not just talking about money here. While caregiving puts a strain on family, it’s important to consider whether family and friends are truly willing and able to help with your care, which can provide a considerable financial and emotional benefit. Also, if you live in a community with reliable volunteer resources to help, that’s something to note, though today’s services may not be there tomorrow.

How old are you and your spouse and what’s your health history? People in good health purchasing long-term care insurance at the age of 55 usually get the most affordable deal in LTC insurance. But an individual’s family health history and current health status are the real determinants of what your LTC insurance policy will cost–or if you’ll qualify for coverage at all. Also, it’s important to note that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time.

Are you a single female? Again, personal and family resources come into play here, but since women typically live longer than men–and they still earn less on average than men–women should take a heightened interest in providing for their long-term care safety net. Long-term care insurance might be a good solution given their other investments and their health history.

What types of services are covered? Over the course of time, long-term care policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to recover or live out their last days in a familiar environment. A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence, and transferring (bed to chair, etc.). Each policy lists the types of services that are covered under nursing home care and under home health care. Homemaker services are generally covered and other services as listed in the policy.

What triggers coverage? A qualified LTC policy won’t go into effect until the covered individual can’t perform two tasks of daily living for a period, typically 90 days, or when that person needs substantial supervision related to cognitive impairment. This is where you have to read the fine print since some policies are more restrictive than others. More affordable policies generally take longer to kick in. See if coverage for other physical ailments is available as part of the policy and what per-diem or monthly allowances are offered.

How healthy is the insurance company? While it’s impossible to tell the future – or when a major carrier wants out of a particular line of business–it’s generally better to go with a larger, higher-rated company.

How affordable will the policy be if your premium increases? If you can barely afford LTC coverage now, it’s going to be much tougher to afford premiums if they go up over time. Talk with a planner about other options if that’s the case.

What about an annuity? There are hybrid annuities that also carry long-term care coverage. These products allow policyholders to use the proceeds for LTC coverage, for income or for both. The proceeds that go to pay for long-term care costs for the policyholder would not be subject to federal tax. These long-term care annuities can generate tax-deferred gains, which works particularly well for those in high tax brackets who believe they will be in a lower bracket by the time they would need to draw on that coverage.

© December 2010. This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Larry McClanahan, CASL®, CFP®, a local member of FPA.

This is why it’s important to include any vacation property as a part of the buyer’s estate planning. According to the National Association of Realtors’ 2009 analysis based on U.S. Census data, there are 7.9 million vacation homes and 41.1 million investment units in the United States, compared with 75 million owner-occupied homes.

Such significant property can mean significant discord when there’s a desire on the part of some family members to sell. Siblings may not have the cash to buy other family members out. That’s why it’s important for experts in financial planning, tax and estate issues to be brought into what might seem as a fairly minor investment issue. Some suggestions:

Do a market analysis: How valuable is the family vacation home, anyway? It might make sense before you talk to any of your heirs to appraise the property and launch a competitive marketing analysis to see what other homes in the immediate area are worth. Knowing whether the property is appreciating or depreciating is important, but knowing future maintenance costs is important too. If the home is in significant need of repairs or updating, it’s fair to get estimates and determine whether the owner wants to do those now or if heirs want to make that investment, at which time they’ll have full control over the choices that get made.

Discuss scenarios with your team of experts: Again, it’s important to bring in your entire financial team to talk through the sale or succession issues involved in deciding what to do with the vacation property. This will give you something to think about so you’ll have more to discuss when you finally bring it up with your heirs.

Discuss family feelings about the property before you solidify your plans: It might be a good idea for the property owners to casually sit down with family members over time to gauge their interest in keeping the property. Eventually that can result in a more formal meeting when it’s time to start making decisions. An owner might find that the children he or she were certain would want to keep the property want to sell, or vice-versa. This is one emotional investment issue, so it makes sense to take time to feel out all the family members, particularly if sets of children from previous marriages are involved.

Start developing the plan: Once you reach consensus with all relevant family members, act. If there are children who want out of the ownership plan, see if you want to compensate them and decide how that will be done. Parents might offer a buyout sum to children in the form of a gift over several years while they’re alive so surviving heirs don’t have to pony up after the owner dies. The key advantage of planning ahead is having the time to consider all the financial and emotional fallout before it happens. It’s good to get advice on what a sensible buyout price is ahead of time. Because it won’t include traditional selling costs, family members might be able to buy the property at a premium.

Consider different ownership structures: Homes that older family members want to keep in the family might consider a limited liability company (LLC) as an ownership vehicle for the vacation home. LLCs can offer lawsuit protection from creditors and users, they’ll keep the property in the family and they will help the owner set up a structure for ownership, maintenance and governance issues that will stay in place long after he or she is gone. Again, financial, tax and estate experts should be consulted.

Have some fun: Don’t let the process of handing down the property or discussing future ownership detract from the property’s original purpose – to keep family together and to create good memories. Once decisions are made, it might be a good idea to have one last, big gathering there so everyone can either say goodbye or solidify their plans for the next generation of family gatherings.

August 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Larry McClanahan, CASL®, CFP®, a local member of FPA.

There are many types of financial worries, but probably none as relentless as the costs of treating and supporting a special needs child.

A 2008 MassMutual/Easter Seals study focusing on autism spectrum disorders (ASD), a range of conditions that can lead to problems with socialization, communication and behavior, discovered the following:

• Nearly three-fourths of parents are worried about their children’s financial future after they’re no longer able to care for them.
• Only 40 percent of children with ASD had designated a guardian or created a will; only 20 percent have created a special needs trust.
• Seventy-four percent of parents with autistic children do not have a life care plan for their children.
• Health insurers pay for services only 39 percent of the time, leaving families with autistic children to take on more debt than parents who don’t have kids with disabilities.

According to a study released in December by the U.S. Centers for Disease Control, an average of one in 110 children have ASD. For parents affected by these conditions or other physical, emotional or developmental disabilities in their children, financial planning should be part of the response. That’s why it’s a good idea to bring in trained expertise, including financial, legal, tax and estate help shortly after diagnosis. A financial planner is a good first step.

There are planners who specialize in special needs issues for family members of all ages. PlannerSearch, a service provided by the Financial Planning Association®, can help sort planners by expertise and location. Here are some common financial planning activities that parents of special needs kids should explore:

The retirement and estate plans should come first: Even though one or both parents undergo a massive lifestyle change to support their disabled child – a responsibility not unlike a second career – they can’t forget planning for retirement and healthcare needs. It’s very easy for parents to sacrifice their lifestyle needs when a child is sick or disabled, but personal planning is essential, and it should come before planning activities for the child.

This personal planning needs to go well beyond retirement savings. Parents need immediate estate planning to make sure their assets are properly disbursed for the specialized care of their minor or adult children when they die – an event that can happen at any time. The first step of the process is making a will with specific directives for the child as well as yourself if you are incapacitated and can’t make decisions for the child. A financial planner can walk parents through this parallel process of personal financial planning and planning for the child.

Then move on to the special needs child: A child can have no more than $2,000 in total assets to qualify for federal benefits, so special planning is necessary. It’s particularly important to make sure that the child not be named a direct beneficiary of any assets that would put him over the $2,000 figure at any point in time, so it’s important that proceeds from life insurance, IRAs, annuities, 401(k) s, 403(b) s and any other inherited assets be placed in something called a Special Needs Trust.

Special Needs Trusts can be set up to accumulate, manage and disburse monies for any child with a disability. (There are also Community Trusts, which are trusts set up by nonprofit institutions that perform the same function – see which option fits best.) The trust itself becomes the beneficiary of any inherited assets, and with very few limitations won’t affect the child’s eligibility for government benefits. Parents also need to consider whether or not to go through the guardianship/conservatorship process to take legal/financial control of their children’s lives. In the case of a minor child, generally guardianship or conservatorship will terminate when the child turns 18 or, in some states, upon marriage if the child marries before age 18. Then, obviously, parents need to decide whether a disabled child needs a trustee other protections to carry him through adulthood and beyond their deaths.

Depending on your situation, it’s a good idea to research a supplemental needs trust, which are written to provide benefits to and protect the assets of physically and mentally disabled individuals while allowing them to continue their qualifications for a variety of government-provided healthcare benefits under Medicaid.

It’s best to locate attorneys who specialize in special needs issues to write these trust agreements and coordinate with your planner and tax and estate professionals.

Don’t forget your other kids: When a disabled child becomes part of a family, parents have an added responsibility to make sure their non-disabled children aren’t ignored. That goes for financial issues as well. Because disabled children represent a significant financial burden, it’s doubly important to get planning help to make sure you can afford college and other essentials for the rest of your offspring.

September 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Larry McClanahan, CASL®, CFP®, a local member of FPA.

The consulting firm division’s 2009 report predicts that the number of people leaving the United States for various procedures will reach 1.6 million by 2012. That’s more than double 2007’s numbers.

Medical tourism used to be all about cosmetic procedures – hiding the occasional facelift or tummy tuck from prying eyes back home. But today, the rising number of underinsured or budget-conscious patients has made going abroad for medical care much more prevalent and for more complex procedures such as knee or hip replacements. It’s also getting the support of domestic insurers and the American Medical Association, which has set nine guidelines for patients and medical travel.

But before you hop on the plane, it’s best to do significant due diligence of financial and safety issues related to the procedure and the hospital where it would be done. First, check and see if your insurer supports medical tourism and makes its own recommendations on where you might go for certain procedures. Insurers like Aetna, WellPoint and BlueCross BlueShield of South Carolina have tested foreign facilities in their physician and hospital networks, arranging one-stop shopping for overseas treatments including care, travel and lodging for patients and their families.

But whether your insurer offers these options or not, the first step is researching the institution. The primary way to do that is to consult Joint Commission International (JCI), a division of the leading U.S. organization that reviews hospitals for quality, now provides similar services to hospitals abroad. JCI provides an online list of accredited hospitals and medical centers worldwide. (In fact, even if you aren’t planning a trip strictly for a medical procedure, the JCI list is a good one to use when planning a vacation – it will help you determine the best hospitals abroad if you need emergency care.)

But learning about good overseas hospitals is just the first step. Consider the following:

Include your doctors: Don’t assume your doctors are automatically going to veto your thinking. They may help you find the right program, particularly if you’re having trouble affording procedures here at home. Compare the cost of a qualified facility overseas to a negotiated price for treatment here – always ask if you can get the care cheaper in the U.S. first. Whatever happens, the discussion shouldn’t end at where you should go for overseas treatment – if there are complications or a need for aftercare, it’s very important your doctor be involved.

Check your employer first, then your insurer: If you are insured through your employer, start with human resources to get an overview of where your various plans stand on overseas medical coverage. Disclosure is best. If an insurer doesn’t endorse treatments at a particular hospital, it’s likely going to be tough to get them to cover any problems that could crop up domestically after overseas treatment. Ask them how – or if –they would deal with post-care complications. Also, if you have long-term care insurance, check in with them to find out if getting treatment overseas could potentially risk your coverage when you need to draw on it later.

Get some money advice: If you are planning a non-emergency procedure that won’t be covered by insurance, take the opportunity to see how such a move will affect your overall finances. It makes sense to talk to a financial advisor such as a financial planning professional to weigh this expenditure – which may still be in the tens of thousands even at a sizable discount – against your other financial needs and concerns.

Designate a family member as your primary contact: Choose a family member, friend, or health power of attorney (more on this below), to keep in touch with your family, friends and employers you designate they call. This primary contact should also be prepared to pay bills and deal with the unthinkable – if you suffer complications or die outside the U.S.

Make sure your health care directives work where you’re going: A health care directive – also called an advance directive – specifies your medical wishes in case you’re incapacitated. They come in two forms: the living will and the power of attorney for health care. The living will indicates specific wishes about medication and life-support treatment if you’re incapacitated, and you need to refer to your own state laws on how these documents need to be written. The power of attorney for health care – also called a durable power of attorney for health care — also specifies your wishes for treatment but allows you to designate a specific person to act in your stead if you are incapacitated. You should check with the hospital where you’ll be doing the procedure as well as your attorney about what documentation will be effective where you’re going.

Pick your representatives wisely: Your health care power of attorney may or may not be the person with the power to disburse your assets if you’re incapacitated, but that person should have their name on a joint checking account in case bills need to be paid. Also, make sure you have a line of credit established that your designated representative can access in case of emergency. Make sure all these sources of cash can flow easily to the foreign country where you’re recovering.

Update your estate matters: No one expects they’ll die in the hospital, but it’s necessary that your will be up to date so your spouse or designated executor can step in immediately to handle your affairs. Again, it makes sense to see whether anything needs to be amended based on out-of-country care.

Have an up-to-date disaster plan: If you are incapacitated or die, it makes sense to have all critical papers and data in one place so your health care power of attorney, your executor or a trusted friend or family member can access them. Include the following with an index:

• Full details on administrative contacts and physicians at the hospital where you’re undergoing treatment (and money set aside for your health power of attorney if they have to travel to you);
• Birth, death, marriage certificates (with 10 copies each in case they’re needed for estate purposes); Your passport information in case they have to contact the U.S. Embassy for any reason;
• List and location of all household bills that must be paid with due dates;
• Divorce decrees with all relevant settlement information;
• Location of wills, trusts and any power of attorney information;
• Advanced healthcare directives;
• Adoption papers, if applicable;
• Key identification numbers, including drivers’ license, Social Security, passport and employee identification data;
• Recent bank and brokerage statements;
• Detailed funeral and burial wishes;
• Location of cash that may be used to handle other emergency expenses;
• Copies of recent medical records in case you’re incapacitated;
• Copies of deeds for primary home, vacation and investment properties;
• Car title, lease, loan information and license plate data;
• All insurance policy (health, disability, life, auto and long-term care) with agent contact information;
• Photocopies of credit and debit cards, front and back (displaying the individual’s signature);
• A current copy of the individual’s home financial software program reflecting up-to-date financial data;
• All password information necessary to get inside any computers, and handheld devices you own;
• The locations for all investment documents;
• Notes on house maintenance and service providers;
• Where safe deposit, lockbox and filing cabinet keys are;
• The name and number of your human resources department at work;
• Location of tax returns for the last three years;
• All relevant contact numbers for executors, financial advisors, trustees, guardians, attorneys and any other individuals who will need to step in if you are dead or incapacitated;
• All user IDs and passwords for online accounts;
• Guidelines on what to do about orphaned pets, including set plans for who will adopt them and pay for their care.
• A general statement of family origins, values, and hopes for future generations, including what you want for children in the way of day-to-day parental guidance as well as aspirations.

August 2010 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Larry McClanahan, CASL®, CFP®, a local member of FPA.

Hiring professional advisers to help with long term care is no different from using a professional to help with other complex issues. Does do-it-yourself make sense in the following examples?

• Sam has a 2003 SUV. He decides to purchase the $600 service manual and invest thousands of dollars in test equipment and in special tools to repair the vehicle himself. He feels he will save money by doing this instead of paying for dealer repair services.
• Sally is involved in a complicated court proceeding. She decides to represent herself and invests countless hours in researching legal documents and reading books on how to represent herself in court.
• Jim runs a business with 100 employees. He has no experience in accounting or taxes but he decides his accountant and tax person is too expensive and he will invest the time and money in software to do it himself.
• Grace is a successful and busy professional who has little personal time. She doesn’t like the idea of paying an investment adviser to manage her $1 million portfolio. She decides to manage it herself.

There is no doubt that given enough time and money a person could repair his own car, handle a court process alone, research tax laws or spend countless hours doing his own investment research. But most people are smart enough to recognize that the time and the stress involved are not worth it and they hire an expert to help them.

The same is true of using a professional geriatric care manager.  Even if a do-it-yourselfer has enough time for research on funding and finding the best care options, that person is unlikely to have the experience in understanding care situations that a professional care manager would have.

Experience only comes from dealing with countless hands-on, caregiving challenges.

A professional care manager should always be involved when the time for long term care comes. The use of this expert is crucially important in any long term care plan.

Other useful professionals to consider are an elder law attorney, a long-term care and financial planning specialist and an elder mediator. These experts help design the initial plan and can be just as valuable as a care manager in certain situations when the time for care comes.

Using the expertise of a long term care professional is likely to result in dollar savings many times larger than the cost of hiring the expert.

© 2008 National Care Planning Council. Used by permission.