STAGE 1 -- DRAWING ON THE EXPERIENCE OF OTHERSBy Ron Iverson, Copyright 2007 Following are examples of drawing on the experience of others-- misconceptions which caused problems. Knowing the problems ahead of time, will help provide information to those seeking solutions in this series of articles in the blueprint. Experience Example No. 6: "We lost everything we own to pay for Bob's Nursing Home costs."Nursing Home costs, which range from $140 to $400 nationwide today, are increasing at four to seven percent annually--thereby causing a compounding inflationary problem. Long Term Care costs create a new concern for people who assumed they had enough money in pensions, social security and savings for a decent retirement. Impoverishment, due to long term care costs, is not an unusual end game for many members of an otherwise proud generation, but, unfortunately, it is a very real specter. You can't afford to take a chance with your Long Term Care needs, which are not covered under health insurance plans, or Medicare. That means purchasing now, while you have age and good health on your side, a Long Term Care Insurance policy, which will cover your "care" needs, just as health insurance plans cover your "cure" needs. A solid comprehensive base plan, with an inflation rider will be the most important part of proper preparation, since four to seven percent inflation in care needs, will surely accompany the 76 million boomers who pass into retirement over the next twenty-five years.
Some would say, "Why should I buy Long Term Care insurance, when I may never need it?" Well, you insured your house and cars over a lifetime because they were valuable assets, and because the law and the lender made you do so. But the law and the lender are not going to come along and see that you insure your assets, and your family money, as you prepare for retirement. This is something that you have to do for yourself, because after all, you are insuring your retirement planning, and it takes conscientious preparation to protect those plans.
Experience Example No. 7: "We were expecting $456 per month in pension money. Now we find out the pension plan is broke. What's all this talk about the PBGC?"
Pension problems have made major headlines during the last fifteen years. They are not new, and will continue to escalate for some traditional pension plans, in other words, some "Defined Benefit Plans." In the meantime, "pensions" have drifted from "traditional" retirement plans-"Defined Benefit Plans"--to "Defined Contribution Plans" and "Individual Retirement Plans." In the 1990's, if you, or your parents, were not on a pension, it is highly likely that you did not feel the sting of pension problems that affected millions of Americans. With a downturn in the stock market in 2001, even Defined Contribution Plans took a severe hit, and pension fund managers fought to protect their retirees' investments. So, the first few years of the twenty-first century did not treat retirement income hopes very kindly, with many investment portfolios of either a pension, or retirement plan, getting slugged rather severely. As America takes a look at the problems of pensions, we settle primarily on the type of pension known as the "Defined Benefit Plan." This is the plan that has created havoc for cash-strapped companies for nearly twenty years, and which has created problems for current and future retirees. In short, the Defined Benefit Plan has become a topic of corporate liquidity--in other words underfunded pension liability. Some plans have been totally ravished, and have sought shelter in the federal Pension Benefit Guarantee Corporation--the PBGC. Over the past fifteen years, a significant number of very large American companies have turned to the PBGC for relief. By May of 2005, the PBGC indicated that its cumulative shortfall had reached more than $23 billion. That, in itself, is serious money. But the PBGC also announced that the total underfunding of the traditional pension system (Defined Benefit Plans) may be as high as $450 billion, of which $350 billion was found among over 1,100 of the weakest plans. In 2005, many companies with traditional retirement plans began to terminate them, or freeze out new employees. The immediate problem is that $71 billion of the shortfall could show up in the next decade, at a time when 76 million baby boomers anticipate starting a retirement. There are over 31,000 defined benefit plans involving over 40 million American workers, so the problems of Defined Benefit plans, and the PBGC, do not bode well for those anticipating retirement soon. Reasons for traditional retirement plan failures are myriad, but reasons become secondary when lost pension hopes, or reduced pension amounts, become reality. In Article No. 9 we will continue with the Experience Examples of others in a discussion of home values, making the money stretch, and tax problems.
|
Blog 
