Data & Research April 21, 2014

Financial Stress Reaches Far and Wide

Nearly half of American workers feel stressed about their finances, says a new Principal Financial Group analysis, although worry seems to diminish among those seeking professional advice.
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New research from The Principal Knowledge Center, published as the Principal Financial Well-Being Index, shows widespread financial concern actually seems to be having a positive impact on financial wellness and savings decisionmaking. For instance, the research suggests more than half of employees (52%) have taken action to monitor their spending levels in the past year. And nearly two in five (39%) created a budget to keep finances in check, up significantly from 28% who created a budget two years ago.

The survey identified other positive financial behaviors that are emerging alongside generally high levels of financial stress. In order to help maintain their financial health in the event of a job loss or other unexpected event, nearly three in five (57%) now have an emergency fund in place. Those who work with a financial professional, the Principal says, are 1.5 times more likely to have an emergency fund in place. But the news isn’t all positive, as nearly 20% admit they have recently dipped into their emergency fund to cover monthly expenses.

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“It’s encouraging to see American workers planning for unforeseen hurdles by giving themselves a financial checkup and setting aside money in an emergency fund,” explains Luke Vandermillen, a vice president at the Principal Financial Group. “Despite a few missteps, like using the fund on monthly bills, these positive behaviors show individuals are making strides and taking personal responsibility to improve their short and long-term financial well-being.”

Interestingly, worries about saving enough for retirement seem to decline with age, as only about a third (35%) of Baby Boomers say they feel stressed about finances, compared with half of Generation Y workers (51%). Those working with a financial professional were also much less likely to feel stressed about their finances than the general working population, at 33%.

In another positive sign, findings show more American workers will use 2014 tax refunds to beef up their nest eggs, with 50% of workers planning to save or reinvest their refunds—up 5% from last year. More than a third (38%) plan to pay down or pay off short-term debt with a tax refund, and slightly less than a quarter (24%) will pay down or pay off longer-term debt. The majority of American workers (68%) expect a tax refund this year.

Vandermillen says the quarterly release of index data shows American workers increasingly recognize the long-term financial benefits of staying healthy. In fact, American workers view themselves as more physically fit (57%) than financially fit (28%). And while employees report lagging financial health, most (84%) recognize that maintaining physical health is an investment in their financial future.

“American workers recognize the long-term financial benefits of staying healthy, but financial stress is often a constant pressure that can have a significant impact on their physical health,” Vandermillen says. “With spring in full swing, now is a good time for Americans to apply their good fitness habits to their financial lives as well. Mark some time on the calendar for financial spring cleaning, meet with a financial adviser, set goals and take action.”

View Points April 21, 2014

The Need for Long-Term Care Insurance

When I was a youngster many years ago, my mother taught me to look both ways before crossing the street. I was precocious and told my mother that on a one-way street, I only had to look one way.
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My mother told me that I could not always be sure the street was one way and that traffic might just come from another direction. She simply said: “You have too much to lose if you are wrong.”

In my role as a financial adviser to almost 10,000 participants across the country, I have begun to think that too many advisers and participants are only looking one way. Focused on retirement, savings and returns,   both advisers and participants are worried about having enough money so they won’t outlive their savings.

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I want all my participants to reach a comfortable retirement, and most are on the right track. Unfortunately, very few are prepared for a serious health issue in retirement.  My mother had a long-term health problem called Parkinson’s and it impacted the entire family. It impacted my father’s business career, his retirement and his retirement savings. It impacted the children as we became care givers in order to offset the cost of long-term care. It was a game changer for my father and his retirement savings.

Today the statistics are pretty simple:  1 in 2 people will be affected by long-term care costs 1. Most men who need long-term care are taken care of by their wives; so the long-term care costs are offset until she needs care.

The costs of long-term care can be between $50,000 to $100,000 per year2. If the average retiree has to incur that cost over a long period of time, it will take a huge bite out of their retirement savings.

Medicare won’t cover long-term care services3. Medicaid won’t pay unless you have spent most of your life’s savings.  The amount of countable assets you can have and still qualify for Medicaid varies state to state. In most states you can retain $2,0004. So the answer is simple: if you think that you are set for retirement look both ways and purchase some long-term care insurance instead of relying solely on your 401(k)/retirement assets to cover your long-term care needs.

I have been introducing long term care insurance to my plan sponsors. It is a benefit that the company can provide as a tax deductible benefit and they can offer it to their employees as something the employees can purchase at a discount. Discounts for employer-sponsored plans are available to employees, spouses and extended family members5.  If a group meets certain criteria, it may be eligible for simplified health underwriting.6. The premium can be paid through a Health Savings Account which is pre-tax dollars7.

I have seen plans where senior management has a fully funded plan, junior management has a reduced plan, hourly employees get an offset to the cost and new employees pay all their plan cost—and every combination in between. Long-term care is not a qualified benefit where everyone gets the same thing. 

Obviously, Uncle Sam does not want everyone in a nursing home on Title 19 Medicaid, and Uncle Sam has reduced the rules so that long-term care insurance is more attractive.

Take a look at long-term care employer-sponsored plans and show them to your plan sponsors.  We are here to help everyone work toward a successful and dignified retirement. We are here to help the families of all of our participants and teach them to look both ways before crossing the street into retirement.

If you need some help finding a worksite long-term care provider, call or email me. I am interested in helping your participants plan for a successful retirement too.

 

 

Sources:

1)        Longtermcare.gov

2)        Longtermcaresource.org

3)        Medicare.gov

4)        Longtermcare.gov

5)        Aaltci.org

6)        Aaltci.org

7)        Longtermcareinsurancefacts.com

 

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. In addition, the following disclaimer will be included in all articles: Any opinions of the author(s) do not necessarily reflect the stance of Asset International or its affiliates.

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