Very little press coverage was given to the demise of the Community Living Assistance Services and Support program known as the CLASS Act. This program was part of the massive healthcare reform bill passed in 2010 and was designed to provide long-term care (LTC) insurance for working Americans. The CLASS Act was supposed to address the two major obstacles that prevent many people from buying LTC insurance: costly premiums and good enough health to pass underwriting. For premiums estimated to be $120 per month, working Americans (retirees would not be eligible) could buy the insurance with no underwriting requirements and be fully vested after paying premiums for five years. The program was dropped last October when the Department of Health and Human Services determined it could not remain solvent for 75 years.

Nursing home care is expensive. The Genworth 2011 Cost of Care Survey found that the national median daily rate for a private room in a nursing home was $213 per day. The study also concluded that nearly two-thirds of people over age 65 will need long-term care at home or through adult day health care. This is a risk that you should prepare for while you are healthy and can afford the premiums. According to the AARP, after the age of 50, a person can expect to pay $1,982 a year for long-term care insurance coverage. At 60, premiums jump to $2,249. Expect to pay over $3,000 per year if you wait until the age of 70 to arrange coverage, assuming you are still healthy enough to pass the underwriting requirements.

Start by determining your financial capacity to take on this risk. If you have sufficient financial assets you may not need LTC insurance. Determine the amount of risk you want to transfer to insurance and shop for a policy that meets your needs.

Demise of the CLASS Act and Some Important Long-Term Care Considerations appeared on http://rodgers-associates.com/blog/

People often make the decision to manage their own investments, but should they? What triggers someone to decide that things are too complex for them to continue? For one of my clients, it was the realization that they had not satisfied their IRA RMD (Required Minimum Distribution). This may sound simple, but when you have an IRA account at a brokerage firm, some IRA CDs at the bank, and an annuity that you didn’t even realize was an IRA, things can get complicated. Consolidating your assets may help a lot, but you need to be careful. If you don’t follow the rules, it can cost you – big time. Only certain “like” deferred accounts can be aggregated. For example, if you have a 403(b), a Simple IRA, several IRA CDs, and an IRA brokerage account, you can aggregate all the IRAs and distribute the RMD amounts out of one account. The 403(b) is a similar but different type of deferred account and needs to have its own IRA RMD. Consolidation may be the answer, but the logistics of intermingling correctly can sometimes be tricky.

Accumulated cash balances are another area of concern for many investors. Investing the income generated by some accounts is typically overlooked by a self-directed investor. It is amazing to see how much cash can be accumulated in an investment account over the course of a few months’ time, especially in December when mutual fund capital gains are paid. One solution may be to automatically reinvest the dividends, but markets are often cyclical and it is important to take the time to determine when to take profits from one area and when to invest in another. That takes a lot of work which, if ignored, can have serious negative consequences.

For some investors, their SOS signal may simply be when they receive an exceptionally low renewal interest rate on their Certificates of Deposit. Having access to more sources than local banks and laddering maturities may be the answer you need to improve your returns, but these strategies are time-consuming and may be a step beyond most do-it-yourself investors.

These little things can add up to a big difference in your total return. The point here is that somebody needs to be watching the shop. Be realistic about your knowledge, diligence, and willingness to stay on top of your financial matters. Then, if you are unable or unwilling to do the work, seek out help from a professional investment advisor who has your best interests in mind. When you determine it’s time to seek professional advice, make sure you understand exactly what you need and what you are getting. Some advisers are salespeople and some are not. Do the research to know the difference. Rick’s article on Choosing a Financial Adviser may help.

What Triggers an SOS in Your Finances? appeared on http://rodgers-associates.com/blog/

The newspapers are of full of articles reviewing the real estate market in 2011 and offering predictions for 2012. Housing sales reached an all-time high in 2007 for both volume and median sale price. The median price of a U.S. home was $262,600 in March of 2007 and has since fallen to $212,300 (as of October 2011). With such a steep drop in prices, and with mortgage rates at a 40-year low, it would be easy to conclude that there is no better time to buy a house.

Home ownership certainly offers many advantages, not the least of which is the peace of mind that comes from owning the roof over your head. However, if your reason for buying is because real estate is a great investment, you need to proceed carefully. In my article “The Right Reason For Real Estate,” I explain in detail how homeownership has barely kept pace with inflation when you factor in all the costs associated with owning a home. Real estate taxes have risen faster than inflation in many areas of the country. A lot of municipalities face financial difficulties that would indicate this trend is most likely to continue. Before you rush out to purchase a house, consider the alternatives.

The New York Times published a wonderful article last May titled, “Is It Better to Buy or Rent?” The article includes a calculator that compares the cost of home ownership to renting. The calculator is simple to use and takes into consideration the tax benefits of owning real estate. Some people believe the tax benefits are so overwhelming that owning is always better than renting. The New York Times calculator shows you how beneficial this is by allowing you to enter your tax bracket.

I’m not trying to say that renting is better than owning. I want you to realize that depending on your situation, renting might be a better choice. You owe it to yourself to consider both options.

Should You Buy or Rent? appeared on http://rodgers-associates.com/blog/

I attended a seminar recently with a group of about 25 people. We were asked to close our eyes and raise our hand if we thought that we were an above-average driver. The presenter then told us to keep our hands up and open our eyes. All but two people had their hands up!

Clearly, everyone can’t be above average, but why do we think we are? People generally know themselves better than any others and may not realize that other people are just as good.

So what does this have to do with investing? I believe that successful investors are the ones that keep their emotions in check during the highs and lows of the stock market. According to Dalbar, the average stock fund investor experiences returns that are consistently below the returns of the average stock fund.¹ This suggests that people on average underperform their own investments! Dalbar calls this the “Investor Behavior Penalty,” because people tend to get into and out of the market at the wrong times for the wrong reasons.

Here are just a few of the irrational actions by most “average” investors, according to Dalbar:

• Narrow framing: Making decisions without considering all implications
• Anchoring: Relating to familiar experiences, even when inappropriate
• Herding: Copying the behavior of others even in the face of unfavorable outcomes
• Media response: Reacting to news without reasonable examination
• Optimism: Believing that good things happen to “me” and bad things happen to “others”

As you can see, emotional decisions can lead to poor results. Consider working with a financial advisor who understands when you are likely to make a “mistake” so you can hopefully stay on the path to above-average results!

¹Source: “Quantitative Analysis of Investor Behavior, 2011,” DALBAR, Inc. www.dalbar.com

Are You an Above-Average Investor? appeared on http://rodgers-associates.com/blog/

W-2 tax documents should be arriving for income earned during the calendar year of 2011. Any child or grandchild that receives a W-2 can make a Roth contribution based on this income. Funding a Roth IRA, or any retirement account for that matter, is usually not a priority for a teenager’s part-time income. This is an opportunity for parents or grandparents to start saving for the child while they are young. Small amounts invested can go a long way when you are young and have years for the money to compound.

The maximum Roth contribution for 2011 is $5,000 or 100% of earned income, whichever amount is smaller. There is no age restriction, so this can be done for teenagers with a summer income. I have several clients that wait until their grandchild gets their W-2 statement and then fund their Roth for that amount. If they made $2,417 working that summer, that’s what the Roth is funded for that year. The deadline to fund a Roth for 2011 is April 17, 2012.

Roth IRAs are retirement accounts and don’t count as an asset for determining eligibility for financial aid. You could continue to fund a Roth for someone while they are still going to college.

Adult children living on their own may also qualify for the Retirement Savings Contribution Credit, known as the Saver’s Credit, based on your gift to their Roth IRA. This credit may allow them to get a tax credit for up to half of what you contribute to their Roth IRA. They cannot be claimed as a dependent on anyone else’s tax return, and their income must be within guidelines to qualify.

A final point to remember is the rules for gifts. You are allowed to give up to $13,000 in 2012 to any number of people, without facing any gift taxes. This would only be an issue if you were giving beyond funding a Roth IRA to one person.

Should Your Child Have a Roth IRA? appeared on http://rodgers-associates.com/blog/