Position Yourself for the Future

by Cheryl Nemanic

Nearly one out of every four U.S. households (23 percent, or 22.4 million) provides care to a relative or friend aged 50 or older. The majority of these caregivers are baby boomers. In the twenty-first century the demands placed on family and other informal caregivers are likely to escalate, affecting nearly every American family. Since most persons prefer to stay in their own homes and live independently for as long as possible, this column addresses questions and concerns regarding these issues.

Q Over the past several years my husband and I have been assisting our parents through health problems, hospital stays, and now a parent going to live in a nursing home. Our parents are, like us, average people. They have too much to qualify for certain services and not enough to pay for others. We’ve learned a lot, and realized that we need to do some things now to better position ourselves for our elder years. Had our parents known, they would have more options open to them now. Where do we begin?

A To answer your question, I went to an expert in the field of financial planning.

Cheryl: What is the most important thing that a couple can do to position themselves financially for their post-retirement years?

David: The most important thing that an individual can do is make a commitment to the planning process NOW and establish good, basic habits.

Cheryl: Can you give an example of a good basic habit?

David: Sure. Managing credit card debt responsibly. Few people get rich using other people's money; you have to let other people (institutions) use your money if you expect to accumulate wealth. It is important to distinguish between fixed and variable expenses. An example of a fixed expense is your mortgage or rent payment. A discretionary expense would be the purchase of a 37 inch diagonal plasma HDTV just in time for the Super Bowl. A discretionary expense is enjoyable, but not necessary. Would you purchase the HDTV is you had to count out 40 $100 bills? In short, pay off your credit cards, don't carry balances and use cash.

Cheryl: That sounds easier said than done, but it does seem like good advice. Another example?

David: Pay yourself first. It is important to treat saving and investing as an expense and make it part or your budget - a non-negotiable part of your budget. Try setting a specific monthly amount or a specific percentage of your income. Whether you are saving for a new house, your children's education or your retirement, you will be more successful if you use a systematic savings/investment program. And if you have an employer who matches contributions to your 401k or 403b, contribute at least the amount required to take full advantage of the matching contribution. For example, if your employer matches 50 cents on the dollar up to 4% of your pay; then contribute at least 4%. That's a 50% return on your money before it even starts working for you. Don't leave any employer money on the table.

Cheryl: Wow. That makes so much sense. Keep going. I want to hear more.

David: Set short- and long- term goals. I post my goals on my refrigerator and in my bathroom so I see them several times a day. A goal always has a deadline. Lose 10 pounds by April 1. Eliminate all credit card balances by December 31, 2005. Accumulate $250,000 in my retirement accounts by December 31, 2010. Short-term goals are very important because it is easy to lose sight of long-term goals. For money related goals, I recommend quarterly goals and don't let anything get in your way!

Cheryl: David. Any final thoughts or suggestions for our readers before we close our interview?

David: Yes. Protect yourself. Review your insurance programs with a licensed professional. I believe it is important to insure against catastrophic loss before insuring against the inconvenient. Disability insurance and long term care insurance are two good examples. If you became too hurt or sick to work, how would you pay your bills? Save for the future? Income is the building block, the DNA, or a sound financial plan - protecting it is critical.

Today, we are living longer and healthier lives than ever before. It is reasonable to expect that toward the end of our life we are going to need help from our families and health care professionals. Many individuals think that long term care costs are covered by their medical insurance or medicare. But health insurance and medicare only cover skilled care, not custodial care or help at home with nonmedical services. Unless you are very rich, or very poor, you should give careful consideration to purchasing long term care insurance. I have seen too often a couple go quickly through their life savings and have nothing left to support a healthy, surviving spouse.

David L. O'Brien, CLU, ChFC, CLTC is an Investment Advisor Representative of and financial planning services offered through MML Investors Services, Inc., a MassMutual subsidiary. He can be reached at (412) 562-4410 or e-mail him at dobrien@finsvcs.com.

Cheryl Nemanic, CCM, is the General Manager of Private Duty Services for Liken Health Care, Inc., a private duty nursing service in the Pittsburgh area since 1974. If you have a question, Cheryl can be reached by phone at (412) 816-0113, by email at cnemanic@likenhealthcare, or visit the website at www.likenhealthcare.com.