One problem I see with people in a stock heavy portfolio is that converting to a cash stash often has the dilemna of significant capital gains. For example, the client has been invested a long time, and/or has an inherited portfolio that's been allowed to sit, and there's a substantial gain in everything. It's the benefit of long term investing, but it really hurts if you sell off, wherever the market is currently at, especially if it would kick you into extra charges on Medicare or your property tax. In some cases, the loss in the current market + cap gains can be more than withdrawing from an IRA, especially if the IRA has cash or bond funds.
I don't think dividend funds are the answer. Companies who pay high dividends are concerning--they might have no growth potential so have nothing else to do with their money, or in a highly regulated industry that holds down profits/growth, or turkeys that can only attract investors by a huge payout to the unwary. A company that pays out 5% in dividends but whose share price drops 30% is no bargain. I'd look at 60/40 portfolio recommendations--lots of places have specific portfolios recommended--Bogleheads, Christina Benz at Morningstar, or maybe consult with a fee-only financial planner (full disclosure, yes I am one) for your specific situation.
I think the consideration for long term care insurance is a bit more nuanced than what you say. Yes indeed it gets more expensive after 60, but actuarily it should be the same--because if you get it before 60, you'll have been paying the premium all those extra years. I do understand that premiums have gone up dramatically for some people, but I've had the same charge for now the 14 years I've had my own policy. I fully expect an increase and probably a big one one of these years--that's what my HSA is for! An increase in premiums can be part of a financial plan, just like any other anticipated rising cost. Finally, I advise clients to get a plan before 60 not because of the purported cheaper price, but because after 60 many, many people develop health conditions that preclude them from even qualifying, no matter the price they're willing to pay. It's just crazy to balk at paying $3,000 a year for coverage that could be worth $500,000 in costs to a portfolio. Even if you pay for 30 years, it's about 1 year in a nursing home or continuous home care (even more expensive). Think you'll never use it (hah!)--buy a hybrid policy that pays off as life insurance so that money won't be "wasted". But it's not wasted--I tell clients--do you expect your house to burn down? Do you still carry homeowners' insurance? In both cases, you're paying to prevent catastrophe. Sure, there's a point where you might have so much wealth (in either case) that you could pay out of pocket, but most middle class to affluent middle class aren't there. The biggest problem is wrestling with the insurer over the two tasks of daily living--lots of people need assisted living but only have one issue.
Comments
One problem I see with people in a stock heavy portfolio is that converting to a cash stash often has the dilemna of significant capital gains. For example, the client has been invested a long time, and/or has an inherited portfolio that's been allowed to sit, and there's a substantial gain in everything. It's the benefit of long term investing, but it really hurts if you sell off, wherever the market is currently at, especially if it would kick you into extra charges on Medicare or your property tax. In some cases, the loss in the current market + cap gains can be more than withdrawing from an IRA, especially if the IRA has cash or bond funds.
Post: Ominous Predictions
Link to comment from May 2, 2022
I don't think dividend funds are the answer. Companies who pay high dividends are concerning--they might have no growth potential so have nothing else to do with their money, or in a highly regulated industry that holds down profits/growth, or turkeys that can only attract investors by a huge payout to the unwary. A company that pays out 5% in dividends but whose share price drops 30% is no bargain. I'd look at 60/40 portfolio recommendations--lots of places have specific portfolios recommended--Bogleheads, Christina Benz at Morningstar, or maybe consult with a fee-only financial planner (full disclosure, yes I am one) for your specific situation.
Post: My Retirement Plan
Link to comment from March 19, 2021
I agree. I urge people to keep no more than 50% in bonds--the withdrawal rate studies on survival cite at least 50% in stock funds as a minimum.
Post: My Retirement Plan
Link to comment from March 19, 2021
I think the consideration for long term care insurance is a bit more nuanced than what you say. Yes indeed it gets more expensive after 60, but actuarily it should be the same--because if you get it before 60, you'll have been paying the premium all those extra years. I do understand that premiums have gone up dramatically for some people, but I've had the same charge for now the 14 years I've had my own policy. I fully expect an increase and probably a big one one of these years--that's what my HSA is for! An increase in premiums can be part of a financial plan, just like any other anticipated rising cost. Finally, I advise clients to get a plan before 60 not because of the purported cheaper price, but because after 60 many, many people develop health conditions that preclude them from even qualifying, no matter the price they're willing to pay. It's just crazy to balk at paying $3,000 a year for coverage that could be worth $500,000 in costs to a portfolio. Even if you pay for 30 years, it's about 1 year in a nursing home or continuous home care (even more expensive). Think you'll never use it (hah!)--buy a hybrid policy that pays off as life insurance so that money won't be "wasted". But it's not wasted--I tell clients--do you expect your house to burn down? Do you still carry homeowners' insurance? In both cases, you're paying to prevent catastrophe. Sure, there's a point where you might have so much wealth (in either case) that you could pay out of pocket, but most middle class to affluent middle class aren't there. The biggest problem is wrestling with the insurer over the two tasks of daily living--lots of people need assisted living but only have one issue.
Post: My Retirement Plan
Link to comment from March 19, 2021