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    Bob Mauterstock

    What is Your Financial Advisor Doing For You?

    A few months ago I had the privilege of attending a weekend retreat sponsored by Money Quotient (, a non-profit organization focused on assisting financial advisors to take a life-centered approach to financial planning.

    My visit opened my eyes to the possibility that financial advisors don’t need to concentrate entirely on their client’s rates of return, asset allocation and retirement income targets to succeed. They can actually work with a client to discover their values and priorities and create a financial plan aligned with their life goals.

    You may have noticed that a number of so-called robo-advisors are popping everywhere. They claim that they can manage your money effectively using computer algorithms. All you have to do is complete their simple questionnaire and transfer your funds to them. For a fraction of the cost of traditional advisors, firms such as Betterment ( and Wealthfront ( will select a portfolio for you and manage it daily using tax-efficient strategies with their computers.

    Many of the major firms such as Schwab, Vanguard and Fidelity are now offering these low-cost services to be competitive (Schwab’s service is free).

    Investment management is now becoming a commodity.

    So now is the time to ask yourself a simple question, “What is your financial advisor doing for you?” Is he/she just managing your money? Or are they providing other services to meet your needs? Financial services industry consultant, Bob Veres, in his new book, The New Profession, has predicted that the traditional financial advisor who focuses his practice on building assets under management and charging a fee based on the total may soon start to lose market share.

    Veres states that “Professional Financial Planning is reaching the evolutionary stage where the individuals who genuinely care for and about their clients are capturing the public’s mindshare and market share.”  In the future, your financial advisor may look more like a financial coach or financial therapist.

    In recent advertising, the Hartford Funds took out a two-page ad describing their support of financial therapists. They state,” A new kind of financial advisor is helping couples deal with issues that bridge the interpersonal and financial spheres.” In the ad the Hartford states that “we believe in something we call human-centric investing, an approach that seeks a deeper understanding of investors and how emotions, experiences, life stage and psychology affect their views of investing and financial advisors.

    If you are looking strictly for an investment manager, perhaps the robo-advisors will best meet your needs. Or at least you will be able to reduce the costs of your investment management fees if you approach your existing advisor. But if your are looking for a more comprehensive partner who will integrate your investments with the rest of your life, it is time to look carefully at what your advisor is doing for you.

    Perhaps, as Money Quotient states, it is time to look for an advisor who is “putting money in the context of life.”

    Reverse Mortgages are Back and Better Than Ever!

    Reverse mortgages have been around for a long time. It’s a method that an individual can use to convert the equity built up in their home to a credit line or an income for as long as they remain in the home as their primary residence, without the burden of monthly mortgage payments. But up until recently the fees to establish one were very high. As a result, financial planners (including myself) did not recommend them to clients. In many cases our broker/dealer firms prohibited us from even talking about them.

    But recently I met with Bob Tranchell, a senior VP at the Federal Savings Bank. Bob is a specialist in reverse mortgages. He explained to me all the changes that have occurred with reverse mortgages in the last few years. In 2010 and 2013 the federal govt. revised the Home Equity Conversion program (HECM), reduced its costs and made it more secure. Bob showed me how the reverse mortgage could become a very effective tool for aging baby boomers to give them security during their retirement years.

    It is estimated that 87% of baby boomers will own a home in retirement, but 68% of them will still carry a mortgage. Research shows that the foreclosure rate for individuals between ages 65-74 increases by 920%. Often seniors who have a reduced income after retirement cannot maintain the payments they made while they were working.

    In addition boomers may face the dangers of being in the sandwich generation. They might have to help their aging parents financially at the same time they have to support their children with student loans and no job. A Merrill Lynch survey indicated that more than 60% of boomers are considered the family bank, handing out funds to their parents or adult children.

    Let’s look at an example of how a reverse mortgage can help a retired boomer. If he or she is at least 62 years old he can take out a reverse mortgage on the value of his home up to $625,000. The percentage available is based on his age, the appraised home value, the lender’s margin and the 10 year LIBOR rate (an interest rate index established by the federal government.). The 62-year old will have access to 52.4% of the home value or $327,500.

    He can take these funds as a lump sum, a fixed income for the rest of his life (Tenure), a term payment (fixed payment for a fixed period) or a credit line. The cost of the reverse mortgage is a 0.5% mortgage insurance premium, the loan origination fees and any closing costs. For the $327,500 amount the total costs would be between $6000-$14000 dollars. This can be wrapped into the mortgage. No loan payments are due as long as the individual keeps the home.

    Payments that come from the reverse mortgage are received income tax-free. If the individual does not tap into the mortgage, the credit line increases each year based upon the lender’s margin, a 1.25% mortgage insurance premium and the value of the 1-year LIBOR rate. Currently it increases at more than 5% a year! Eventually the credit line can exceed the actual value of the home but the heirs of the borrower are only responsible for the value equal to 95% of the appraised value of the home. The rest is forgiven! They can chose to sell the home or take out a new mortgage and pay back the reverse mortgage.

    Let’s assume the 62-year old took out a reverse mortgage for $320,000 and didn’t touch it for 20 years. Based on current rates, his credit line will have grown to $1,200,000 regardless of the value of the home. Assuming he wants to convert the loan into an income at age 82, he’d receive $10,103 per month for ten years and could still keep $300,000 in reserve as a line of credit (which will grow to $569,391 in another 10 years)

    The reverse mortgage can also be used to pay off an existing mortgage and eliminate mortgage payments, pay for long-term care or a long-term care policy or assist children or parents with financial needs. It cannot be used to purchase an annuity or buy stock. If the borrower is concerned about leaving a legacy to his or her children, he and his spouse can buy a second-to-die life insurance policy and pay the premium with some of the proceeds from the reverse mortgage. When the second spouse dies, the kids will receive a tax-free death benefit which they can use to pay off the reverse mortgage and own the home debt-free.

    The possibilities are endless. I have only touched on a few. Key to the program is that payments are received tax-free, the loan is unsecured and the heirs are only responsible to pay back a maximum of 95% of the home’s value, regardless of how much was taken out. It’s a win win scenario all around!

    Financial Advisors may reprint any articles from The Gift of Communication Blog in your own print or electronic newsletter. But please include the following paragraph:

    Reprinted from Bob Mauterstock’s The Gift of Communication Blog. Subscribe at  and receive Bob’s Family Meeting Checklist Guide.

    Are you prepared to pay for your parents’ long term care?

    fressYour mom or dad may have decided to move to an assisted living residence or a nursing home if they need comprehensive long term care. The cost of this care can range from $5000-10,00 per month depending on their location and the extent of care. Unfortunately at some point they may run out of money to pay for these services. At that time they will need to apply for Medicaid, a program jointly funded by their state and the federal government, to pay for their nursing home care.

    In order to apply for Medicaid they must select a facility that is Medicaid approved. They must also meet the severe limitations on income and assets established by Medicaid. Medicaid funding has become a major budgetary issue for many states over the last few years, with states, on average, spending 16.8% of state general funds on the program. If the federal match expenditure is also counted, the program, on average, takes up 22% of each state’s budget.

    As baby boomers retire at the rate of 10,000 per day dependence on Medicaid is very likely to increase. At some point states may no longer be able to fund these increases. They may be required to implement the filial responsibility laws. These laws could hold children legally responsible for the long term care expenses of their parents. They are on the books in 30 states but have rarely been implemented.

    But recently the State of Pennsylvania enforced it filial support laws and found a defendant responsible for his mother’s long term care bill from a skilled nursing facility for $93,000. Other states may follow suit if their budgets get tighter.

    What does this mean for you and your family? This possibility makes it increasingly important that you have a conversation with your parents about their plans for long term care. You need to ask them three basic questions.

    1. If either one of them needs long term care do they plan to stay in their home?
    2. If either one of them is incapacitated who do they expect to be the caregiver?
    3. If they need long term care services how will they pare for this care?

    If initially your parents respond that this is really none of your business, you should tactfully answer that it may become your business. You can cite the case in Pennsylvania as an example.

    Your conversation with your parents may uncover their plans to stay at home if they need care. In that case they need to look carefully at their home to see if it safe for a physically limited person. You may learn that they expect your spouse to be their primary caregiver. This opens up a whole new area of conversation. You also may find that they have significant assets to provide their care or they have long term care insurance.

    You will not know the answers to these questions if you are afraid to engage them in this critical conversation. It all starts with three words… “Can we talk?

    The 4 Steps of Long Term Care Planning

    Planning for Eldercare

    The Importance of Planning for Eldercare

    According to some sources, 60% of us will need long term care sometime during our lives. It is important for all of us to prepare for that day when we will need to help loved ones with care or we will need long term care for ourselves.

    We may prepare financially for unexpected disasters by covering our homes, automobiles and health with insurance policies. But no other life event can be as devastating to an elderly person’s lifestyle, finances and security as needing long term care. It drastically alters or completely eliminates the three principal retirement dreams of elderly Americans:

    1. Remaining independent in the home without intervention from others
    2. Maintaining good health and receiving adequate health care
    3. Having enough money for everyday needs and not outliving assets and income

    Yet, it is our experience that the majority of the American public does not plan for the devastating crisis of needing eldercare. This lack of planning also has an adverse effect on the older person’s family, with sacrifices made in time, money, family lifestyles and even affecting the family’s or caregiver’s medical and emotional health.

    Because of changing demographics and potential changes in government funding, the current generation — more-than-ever — needs to plan for long term care before the elder years are upon them.

    What Is Long Term Care?

    The need for long term care arises when an individual requires, from someone else, assistance with medical care, daily living activities, comfort, supervision or advice. This need for care may be caused by an accident, disease process, or frailty. Such conditions may require help with the ability to move about, dress, bathe, eat, use a toilet, medicate, and avoid incontinence.

    Also care may be needed to help the disabled person with household cleaning, preparing meals, transportation, shopping, paying bills, visiting the doctor and answering the phone. Oftentimes, long term care in the form of supervision or confinement is needed due to cognitive impairment from stroke, mental retardation, depression, dementia, Alzheimer’s, Parkinson’s Disease and so on. Most long term care is provided at home by family members.

    What Is Long Term Care or Eldercare Planning?

    For seniors, the terms “long term care” and “eldercare” are synonymous. For younger people, “long term care” is the more appropriate phrase.

    For the uninformed family member, eldercare or long term care might appear to be a very straightforward and easy-to-understand process. Unfortunately, the reality is that long term care is very complicated and finding care systems and providers is a frustrating and time-consuming process. There is no one single source to help caregivers find services or solve problems with a simple phone call or a single community contact. For this reason, planning for care requires a great deal of prior knowledge in order to avoid operating in a crisis mode trying to find help when the need for care suddenly arises.

    However, knowledge of long term care systems is not enough. Because it can happen suddenly, at any time, you must take action now to prepare for the day when you will need to deal with eldercare for your loved ones or for yourself. This action involves:

    Determining the care settings and services you or a loved one most likely would want.
    Providing funding for paying the cost of care, especially when government support programs are lacking or require sacrifice of assets.
    Completing a survey to determine necessary financial and legal arrangements to be made.
    Completing a written long term care planning document to provide instructions to caregivers and to your care coordinator in advance of needing eldercare.
    Assigning a care coordinator and determining the role of other family members, friends or advisers involved in caregiving.
    Holding a planning meeting and drawing up a written agreement for involvement between all those who are willing to participate in future caregiving for you or a loved one.
    We have defined four crucial steps necessary in this process for long term care planning. These four steps will be described below. The four steps are based on the following four concepts:

    1. Knowledge and preparation are the keys to success.

    2. Having funds to pay for care greatly expands the choices for care settings and providers.

    3. Using professional help relieves stress, reduces conflict, and saves time and money.

    4. Success is assured through a written plan accepted by all parties involved.

    STEP 1-Understanding the Nature of Care, Care Settings, and Government Programs (Knowledge and preparation are the keys to success.)

    This step requires an understanding of 12 different living arrangements and four different settings under which care is provided. In addition, understanding the provisions and limitations of government programs is essential because the public generally has a misconception that the government will step in and provide care when the time is needed.

    Government programs are limited and according research by the National Care Planning Council (, only 16% of all long term care services are provided by government programs. The other 84% is provided free of charge by family members, friends, charity, church groups or volunteers or paid for by private funds.

    STEP 2-Funding the Cost of Long Term Care

    (Having funds to pay for care greatly expands the choices for care settings and providers.)
    Much emphasis is being placed on purchasing long term care insurance or arranging for reverse mortgages in order to fund the cost of care. These are two excellent tools for providing funding but in reality, this approach for planning is not working that well.

    After 30 years of being touted as the ultimate solution, less than 2% of the American public and only 9% of seniors own long-term care insurance policies and using reverse mortgages may be a good strategy but in practice, few seniors are using them to pay for care. Our new book definitely covers these two funding options but also addresses at least 30 other strategies that can be used when trying to provide funds to pay the cost of long term care.

    STEP 3-Using Long Term Care Professionals

    (Using professional help relieves stress, reduces conflict, and saves time and money.)
    Long term care services are complicated and provider contacts are fragmented throughout the community. For the majority of Americans, eldercare becomes a frustrating do-it-yourself process. This approach is unnecessary. Using care professionals is the most cost effective and efficient way to provide help for a loved one.

    Those people who need help with long term care and use the services of professionals often find they save money over doing it themselves. They also reduce their stress and they free up a considerable amount of their personal time. Another benefit with using professional help, such as a care manager, elder law attorney or mediator, is to help you alleviate or avoid family conflicts that often arise as a result of caregiving.

    Hiring professional advisers or providers to help with long term care is no different than using professionals to help with other complex issues such as car repairs, dealing with taxes or dealing with legal problems With their education and training, long term care professionals also bring experience that only comes from dealing with countless hands-on, caregiving challenges.

    In much the same way that a three legged stool needs all three legs to be useful, the care planning approach needs at least three key entities in order to be successful. It needs YOU, LONG TERM CARE PROFESSIONALS, and GOVERNMENT LONG TERM CARE PROGRAMS. Our new book describes this team planning approach in more detail and outlines 13 vital professional services necessary for a successful long term care plan.

    STEP 4-Creating a Personal Care Plan and Choosing a Care Coordinator

    (Success is assured through a written plan; accepted by all parties involved.)
    The first three steps in the planning process are designed to give you a wealth of information about long term care. It is important for you to have an understanding of care systems and the resources you can turn to when the need arises. However, knowledge of long term care systems is not enough. You must take some tangible action now to prepare for the day when you will need to deal with eldercare for your loved ones or for yourself.

    The final fourth step in the planning process will help you make a care plan. If you follow our instructions and prepare a written plan for you or a loved one, the challenge of dealing with long term care will unfold for you in a more manageable manner. You will experience less stress, have fewer costs, require less time committed and have fewer family conflicts.

    Government Programs-Part One

    Veterans Benefits to Help Your Parents

    The Department of Veterans Affairs provides three types of long term care benefits for veterans.

    VA Health Care

    The first type is benefits provided to veterans enrolled in VA health care who have substantial service-connected disability. These medically necessary services include home care, hospice, respite care, assisted living, domiciliary care, geriatric assessments and nursing home care.

    Some of these services may be offered to veterans in the health care system who do not have service-connected disabilities but who may qualify because of low income or because they are receiving Pension income from VA. These recipients may have to provide out-of-pocket co-pays or the services may only be available to these non-service-connected disabled veterans if the regional hospital has funds to cover them.

    Currently, veterans desiring to join the health care system may be refused application because their income is too high or they do not qualify under other enrollment criteria. Increased demand in recent years for services and lack of congressional funding have forced VA to allow only certain classes of veterans to join the health care system.

    Veterans’ Homes

    The second type of benefit is state veterans homes. The US Department of Veterans Affairs in conjunction with the states helps build and support state veterans homes. Money is provided by VA to help share the cost of construction with the state, and a subsidy of $71.42 a day is provided for each veteran using nursing home care in a state home. These facilities are generally available for any veteran and sometimes the non-veteran spouse and are run by the states, often with the help of contract management. Most state veterans homes offer nursing home care but they may also offer assisted living, domiciliary care and adult day care.  There may be waiting lists for acceptance into veterans homes in some states.

    State veterans homes are not free but are subsidized; however, the cost could be significantly less than a comparable facility in the private sector. Some of these homes can accept Medicaid payments. A complete list of state veterans homes can be found at

    Disability Payments

    The third type of benefits for veterans is disability payments. These include Compensation, Pension and survivors death benefits associated with Compensation and Death Pension.

    Compensation is designed to award the veteran a certain amount of monthly income to compensate for potential loss of income in the private sector due to a disability or injury or illness incurred in the service. In order to receive compensation a veteran has to have evidence of a service-connected disability. Most veterans who are receiving this benefit were awarded an amount based on a percentage of disability when they left the service.

    However, some veterans may have a military record of being exposed to extreme cold, having an in-service non-disabling injury, having tropical diseases, tuberculosis or other incidents or exposures that at the time may not have caused any disability but years later have resulted in medical problems. In addition, some veterans may be receiving compensation but their condition has worsened and they may qualify for a higher disability rating. Veterans mentioned above may qualify for a first-time benefit or receive an increase in compensation amount. Applications should be made to see if they can receive an award. There is no income or asset test for compensation and the benefit is nontaxable.

    Aid and Attendance Benefit

    Pension is available to all active duty veterans who served on active duty at least 90 days during a period of war. There is no need to have a service-connected disability to receive pension. To be eligible the applicant must be totally disabled if he or she is younger than 65. Proof of disability is not required for applicants age 65 or over. Apparently, being old is evidence in itself of disability.  Pension is sometimes known as the “aid and attendance benefit.”

    Veterans’ service to qualify for Pension would include World War II, the Korean Conflict, the Vietnam Conflict Period and the Gulf War conflict. The veteran did not have to serve in combat but only had to be in the service during that period of time and only one day of the 90 days of service had to occur during the period of war.

    The purpose of this benefit is to provide supplemental income to disabled or older veterans who have a low income. If the veteran’s income exceeds the pension amount then there is no award.

    Submission of Claims

    Compensation and Pension claims are submitted on the same form and VA will consider paying either benefit. Generally, for applications associated with the cost of home care, assisted living or nursing home care, the Pension benefit is a better option.

    Pension can pay up to $1,843 a month to help offset the costs associated with home care, assisted living, nursing homes and other unreimbursed medical expenses. The amount of payment varies with the type of care, recipient income and the marital status of the recipient. There are income and asset tests to qualify.

    VA claims this benefit is only for low income veterans but a special provision in the way the benefit is calculated for recurring medical expenses (long term care costs associated with home care, assisted living or nursing homes) could allow veteran households earning between $2,500 and $5,000 or more a month to qualify.

    There are also death benefit payments associated with Compensation and Pension that are available to surviving spouses of veterans or surviving dependents.

    The National Care Planning Council estimates that up to 33% of all Americans over the age of 65 might be eligible for a Pension benefit under the right circumstances.  That’s how many war veterans or their surviving spouses there are in this country. If your mother or father served in the armed forces it is definitely worthwhile to check into the benefits that may be available to them.