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White Paper on the Reverse Mortgage or Home Equity Conversion Mortgage (HECM)

By Richard L. Harter CPM,CSM, CRES

Retirement and Financial Analyst

With 70,000 baby boomers per month entering their 60’s, the lenders for Reverse Mortgages (Home Equity Conversion Mortgage (HECM)) are cranking up their advertising.  The Reverse Mortgage and Bi-weekly Mortgages are advertised with certain benefits that sound very attractive.  The primary purpose of these two loan types is to generate unnecessary fees and commissions for the lender.  What they do not tell you is that you can accomplish the same thing using existing banking instruments without doing a refinance, at essentially zero cost and fees. 

Financial Industry Regulator Issues Warning on Senior Designations

Thousands of financial advisors market themselves as trained to provide investment advice to seniors, using authoritative-sounding titles like “certified senior advisor” or “certified retirement counselor.”  But often these designations are nothing more than what are called “weekend” designations, obtained by attending a hotel seminar, and some don’t even require a high school or college diploma. (See “When Getting Financial Advice, Don’t Be Fooled by Impressive-Sounding Credentials.”)

The use of these misleading designations has become so widespread that now the brokerage industry’s largest regulator has issued a warning regarding their use.  The group has also released the results of a survey of 157 of its member firms, revealing that most firms allow their advisors to use senior designations and that more than a quarter of these firms allow any designation at all.  For example, more than a third have advisors who are using the “certified senior advisor” designation, which involves little more than attending a three-and-a-half-day seminar and does not require a high school diploma.

“In certain instances, senior designations approved by firms or widely used by registered persons did not require rigorous qualification standards,” the Financial Industry Regulatory Authority Inc. (FINRA) dryly notes in its warning, Regulatory Notice 11-52

FINRA’s survey found that 68 percent of firms allow the use of senior designations. A majority of firms (66 percent) that permit the use of senior designations require approval and verification of credentials before they are used, but 23 percent of firms require prior approval but do not verify the credentials. That leaves 11 percent of firms that do not require either approval or verification of credentials.

FINRA suggests that its member firms may want to put in place procedures that would permit their financial advisors to use only those senior designations “that instill substantive knowledge to better serve and protect senior investors.”

Credentials like “certified senior adviser,” “certified retirement counselor,” “registered financial gerontologist,” and “certified retirement financial adviser” imply expertise with senior and retirement investing, but they take only a few days to earn. Insurance companies often use graduates of these programs to sell insurance contracts to seniors–in particular deferred annuity contracts, which may not be in the best interest of the senior. 

If you are looking for qualified financial advice, look for a “certified financial planner,” “chartered financial consultant,” or a “master of science in financial services (MSFS).” These programs actually involve years of study and require a college degree. Other ways to make sure you are getting good advice is to ask for references. You should also check with the Better Business Bureau and the National Ethics Association to make sure there are no complaints filed against the advisor.

Low Interest Rates Force Long-Term Care Insurance Prices Up

Prices for long-term care insurance policies jumped between 6 and 17 percent in the past year, according to an industry survey.    

A 55-year-old couple purchasing long-term care insurance protection can expect to pay $2,700 a year (combined) for about $340,000 of current benefits, according to the 2012 Long-Term Care Insurance Price Index, an annual report from the American Association for Long-Term Care Insurance.  The same coverage would have cost the couple $2,350 in 2011.

The steep price rise is primarily due to historic low interest rates and yields on fixed-income investments, explained Jesse Slome, the Association’s executive director, in a press release. Between 40 and 60 percent of the dollars an insurer accumulates to pay future claims comes from investment returns, Slome said, noting that for every one-half percent drop in interest rates an insurer needs about a 15 percent premium increase to maintain the projected net profit.

The Association annually analyzes what consumers will pay for the most popular policies offered by ten leading long-term care insurance carriers. The study found that the average cost for a 55-year-old single individual who qualified for preferred health discounts is $1,720 for between $165,000 and $200,000 of current coverage. In 2011, the same coverage would have cost an average of $1,480 annually. 

The policies the Association priced all include a 3 percent compound inflation growth factor, meanting that a 60-year-old couple buying $340,000 of current coverage today would see their benefit pool grow to $610,000 when they reach age 80.  According to the report, the couple could expect to pay about $3,335 a year if both spouses qualified for preferred health discounts.

The study suggests that it’s more important than ever to shop around for coverage because the range between the lowest-cost and the highest-cost policy has increased compared to the prior year. “For the 55-year-old single policy applicant the highest-priced policy cost almost 80 percent more than the lowest-priced policy,” Slome noted. “For some categories, the difference was as much as 132 percent and no single company always had the lowest nor the highest rate, which is why we stress the importance of comparison shopping.”  Nearly three-quarters of buyers opt for a 3- to 5-year benefit period, the Associaton reports.

Policyholders can experience rate rises after they purchase, although long-term care insurers are allowed to raise prices only on a class of policyholders, not on individuals ones, and they must receive state approval for the rate hike.

The complete 2012 Price Index will be published in the Association’s 2012 Long-Term Care Insurance Sourcebook. For more information, visit the American Association for Long-Term Care Insurance’s Web site.

Taking Good Care of Your Eyes

You should see your eye doctor regularly to help avoid or minimize vision problems.

Common eye problems include blurred vision, halos, blind spots and floaters. Blurred vision refers to the loss of sharpness of vision and the inability to see small details. Blind spots, called scotomas, are dark “holes” in the visual field in which nothing can be seen. Floaters are small bits of protein or other material that drift in the clear gel-like portion of the eye. The source of these problems can be from damage to the eye itself, a condition of the body such as aging or diabetes, or a medication.

Don’t wait

Often, people with vision problems wait far longer than necessary or sensible before getting an eye examination. If you have any change in vision, have it checked out by an eye care professional. Only an eye doctor can identify serious vision problems such as glaucoma or diabetic retinopathy at a stage early enough to treat.

These are the main categories of eye professionals:

  • Opticians. They dispense glasses and do not diagnose eye problems.
  • Optometrists. These are eye doctors who perform eye exams and diagnose eye disease. They prescribe glasses and contact lenses and prescribe eye medications to treat diseases.
  • Ophthalmologists. These are medical doctors who diagnose and treat diseases that affect the eyes. These doctors may also provide routine vision care services, such as prescribing glasses and contact lenses.
  • Primary care providers. Sometimes an eye problem is part of a general health problem. In these situations, your primary care provider should also be involved.

Symptoms to watch

The following symptoms, even if they are temporary, mean you should see an eye care professional immediately:

  • Red, painful eye or pain in an eye; this is an emergency
  • Partial or total vision loss in one or both eyes
  • Double vision
  • Blind spots, halos around lights or areas of distorted vision
  • Sensation of a shade or curtain being drawn across your field of vision

These symptoms mean you should see an eye care professional soon:

  • Trouble seeing objects on the sides of your visual field
  • Trouble seeing at night or reading
  • Objects are less sharp
  • Trouble telling the difference between colors
  • Blurring of objects that are far away or near
  • Itching or fluid from your eye

Vision care

Everyone should have a regular exam every year or two, and annually after age 60, according to the American Optometric Association (AOA). Between routine visits, you can take these essential steps to help maintain or improve your vision:

  • Eat at least five servings daily of fruits and vegetables. In particular, nutrients found in dark-green, leafy vegetables such as spinach or kale may help to prevent age-related macular degeneration, the leading cause of blindness among Americans.
  • Don’t smoke.
  • Take regular breaks while doing computer work and other eye-intensive tasks.
  • Wear your glasses. This sounds obvious, but many people with low to moderate vision loss leave them at home or tucked in a pocket or purse, because of vanity or forgetfulness.
  • Wear sunglasses when out of doors.
  • Closely follow the recommended schedule for cleaning and wearing contact lenses.
  • If you have hypertension, high cholesterol or diabetes, make sure these conditions are under control.

What to do

Specific vision problems can benefit from specific solutions, according to the AOA:

  • Sensitivity to bright light. Choose sunglasses that block 75 to 90 percent of visible light. In addition, sunglasses that block 99 to 100 percent of ultraviolet-A and -B radiation help protect against cataracts. Choose sunglasses that also block the blue wavelengths. Don’t wear dark glasses at night or indoors; doing so can make eyes more light-sensitive over time.
  • Itchy, burning or red eyes. These symptoms can result from dry-eye conditions common after age 50, or from high mucous production in allergy-prone contact lens wearers. Using artificial tears may help with dry eye; switching to disposable or daily wear lenses can help some allergy sufferers. Contact lens wearers and adults older than 50 with these symptoms should consult an eye care professional for appropriate treatment.
  • Trouble with glare. If nighttime headlight glare is an ongoing problem or if you work in visually demanding situations, ask your eye care professional about anti-reflection coated lenses, which can help reduce glare and reflections both day and night. Remember, for older adults, an increase sense of glare may be a symptom of beginning cataracts and a reason to get an eye exam.
  • Reduced vision in aging eyes. In addition to a new eyeglass lens prescription, a helpful measure for older eyes is to place more lamps in the home and install task lighting. Choose high-output fluorescent bulbs to increase light output while decreasing energy usage. Eliminate glare with indirect lighting.
  • Problems with new glasses. If, after a few days of wearing new lenses, you continue to suffer blurred vision, double vision or other problems, see your eye care professional. The problem may be solved by an adjustment to either the frame or the prescription.
  • Annoying spots in front of your eyes. Generally, seeing spots or floaters is a common, harmless experience of aging. Seeing flashes, or, in some cases “floaters,” however, may signal something more serious, such as diabetic retinopathy, carotid artery disease, or early-stage retinal detachment. Call your doctor if you have symptoms.

For more stories relating to seniors and health and wellness, visit www.Soundpathhealth.com . A local Medicare Advantage Plan.

 

Claiming a Parent As a Dependent

If you are caring for your mother or father, you may be able to claim your parent as a dependent on your income taxes. This would allow you to get an exemption ($3700 in 2011) for him or her.

There are five tests to determine whether you can claim a parent as a dependent:

  • The person you are claiming as a dependent must be related to you. This shouldn’t be a problem if you are claiming a parent (in-laws are also allowed). Keep in mind, however, that foster parents do not count as a relative. To claim a foster parent, he or she must live with you for a year as a member of your household.
  • Your parent must be a citizen or resident of the United States or a resident of Canada or Mexico.
  •  Your parent must not file a joint return. If your parent is married, he or she must file separately. There is an exception if your parent is filing jointly, but has no tax liability. If your parent files a joint tax return solely to get a refund, you can claim him or her as a dependent.
  •  Your parent must not have a gross income of $3,700 (in 2011) a year or more. Gross income does not include Social Security payments or other tax-exempt income. (For those with incomes above $25,000, some portion of Social Security income may be includable in gross income)
  •  You must provide more than half of the support for your parent during the year. Support includes amounts spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Even if you do not pay more than half your parent’s total support for the year, you may still be able to claim your parent as a dependent if you pay more than 10 percent of your parent’s support for the year, and, with others, collectively contribute to more than half of your parent’s support. To receive the exemption, all those supporting your parent must agree on and sign the applicable Multiple Support Declaration (Form 2021).

 If you cannot claim your parent as a dependent because he or she filed a joint tax return or has a gross income above $3,700 (in 2011) but you have been paying your parent’s medical expenses, you may be able to deduct those expenses from your taxes.

Major Long-Term Care Insurance Carrier Leaving Individual Market

Prudential Financial, Inc., says it will stop selling individual long-term care insurance policies and instead focus on the group sales market.

Prudential, which ranked fifth among individual long-term care insurance carriers in 2011 according to an industry survey, is just the latest major player to exit the market.  Last month Unum Group announced it would discontinue sales of long-term care insurance to employees of corporations, and MetLife ended sales of long-term care insurance in late 2010.  Other insurers have remained in the long-term care market but have hiked premiums considerably.

Sellers of this type of coverage, which pays for care in nursing homes and, increasingly, at home as well, have been hit particularly hard by the climate of historically low interest rates.  The companies’ profits rely on returns from investing policyholder premiums.  In addition, policyholders are living longer and fewer are dropping policies midstream than actuaries predicted. 

“The decision to exit the individual long term care business reflects the challenging economics of the individual market and our desire to focus our resources and capital on the group market,” Malcolm Cheung, a vice president in Prudential’s group insurance unit, said in a statement.

According to the insurance consulting firm LIMRA, 10 out of the top 20 individual writers of long-term care insurance have since exited the market over the last five years. LIMRA says the top five individual carriers in sales for 2011 were Genworth Financial, John Hancock Financial, Mutual of Omaha, Northwestern Long Term Care and Prudential Long Term Care.

Prudential will stop taking applications for individual policies as of March 30, 2012, but said it will continue to honor its existing individual policies.

“As long as premiums are paid on time, and benefits are not exhausted, coverage will remain in place, although premiums can be changed subject to regulatory approval,” the company said in its announcement.

Kelly Greene of the Wall Street Journal says that as a result of the retrenchment by large long-term care insurers, consumers should expect higher costs and a tougher approval process.  Greene offers tips for dealing with re retrenchment; click here.