Archive for May, 2011
With baby boomers growing older, companies providing home health care or services such as assistance in dressing, bathing, and cooking increased by more than 50 percent in the past decade, U.S. Census Bureau data show.
More than 45,000 companies offered home health care or other aid in 2008, including 2,800 small outfits that pay franchisers for a brand name, training, and support, researcher Frandata estimates. They’re targeting a $55 billion market that will surely grow as the number of Americans 65 and older increases by 79 percent in the next 20 years, to 72 million, according to Census projections.
However, a report by the Senate Special Committee on Aging notes that “addressing elder abuse in home-based care settings is becoming a growing concern.” Much of the worry centers on how thoroughly companies vet workers before sending them into people’s houses.
The Senate report says that after seven states began requiring comprehensive background checks for caregivers in institutions and private homes, 4.3 percent of the 220,000 applicants were disqualified because of a history of serious crimes.
Some 92 percent of nursing homes employ at least one worker with a criminal conviction, according to a Mar. 1 report by the U.S. Health & Human Services Dept. Not all crimes preclude workers from employment. Now regulators are scrambling to catch up with the growing industry.
Only a few states require licenses for companies that provide non medical services. That leaves a hodgepodge of inconsistent rules that put vulnerable people at risk of financial exploitation or physical abuse.
Kim B. Stoneking, executive director of the 1,200-member National Private Duty Assn. (NPDA), which represents nonmedical home-care companies says all NPDA members do background checks on their workers. In states considering regulation, Stoneking advocates a less rigorous standard for nonmedical helpers than for aides who provide direct health care such as dressing. Operating in states that ignore that distinction can be a burden for business owners.
When Caroline Philpott opened a New York City senior-care franchise last May, she had to limit her services to housekeeping, cooking, and companionship. Anything that involves touching an elderly client, such as dressing or bathing, requires a license that New York had temporarily stopped issuing because state officials didn’t have the capacity to monitor the fast-growing industry. “Helping someone get dressed requires the same license as giving them IVs, wounds or giving medication” says Philpott,
More consistent oversight and enforcement would help the industry, says Peter Ross, chief executive officer of Senior Helpers, a franchiser in Towson, Md. His company holds its 300 franchisees in 40 states to the same standards regardless of local regulations, and Ross advocates licensing requirements for nonmedical care in states that don’t have them. “In California, you need a license to catch a trout,” Ross muses, “but you do not need a license to give a senior a bath in their own home.”
For more information click here for the Business Week article.
If you’re like most people who save those yearly statements that Social Security mails out to get a convenient summary of what benefits to expect when you retire at various age points – at 62, at 66, at 70 – you’re going to have to go online soon to get that information.
In an effort to save money and steer more people to the SSA’s website, Social Security will soon stop mailing the statements.
The government is working to provide the statements online by the end of the year, if it can resolve security issues, Social Security Commissioner Michael Astrue said. If that fails, the agency will resume the paper statements, which cost $70 million a year to mail, he said.
“We’ll provide it, we expect, one way or another, before the end of the calendar year,” Astrue told The Associated Press. “We’re just right now trying to figure out the most cost-effective and convenient way to provide that to the American public.”
The statements, mailed to 150 million people each year, project future benefit payments, helping workers plan for retirement. The statements also provide detailed earnings and payroll tax history that can help with more exact calculation of your benefits. The online summaries will not provide that information, making it will be more to look up.
The was related to the agency’s tight operating budget, which has essentially been frozen at 2010 levels — minus about $350 million in economic stimulus money the agency had been using to handle claims.
Advocates for older Americans say they are sympathetic about the agency’s budget problems, but several said an online option is insufficient, especially for people who may not have computer skills or access to computers.
“As far as the information being available online, that’s not going to help a lot of people we work with,” said Max Richtman, executive vice president of the National Committee to Preserve Social Security and Medicare.
“This was a concrete piece of paper, a document that workers would receive that would give them confidence in the program,” Richtman said. “Otherwise, they hear a lot of the debate in Washington. It’s going to be there; it’s not going to be there.”
Claims for retirement and disability benefits are up significantly since the nation’s economy soured in 2008. About 2.7 million people applied for retirement benefits last year, a 17 percent increase from 2008, according to agency statistics. About 3.2 million people applied for disability benefits last year, a 23 percent increase.
Since the 1980s, Social Security statements have been mailed each year to workers older than 25. They include a history of taxable earnings for each year — so people can check for mistakes — as well as the total amount of Social Security and Medicare taxes paid over the lifetime of the worker.
The statements provide estimates of monthly benefits, based on current earnings and when a worker plans to retire. Workers can claim early retirement benefits starting at age 62. Full benefits are available at age 66, a threshold that is gradually increasing to 67 for people born in 1960 or later.
The statements are mailed throughout the year, so many people have already received them this year. Tens of millions have not.
The agency does offer a benefits estimator on its website that Astrue said can be even more helpful than the annual Social Security statements. Workers can enter their Social Security numbers on the website and get estimates of future benefits, depending on when they plan to retire. “You can go online and you can get a very accurate estimate of your likely retirement benefits,” Astrue said. Press. “You can run scenarios.”
Social Security has been beefing up its website in recent years, offering more services and information online as millions of computer-savvy baby boomers reach retirement age.
There are two extremely common mistakes that I see over and over again that wreak havoc on the best-laid estate plans – even the estate plans of the rich and famous. That’s why we can all learn even from a celebrity case like Michael Jackson’s.
The Michael Jackson Estate has featured fireworks since very shortly after Michael died on June 25, 2009. His mother, Katherine Jackson, was not happy about non-family members, including attorney John Branca and music executive John McClain, being named as executors of his estate. So she hired lawyers and challenged the executors in probate court – and the fighting began.
But suddenly there seemed to be an end to the fighting. Katherine Jackson did something very surprising. In November of 2009, she hired a new lawyer, suddenly dropped all of her claims against the executors and reached an out-of-court settlement.
And so it seemed, at least publicly, that Katherine’s battle was at an end. Michael’s father, Joseph Jackson, was not happy about this and wanted to carry on the fight, but since he was not a beneficiary, he did not have the legal right to challenge the executors.
Since then, everything seemed relatively quiet … until recently. About 18 months ago, the executors had sued a charity – the Heal the World Foundation –, which Michael Jackson had started but abandoned while he was alive. A woman named Melissa Johnson had taken over the charity (with Michael’s blessing, she claimed), using many trademarks related to Michael Jackson.
The estate executors sued to stop it. The long, and often contentious case, was scheduled for a trial for late April, 2011. As the charity was preparing for trial, its lawyers filed several sworn witnesses statements, including one by Katherine Jackson.
In it, she sided with the charity, saying that her son never would have approved of the executors suing his Heal the World Foundation. Katherine pointed out that she and other family members are on the board of directors for the charity and they supported it, just like Michael had
It seems that Katherine is, in fact, upset with the executors. Katherine hasn’t been happy with what they’ve provided to her from the estate. It certainly looks like more fighting is coming. But not in this lawsuit. Just a few days ago, the estate executors and attorneys for the charity reached an out-of-court settlement. The charity’s trademarks have to be returned to the estate, and the executors will help manage the charity. But Melissa Johnson and Katherine Jackson will reportedly both remain on the board of directors and the charity will benefit from Michael’s estate.
This was only one of a number of fights surrounding Michael Jackson’s estate. What can we learn from this?
Michael Jackson made several common estate planning mistakes that could have eliminated or at least reduced the fighting. For one, he didn’t make his intentions clear regarding the Heal the World Foundation. Melissa Johnson said he orally made his intentions known about Heal the World, but he never put those wishes in writing.
And, if Katherine Jackson’s sworn witness statement is to be believed, Michael did not name trustworthy executors and trustees. Many people make the mistake of always choosing the oldest child, or the one who lives closest, to administer their final wishes. Instead, everyone should give careful thought to choosing those who would do the best job.
Finally, while Michael Jackson had a revocable living trust, it was rather simplistic and often vague. Strikingly, he never transferred all of his assets into the trust, which would have eliminated the need to have an estate or probate proceedings at all. A properly funded trust that clearly and expressly sets forth a person’s wishes is the best way to reduce the chances of fighting.
Of course, not every estate ends up in a court battle. But it’s much more common than most people realize. And it certainly doesn’t just happen to the families of the rich and famous.
Read more at Financial Planning
Last week a client asked me this question. He wanted to help his daughter and her husband buy their first home by giving them a low-interest loan. He had heard there were some important things to keep in mind about how to do this but didn’t know what they were.
In fact recently a number of people have asked me about this. Loan interest rates are still low right now but it’s also more difficult to obtain a mortgage. So if you have an adult child who wants to buy a home or start a business, it’s a great time to help out.
Today’s low interest-rate environment makes it easy to lend money to family members on very favorable terms with full IRS approval. You can give your child a good deal and probably still earn more interest than you would with a certificate of deposit — a win-win situation. But here’s what you need to know about the tax rules for loans to relatives.
First, if you don’t charge what the IRS considers an “adequate” interest rate, you may end up paying income taxes on the interest you should have received. The IRS has special rules for below-market loan rules come into play. They are complicated, and they are not taxpayer-friendly.
For instance, say you want to loan $100,000 interest-free to your daughter so she can buy her first home. Under the below-market loan rules, you would be forced to calculate and pay income taxes on imaginary interest income that you “should” have collected but did not. Your tax bill goes up accordingly, and that part is not imaginary.
The IRS publishes a schedule every month that taxpayers can use to look up the IRS minimum adequate interest rate. If you use that rate for your loan, then all you have to do is report as taxable income the interest you actually receive.
Fortunately, you don’t have to charge much interest to satisfy the IRS. The AFRs for term loans made in April of 2011 are as follows:
- 0.55% for short-term loans of up to 3 years.
- 2.46% for mid-term loans of more than 3 years but not more than 9 years.
- 4.17% for long-term loans of over 9 years.
These are annual rates that assume monthly compounding of interest. Each month, the government’s AFRs are updated to reflect current bond market conditions. So rates will probably not stay this low for too much longer. Until they start going up, however, the time is ripe for parents to make low-interest home loans to their kids.
Example: Say you decide to lend $100,000 to your daughter in April so she can buy her first home. For a nine-year loan, you could charge an interest rate equal to the April mid-term AFR of only 2.46%. That’s a sweet deal for her (and a generous move by you). Your daughter can pay that same low rate for the entire nine-year loan term with full IRS blessings. Say you are willing to make a 15-year or 20-year or even a 30-year loan. No problem. Just charge 4.17% interest, which is the AFR for long-term loans made in April. Your daughter can pay that same low rate for the entire loan term, and the IRS will have no problems with the deal.
On her Form 1040, your daughter can claim itemized home mortgage interest deductions for the interest paid to you. However, deductions are only allowed if you take the legal step of having the loan secured by your daughter’s home.
Important Point: The same considerations would apply to a loan from a grandparent to a grandchild or from any family member to any other family member.
Make a Term Loan (Not a Demand Loan)
In contrast to a term loan, a demand loan has no specific repayment date or schedule. You as the lender can demand full repayment at any time. The problem with a demand loan is that you must charge a floating AFR to avoid falling victim to the below-market loan rules. If interest rates move up (as they probably will), you will have to charge higher rates.
On the other hand, when you make a term loan (one with a specific balloon repayment date or specific installment repayment dates), you are allowed to use the same fixed AFR for the entire loan term. With current AFRs being so low, I think a demand loan is clearly the way to go — assuming you are OK with charging a fixed low rate.
For Small Loans, You Can Usually Charge Zero Interest with IRS Approval
Under a favorable exception, you are exempt from the bothersome below-market loan rules if the sum total of all loans between you and the borrower in question add up to $10,000 or less. You must count all outstanding loans from you to that person, whether you charge interest or not. Thanks to this taxpayer-friendly rule, you can probably loan up to $10,000 to your child and charge 0% interest – if that’s what you want to do.
Read more here: How to Lend Money to an Adult Child – SmartMoney.com
If you’ve done any research on how much you need to have in savings when you retire, you’ve seen this rule of thumb which has been used as long as I can remember.
For years the common wisdom has been that you can safely withdraw 4% or 5% a year from your investments and feel confident that your savings will last the rest of your life.
Lending credibility to these withdrawal rates are complex computer models that assess the odds of success based on thousands of possible market scenarios.
But as powerful as those computers may be, retirees may be overlooking some basic variables — such as current interest rates and stock valuations — that will have a direct impact on how long their money lasts.
The inexact science of withdrawal rates was featured in an analysis published by Vanguard Group in November. While a withdrawal strategy “is important, the key ingredient in a long-term spending plan is flexibility,” the report said.
If investors are relying on either gains in the stock market or bond-market yields to make their money last, “then investors must either accept continuous, relatively smaller changes in spending or else run the risk of having to make abrupt and significantly larger adjustments later,” the report said.
Rather than take out a steady 4% or 5%, the Vanguard report suggests many investors would generally stand a better chance of not running out of money were they to adopt a strategy where the percentage of withdrawals was designed to rise and fall between 2.5% and 5% of the prior year-end portfolio, depending on the market’s ups and downs. In short: After a good year, take out more, and following a bad year, less.
However, one challenge this approach presents is that a 2.5% to 5% band represents a huge amount of variability in income for a retiree relying on savings to help pay the bills.
Ed Easterling, founder and president of Crestmont Holdings, an investment-management and research firm, says there are other problems with the standardized withdrawal-rate strategies. He says using the standard withdrawal rate model is like a visitor to Chicago in December who relies on a weather forecast based on what the weather can be like over the course of an entire year.
The biggest problem is that the standard models don’t put enough weight on market conditions at the time an investor stops putting money away and starts withdrawals. This turns out to be a critical factor.
Overvalued markets are more likely to fall in value. Investors had an overall success rate of 95% at a 4% withdrawal rate adjusted over time for inflation. But that success rate fell to 76% for those who retired when stocks were in the top 20% of the historical valuation range.
The numbers were starker for a 5% withdrawal rate. For retirees starting out when stocks are in the highest 20% of valuations, the probability of success plunged to 41%. Only when stocks were in the bottom 40% of their valuations did retirees stand a better-than-90% chance of not running out of money.
The bad news for today’s retirees: on this metric, stocks today are in the top 20% of their historical valuations.
Investors starting out retirement in adverse market conditions, such as those of the past few years, may only be able to safely withdraw smaller percentages than is now the conventional wisdom — such as less than 3%, Mr. Easterling says.
“Retirees, especially those that started in the recent past, have a relatively long period ahead of them,” he says. “Over-assumed returns can empty savings more quickly than many expect.”
Read more here: Why Your Next Egg May Not Last