The Independent Investor: Long-Term Care Insurance Can Be Crucial to Your Future

It is a subject that most Baby Boomers want to ignore. Many of us are gambling on the hope that we won't need long-term care, or if we do, our medical insurance, Medicare, or, at worst, Medicaid will cover the cost. Think again.

In last week's column I outlined what long-term care insurance is all about and why you might want to consider purchasing some insurance against the possibility of avoiding economic disaster at an advanced age. Assuming you might be interested in this prospect, let's examine some of the ways and questions you need to ask in your search.

First, realize that long-term care insurance is complex. The insurance covers "assisted daily living activities" such as bathing, dressing, eating, transferring (to bed, chair and back again) housework, managing money, shopping and communicating with others. It can be expensive. If you live in the Northeast, for example, you can pay as much as $5,000 to $8,000 per year.

That's too much, you might say, but the alternative to paying $5,000 a year for insurance may be paying $5,000 per month or more. Nursing homes can go as high as $10,000 a month. At those rates, you could easily go through all your assets in a space of 2-3 years. Normally this kind of insurance is quoted by the day. For example, one company may provide a maximum daily benefit of $150 a day. They also limit the time and amount of coverage. In this hypothetical case, the maximum benefit pool would be $219,000 and the maximum period of coverage is four years.

Now here's the risk: you may need more than four years of care or the cost of the coverage per day could exceed $150 a day. In either case, if you exceed either the time or amount, you won't have any more coverage and must bear the additional expense on his own. What's worse, if you die or simply don't need the care, you lose the amount invested. There is no death benefit or refund policy.

Given the complexity, as well as the substantial amount of money involved in this area, there is a lot of competition among insurance carriers for your dollars. As you know, whenever the financial community is involved in selling you something, the rule should be buyer beware.

There is a wide array of services provided (with tons of fine print exceptions that you might miss). Insurance premiums charged by these companies can vary by as much as 50 percent for the same services. Remember too, that the insurance business has no federal oversite or safety nets. As such, you have to be careful when choosing what company to do business with. If your insurance carrier goes bankrupt, there is no insurance (such as the FDIC) to make you whole again.

My advice is to hire a reputable financial professional who understands your personal situation and can assist you in evaluating your options. Today, there are myriad "hybrid" options to traditional long-term care insurance. Everything from life insurance with a long-term care rider to fixed annuities is available, depending on what makes the most sense in your particular case. If, on the other hand, you want to go it alone, here are some basic questions to ask in your pursuit of coverage:

• How much is the daily benefit and how long is the benefit coverage?
• What is the trigger for benefits and how long is the waiting period before benefits begin?
• What services are included and what are excluded?
• How will benefits increase over time to keep abreast of rising medical costs?
• Will my premiums increase over time, and if so, by how much?

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Long-Term Care Insurance Should Be on Your Agenda

As Baby Boomers grow into their 60s, the possibility that at some point soon you may need long-term care becomes a real possibility. Since that kind of care can cost $250 a day or more, depending on where you live, it makes sense to at least consider buying insurance.

For those of us who are 65 or older, the odds are that at least 70 percent of us are going to need some kind of long-term care. We would all like to hope that we will be one of those lucky 30 percent who don't end up in a nursing-home; assisted-living center or needing home care but hope isn't much of a strategy.

If you crunch the numbers, most of us will realize that it won't take long to completely deplete your life savings, even if you only need that care for a "relatively" short period of time.

But like everything that has to do with investment, savings and insurance, we Boomers are notoriously ignorant of the facts.

For example, raise your hand if you think your Medicare benefits cover long-term care.  

Sorry, folks, it doesn't. Well, there is always Medicaid, right? Sure there is — once most of your assets (and your spouses) are wiped out. Medicaid does cover several types and amounts of long-term care expenses but you have to be poor to qualify.  Even then, with the pressure on legislatures to cut social spending, there is no guarantee what your state will cover or what kind of care you will receive under Medicaid.

Of course, if you have megabucks and are part of the one percent, then you might as well pay for that care yourself because you and your family will still have enough to live on no matter how long you need long-term care.  It is the remaining 99 percent of us who may have a problem in the years ahead. As readers know, few Americans have saved enough for retirement and for many of us it is too late to rectify that mistake.

"I just won't ever be able to retire," is the glib answer we get, in our effort to dismiss that savings issue. But those words won't cut it when you become physically incapacitated.  If you can't work, you can't earn a paycheck.

The critics of long-term care will argue that most people don't need more than 90 days of long-term care. Most health care policies have a 90-day deductible, which means your long-term care insurance won't kick in. Most of us are willing to play those odds, even though the statistics indicate that those who need long-term care usually need it for at least a year or two.

The main issue is affordability. The older you are the more expensive insurance becomes. Baby Boomers, by definition, have already passed the threshold where insurance premiums are reasonable. However, what most consumers do not realize is there are a wide range of choices which offer various degrees of security and coverage.

In my next column, I will explore some of those policies and various strategies that readers can employ to reduce long-term care premiums while protecting themselves from that worst-case scenario.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Are Negative Interest Rates the Answer?

You may have heard of the newest wrinkle among central bankers. It's called "NIRP," which stands for negative interest rate policy. Several countries have already implemented this policy and are hoping their actions will stem the tide of deflation and low economic growth.

Although NIRP by its nature seems complicated, it really isn't. All you need know is that just about every bank in the world is required to keep a percentage of its customer's bank deposits in reserve in case their depositors want their money bank.  In our country, banks are required to keep 10 percent of those funds "in reserve" at the 12 Federal Reserve banks around the country. Now you know where the Fed gets its name.

Usually, banks get paid an interest rate by the Fed for keeping that money on the side rather than lending it out or speculating on pork bellies or buying derivatives on mortgages like they did back in the days of the financial crisis. In this country, the Fed pays 0.50 percent on excess reserves (the required 10 percent of deposits plus whatever other excess money the banks might have).

It might not sound like much, but when a money center bank has $100 billion to $300 billion in excess reserves, a half point interest can be worth a billion dollars a year or more.

Ever since the financial crisis, banks worldwide have chosen not to lend. Some of that reason is fear that borrowers won't pay back their loans (think housing crisis). A mountain of new regulations since the crisis has also put a crimp in the lending business, making it more difficult and costly to lend. Those who could borrow (like big, multinational corporations) are already flush with cash and don't need the money. So the banks choose to park their excess reserves at the Fed and earn easy money with no risk.

It is a phenomenon that plagues economies worldwide. In an effort to convince the banks to lend, several countries have opted to institute a negative interest rate policy. The European Central Bank was the first major institution to adopt NIRP. They are now charging banks to hold their money overnight. Presently banks are paying the ECB 0.40 percent. Japan, whose economy is still struggling despite its quantitative easing program, followed suit and implemented their own NIRP a month.

In theory, interest rates below zero should reduce borrowing costs for companies and households, driving up demand for loans. But if credit-worthy companies don't need to borrow and banks won't lend to those whose credit is questionable, this theory begins to fray.

At the same time, if banks decide to pass on this new negative interest rate cost to me their depositor, why should I keep my money in their checking account?

So the banks are caught between a rock and a hard place. They either eat the costs themselves or pass them on and take the risk that I withdraw my cash and put it under the mattress.

NIRP can also trigger a currency war. Negative rates may persuade global investors to move their cash from Europe or Japan, as an example, to the U.S. That would weaken the yen and the euro and strengthen the greenback. It would make our exports more expensive while driving down the coast of imports into America. Overseas in Europe and Japan, the exact opposite would occur. Their imports would be more expensive, while their exports would become more competitive. That's good for them but bad for us.

The "Donald," along with just about every other presidential candidate, is already threatening a trade war on this basis.

Some say NIRP is an act of desperation by central bankers who are running out of tools to prop up their economies. Our own Fed has said the idea has not been discounted and the idea is "in discussion." Clearly, Janet Yellen and the Fed members want to see if the textbook theory pans out.

Investors have already seen some baffling results of NIRP. The yen and euro have strengthened rather than weakened, which is contrary to economic expectations.  Although it is early days, banks overseas have chosen to absorb the negative interest rates rather than pass them on to consumers. That is hurting profit margins. There is no evidence to date that overseas banks are taking their excess reserves and buying more government bonds or highly rated commercial paper or lending more money out.

All of the above would spur economic growth. Until there is further evidence, I expect that the U.S. will simply watch and wait.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Why Free Trade Has a Bad Rep

The Establishment — Economists, politicians of both parties, Wall Street and Corporate America — are horrified. One of the linchpins of capitalism has suddenly come under attack. The growing anger over free trade is threatening more than 30 years of trade deals with the rest of the world. It was a disaster waiting to happen and we have only ourselves to blame.

Theoretically, free trade benefits everyone. These benefits include comparative advantage, which allows companies that can produce certain goods and services cheaply and efficiently. This will provide consumers with lower priced goods, increase exports globally, allow economies of scale among industries and nations and create a greater choice of goods for everyone worldwide. So what's the problem?

If you ask proponents of free trade about these benefits, they are quick to point out while free trade creates jobs, those getting these new jobs are different from those who lose them. In addition, there will always be winners and losers in trade deals. Unfortunately, those who lose feel the loss almost immediately and the losses are quite specific. Identifying those who win, on the other hand, usually takes far longer and the benefits are diffuse and sometimes quite nebulous.  

As such, free trade is a contentious issue in just about every presidential election in the last 30 years. The passage of the North Atlantic Free Trade Agreement (NAFTA) back in the early Nineties was controversial, to say the least. Today, older Americans in the "rust belt" (in states like Ohio and Indiana) are convinced that NAFTA decimated the working class in their region and manufacturing in general in this country.

They have a point. It is true that in 1980, for example, a full 20 percent of Americans worked in manufacturing and now that figure has shrunk to only one American in 12 holding a manufacturing job. Whether those jobs were lost by NAFTA and other trade deals or because technological innovation reduced the need for a human labor force is the subject of unending debates. I suspect that a lot of both variables were at work in our manufacturing sector.

Clearly, over three million manufacturing jobs were lost to China, thanks to China's inclusion into the World Trade Organization in 2001. Their membership required the U.S. to lower tariffs on Chinese goods and manufacturing in America has never been the same. Is it any wonder, therefore, that both Bernie Sanders and Donald Trump in their opposition to trade agreements of the past are seen as champions of the people?

Jobs, wages, and economic insecurity, amid the highest income inequality in the nation since its founding, are issues that have been brewing in this country for years. Voters simply need a rallying cry and someone to voice it. Trump, Sanders and free trade were accidents waiting to happen.

For years, politicians of both parties promised help but delivered the opposite. Both President Obama and Hillary Clinton promised eight years ago to withdraw from NAFTA in order to force Mexico to renegotiate the agreement. Clinton also promised a "time-out" on any new trade agreements. Yet, Obama went on to not only break his promise on NAFTA, but then pushed to win approval of three Bush-era free trade deals. He then negotiated the Trans-Pacific Partnership (TPP), the biggest trade deal in American history.

Clinton, as President Obama's secretary of state, conveniently forgot her NAFTA pledge as well while supporting the administration's TPP deal — up until recently. Thanks to Sanders' and Trump's opposition to past free trade deals, Clinton has made an about face as she tries to convince Rust-Belt voters that she too is against the Trans-Pacific Partnership. Republicans, for their part, have initiated the majority of free trade deals in modern history and have ideologically used free trade as one of the pillars of GOP-style capitalism.

Unfortunately, for the Establishment candidates, the electorate has wised up to their "promise them anything, but deliver them nothing" approach to politics. The voters are intimately aware that free trade deals have benefited Corporate America (with fatter profit margins and lower wages), Wall Street (by investing in these same companies) and Capitol Hill, which benefits even more from the hefty contributions to campaign chests and jobs by grateful constituents once they leave office.

Labor and small business have suffered the most. This is not surprising, given the demise of labor unions in this country. Labor has never been offered a seat at the table in these trade deals, nor will they, as long as the Establishment holds power. Is it any wonder that labor in this country casts a jaundiced eye toward free trade? Why should they believe those who promise future benefits that after three decades of trade deals have still not materialized for these victims of "free trade?"

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: The Rise of the Robots in Banking

If you think the human factor is rapidly disappearing from the workplace, you may be surprised to know that Skynet has arrived and even C-3PO and R2-D2 are being left behind.

Nowhere is this change more apparent than in the nation's banking system.   

Automation, robots and artificial intelligence is on the rise. At the forefront of this change is the nation's banking system. One of the reasons I know this is because my sister, Cassie, is in the banking industry. No, she is not in the corner office or hanging out in the executive suites.

Since 1965, she has worked as a teller and other front office jobs in her bank's branch offices.

She knows the business from soup to nuts and regularly interfaces with her bank's retail

"Fortunately, I'm fairly senior, otherwise, I would have been phased out a long, long time ago," she says, "Tellers and practically any other jobs performed by humans today will be phased out in this business."

What is driving this change is the opportunity for the nation's banking system to reduce costs and at the same time (hopefully) improve the customer experience. Although robots and automation have long been a factor in the nation's factories and even in areas such as space exploration and other dangerous or difficult environments, the promise of more advances in intelligent robots and artificial intelligence has not kept pace with expectations — until recently.

Breakthroughs in information processing and digital sensors, among other technologies, have vastly improved the capabilities and future potential of intelligent robots. That's not to say that you can expect robots in human form greeting you at your local bank door anytime soon.

The frontline benefits thus far have been in automating processes where human error is high due to high volumes of repetitive transactions.

Speed, accuracy and the efficient handling of large volumes in areas like the processing of thousands of checks and ATM transactions on a daily basis is where robots and automation comes into its own. As time goes by, experts say that banking jobs that could be most susceptible to this wave of change are tellers, loan officers, mortgage brokers, insurance claims and underwriters as well as claims adjusters, bookkeepers, tax preparers and accounting clerks.

"Knowing bank culture as I do," says my sister, "makes me believe that some functions, like loaning money to customers, for example, will remain in the human domain."

That may be so but replacing humans with robots, even in the front office has already started. At the flagship center of one of the Japan's largest banks, a customer service humanoid robot was introduced in April. The robot, developed by a French company, speaks 19 languages, employs various gestures, and analyzes facial expressions and behavior. It can and does deliver appropriate responses to typical client questions that a human receptionist would field.

In the U.S., two robots were introduced to local branches of Sterling Bank & Trust in the Los Angeles area. They are test models undergoing "training" as greeters. They also amuse customers by dancing, showing off some martial art moves and handing out banker's business cards to the delight of the bank's customers. In areas such as wealth management, investors can already opt to invest in robo-portfolios where software programs devise and invest money for reduced fees.

For Generation X and Millennials, who already do much of their banking via computer or mobile device, the age of robots may seem a logical and overdue development. For those of us who are still balancing our check books by hand, however, the era of robots in banking may be a bit of a jolt.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.