Jonathan Clements's Blog, page 54
March 24, 2025
Twenty-five years ago today… by Sanjib Saha
The S&P 500 Index peaked after years of dot-com euphoria. Over the next two and a half years, it lost about half its value, and it took nearly five more years to recover. But the relief was what Fed Chair might call “transitory” —just a couple of years later, the 2008 financial crisis hit, causing an even deeper crash.
Ignoring dividends, it took over a decade from year 2000 for the S&P 500 Index to shrug the bears and surge into a long bull market to nearly quadruple in 25 years. I can’t help but wonder how this lost decade affected retirees or those who invested heavily during the dot-com boom. The long wait to recover compared to a risk-free investment must have been painful and devastating. I can’t imagine how I’d feel if I had to endure such a market in my early retirement years.
I didn’t know about the significance of March 24, 2000, until I saw today’s Barron’s “Review and Preview” email mentioning the anniversary. It made me reflect—what was I doing at that time?
In 2000, I was new to this country and clueless about most things, including stock investments. (I'm still clueless about most things, but not stock investments). The term “S&P 500 Index” would have sounded like a sci-fi gadget to me at that time. All I knew was that the company stock options (a mysterious term that I didn't understand until much later) that I received upon joining my new work—and in the years that followed—became worthless instead of making me a millionaire. I wasn’t particularly upset. Honestly, I couldn’t even grasp how much a million dollars meant; it felt like a fairy tale anyway.
But looking back, I got incredibly lucky. A few years into my life in the U.S., my divorce forced me to educate myself about money and investments so that I could rebuild my finances from scratch. Living on a tight budget, my expenses shrank, allowing me to save aggressively. I cautiously stepped into stock investing to make my savings work for me.
A high savings rate combined with a prolonged bear market is a deadly combination for long-term wealth building . The benefits became clear a decade later when the bull market gained momentum. This, in part, enabled me to make the bold decision to retire early. I unknowingly became one of those who benefited from the so-called “lost decade” of the U.S. stock market, steadily dollar-cost averaging in a prolonged “buyer’s market”.
Ignoring dividends, it took over a decade from year 2000 for the S&P 500 Index to shrug the bears and surge into a long bull market to nearly quadruple in 25 years. I can’t help but wonder how this lost decade affected retirees or those who invested heavily during the dot-com boom. The long wait to recover compared to a risk-free investment must have been painful and devastating. I can’t imagine how I’d feel if I had to endure such a market in my early retirement years.
I didn’t know about the significance of March 24, 2000, until I saw today’s Barron’s “Review and Preview” email mentioning the anniversary. It made me reflect—what was I doing at that time?
In 2000, I was new to this country and clueless about most things, including stock investments. (I'm still clueless about most things, but not stock investments). The term “S&P 500 Index” would have sounded like a sci-fi gadget to me at that time. All I knew was that the company stock options (a mysterious term that I didn't understand until much later) that I received upon joining my new work—and in the years that followed—became worthless instead of making me a millionaire. I wasn’t particularly upset. Honestly, I couldn’t even grasp how much a million dollars meant; it felt like a fairy tale anyway.
But looking back, I got incredibly lucky. A few years into my life in the U.S., my divorce forced me to educate myself about money and investments so that I could rebuild my finances from scratch. Living on a tight budget, my expenses shrank, allowing me to save aggressively. I cautiously stepped into stock investing to make my savings work for me.
A high savings rate combined with a prolonged bear market is a deadly combination for long-term wealth building . The benefits became clear a decade later when the bull market gained momentum. This, in part, enabled me to make the bold decision to retire early. I unknowingly became one of those who benefited from the so-called “lost decade” of the U.S. stock market, steadily dollar-cost averaging in a prolonged “buyer’s market”.
The post Twenty-five years ago today… by Sanjib Saha appeared first on HumbleDollar.
March 23, 2025
Worried? Concerned? Confident? About the future of Social Security and Medicare
The status of the Social Security and Medicare trusts is well known. I’m not going to rehash it here. Unfortunately, the amount of misinformation and false information about SS on social media is incredible and scary.
No serious effort at necessary reform has occurred since 1983 and certainly not now which is sad given fixing SS is not that hard or necessarily that painful.
One key question is how, if at all, should changes be allocated between current workers and current retirees.
How concerned are you?
What are your friends saying about the issue?
The post Worried? Concerned? Confident? About the future of Social Security and Medicare appeared first on HumbleDollar.
March 21, 2025
Index Three Ways
IN 1774, AMSTERDAM businessman Abraham van Ketwich created a new type of investment. After raising money from a group of individuals, van Ketwich built a portfolio of bonds. He deposited the bonds in a metal box in his office, which three people then secured using three different locks.
Van Ketwich’s fund could be considered the world’s first index fund. How so? For starters, the bonds purchased were broadly diversified across industries and geography. Second, van Ketwich’s plan aimed to minimize trading, with the box remaining locked for 25 years. Third, his management fee was just 0.2%, modest even by today’s standards. A war in Europe disrupted the plan a bit. But in the end, the fund was successful, and others soon followed using this same model.
The first modern index funds started in the U.S. in the 1970s, and initially were very simple. But in the years since, there’s been a proliferation of funds. Now, there are more than 2,000 different index funds covering every corner of domestic and international markets. This poses a challenge for today’s investor because there’s no single, universally accepted “right” way to build a passive investment portfolio.
Consider a portfolio that’s invested entirely in an S&P 500 index fund. By most definitions, this would be considered a passive portfolio. But even this simple portfolio is active in at least two respects: The S&P 500 focuses almost exclusively on the largest U.S. companies, and it includes almost no companies from outside the U.S.
The reality is that every investment portfolio, even if it consists solely of index funds, has an active component to it. And while it may sound like I’m splitting hairs, the reality is that those who consider themselves passive investors still need to make some active decisions.
If you’re building an index fund portfolio, there are three approaches you might consider. The first option would be to cast as wide a net as possible. An index like the FTSE Global All Cap Index—as its name suggests—tries to cover the globe. The U.S. and Canada account for about two-thirds of this index, with the remainder allocated to developed and emerging markets outside North America. A popular fund that follows this index is Vanguard Group’s Total World Stock ETF (symbol: VT).
True indexing purists like this fund because it aims to provide global coverage, though in reality it doesn’t cover the entire globe. It excludes dozens of markets, from Argentina to Romania to Slovenia, which are in a category known as frontier markets. But aside from that, it’s as broad an index as there is.
This fund certainly offers simplicity, but are there downsides? From a domestic investor’s point of view, exchange rates pose a risk, since a third or so of the investments aren’t denominated in dollars. For that reason, I prefer to minimize international exposure. But others see it differently. They see exchange rates as an additional source of diversification.
Another potential downside: To the extent that the U.S. economy has a track record of producing more new, fast-growing companies than other countries, a portfolio like this might end up lagging behind one that’s more U.S.-focused.
If you wanted more of a domestic weighting, there’s an easy solution. That brings me to the second approach: You could split your portfolio along geographic lines, owning one fund that covers the U.S. market and another covering international markets. You could then vary the mix between the two. If you wanted to go this route, two funds to consider would be Vanguard’s total domestic stock market fund (VTI) and its total international fund (VXUS).
What percentages make sense? I’ve long relied on research which finds that investors can pick up most of the diversification benefit of international stocks with an allocation as small as 20%. Thus, my preferred allocation to international stocks is just 20%. It’s a matter of perspective, though, and there isn’t one right answer.
The third major approach to portfolio construction might appeal to those looking for greater customization. On the domestic side, a popular strategy includes greater exposure to value stocks. According to the data, these stocks have outperformed historically. But since that trend may not repeat in the future, value stocks may or may not appeal to you. Personally, I include an overweight to value.
On the international side, there’s a number of ways to customize your holdings. Investors will often choose separate developed and emerging markets funds so they can vary the mix between them.
In the portfolios I build, emerging markets are always the smallest segment. But ironically, I’ve found it to be the area where there’s the most disagreement. Some investors prefer not to hold any emerging markets stocks, owing to the shaky political structures in many of those countries. Meanwhile, others prefer to have more emerging markets exposure. The logic they cite is that these countries offer more growth potential as they industrialize.
I take a different route, avoiding standard emerging markets indexes altogether. Why? The most recent Nobel prize in economics was awarded to a group of researchers who identified a link between countries’ political structures and their level of economic development. In short, countries with autocratic governments have generally not delivered the same level of economic growth as countries with more democratic regimes. Because China, which lacks representative government, is the largest weight in standard emerging markets funds, I’ve opted for a fund (ticker: FRDM) which excludes China and other dictatorial regimes, and instead includes only emerging markets where the political institutions are more developed.
Those are three approaches you might choose in constructing an index fund portfolio. But there isn’t, as I said, just one right way. What’s most important, in my view, is to be sure the portfolio you build adheres to two key principles: low cost and low turnover.
Low fees are important because, as Vanguard founder Jack Bogle used to say, “You get what you don’t pay for.” In other words, when a fund has low expenses, those savings are passed on to the investor. That’s a key reason—and maybe the key reason—index funds have, on average, outperformed actively managed funds.
What about low turnover? I’m referring here to how much trading occurs within a fund. This is important—because more frequent trading generally results in higher tax bills for a fund’s investors.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Van Ketwich’s fund could be considered the world’s first index fund. How so? For starters, the bonds purchased were broadly diversified across industries and geography. Second, van Ketwich’s plan aimed to minimize trading, with the box remaining locked for 25 years. Third, his management fee was just 0.2%, modest even by today’s standards. A war in Europe disrupted the plan a bit. But in the end, the fund was successful, and others soon followed using this same model.
The first modern index funds started in the U.S. in the 1970s, and initially were very simple. But in the years since, there’s been a proliferation of funds. Now, there are more than 2,000 different index funds covering every corner of domestic and international markets. This poses a challenge for today’s investor because there’s no single, universally accepted “right” way to build a passive investment portfolio.
Consider a portfolio that’s invested entirely in an S&P 500 index fund. By most definitions, this would be considered a passive portfolio. But even this simple portfolio is active in at least two respects: The S&P 500 focuses almost exclusively on the largest U.S. companies, and it includes almost no companies from outside the U.S.
The reality is that every investment portfolio, even if it consists solely of index funds, has an active component to it. And while it may sound like I’m splitting hairs, the reality is that those who consider themselves passive investors still need to make some active decisions.
If you’re building an index fund portfolio, there are three approaches you might consider. The first option would be to cast as wide a net as possible. An index like the FTSE Global All Cap Index—as its name suggests—tries to cover the globe. The U.S. and Canada account for about two-thirds of this index, with the remainder allocated to developed and emerging markets outside North America. A popular fund that follows this index is Vanguard Group’s Total World Stock ETF (symbol: VT).
True indexing purists like this fund because it aims to provide global coverage, though in reality it doesn’t cover the entire globe. It excludes dozens of markets, from Argentina to Romania to Slovenia, which are in a category known as frontier markets. But aside from that, it’s as broad an index as there is.
This fund certainly offers simplicity, but are there downsides? From a domestic investor’s point of view, exchange rates pose a risk, since a third or so of the investments aren’t denominated in dollars. For that reason, I prefer to minimize international exposure. But others see it differently. They see exchange rates as an additional source of diversification.
Another potential downside: To the extent that the U.S. economy has a track record of producing more new, fast-growing companies than other countries, a portfolio like this might end up lagging behind one that’s more U.S.-focused.
If you wanted more of a domestic weighting, there’s an easy solution. That brings me to the second approach: You could split your portfolio along geographic lines, owning one fund that covers the U.S. market and another covering international markets. You could then vary the mix between the two. If you wanted to go this route, two funds to consider would be Vanguard’s total domestic stock market fund (VTI) and its total international fund (VXUS).
What percentages make sense? I’ve long relied on research which finds that investors can pick up most of the diversification benefit of international stocks with an allocation as small as 20%. Thus, my preferred allocation to international stocks is just 20%. It’s a matter of perspective, though, and there isn’t one right answer.
The third major approach to portfolio construction might appeal to those looking for greater customization. On the domestic side, a popular strategy includes greater exposure to value stocks. According to the data, these stocks have outperformed historically. But since that trend may not repeat in the future, value stocks may or may not appeal to you. Personally, I include an overweight to value.
On the international side, there’s a number of ways to customize your holdings. Investors will often choose separate developed and emerging markets funds so they can vary the mix between them.
In the portfolios I build, emerging markets are always the smallest segment. But ironically, I’ve found it to be the area where there’s the most disagreement. Some investors prefer not to hold any emerging markets stocks, owing to the shaky political structures in many of those countries. Meanwhile, others prefer to have more emerging markets exposure. The logic they cite is that these countries offer more growth potential as they industrialize.
I take a different route, avoiding standard emerging markets indexes altogether. Why? The most recent Nobel prize in economics was awarded to a group of researchers who identified a link between countries’ political structures and their level of economic development. In short, countries with autocratic governments have generally not delivered the same level of economic growth as countries with more democratic regimes. Because China, which lacks representative government, is the largest weight in standard emerging markets funds, I’ve opted for a fund (ticker: FRDM) which excludes China and other dictatorial regimes, and instead includes only emerging markets where the political institutions are more developed.
Those are three approaches you might choose in constructing an index fund portfolio. But there isn’t, as I said, just one right way. What’s most important, in my view, is to be sure the portfolio you build adheres to two key principles: low cost and low turnover.
Low fees are important because, as Vanguard founder Jack Bogle used to say, “You get what you don’t pay for.” In other words, when a fund has low expenses, those savings are passed on to the investor. That’s a key reason—and maybe the key reason—index funds have, on average, outperformed actively managed funds.
What about low turnover? I’m referring here to how much trading occurs within a fund. This is important—because more frequent trading generally results in higher tax bills for a fund’s investors.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.The post Index Three Ways appeared first on HumbleDollar.
Is frugality all it’s cracked up to be? A lifetime of frugality, I have claimed that, Jonathan has written it. Many comments on HD have also made that claim, but is it true? RDQ
Are we all on the same frugality page?
From what I found, frugal living involves prioritizing needs over wants, spending less than earned, valuing quality, and embracing resourcefulness like DIY. Common practices include planning meals, buying used items, and seeking discounts.
I read that a cheap person focuses on price and a frugal person on value. Well, that doesn’t make sense. You could spend a lot of money achieving what you value - like a car or a cruise. 😎
I have a friend who lives on Social Security alone, but not out of necessity, just doesn’t like to spend. I think that’s in the cheap category.
As I read that frugal description, I have not been consistently frugal. We have always lived within our means, never had debt beyond a mortgage or a car payment, but no payments in the last dozen years. We always saved before any spending, but we didn’t buy used items and I certainty don’t do DIY simply because I am incompetent and hate it. Having an older appliance repaired has limited value IMO.
I welcome a discount- especially those senior ones these days, but I am not obsessed with seeking them out. We cook most meals, but eat out once a week or so.
Is frugality voided one splurges on a special experience thereby wiping out years of frugality? I don’t think so.
From what I found, frugal living involves prioritizing needs over wants, spending less than earned, valuing quality, and embracing resourcefulness like DIY. Common practices include planning meals, buying used items, and seeking discounts.
I read that a cheap person focuses on price and a frugal person on value. Well, that doesn’t make sense. You could spend a lot of money achieving what you value - like a car or a cruise. 😎
I have a friend who lives on Social Security alone, but not out of necessity, just doesn’t like to spend. I think that’s in the cheap category.
As I read that frugal description, I have not been consistently frugal. We have always lived within our means, never had debt beyond a mortgage or a car payment, but no payments in the last dozen years. We always saved before any spending, but we didn’t buy used items and I certainty don’t do DIY simply because I am incompetent and hate it. Having an older appliance repaired has limited value IMO.
I welcome a discount- especially those senior ones these days, but I am not obsessed with seeking them out. We cook most meals, but eat out once a week or so.
Is frugality voided one splurges on a special experience thereby wiping out years of frugality? I don’t think so.
The post Is frugality all it’s cracked up to be? A lifetime of frugality, I have claimed that, Jonathan has written it. Many comments on HD have also made that claim, but is it true? RDQ appeared first on HumbleDollar.
Taking on Water by Jonathan Clements
I know many folks look down on cruises, and I can understand why. The amount of food and booze that’s consumed is a wonder to behold, the casino is a smoke-filled den of desperation, and the behavior of fellow passengers can be a tad off-putting.
Still, Elaine and I have taken three cruises in the past four years, including one last week, and we thoroughly enjoyed all three. Why? Here are five reasons.
Few hassles. From Philadelphia, we can hop the train to New York City and take a cruise from there. That means no airports and long flights—always a plus. Once we’re on the ship, everything is taken care of, including housekeeping and all meals.
Paid in advance. Given that the price includes accommodation, food, entertainment and travel to exotic locales, cruises strike me as good value. But what I especially like is that pretty much the entire cost is paid before you get on the ship (assuming, of course, that you don't carry the expense as a large credit-card balance). That means Elaine and I are free to enjoy ourselves without worrying about, say, the cost of each meal or about getting hit with a big bill at the end.
Disconnecting. We pay for unlimited internet on cruises—got to keep HumbleDollar humming along—but only for one device each: our laptops. Meanwhile, our cell phones, with no internet connection and no cell signal, are useless except for checking the time and taking photos. That removes the endless temptation to glance at our phones, which is initially disconcerting but soon feels liberating.
Less choice. How do we spend our days while at sea? We might take a walk around the deck, head to the gym, or sit on our balcony reading and writing. In other words, there’s a limit to what we can do. The slower pace is refreshing.
Pampering. We should design a life for ourselves where we enjoy a gradually rising standard of living, so we truly appreciate each improvement that comes our way.
That brings me to an admission that might earn tut-tutting from some in the HumbleDollar community: When we take cruises, we’ve lately taken to paying for the highest class of service. That gives us a larger cabin and access to a part of the ship with its own pool, restaurant and lounge. This might not seem luxurious to those who spent their lives flying business class and going to high-end resorts. But after a lifetime of frugality, it feels like a real treat.
Still, Elaine and I have taken three cruises in the past four years, including one last week, and we thoroughly enjoyed all three. Why? Here are five reasons.
Few hassles. From Philadelphia, we can hop the train to New York City and take a cruise from there. That means no airports and long flights—always a plus. Once we’re on the ship, everything is taken care of, including housekeeping and all meals.
Paid in advance. Given that the price includes accommodation, food, entertainment and travel to exotic locales, cruises strike me as good value. But what I especially like is that pretty much the entire cost is paid before you get on the ship (assuming, of course, that you don't carry the expense as a large credit-card balance). That means Elaine and I are free to enjoy ourselves without worrying about, say, the cost of each meal or about getting hit with a big bill at the end.
Disconnecting. We pay for unlimited internet on cruises—got to keep HumbleDollar humming along—but only for one device each: our laptops. Meanwhile, our cell phones, with no internet connection and no cell signal, are useless except for checking the time and taking photos. That removes the endless temptation to glance at our phones, which is initially disconcerting but soon feels liberating.
Less choice. How do we spend our days while at sea? We might take a walk around the deck, head to the gym, or sit on our balcony reading and writing. In other words, there’s a limit to what we can do. The slower pace is refreshing.
Pampering. We should design a life for ourselves where we enjoy a gradually rising standard of living, so we truly appreciate each improvement that comes our way.
That brings me to an admission that might earn tut-tutting from some in the HumbleDollar community: When we take cruises, we’ve lately taken to paying for the highest class of service. That gives us a larger cabin and access to a part of the ship with its own pool, restaurant and lounge. This might not seem luxurious to those who spent their lives flying business class and going to high-end resorts. But after a lifetime of frugality, it feels like a real treat.
The post Taking on Water by Jonathan Clements appeared first on HumbleDollar.
March 20, 2025
How Do Allocate the Bond Portion of Your Portfolio?
Our portfolio leans somewhat towards the conservative side. Our overall target allocation is 45% equities, 45% bonds, and 10% cash.
When it comes to the allocation within bonds I have not seen much in the way of literature that recommends an allocation regarding types of bonds/durations.
Our current allocation in specific funds as a percentage of our entire portfolio is: 15% short term, 8.5% short term tips, and 16.5% intermediate (the rest of the bonds are in a target date fund).
I’m sort of aiming towards one third of bond portion of our portfolio being 1/3 each short term, short term tips, and intermediate.
My allocation is not based on any research, It just seems good to have more than 1/2 in short term to shorten my overall bond duration and thus exposure to rising interest rates. Having a portion in tips also decreases my risk to rising inflation, while the intermediate portion allows for some excess gains when interest rates decrease.
Is my thought process well thought out? Crazy?
Any insight would be appreciated.
The post How Do Allocate the Bond Portion of Your Portfolio? appeared first on HumbleDollar.
Ah, nuts! I just don’t care about my spending any longer. RDQ
Connie and I were discussing a purchase. “That’s expensive,” she said. I finally said, “I don’t care what they cost.” A moment of silence. “What happened to you that you don’t care what something cost?” she said. I thought a moment and then said, “I’m old.”
Actually that’s true. Within reason, I no longer care. I don’t look at prices in the supermarket- but I do load digital coupons on my phone. It’s also true I am old.
I don’t care about the cost when a grandchild has a fundraiser and asks for help. I don’t look at restaurant menu prices, I look at the food, I just don’t care anymore. I don’t drive around looking to save $0.06 a gallon on gasoline. The good news is my 4 cylinder car gets over 40 MPG on the highway.
I even rationalize that my spending may be helping someone who needs the money more than I do.
It’s not being frivolous or careless with money, it is being old. Getting old changes your view on many things I am finding. It’s recognizing there is no longer a point to agonizing over a few dollars here or there. If you want to agonize, save it for the major things we face getting old. For example, most of the dates Connie and I have are in a doctors office.
Talk about the time value of money - or is it the money value of time these days?
AND, before a comment reminds me, I do know that being able to not care about even minor spending is a luxury for many people.
Once you meet all your obligations and you are old, just don’t care about spending if there is no need to do so - and appreciate that fact.
About that purchase I mentioned; a can of chocolate covered cherries and a can of chocolate covered pecans ordered from a tiny nut shop in Virginia.
The post Ah, nuts! I just don’t care about my spending any longer. RDQ appeared first on HumbleDollar.
March 19, 2025
Actively Managed Mutual Funds
I have some active managed mutual funds(getting hammered by yearly tax distribution) in one of my brokerage accounts. I would like to know the best tax effective way to sell these funds?
The post Actively Managed Mutual Funds appeared first on HumbleDollar.
When You Can’t Take Care of Yourself by Dennis Friedman
I don’t believe I’ve ever enjoyed life more than I do now. What is there not to like about my life? I have my health, financial stability, plenty of free time to do the things I want, and I have a companion to share my journey with. I wish this stage of my life was never-ending.
But at age 73, I know my life could be turned upside down tomorrow. Lately, I’ve been thinking about what Rachel and I should do if we can’t take care of ourselves. Although I’m six years older than her, there is a chance she could need a caregiver before me. Women tend to have fewer years of good health to live than men. According to a Washington Post article, “Women are more physically frail than men in old age.”
We, like many folks, want to remain in our house until the very end. But I know that might not be possible, especially if it’s only one of us left behind. It can be expensive to hire a caregiver, and you can run the risk of running out of money. In California, where we live, the median hourly rate is $38.19. Also you might not get the quality care that you need.
As an alternative, we have been looking into a continuing care retirement community, or CCRC. Enrolling in one might be the biggest financial commitment of our lifetime. Here is what we learned, along with some of our preferences.
CCRCs can be either not-for-profit or for-profit. We believe a not-for-profit CCRC would better serve our interests than one that has to answer to investors or shareholders. We would also try to avoid a CCRC that is part of a consortium because we wouldn’t want someone from far away making important decisions concerning our community. This would also prevent our fees from subsidizing another poorly run entity. Hence, we would prefer to enroll in a CCRC that is a stand-alone.
Entry fees and monthly payments can vary greatly. You can’t thoroughly evaluate how much you should shell out for fees and payments unless you know what type of contract you're agreeing to.
There are four types of contracts: A,B,C, and D:
A Type A contract, which is sometimes referred to as an extensive or full life care contract, is substantially more expensive because you’re guaranteed that you will not be paying higher fees, except for cost-of-living adjustments, when you need a higher level of care, such as assisted living and skilled nursing care. Some view this type of contract as an insurance policy against soaring medical expenses, while it keeps your costs predictable.
A Type C contract is also known as a fee-for-service contract. If you’re living independently, you’ll have considerably lower entry fees and monthly payments, but fees will increase dramatically according to market rates for assisted living, skilled nursing care, and memory care when needed. This type of contract is suited for someone who has long-term care insurance that would cover their additional health care expenses.
A Type B contract, also known as a modified-fee-for-service contract, is like a hybrid between Type A and C. A Type D contract is like a short-term rental agreement.
We would choose a Type A contract because we want to know what our future costs will be. It would also guarantee us continuing care, even if our money runs out. In addition, part of our entry fee and monthly payments would be tax deductible because they are considered prepayment for future health care.
How do you know if the CCRC is financially sound? Every nonprofit CCRC is required to file Form 990 with the IRS. This is a public document that you can view online here. You can search for a CCRC by its name. The last line on page 1 gives the net assets (assets minus liabilities) or fund balances at the end of the year. Of course, you would like to see a large positive number. If the number is negative, we would walk away.
The occupancy rate of the CCRC could be a useful indicator of its financial health. One with a waiting list to get in would be a better sign of financial stability than one with a 90% occupancy rate.
How can you evaluate the medical facility? When my mother was discharged from the hospital, I had to find a skilled nursing facility for her quickly. I used this Medicare.gov site that rates nursing homes and rehabilitation facilities based on health inspections, staffing, and quality measures. Even though her facility was rated above average for care, we would still not stay there.
The place was dated. The inside badly needed a new facelift. It looked like it was stuck in the 1950s. My mother shared a room with a woman who was in so much pain that she would moan and groan. Her half of the room had, besides her bed, an old dresser for her clothes, a small end table, a lamp, a chair, and a television. This facility belongs to a CCRC that my wife and I once thought would show some potential.
The upshot is that you need to tour the medical facility to get a feel for the place. Don’t just focus on the independent living aspect of the community. We would want to make sure the health facility wasn't isolated from the rest of the community, so we could still participate in some of the activities. We would like to see a single room occupancy standard for all the rooms. Most importantly, they must have a policy that allows the spouse and community friends to visit the patient.
Get help. Since we would be making a significant financial commitment, we would consult a qualified elder lawyer for advice and guidance before signing on the dotted line. Sometimes the CCRC will insert clauses in the contract that allow them to raise the daily rates after providing a 30-day written notice. We would want to make sure we completely understand what we’re signing up for.
But at age 73, I know my life could be turned upside down tomorrow. Lately, I’ve been thinking about what Rachel and I should do if we can’t take care of ourselves. Although I’m six years older than her, there is a chance she could need a caregiver before me. Women tend to have fewer years of good health to live than men. According to a Washington Post article, “Women are more physically frail than men in old age.”
We, like many folks, want to remain in our house until the very end. But I know that might not be possible, especially if it’s only one of us left behind. It can be expensive to hire a caregiver, and you can run the risk of running out of money. In California, where we live, the median hourly rate is $38.19. Also you might not get the quality care that you need.
As an alternative, we have been looking into a continuing care retirement community, or CCRC. Enrolling in one might be the biggest financial commitment of our lifetime. Here is what we learned, along with some of our preferences.
CCRCs can be either not-for-profit or for-profit. We believe a not-for-profit CCRC would better serve our interests than one that has to answer to investors or shareholders. We would also try to avoid a CCRC that is part of a consortium because we wouldn’t want someone from far away making important decisions concerning our community. This would also prevent our fees from subsidizing another poorly run entity. Hence, we would prefer to enroll in a CCRC that is a stand-alone.
Entry fees and monthly payments can vary greatly. You can’t thoroughly evaluate how much you should shell out for fees and payments unless you know what type of contract you're agreeing to.
There are four types of contracts: A,B,C, and D:
A Type A contract, which is sometimes referred to as an extensive or full life care contract, is substantially more expensive because you’re guaranteed that you will not be paying higher fees, except for cost-of-living adjustments, when you need a higher level of care, such as assisted living and skilled nursing care. Some view this type of contract as an insurance policy against soaring medical expenses, while it keeps your costs predictable.
A Type C contract is also known as a fee-for-service contract. If you’re living independently, you’ll have considerably lower entry fees and monthly payments, but fees will increase dramatically according to market rates for assisted living, skilled nursing care, and memory care when needed. This type of contract is suited for someone who has long-term care insurance that would cover their additional health care expenses.
A Type B contract, also known as a modified-fee-for-service contract, is like a hybrid between Type A and C. A Type D contract is like a short-term rental agreement.
We would choose a Type A contract because we want to know what our future costs will be. It would also guarantee us continuing care, even if our money runs out. In addition, part of our entry fee and monthly payments would be tax deductible because they are considered prepayment for future health care.
How do you know if the CCRC is financially sound? Every nonprofit CCRC is required to file Form 990 with the IRS. This is a public document that you can view online here. You can search for a CCRC by its name. The last line on page 1 gives the net assets (assets minus liabilities) or fund balances at the end of the year. Of course, you would like to see a large positive number. If the number is negative, we would walk away.
The occupancy rate of the CCRC could be a useful indicator of its financial health. One with a waiting list to get in would be a better sign of financial stability than one with a 90% occupancy rate.
How can you evaluate the medical facility? When my mother was discharged from the hospital, I had to find a skilled nursing facility for her quickly. I used this Medicare.gov site that rates nursing homes and rehabilitation facilities based on health inspections, staffing, and quality measures. Even though her facility was rated above average for care, we would still not stay there.
The place was dated. The inside badly needed a new facelift. It looked like it was stuck in the 1950s. My mother shared a room with a woman who was in so much pain that she would moan and groan. Her half of the room had, besides her bed, an old dresser for her clothes, a small end table, a lamp, a chair, and a television. This facility belongs to a CCRC that my wife and I once thought would show some potential.
The upshot is that you need to tour the medical facility to get a feel for the place. Don’t just focus on the independent living aspect of the community. We would want to make sure the health facility wasn't isolated from the rest of the community, so we could still participate in some of the activities. We would like to see a single room occupancy standard for all the rooms. Most importantly, they must have a policy that allows the spouse and community friends to visit the patient.
Get help. Since we would be making a significant financial commitment, we would consult a qualified elder lawyer for advice and guidance before signing on the dotted line. Sometimes the CCRC will insert clauses in the contract that allow them to raise the daily rates after providing a 30-day written notice. We would want to make sure we completely understand what we’re signing up for.
The post When You Can’t Take Care of Yourself by Dennis Friedman appeared first on HumbleDollar.
