Wednesday, February 21, 2018

How Much is Enough?

The March 2018 issue of Money magazine cited an interesting study of millionaires and their perception of wealth and happiness.  The study, conducted by researchers from the Harvard Business School, queried 4000 millionaires on how they’d rate their happiness on a ten-point scale.
I suppose it’s not surprising that the majority of the subjects did not give themselves the highest score, a “10”.  Few people of any social status can say they are “perfectly happy”.  What does shock me is that 27% of them said they would need to grow their wealth by 1000% to reach that blissful state.  Another 25% said they required a five-fold increase in their net worth to get there.
I don’t know if the survey allowed the respondents to list something other than money that could make them happy; the published results only spoke to how much more money it would take.
That stands in contrast to a 2010 study of more “average” people (as measured by amount of wealth) that showed that an increase in income did tend to increase happiness levels, but only to a point.  Beyond an annual income of $75,000, the increase in level of happiness was minimal or non-existent the more money the subjects made.  Apparently not the millionaires, though.  “The more the happier” might be their motto.
My former boss, a hospital CEO, told me on several occasions that it was one of the saddest things he saw among physicians with whom he worked.  More than a few were reluctant to retire, even when they were seemingly financially secure.  It was not always a love of the job, either.  Too often he found that the doctors thought they needed “just a little more (money)” before they could retire.  Then the saddest twist of all, they did retire and died within a year or two—or even died before retiring.
It would be easy to blame greed for this attitude; and in the end we are personally responsible for our actions and attitudes.  But our economy is driven by consumerism and the ability of sellers to convince potential buyers that they must have whatever is being sold. 
And the financial industry is not blameless.  How many financial planners are telling their clients they have to have at least $1 million to retire with confidence?  They are selling “safety”.  They instill a fear of the worst possible outcome and convince their clients they must be 100% safe against that potential outcome by putting away more and more money—preferably into an account that the planner manages, for a percentage fee.
I was impressed by the decision of one “average” person, as reported in last month’s edition of Money, who thanks to the recent good performance of the stock market reached the dollar goal she had been shooting for in planning her retirement…and then took it out of the stock market entirely and put it in a safe, money market-type account.  Her attitude was, “I reached my goal, this is what I need to live on in retirement, and now I don’t have to worry about losing any of it if the stock market drops.”
That’s the antithesis of the attitude of the majority of those surveyed millionaires.  She’s happy with what she has and is living more worry-free than they are, I would wager.  I don’t necessarily endorse her course of action; but it’s her choice, she ran the numbers, and it’s what she has decided will work for her.  Bravo.
This is not to diminish the importance of ambition and having high aspirations.  We should aim high in life.  But if accumulating great wealth is the main purpose, know that achieving that will likely not yield happiness.
There’s one more finding from that survey that I’ll speak to in my next post.
Until next time,
“Some people don’t have friends or family.  But they are never satisfied with what they own, and they never stop working to get more.  They should ask themselves, ‘Why am I working to have more?  Who will get what I leave behind?’  What a senseless and miserable life!” Ecclesiastes 4:8 CEV

Friday, February 16, 2018

Stocks, Boats, and Dying at 62

I was going to launch into a long explanation today of why you should not panic about the breathtaking single-day losses in the stock market last week.  But then this week happened…huge gains in the stock indexes.  So if you’ve been following the stock market via the balance in your retirement account, maybe there’s no need to remind you:  The economy is sound; your balance will bounce back over time.  Only if you are very close to retirement (say, less than three years) do I think that the recent events should cause you to take any serious action with your money or deviate from your strategy.

Stocks might be overvalued and they might drop some more in the near future.  But not every “correction” (a drop of at least 10% from a recent high point in a stock index, like the Dow Jones Industrials Average) signals a slide into a recession.  And if you think you need to get out of the stock market because it’s not “safe”, I defy you to come up with a better long-term strategy to grow your savings into a viable retirement nest egg. 

So enough said about that.  Allow me to riff on some other items in the news this week.

Dream turns into nightmare
Did you read about the boyfriend-girlfriend couple, ages 26 and 24, who tired of working and having to spend so much of that hard-earned money just to get by, and decided to quit their jobs and pursue a dream?  Their dream was to buy a boat and sail the world.  So they sold all their furniture and their SUV and purchased a 49-year-old boat to live on and to carry them over the seas.  They lived on their boat for a few months as they stocked up supplies for the trip.  Then two days after embarking, their boat capsized in a channel of water—in Florida, I believe.  They were left with practically nothing, including jobs.  They had no boat insurance.  And the girlfriend confessed to the newspaper interviewer that they were “kind of new to sailing”. 

Do you think they might have planned a little better?

“Money isn’t everything”, they were quoted as saying.  I agree.  But you do usually need it to live.  Nevertheless, they haven’t given up on their grand plan.  I don’t think they’ve gone back to work, but they did start a GoFundMe online campaign begging people to contribute to help them revive their dream.

Oh man, I’m sorry!  I’ve been spending all my money just getting by, so I’m afraid I can’t help you.  But don’t worry, money isn’t everything.

Retire and drop dead
About one-third of Americans claim Social Security benefits at age 62.  Ten percent of men retire in the month they turn 62.  Two researchers, when analyzing U.S. mortality rates, drew a connection between that and unexpectedly higher death rates among men who retire at age 62.

They offer some possible reasons:

  • After leaving the workplace, men disengage socially. (See my earlier post about why that's bad for your health. )
  • They might lose their health care insurance; and not qualifying yet for Medicare they skimp on meeting their medical needs.
  • Not being on the job means they might be out just driving around more, and that increases the likelihood of an accident.
  • If they were smokers before, they usually increase the amount they smoke.
  • Almost all men become more sedentary in their 60’s.

And you thought your job was killing you.

Until next time,


“Suppose one of you wants to build a tower.  Won’t you first sit down and estimate the cost to see if you have enough money to complete it?  For if you lay the foundation and are not able to finish it, everyone who sees it will ridicule you.” Luke 14:28, 29  NIV®*

*Scripture quotations taken from the Holy Bible, New International Version® NIV®
Copyright © 1973, 1978, 1984, 2011 by Biblica, Inc.™
Used by permission.  All rights reserved worldwide.

Friday, February 9, 2018

Romance by the (Financial) Numbers

Are you depending on Hallmark to help you express your love to that special man or woman in your life this Valentine’s Day?  Would you consider instead taking some clues, maybe borrowing some romantic language for the occasion, from a paper published as part of the Federal Reserve Bank’s Finance and Economic Discussion Series?
No?  I can’t imagine why not.  Doesn’t the title of the paper, “Credit Scores and Committed Relationships”, just warm your heart?
Seriously, I have to wonder why our tax dollars funded the research and underwrote the bureaucrats who produced the resulting paper.  But in the spirit of the holiday, I’m going to overlook that and—why not?—take advantage of what they learned and use it for this week’s post.
As the title implies, the study looked at a select group of Americans—twelve million of them, from the database of the credit bureau Equifax—to seek possible links between their credit scores (such as the familiar FICO score you might see on your credit card statement or that a lender will use to rate you as a credit risk) and their marital or other relationships.  Here’s what they found.
People with higher credit scores are more likely to form committed relationships, including marriage, and then stay in them.
A corollary to that, perhaps, is the finding that for every 100 additional points of a couple’s average credit score, the likelihood of their staying together for a second year and beyond goes up by as much as 30%.
But it’s not just high scores that can make for a long-term relationship.  Having very similar credit scores, high or low, also proved to be a good predictor as to whether a couple remained together.  The closer the two scores, the better the odds; the farther apart they were, the less likely the relationship would last.
The credit scores of two people in long-term relationship tend to converge over time.
All of these findings were true even after controlling for such other factors as educational level, employment, race, etc.
Should any of this really surprise us?  I don’t know if asks its enrollees about their credit scores, but doesn’t it make perfect sense that someone who is willing to put in the hard work to maintain a good credit score would have the character traits necessary to put in the hard work to maintain a marriage?  (I’m sorry, I know it’s Valentine’s Day, all hearts and roses and chocolate candy, but relationships do take a fair amount of patience and work.)  And when a couple joins their fortunes in marriage and works together on the decision-making and financial management of daily living, wouldn’t you expect their credit scores to come to be very similar over time?  They help or hurt each other’s score.
No, nothing really surprising here when you stop to think about it.  But if you are dating now or expect to be at some point, carefully consider this.  We tend to put on our best face in the dating game.  Get beyond that to learn more about your potential mate.  Have a financial discussion; and even if you don’t look at each other’s credit score while dating (I highly recommend it before marrying, though), you should watch his/her actions carefully for clues as to their financial responsibility.  As one economist commented on the Federal Reserve’s study, credit scores indicate “a general trustworthiness and commitment in non-debt obligations.”
If it just doesn’t have the right romantic ring for you to tell your sweetheart that you feel a strong commitment to her in a non-debt obligation kind of way, maybe this week’s Bible quote would be more appropriate.

Happy Valentine’s Day.


“Always keep me in your heart and wear this bracelet to remember me by.  The passion of love bursting into flame is more powerful than death, stronger than the grave.  Love cannot be drowned by oceans or floods; it cannot be bought, no matter what is offered.” Song of Songs 8:6-7 CEV

Friday, February 2, 2018

Alternatives to Long Term Care Insurance

If last week we established that the need for long term care is a nearly 50/50 probability for the future of anyone age 65 now, and that insuring for it is very expensive, is there some way to defend against the financial cost besides buying insurance?

The Wall Street Journal article from which I quoted last week indicates that 48% of 65-year-olds will never need long term care; moreover, about 27% will need two years or less of such care.  A deeper look at that 27% reveals that the majority of that segment spends well under two years in a facility.  The American Association for Long-Term Care Insurance (see concurs that about 50% of people will never be admitted to a nursing home.  But it calculated the odds slightly differently than the Wall Street Journal and determined that 20% of people stayed less than three months in a facility and another 10% stayed less than six months.  So that leaves only about 20% of the measured population whose nursing facility stay will exceed six months. 

Six months in a nursing home, at the national average, would cost about $41,500.  This is a much more manageable figure and one that is not out of reach for many people saving for retirement.  A big hit financially, to be sure, but survivable for most. 

So it comes down to a question of whether the one-chance-in-five of a lengthy (i.e. > 6 months) nursing home stay is worth insuring against with a long term care policy.  That might depend on your general state of health, family situation, and your family history when calculating your odds of needing care.

It could also depend on your marital status.  Married individuals, on average, spend much less time in a nursing home, presumably because they have a retired spouse at home to care for them, often eliminating the need for institutional care.

And reflecting the longer average life span of women, females tend to spend longer as patients when admitted to a nursing home because they survive their spouse (if they were married) and may not have someone to care for them as they age.

Financial planners tend to recommend buying insurance, including long term care insurance, to minimize risk for their clients, to protect financial assets.  I get that.  But they are also playing defensive financial planning: they don’t want to be sued by a client who ends up needing multiple years of skilled nursing care and draining all the money that he wanted to pass to his heirs, just because he wasn’t advised to purchase insurance.

I don’t think this insurance is a good deal for most people.  First, the premiums are very high and can keep rising.  If you stop paying the premiums before admission to an institution, you will lose coverage and have nothing to show for your premiums paid.  To make policies affordable in the first place, most of them are written with a 90-day elimination period, meaning it does not cover the first 90 days’ of care in an institution.  So right off the bat an additional 20% of people (on average) are going to get no benefit at all from the policy.

It’s also “buyer beware” when evaluating a policy.  There are many exclusions and exceptions to watch for, including non-coverage of some conditions or diseases, longer elimination periods, limits on amount paid per year, and length of stay limitations, to mention a few.  What I think are some alternatives to buying a policy:

1. Savings Together with Social Security or other regular sources of income, even $50,000 set aside for this purpose could be enough to cover a year in an institution.

2. Spouse and Family It’s old-fashioned, perhaps, and not always practical, but care by those who love you most can be the best care and keep you in the comfort of your home or theirs.  Savings could also be used to help them offset expenses.

3. Reverse Mortgage When you’re alone, out of money, need long term care, and have equity in a home, either selling it or converting to a reverse mortgage (assuming there’s someone able to care for the home and pay the taxes, insurance, and upkeep for you) may be a very good option, especially if you don’t anticipate returning.

4. Life Insurance If you’re counting on a spouse to care for you in old age but then the spouse dies early, a quarter-million dollar life insurance policy payout could buy you all the time you’ll ever need in a nursing facility.

I am not licensed to sell insurance and cannot advise you one way or the other on whether long term care insurance is a good buy in your unique circumstances.  But use your common sense and enlist some help in running the numbers as you review all your options and assets and plan for your future.

Until next time,


“But if a widow has children or grandchildren, they should learn to serve God by taking care of her, as she once took care of them.  This is what God wants them to do.” I Timothy 5:4 CEV