LONG TERM CARE INSURANCE
Q. Mike, I am a married, retired member – age 60. I am considering purchasing long term care. What is your recommendation?
A. I must first tell you that my wife and I have long term care insurance purchased through the Public Employees’ Retirement System’s long-term care program. I purchased it right around your age. I am not sure that I could get the coverage now and, if I could, the cost would be considerably higher.
During the SFPD-POA Retirement Planning seminars, I urge all prospective public safety retirees to seriously consider the purchase of long-term care.
In a recent survey by Sun Life Financial only 36% of Americans over the age of 50 believe they will need long-term care. This compares with the U.S. Department of Health and Human Services estimate that 70% of people over 65 will need it. This Sun Life survey revealed that, while paying for long-term care in retirement is a primary worry, the larger worry is how to pay for this insurance.
Most financial planners, when talking about long-term care, say “Don’ Grow Old Without It.” According to most financial experts, long-term care is a must have. While I would not go that far for police officers’ given their ability to self-fund with their monthly retirement benefit, I do say that long-term care is worth serious consideration.
And when considering long-term care insurance: (1) go for higher daily benefits for a shorter time period – I recommend 3 years, (2) chose a 5% compound inflation protection especially if under age 60, (3) don’t hide your medical history, and (4) consider the savings if you and your spouse get the insurance together. For, besides your age and health, the three factors that have the biggest impact on determining your premium are: the daily benefit, the length of coverage, and the inflation protection you choose. Inflation protection is important because people typically make their first claim for long-term benefits at around age 80.
Also, the insurer can raise premiums after you have begun coverage. It would be realistic to expect at least one increase in the 20% range at some point. For me, with my PERS long-term policy, an increase of about 15% has already occurred.
Remember that long-term insurers are getting pickier. So if you are going to purchase this insurance do it now when you are at age 60. Recent statistics from Genworth show that 11% of applicants under age 50 were denied, 17% of applicants in their 50’s were denied, and 24% of those in their 60’s were denied coverage due to existing medical conditions. People with diagnosed memory loss or arthritis are almost always denied and insurers are getting tougher on osteoporosis and diabetes. Insurers scrutinize two to three years’ worth of medical records. They may also require phone
interviews or face-to-face meetings. Much of what the interviewer asks is designed to screen for cognitive problems.
Recently a retired police officer told me that he purchased longevity insurance after considering, but not purchasing long-term care coverage. He purchased it from Met Life. At age 62 he invested a relatively modest amount of money ($50,000) to get a guaranteed monthly ($1,500) lifetime payout starting at age 85. This was his solution to the long-term care issue.
COST OF LIVING – PRICE INFLATION
Q. Mike, I retired in 2003 in the Tier I safety plan. I have received annual cost of living increases which, though helpful, never seem to be that large. Should I worry about inflation?
A. Remember the HEBEL 1st principle for a sustainable retirement: “Maintaining purchasing power is the only thing that counts! Never forget this.”
The CCSF Retirement System recently conducted an analysis of price inflation from 1962 through 2011. For that entire period the average annual rate of inflation for the SF/Oak/SJ area was 4.3% while the national average was 4.1%. During the period in which you have been retired, the SF/Oak/SJ urban CPI index measuring the average annual rate of inflation was 2.0% while the national average was somewhat higher at 2.4%. The worst period was 1972 – 1981 when the average annual rate of inflation for SF/Oak/SJ was 8.6% (8.4% nationwide).
While the average annual rate of inflation has been low, by historical standards, for the period in which you have been retired, it averaged 3.3% (SF/Oak/SJ) from 1992 through 2001 and 4.4% for this same region for the period of 1982 through 1991. Were inflation to return to these annual averages, even with a basic (2%) and supplemental (added 1.5%) COLA, maintaining your purchasing power would be a challenge. While I do not presently worry about inflation, I am most aware that it may return to its previous historical averages in 2014 and thereafter when the US Federal Reserve begins to raise short-term interest rates. Keep your eye on the Fed.
SUPPLEMENTAL COLA FOR FY 2012-2013
Q. Mike, I plan on retiring prior to July 1, 2012. I know from reading your last “Ask Mike” article that I will receive the basic cost of living adjustment for fiscal year 2012-2013. Do you think that I will receive a supplemental COLA for this same period?
A. NO! For two reasons you will not receive a supplemental COLA in FY 2012 – 2013. Firstly, there is the issue of Proposition C (November 2011) which prohibits the payment of a supplemental COLA from July 1, 2012 onward until the Retirement System’s investment fund is at 100% based on market value. The System’s funding ratio (market value) when last reported upon (July 1, 2011) was 83.9% - this is a long way from the required 100 % requirement. It is my current best estimate that the Retirement System will not reach 100% market value funding until 2017 at the earliest. And therefore, absent successful litigation by the retirees’ Protect Our Benefits, no supplemental COLA will likely be paid for the next 5 years.
Secondly, there will be no supplemental COLA for 2012-2013 because, absent a red hot April – June investment performance, there will not be excess funds with which to pay a supplemental COLA. Remember that the Retirement System must earn in excess of 7.66% to pay this COLA. As of February 29, 2012, the System’s earnings, fiscal year to date, were 2.44%.
See the Chart below showing the SFERS monthly assets from June 2007 through February 2012. Note that the System reached its apex in October 2007 at $17.4 billion. It is presently just over $15.5 billion.
JAY HUISH – SFERS INTERIM EXECUTIVE DIRECTOR
Effective February 14, 2012 Gary Amelio, executive director to the SF Employees’ Retirement System, resigned to assume a position with the Santa Barbara Retirement System. The Board asked Jay Huish, the System’s deputy director for the last 17 years, to serve as interim executive director; Jay accepted.
Mr. Amelio served a little more than 2 years following the retirement of Clare Murphy. He previously worked in Washington, DC and was appointed following a nation-wide search for Ms. Murphy’s replacement.
The Police Officers’ Association urges the Retirement Board to quickly appoint Jay Huish as the executive director of the SFERS. Jay’s impressive past performance has shown that he has the requisite leadership and management skills needed to fulfill the duties of this most important position as well as the background knowledge of our multiple retirement plans and the beneficiaries of these plans. Most importantly Jay Huish has the loyalty and commitment to our Retirement System that the executive director’s position demands.
Mike Hebel has been the POA’s Welfare Officer since January 1974. He is an attorney and a certified financial planner. He has received awards/recognition as a Northern California “super lawyer” and included amongst “America’s top financial planners.” He represents POA members at the City’s Retirement Board and at the Workers’ Compensation Appeals Board. He also advises on investment matters pertaining to the City’s deferred compensation plan. He is currently a member of the SF Police Credit Union’s Board of Directors. Mike served with the Police Activities League (PAL) as president and long-term Board member. Mike retired from the SFPD in 1994 with the rank of captain after a distinguished 28 year career. He served as the POA’s Secretary and on its Board of Directors for 19 years. Mike is a frequent and long-time contributor to the POA Journal. If you have a question for Mike, send an e-mail to mike@sfpoa.org or call him at 861-0211.
