Matt and Selena Jenkins are both 61 years old and have recently become your financial planning clients. Both are still working and plan to continue work until at least age 67. Matt works in the marketing department of a pharmaceutical company and earns $120,000 per year. Selena is a manager in a hospital pathology department and earns $160,000 per year. They have 2 grown children who are both married and are on their own, financially.
Neither Matt nor Selena will receive a defined benefit pension in retirement. They estimate that their combined Full Retirement (FRA) for Social Security will be $5,500 a month. They each contribute about $15,000 to their employer 401(k) plans, but because they had high education debt early in their careers and then paid for their children’s college education, their combined retirement fund balance is “only” $850,000 in these employer accounts. Their employers do match 50% of their contributions, on the first 4% of their salary contribution. They recently liquidated stocks in a Joint brokerage account in the amount of $40,000, due to concerns about the market. Matt inherited $120,000 from an aunt who died last year. This money is currently sitting in a money market account. In addition, they have $25,000 in a bank reserve account.
Matt and Selena are currently monitoring the health of Matt’s mom, who is 89 years old and lives at Oakcrest retirement community independently, and Selena’s dad, who is 90 and living in an assisted living facility. They know that many of their parent’s friends are in tough financial shape due to health care concerns, and neither one of their parents has long term care insurance. As a result, Matt and Selena have concerns about protecting themselves from the rising cost of long-term care.
They continue to have concerns about their ability to fund the type of retirement that they envision, which is estimated to require income of at least $12,500 per month in today’s dollars, before taxes. They are hesitant to overspend for long term care insurance because they are concerned that they may pay a lot of premium but never need the insurance.
They have come to you with the questions:
- Are we in good shape to retire if we are ready at Age 67?
- How should we prepare for the costs of long-term care for our own situation? Should we self- fund, or buy traditional stand-alone long-term care insurance, or perhaps buy a “hybrid” type policy that we’ve heard a little about but really don’t understand?
You are to present to Matt and Selena:
- 1) Their current retirement picture, based on the calculations you will run from the Retirement chapter and the following statistics. (Retirement Planning Chapter , Financial Planning Book)
- Their investments are expected to earn 7.5%, general Inflation is expected to be 3.5%, and they think they may live to be 95, each. They are not concerned with leaving any money to their kids.
- If they will not have saved enough by age 67, you will present them with:
- What additional amounts they would need to save (monthly or annually)
- 2) An explanation of their alternatives for long care coverage, including an overall recommendation. You will need to research the cost of long-term care in the area (Matt and Selena now live in Maryland), the expectations for future increases, and the amount of coverage that is needed given their financial situation, the current typical cost for stand-alone coverage, and “hybrid” LTC insurance alternatives. You will need to present this information to your clients, then recommend what you believe is the best solution. You should, also, explain how the need for long term care may impact their retirement plans as well as how funding their LTC coverage might impact the retirement plans as well.
The project should be addressed to Matt & Selena, as you would present it to them. The grade will be based on the comprehensiveness of the project, the research and the factors included in the rationale supporting your recommendations. The long-term care recommendation should consider coverage needed, the cost of the coverage, and how the recommendation fits into their overall retirement goals and situation. The retirement picture can be presented in whatever manner you choose, either written or graphic, with all supporting numbers shown.
Scores will be based on:
Thoroughness and creativity of the retirement plan, including all relevant calculations, based on their concerns and present situation.
Clarity of the description and explanation of their retirement picture, and any alternatives if needed.
Depth and accuracy of research for Long-term care costs, inflation expectations, etc.
Thoroughness of explaining the 3 funding options for long term care and their average costs and how each applies to Matt & Selena’s specific financial situation.
Clear, detailed recommendation for Matt & Selena concerning the LTC coverage alternative you believe they should select and its impact on the retirement plan.
