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By John F. Evans, MBA, CPA, CFP®, CRPC®
Investment management services provided by Brookstone Capital Management, LLC, an SEC registered investment advisory firm.   Read more about this blog.
 Phone: 814-464-0224
Posted: March 26th, 2012



You may have recently seen a news story featuring actor Mickey Rooney and his challenges in protecting his assets from his family.  Below is a link to an article that speaks to the issue of elder abuse by children and includes a video clip of his testimony before Congress.  I would like to address the issue of financial dealings between parents and adult children, both abusive and otherwise.  Let’s look at the non-abusive first.

When I meet with people the first time and am gathering information on their situation, I ask “Do you have any accounts or assets on which your children are joint owners?”  Why this question?  The reasons include:


  • If you put one or more of your adult children as joint owners of your financial accounts or other assets (your house for example), you cannot remove them without their written consent.  So, if an issue develops later with that child, your are stuck with the joint ownership unless they agree to remove themselves.
  • If an adult child who is a joint owner is sued, declares bankruptcy or gets divorced, the court may attach some or all of your account to pay for your child’s problem.  I have seen cases where the courts took 100% of an account to address a problem of one owner.


Given the above, I recommend that you avoid joint ownership of any accounts with your children.  Your children can help you manage your affairs if there is a valid Durable Power of Attorney in place; you can also name an adult child as an additional authorized signer on a checking account.  Just avoid joint ownership despite what the teller at the bank says.  If you choose to give your principal residence to your children, consider using a Life Estate Deed that permits you to live there as long as you wish provided you maintain the property, pay the property taxes and cause no liens to be placed against the property.  Again, I have seen cases where parents have been threatened with eviction due to the actions of their children.  Don’t let that happen to you!

As for abusive behavior, it can take many forms.  I have seen too many cases where an adult child continually borrows money from his/her parents to support a lifestyle beyond their means, to subsidize an addiction or to permit them the luxury of not working to support themselves.  I have seen parents virtually bankrupt themselves helping kids who were, in my view, taking advantage of their parents.  Also, children can put pressure on parents to distribute their estate now rather than waiting until death.  The argument is that “you can see all the good that your money will do”.  The problem here is that people are living longer and often need every penny they have to support themselves and pay for healthcare needed in their older years.  If you give the money away now, will your children support you later?

Finally we have the intentionally abusive or fraudulent actions.  These take the form of stealing the parents’ funds, investing in bogus financial schemes, pledging the parents assets as collateral for loans taken out by the children, etc.  These actions occur more frequently than we realize and are rarely prosecuted as the parents are often ashamed to admit their children would behave that way.  Given the reality that many baby boomers are coming into retirement with far less in savings than they need, I believe we will see a sharp increase in these instances of financial abuse of parents in the future.

I have helped many people evaluate their situation before committing to transfer money or other assets; I have also reviewed many financial and legal documents to make sure the interests of the parents are protected.  Finally, I have worked with a variety of attorneys to develop legal and estate plans that pass funds on at death in an appropriate manner.  If you are being pressured to part with your resources or just want to be sure that your accounts are set up correctly, give me a call and let’s find a time to meet.

Posted in: Uncategorized
Posted: March 20th, 2012


This week’s topic is one that draws a lot of interest, both pro and con, in the financial press – reverse mortgages. Let me begin by explaining them. A reverse mortgage gets its name because, in many respects, it is the mirror image of a conventional mortgage. For example, in a conventional mortgage the balance owed goes down over time; in a reverse mortgage it goes up over time. In a conventional mortgage, interest is front loaded, i.e., you pay a disproportionate share of the interest in the early years and less interest as time goes on. In a reverse mortgage, the interest accumulation is lower in early years and higher in later years. Finally, unlike a conventional mortgage, a reverse mortgage is not dependent on your financial situation or your health.

A reverse mortgage is a loan to a homeowner or homeowners who are age 62 or older. If there is any existing debt against the home, it must be paid off as part of the reverse mortgage as the reverse mortgage must be a prime lien. Once the home is appraised, the reverse mortgage lender agrees to lend about 60% of the appraised value of the property to the homeowners. The homeowners can take the loan proceeds in lump sum, in payments over their lifetime or in a line of credit to be drawn down as they see fit; the homeowners can select any one or a combination of these options. As the funds are drawn, the lender begins accumulating the mortgage balance comprised of the amounts outstanding plus interest. Obviously, interest charges increase as the amount outstanding grows.

Unlike a conventional mortgage, there are no monthly payments required in a reverse mortgage; the balance merely accumulates until the house is vacant due to death or a move out. Within one year of death or vacancy (or at the time of sale if the house is sold sooner than a year), the reverse mortgage must be paid in full. If the proceeds from the sale of the house are more than the balance owed on the reverse mortgage, the homeowners or their heirs get to keep the difference. However, if the balance outstanding exceeds the sale proceeds, the homeowners or their heirs are not responsible for the excess – that is paid by the Federal Housing Authority (FHA) as every reverse mortgage is an FHA-insured loan. So, the worst case your heirs would realize is not getting any equity from your house; they cannot be liable for any excess loan balance.

Why do people consider getting a reverse mortgage (other than because Robert Wagner and Fred Thompson endorse them on television)? People use a reverse mortgage to supplement their monthly income (remember that payments can be made for life, guaranteed by the reverse mortgage lender), to retire debt that requires monthly payments with a debt that does not require payments, to provide funds for necessary repairs without taking on monthly payments or to meet emergency situations. One reason NOT to do a reverse mortgage is to take the funds and invest them with the hope that you will earn more than the loan costs; I know financial advisors who have advocated that and I believe it to be unethical and inappropriate.

These days, there are a variety of reverse mortgage programs from which to choose. Some offer fixed interest rates while others offer variable or floating rates. Some have larger closing costs but lower ongoing costs while others trade a lower closing cost for higher monthly costs. The best way to explore the issue is to meet with a reverse mortgage specialist and get all the facts specific to your situation. Linked below is an article posted on our website that is a good quick summary of the key issues. I have helped many people investigate this option and know a great deal about how these programs work. Let me know if I can help you or a member of your family.

Click Here

Posted in: Uncategorized
Posted: March 13th, 2012


As you may have noticed, the stock market has moved up rather consistently over the last five months. For example, the S&P 500 Index rose 8.98% from January 3, 2012 through March 9, 2012, according to the website. When the market is moving up as it has been, it is tempting to forget that there are still a variety of challenges that could derail this rally at any point (see first linked article below). That is why many professional investors choose to take some of their profits “off the table” as the markets rise. They then reinvest and ride the markets up to another level. However, if the markets begin to fall, their only loss is from their most recent purchase point, having locked in the gains they made earlier. Unfortunately, many amateur investors believe the rally will never end so they don’t lock in their gains on the way up and tend to lose most or all of the gains when the markets correct. It is difficult to do very well with this behavior.

That is one reason, among many, why I recommend various types of fixed annuities for some of people’s savings. All fixed annuities guarantee the principal and credited interest (guaranteed by the insurance company) earned by the annuity so the owner cannot lose it. And, fixed indexed annuities even provide the option of having interest credited based on the performance of a market index (S&P 500 Index, Dow Jones Industrial Index, Nasdaq 100, etc.) without the chance of losing money if the markets go down. So, much as the professional investors do, gains are locked in when the markets are rising so they are protected from loss when the markets fall.

Linked below is an article that speaks to the use of fixed annuities as part of one’s investment structure. I believe these are an important part of an overall investment strategy and can be particularly helpful in providing sustainable lifetime income. I am appointed with all the leading fixed annuity companies including all those which offer lifetime income benefit riders. I would be pleased to help you select an annuity with the features and benefits that best meet your needs.

Click Here

Click Here

Posted in: Uncategorized
Posted: March 6th, 2012


This week I want to comment on the issue of paying back student loans. I recently met with a young couple to assist them in organizing their finances. They both work and earn a six figure combined income but have student debt, mortgage debt, car debt and credit card debt to pay. They have little saved for retirement right now, but that was a big part of the reason they came to see me.

I realize that young people today start with a lot of challenges before them. Jobs are harder to come by than many times in the past, many folks are starting life with an overhang of student loans and there is a great deal of peer pressure to live for today and forget about tomorrow. That is a pretty tall order to tackle. However, let me share an illustration I gave them.

Let’s say you are 20 today, you intend to work until 65 and then live 30 years in retirement. You want a retirement income from your savings of $50,000 a year in today’s dollars exclusive of Social Security (if it exists 45 years from now). Let’s assume inflation is 3% per year and we earn 6% per year on our savings. If we calculate the future value of $50,000 today 45 years from now we get about $189,000 per year. If we want $189,000 per year, adjusted for inflation, for 30 years we need over $3.9 million saved at age 65! Obviously it would be difficult for most people to save $3.9 million but not if we let good old compound interest do its thing. For example, a dollar saved at age 20 earning 6% compounded for 45 years is worth $42.64 at age 65!

The key is to start early. In order to have $42.64 at age 65 if you save at age 40, you have to save $2.56 – about two and a half times as much as at age 20. Clearly, there is much greater benefit to saving early, BUT, how do you square it with paying off all that student debt? The key is to balance the needs in a way that best fits your specific circumstances. As the linked article points out, sometimes the best strategy is to stretch out the maturity on the student debt thus lowering the payments so you can start saving the difference. Then, as your situation improves, you can reduce the maturity to pay it off sooner. Or, you may be able to refinance or restructure the loans into those with a lower interest rate, permitting you to save the difference.

Saving for retirement is usually the last thing on any 20 year olds’ mind but it should be high on the list. I see people every day who waited until they were 50 to start saving seriously and, because they started so late, many will have to work until their late 60’s or beyond in order to accumulate the funds they need. Don’t let that happen to you. If you need help in this area, give me a call and let’s get together.

Posted in: Uncategorized
Posted: March 2nd, 2012


A lot has been written recently about the interest the government has in adding annuity choices to the menu of options available to plan participants (see my previous posting regarding recent Department of Labor rule changes). Interestingly enough, it seems that some states are going the opposite direction with 403(b) plans (see linked article below).

403(b) plans have been in place for decades. They cover employees of healthcare and educational institutions. They are often referred to as Tax Sheltered Annuity or TSA plans. In the past, there was no employer match in these plans as the sponsoring organizations usually had a defined benefit pension plan for their employees. However, most healthcare organizations discontinued those plans years ago and more educational institutions are following suit these days.

As the article notes, the traditional provider of 403(b) plans were insurance companies. The funds in an individual’s account could be placed in a traditional fixed annuity with a guaranteed* interest rate or in a series of mutual funds provided by the insurer. Upon retirement, the participant could rollover the account to an IRA invested in whatever the participant chooses.

Evidently, plan sponsors (employers) believe that the employees would be better served if there were different investment options available. Personally, I think it may have more to do with the fees charged the sponsor by the plan administrator. Either way, the new plan administrators are, in all likelihood, going to be investment firms whose previous experience is in the 401(k) world. Given how many 401(k) plans have fared overtime, I’m not sure this is a step in the right direction. While the typical TSA plan in a fixed annuity might have earned only 3 or 4% per year in the past, it never lost money* so it never had to recoup losses. Also, you never had to change investment choices to try to protect the money – it was already protected. Don’t get me wrong; I have no problem with offering both risk and safe options and letting the employee decide. I am just nervous that once the Wall Street firms get their nose in the 403(b) world, the only choices will be risk options with all that those bring. Many a teacher or nurse has lived a financially secure life in retirement due to the savings they accumulated in their TSA plan; they are often in much better “shape” than the 401(k) plan participants I meet.

If you have a 403(b) plan at work and want to second opinion on the choices available to you, let me know and we’ll find a time to meet. If you don’t have a plan available but work for an organization that could sponsor such a plan, I can help your employer implement one. Finally, if you have a plan that isn’t meeting your needs, I can offer a range of both safe and risk alternatives to your employer as an addition to the current plan.

Posted in: Uncategorized
Posted: February 22nd, 2012


This week I want to address the issue of long term care, specifically how to pay for such care. A great deal of attention is given by the media to the financial plight of the Medicare program, with its 50 million current beneficiaries and the Baby Boom generation about to add 80 million more over the next 16 years or so. However, little attention is paid to what is happening to the Medicaid program and how it may affect many older adults for decades to come.

First, let’s understand the difference between Medicare and Medicaid. While both were enacted at the same time, 1966, they cover different populations. Medicare, which is funded and administered by the Federal government, provides medical care to those 65 and older regardless of financial status. Medicaid, funded jointly by the Federal and state governments and administered by the states, provides medical care for those who are indigent, i.e. poor, regardless of age. Those who are both 65 or older and indigent can be covered by both programs – they are known as “dual eligible” people.

Medicare’s only coverage of long term care services is for 20 days of post-acute care services while recuperating from a hospital stay; otherwise there is essentially no coverage. On the other hand, Medicaid covers skilled nursing care for millions of people who meet both medical and financial criteria. In addition, Medicaid pays for some home care services in a number of states. However, Medicaid’s future is questionable given the financial challenges facing both the Federal and most state governments. Paul Ryan, House Budget Committee Chairman, has proposed that the Federal government provide block grants to the states for Medicaid; while this sounds good at first, I believe it is a first step to distancing the Federal government from the Medicaid liabilities the states are bearing. As evidence of this, many states, including Pennsylvania, are limiting growth in the skilled nursing licensed bed complement – in fact, in many states the number of licensed beds is actually shrinking as a result of Medicaid cuts (see linked article below). It is hard to reconcile reducing the bed complement in nursing homes at the same time as 80 million more people enter their senior years and longevity continues to increase.

Where does that leave us if we cannot count on government to pay for our care in our older years? It leaves us with that responsibility. At today’s prices, care is not inexpensive and it is rising in cost at about 5% per year. Genworth Life recently published their LTC cost summary for 2011; it is posted on their website (click of the Key Findings tab at . If you fast forward twenty years and consider what three years of skilled care might cost, it could be in the $600,000 – $750,000 range. Very few people have the savings to afford that kind of hit. Alternatives to draining all your resources include buying traditional long term care insurance, life insurance policies with LTC riders and annuities with LTC features. The time to consider these options starts when you turn 50 or so because the premiums are much lower then and your health, in all probability, is not an issues. The longer you wait to act, the more expensive these options are and the higher the probability that your health becomes an issue.

Finally, many people suggest that they will rely on their spouse or children to provide their care. That is not as easy as it sounds. First, you may need care well beyond what they can provide. Second, relying on a family member changes that person’s life forever (see second article below). I’ve seen too many instances where people are literally killing themselves taking care of a sick spouse or parent – is that the future you want for your family? So, if you are over 50, stop procrastinating and start exploring options. Living longer is a wonderful thing PROVIDED you are prepared for the challenges that come with age. I help many people examine these issues and would be pleased to help you.

Texas nursing homes concerned over Medicaid cuts

The Impact of Caregiving on Health and Finances

Posted in: Uncategorized
Posted: February 8th, 2012


My topic this week centers on 401(k) plans. These plans were introduced in 1974 as part of ERISA – the Employee Retirement Income Security Act. Individual Retirement Accounts, or IRAs, were also part of this legislation. Congress created these savings programs for small businesses (401(k)s) and self-employed people (IRAs) who were not covered by traditional defined benefit plans. However, as time went on, many larger employers which had defined benefit plans decided to replace those plans with a 401(k) plan. Why did they do that?

1. The funding of a defined benefit plan was virtually all with the employer’s money; a 401(k) plan is predominantly funded by the employee through payroll deduction.

2. The investment risk of a defined benefit plan is borne by the employer. However, if the value of a 401(k) plan account falls, it is the employee who suffers.

3. The longevity risk (how long you live) is borne by a defined benefit plan – if people live longer, it costs the employer more. In a 401(k) plan, the employee bears the longevity risk alone.

Since their introduction, 401(k) plans have become the most common retirement plans in America and traditional defined benefit plans have faded away in the private sector and are starting to be challenged in the public sector as well. One of the criticisms of 401(k) plans is that many have high fees and these are not disclosed to the plan participants (the employees who contribute). That is about to change. A rule that was part of the recent financial reform legislation is being implemented which requires plan administrators (the company which manages the plan) and plan sponsors (the employer) to disclose the fees being charged. As the first linked article below suggests, this could be good for plan participants although I believe many will be shocked by the level of fees they have been paying. The second linked article below speaks to managing the 401(k) from a fees perspective.

A number of the people I meet express disappointment in the performance of their 401(k) plans. Once they learn more about the fees, their disappointment may rise. I help many of my clients manage their 401(k) plan choices to improve their performance, however, many 401(k) plans just don’t offer many attractive options. That is why we often ladder our retirement savings using a combination of 401(k) plans, traditional or Roth IRAs and after-tax savings to maximize performance, reduce fees and create lifetime income structures. If that concept has appeal, give me a call.

Posted in: Uncategorized