Q. Last year my wife and I moved into a Continuing Care Community. We couldn't be happier. The transition was a bear— but it is wonderful to be free of the expense and obligations of home ownership. We also like having our possessions downsized to just what we really need. We moved while we were
still sound of mind and body, but it is a comfort to know that when that changes— as it surely will if we live long enough— we have options right here that will ease the transition for our heirs.
Now, we need to do the same for our financial house. It is becoming more
onerous to keep track of everything. At some point it will become impossible. The transition, I assume, would involve settling on an appropriate asset allocation for this stage of our lives. Then we would need to figure out the most tax-efficient way to get there. After that, we need to find someone—
or an institution— who would take over the management of those assets when
we can no longer handle it. Where do we start? —J.B., by email
A. Finding an asset manager may be both premature and expensive. Since you are a long way from not being of sound mind, you can consider a program of basic simplification. This would reduce the number of assets you hold to an amount you can work with rather than having the “scattered asset syndrome” problem that many people have by the time they are in their 70s.
You can, for instance, have a well-diversified portfolio with no more than five or six low-cost index funds. The competition in the exchange-traded fund market continues to reduce expenses so that you can now manage a well-diversified portfolio for less than 0.10 percent a year. The reason to prefer this route is that owning separate funds representing different asset classes allows you to do some smart tax management in taxable accounts.
An even simpler alternative is to select a single fund that presents a balanced portfolio that mixes stocks and bonds. Either way, you can then arrange with the mutual fund company to make regular redemptions from a chosen fund (or funds) so that the desired cash goes to your checking account. A person with only a slight interest in money can do this quite easily until they are truly no longer competent. In the meantime, you’ll be saving somewhere between 1 and 2 percent a year in management fees.
Q. I am wondering if I should cancel my personal long-term disability insurance policy. For 15 years, I have had a personal LTD policy that will cover about 2/3 of my income until age 65. It was important then because my four children were young and my assets were small. But now I am 54, the kids are gone, my wife is working, and I have assets (good, but not great). I also have terrific genes, and my doctor said that, given my health, he would happily write me disability insurance, even knowing that accidents do happen.
The policy costs me about $5,000 a year. A good option is through work: I have an LTD policy through work covering 40 percent of salary. I can also buy up to 60 percent coverage and it is less expensive than the personal policy. The only downside to canceling my personal policy is that if I change jobs, I need to hope next company has a long-term disability policy option.
What should I think with respect to retirement when considering canceling? —J.B., Austin, TX
A. With a purchased policy covering 2/3rds of your income, a policy through work covering 40 percent, and a (not mentioned) policy through Social Security, you’re covered for a good deal more than you earn. One thing you can do is reduce the coverage of the policy you pay for, even if you don’t eliminate it.
You have two assessments to make. The first is to make an appointment at the local Social Security office and find out what your disability benefit would be if you were disabled. The second task is to consider how secure your current job is. If your job is secure, the combination of the work policy and Social Security disability is probably sufficient. So you can add that $5,000 a year of premium money to your annual savings.
That way, your assets can move from good, toward great.