Granted...probably no surprise there, but I found out something today that further convinces me that the standard GI issue family should think long and hard before turning down the Survivor Benefit Plan (SBP).

I was trying to place Long-Term Care Insurance (LTCI) for someone.  I received quotes from the Federal LTCI program and talked to my trusty LTCI specialist.  The commercial market couldn't match what the Federal LTCI program could provide.  Comparing comparable benefits the least expensive commercial product was nearly $1,200 (43%) per year more.  The most expensive policy was nearly $2,000 (73%) per year more expensive.  Why?

The commercial insurers have started to charge based on gender...the Federal LTCI program still prices gender-neutral.  Women tend to live longer and are more likely to use Long-Term Care so their commercial LTCI is priced higher.  The person I was placing the policy for is a woman.  She is also a widow and since widow's are also more likely to use Long-Term Care (no one at home to take care of them) their premiums are higher too.  So a "double-hit" on premiums.

So, I decided to go with the Federal LTCI program.  As you may already know, military members and retirees are eligible to apply for Federal LTCI.  I did a last check on premiums and eligibility and my heart sunk.  As I read the eligibility requirements it said the surviving spouses of Civil Service employees are eligible for the Federal LTCI if they receive a survivor's annuity.  There wasn't a comparable statement about military retirees.  So I called the Federal LTCI information line and my fears were confirmed.  Surviving spouses of military members must be receiving SBP payments to be eligible for the Federal LTCI program.  My client is not eligible.

So what is the lesson?  I see two.

1. If you've retired already and haven't taken SBP, don't delay your LTCI decision.  The Federal LTCI program may not be your best bet, so comparison shop but check it out while you still have time to chose between the commercial and Federal program.
2. If you're still on active duty and are trying to decide on whether you should take SBP, this may tip the scale towards SBP versus another option.

Long-Term Care Insurance is a complicated product and not the easiest thing to understand.  Make sure you get competent advice before you make any decisions.

Do you know what your 401(k) retirement plan pays in fees? Thanks to recent legislation, this information is now required to be disclosed to you at least once per year. Being aware of these fees can provide insight into how your plan is managed and can help you decide how you will invest your contributions.

There are generally three categories of fees, two of which apply to the retirement plan itself and one that pertains to its investments.

1. Administrative expenses: The costs of operating the plan are referred to as administrative expenses. They include fees for legal, accounting, and recordkeeping services as well as participant communications and education. These fees are paid by every participant in a plan on a proportional basis and are usually expressed as a dollar amount for the plan as a whole.
2. Individual expenses: Individual expenses are the costs that may be charged against the plan account of individual participants for actions they prompted themselves. They could include fees for processing plan loans, fees for investment advice, commissions, sales charges, redemption fees, and optional rider charges in any annuity contracts that may be a part of the plan.(1)
3. Investment product fees: Every investment option offered through your plan charges its own level of fees. As these fees reduce the rate of return you will receive, being aware of them can be helpful when comparing investment options. Investment product fees are expressed in two ways--as a percentage of assets and in a dollar amount for each $1,000. The most common types of investment product fees are as follows:      

• Total operating expenses: This fee combines operating expenses and the expense ratio for a given investment. Operating expenses describe the administrative costs to the investment management company for the day-to-day investment of the funds, such as transaction costs for buying and selling shares.(2) An expense ratio is the cost of investing and administering assets, including the fees charged to an investment firm to manage the funds.
• 12b-1 fees: This charge covers the servicing, distribution, and marketing costs of the fund.
• Sales charges: Although sales charges are not common, you may run into them. Also called a sales load, a sales charge is a fee related to the purchase of funds, that is, whenever you make a contribution or withdrawal. There are two types: A front-end load is charged when the investment is made and a back-end load is charged when shares of the fund are sold.
• Annuity fees: For plans that offer the option to invest in annuities, fees would also include the cost of providing guaranteed death benefits prior to retirement and guaranteed lifetime benefits to retirees who live longer than their life expectancies.

When evaluating the fee disclosure document you receive from your retirement plan administrator, keep in mind that the most appropriate investments for you may not necessarily be the least expensive. The fee disclosures can, on the other hand, help you prepare questions to share with your plan administrator or financial professional.

Source/Disclaimer:

(1) An annuity is a long-term, tax-deferred investment vehicle designed for investment purposes and contains both an investment and an insurance component. They are sold only by prospectus. Guarantees are based on the claims-paying ability of the issuer and do not apply to an annuity's separate account or its underlying investments. The investment returns and principal value of the available sub-portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.

(2) Investing in mutual funds involve risk, including loss of principal. Mutual funds are offered and sold by prospectus only. You should carefully consider the investment objectives, risks, expenses and charges of the investment company before you invest. For more complete information about any mutual fund, including risks, charges and expenses, please contact your financial professional to obtain a prospectus. The prospectus contains this and other information. Read it carefully before you invest.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2014 Wealth Management Systems Inc. All rights reserved. 

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