Wake Up!— Four recent trends threaten your financial future. But don’t get scared, say Thrivent Financial experts. GET PREPARED.

By Jack Gordon

The good news is, your golden years are likely to last longer than your parents’ did. The bad news: That means your money has to also. Retirement is no time to fall asleep at the switch.

Thrivent Financial for Lutherans experts point to three issues that retirees should address without delay—and one relatively new financial option you might want to consider.

Wake Up #1: Your Money Has to Last
Life expectancies have risen to the point that it is common for people to live well past 80. Retire at 65, and you may be dipping a bucket into your income stream for 20 or 30 years. How can you make sure the stream doesn’t run dry before you do?

“There are different risks at this stage of life,” says Mark Simenstad, vice president of fixed-income investments at Thrivent Financial. “The concept of ‘risk’ used to mean that the stock market dropped or you lost your job. Now a major risk is that you might outlive your assets.”

One implication, Simenstad says, is that retired people have to “migrate away from a one-dimensional view of financial planning. During your working years, it was all about accumulating a pot of money. But if you want an income stream, it’s multidimensional—some from Social Security, some from a 401(k), maybe some from a pension.” And, he adds, maybe some from annuities or other assets, including your house. (More on that later.)

If your other sources of income dry up, trying to make it on Social Security alone is a bleak prospect. If you’re over 65, you probably needn’t worry about Social Security’s solvency; the U.S. Social Security Administration’s Board of Trustees says the current system won’t reach the red until 2041. But since the average Social Security payment for a retired worker in 2005 was $955 a month ($1,574 for a married couple), you could be pinched enough even with the system as is.

When it comes to investing, Simenstad says, a common mistake retirees make is to get too conservative. “You think, ‘I’ll just put everything in a bond portfolio.’ But if you’re going to live another 20 or 30 years, inflation can undermine your financial plan. You still need to assume some risk in order to generate some capital appreciation.” Put simply, he says, some of your assets need to generate income, while “others need to grow the pot you’re drawing from.” If you are pursuing a bonds-only strategy, a visit to your Thrivent Financial representative is in order.

There are ways to ensure you’ll have at least some additional income no matter how long you live. For instance, he suggests talking to your Thrivent Financial representative about an “immediate-pay annuity,” in which you put up a lump sum of money that guarantees you an income stream for life—even a very long life.

Wake Up #2: Beware of Care
In 2000, Thrivent Financial member Mabel Kauffman of Leesport, Pennsylvania, was 84 years old—just beneath the cutoff age for buying long-term care insurance. Her husband, Clarence, was 86, one year past the eligibility point. The Kauffmans were receiving some extra income from their annuities and banking it. To help protect their estate for their children, they bought a long-term care policy for Mabel from Thrivent Financial. “I would have gotten it, too, if I could,” says Clarence, now 92.

In 2004, Mabel’s failing health and lack of mobility forced her into a nursing home, where she remains today, while Clarence continues to live at home. The cost of her nursing-home care is $6,000 a month. The insurance policy pays $5,000 of that.

Because of Mabel’s age at the time she bought the policy, “we couldn’t get enough coverage to pay all of the costs,” explains the Kauffmans’ Thrivent Financial consultant, Ted Ennis, of Wyomissing, Pennsylvania. “Mabel bought the amount of coverage they could afford in 2000.” Since the policy pays the bulk of the expenses, however, the Kauffmans expect to be able to pass their house and other assets to their heirs.

The wake-up call here: There is such a thing as waiting too long to think about long-term care insurance. Sooner is always better.

“You run into all kinds of objections against long-term care insurance,” Ennis says. “‘What if I never need it? I won’t need it for 20 years. I refuse to go into a nursing home.’ The trouble is, you don’t always have an option.”

What’s more, Ennis says, “the biggest myth about long-term care insurance is that it’s only about nursing homes.” The vast majority of insured people use the benefit to remain at home, he says, with the money going to home-care providers or to do modifications to the house. Mabel Kauffman was able to remain at home for an extra year, thanks to a stairway chair installed in 2003 that was paid for by her insurance benefits.

If you are uninsured when you do have to move to a long-term care facility, the expense can destroy any other financial and estate planning you may have done. A 2006 study by Genworth Financial found that 65 percent of Americans have made no long-term care plans for themselves or a spouse, and that the average cost of a private room in a nursing home is $70,912 a year and the average hourly rate for a home health aide is $25.32.

Can your budget or your estate plan withstand a hit like that? If not, it’s time to wake up and revise your strategy to include provisions for long-term care.

Wake Up #3: What’s Up, Docs?
Assuming you have drawn up a will and medical directive—and if you haven’t, do so immediately—are they up to date? And do your children or representatives know where to find them?

A 2005 Gallup poll showed that 60 percent of Americans have no will. If you die without one, your estate likely goes to probate, where it may be tied up for months. And whether a judge’s eventual ruling on the disposition of your assets will agree with your preferences is anybody’s guess.

As for a medical directive, living will and a medical power of attorney—legal documents stating the type of health care you wish to receive if you become seriously incapacitated and naming someone to make decisions for you—you are more likely to have thought about the issue than actually to have visited an attorney. According to the U.S. Living Will Registry, which keeps medical directives in a central repository, 75 percent of Americans say they are in favor of advance directives, but only 25 to 30 percent have prepared one. And even when advance directives exist, 35 percent of the time they cannot be found when needed.

Ennis says there are three key things to keep in mind with regard to wills and medical directives. First, have them. Second, be sure somebody knows where they are. Third, keep them up to date. “Typically, people put together a will and it gathers dust,” he says. “Your circumstances can change. Your beneficiaries can change. Tax laws change, so the way your will works from a tax perspective may change. This is not something you can do once and then forget about.”

Wake Up #4: When (and When Not) to Throw It in Reverse
A reverse mortgage is a relatively new option available to people over age 62 who are “house rich but cash poor,” says Dale O’Keefe, Thrivent Financial Bank’s assistant vice president for mortgage lending.

A reverse mortgage is an arrangement whereby a financial institution gives you either a lump-sum payment (to finance a health emergency, let’s say) or a monthly income, which is secured by the equity in your home. Unlike a conventional mortgage loan, in which a borrower makes monthly payments, with a reverse mortgage, the borrower receives a monthly (or, again, lump-sum) payment.

The monthly payments continue for as long as you own the home. As interest rates change, increases in the loan balance will vary, but the payments you receive remain constant, O’Keefe explains. They keep coming even if you live so long that their sum exceeds the total value of the loan.

If the proceeds from the eventual sale of the home are insufficient to pay the amount owed, the government will cover the difference. (The Federal Housing Administration collects an insurance premium from all borrowers to provide this coverage.) “You can’t wind up owing more than the house is worth,” he says.

These instruments aren’t for everyone, he cautions, and Thrivent Financial Bank offers them only in select states. “Before people take out a reverse mortgage, we require them to go through counseling with an FHA-approved counselor,” says O’Keefe.

Reverse mortgages are ideal for homeowners with a lot of equity—those whose regular mortgages are almost or completely paid off, and who have no other liens against the property. The amount you can borrow against your equity depends on your age, since life expectancy factors into these loans. “The older the borrower, the larger the lump sum or the monthly payment you’ll qualify for,” O’Keefe says. Other variables include the state you live in, the value of the home and current interest rates. Additionally, the amount you can receive is dictated by the FHA lending limit for the county in which the borrower resides.

O’Keefe offers the example of a 65-year-old borrower in Appleton, Wisconsin, with a house valued at $250,000 and no outstanding liens. At the FHA’s monthly adjustable rate as of April, the borrower would qualify for a lump sum up to $97,556 or a monthly payment of $606. At the annually adjustable rate, the lump sum could be no higher than $69,280 and the monthly payment would be $509.

Eden Prairie, Minnesota–based Jack Gordon wrote “51 Smart Money Tips” in the Spring 2006 issue of Thrivent magazine, available at www.thrivent.com/magazine/archive.

Thrivent Financial Bank is an Equal Housing Lender.

How It Can Pay Out
Monthly income from an immediate (or payout) annuity depends on the payment structure you buy. This hypothetical example is based on a married couple, both 75, who bought a joint $100,000 annuity from Thrivent Financial at June 2006 interest rates. It assumes no reduction in payment to the surviving spouse after the first dies.

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