Bob’s Journal for 4/30/20

Major Changes Are Coming to Long-Term Care Insurance

Major changes in long-term care insurance are slipping through unnoticed, and that’s causing people to miss opportunities.

For several years, I’ve been recommending hybrid long-term care insurance (LTCI) policies instead of traditional LTCI. Hybrid policies are annuities or life insurance policies that provide long-term care benefits.

The LTC benefits are a multiple of the amount you put in the policy, which is often three times or more of that funding.

For example, if you deposit $100,000 into an annuity with LTC benefits, you’ll receive interest on your account value each year. You’ll also have long-term care benefits of $200,000 to $300,000 and perhaps more, depending on your health and the policy you select. Life insurance policies can have a higher LTC coverage limit.

Traditional LTCI suffers from a history of premium increases, low sales and doubts whether the insurers will survive. Hybrid policies have been much more popular in recent years.

In 2020, insurers offering hybrid LTCI steadily increased premiums or offered less coverage on new policies. (Another advantage of most hybrid policies is the premiums and coverage can’t change once a policy is issued.)

The premium increases are caused by persistently low interest rates, uncertainty over the effects of the coronavirus pandemic and actions of competitors.

My recommended insurance expert, David Phillips, just informed me that our favorite hybrid LTC insurance policy is going to have a 20% premium increase on June 1. Fortunately, we received advance word of the scheduled increase.

If you haven’t developed your LTC funding plan, now is the time. It’s only going to cost you more in a few weeks.

For more details about hybrid LTCI and LTCI in general, review the articles in the Health Watch section of the Archives on the members’ section of the Retirement Watch website. The latest is from the June 2019 newsletter.

You might have noticed that a high percentage of the deaths from COVID-19 are among residents of nursing homes and assisted living facilities. Most of those with high death rates are nursing homes that have primarily Medicaid patients.

You want to ensure funding of any LTC expenses so that you don’t have to be in a Medicaid facility. You want to be able to pay for quality care. Even better, with hybrid LTCI, you can pay for LTC in your home so you might not have to enter an assisted living residence or nursing home.

For more details about my recommended LTCI, contact David Phillips of Phillips Financial Services at 888-892-1102. Or click to complete an Analysis Request Form.

Watch the Dividends Fall

Many investors were encouraged to buy high-dividend stocks to provide their retirement income.

As often happens in recessions, many corporations are suspending or substantially reducing their dividends. This year, dividends are being suspended more quickly than in past recessions.

Already, 83 companies and publicly traded investment funds, such as real estate investment trusts, suspended or canceled dividends in 2020. That’s the highest annual number tracked by S&P Global Market Intelligence dating back to 2001. For comparison, over the last 10 years, a total of only 55 companies eliminated their dividends.

Another 142 companies reduced their dividends in 2020, the highest number since 2009 when 316 firms cut their dividends. Of course, we’ve only completed four months of 2020.

The cumulative effect of the changes is a $23 billion reduction in shareholder income, according to S&P Dow Jones Indices.

These reductions come after a record high of $491 billion in dividend payouts in 2019. Not all firms are reducing dividends. Johnson & Johnson (JNJ) and Procter & Gamble (PG) recently announced increases.

It is important when choosing income investments to look beyond the current yield. The business needs to have a long-term commitment to its dividend and also enough strength in its balance sheet to maintain the dividend in tough times when revenues decline. Income investing is an area where a margin of safety is critical.

Your Digital ‘Go Package’

I’ve long recommended that each of you prepare a book or package of key personal and financial information that is readily available to family members who might need it in an emergency. In the May issue of Retirement Watch, I went further and recommended that during the pandemic, you put together a “Go Package” of this information and leave it in a readily accessible place.

The American Bar Association (ABA) makes available an app for smartphones that allows you to digitize this important information and have it available at all times.

The app can store medical advance directives, medications, physician contact information, insurance information and more.

The information can be stored not only on your phone but, more importantly, on the phones of loved ones who might have to help make decisions for you or contact medical professionals. They can have the information in front of them on their phones.

The app allows separate profiles for an unlimited number of individuals. Information in the app can be shared electronically. The information is stored on the phones, not in the app developer’s cloud. You can back up the information to Dropbox. The app is $7.99 per year to individuals who aren’t ABA members.

More information is available here.

The Data

The negative economic data continues to roll in.

New unemployment claims filed in the past week were 3.84 million, the lowest level since March 21. Yet, the total claims for the last six weeks were 30.3 million.

The first estimate of gross domestic product (GDP) for the first quarter was that the economy declined at an annual rate of 4.8%, while economists expected a 3.9% decline. That’s the worst quarter since the fourth quarter of 2008. Personal consumption declined by 7.6%, which was the worst quarter since the second quarter of 1980.

Many analysts expect the growth rate to be worse in the coming months as the report is revised with fresh data. A surprise to many is that health care spending declined during the quarter, contributing to a large part of the decline, despite all the spending related to the coronavirus pandemic. Spending on most other health care services, including elective surgeries and visits to emergency rooms, declined sharply.

The Kansas City Fed Manufacturing Index declined to negative 30 in April, compared to negative 17 in March. That’s the lowest level ever for this index, which goes back to 1994. The expectations for six months in the future improved from March, but still are negative.

The Dallas Fed Manufacturing Survey also was dreary. The Production Index declined to negative 55.3 in April, compared to negative 35.3 in March. The General Activity Index declined to negative 73.7 from negative 70.0 in March. These are the lowest levels for these indices. About 33% of businesses responding to the survey said they were temporarily shut down.

The Richmond Fed Manufacturing Index was negative 53 for April, compared to positive 2 in March. That’s the index’s lowest level and largest monthly decline.

New orders for durable goods in March declined 14.4%, which was more than expected. The orders rose 1.1% in February. Excluding transportation, orders declined 0.2% in March and 0.7% in February.

Surprisingly, core capital goods orders rose 0.1%, compared to a 0.8% decline in February. Core capital goods orders is a widely followed measure of business investment. The increase probably was a result of stockpiling some items and isn’t likely to follow through to April.

Consumer Sentiment, as measured by the University of Michigan, fell to 71.8 in April, compared to 89.1 in March. This is the third consecutive monthly decline.

The current conditions component of the index has declined much more than the expectations component. In addition, in recent months the confidence of those with higher incomes has declined more than those with lower incomes. The two income groups now have relatively the same confidence levels, closing a large gap that had been in place for a while.

The Consumer Confidence Index, as reported by The Conference Board, tumbled to 86.9 in April from 120.0 in March. That’s the lowest level in six years. The present conditions index took an unprecedented decline while the expectations index actually improved a little.

Personal income declined by 2.0% in March and consumer spending declined by 7.5%. That’s the largest monthly decline in consumer spending since the Commerce Department began compiling the report in 1959.

Prices declined, as measured by the PCE Price Index. The index declined 0.3% for the month. It increased 1.3% over 12 months. Excluding food and energy, the PCE Price Index declined 0.1% for March and increased 1.7% over 12 months.

Pending home sales declined significantly in March, according to NAR. The Pending Home Sales Index dropped by 20.8% for the month, compared to a 2.2% increase in February. The index is down 16.3% over 12 months.

The inventory of properties for sale declined to a record low as few homeowners put their homes on the market and many who had listed their homes took them off the market.

The S&P Corelogic Case-Shiller Home Price Index is out of date, since it reports data for February. It showed a 0.4% increase in home prices for the month and 3.5% over 12 months.

The Markets

The S&P 500 rose 5.06% for the week ended with Wednesday’s close. The Dow Jones Industrial Average gained 4.98%. The Russell 2000 increased 13.67%. The All-Country World Index (excluding U.S. stocks) added 5.33%. Emerging market equities grew 4.67%.

Long-term treasuries lost 0.49% for the week. Investment-grade bonds increased 0.47%. Treasury Inflation-Protected Securities (TIPS) added 0.53%. High-yield bonds gained 1.48%.

In the currency arena, the U.S. dollar decreased 0.96%.

Energy-based commodities lost 0.37%. Broader-based commodities fell 1.17% but gold rose 0.18%.

Bob’s News & Updates

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