Mind the Gap THE CRACKS IN THE AMERICAN RETIREMENT SYSTEM AND WHAT YOU CAN DO ABOUT THEM Matthew C. Peck, CFP® SHP Financial PLYMOUTH, MASSACHUSE TTS Copyright © 2018 by Matthew C. Peck. All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher at the address below. Matthew C. Peck/SHP Financial 225 Water Street, Building C Suite C210 Plymouth, MA 02360 www.shpfinancial.com Book Layout ©2013 BookDesignTemplates.com Mind the Gap/ Matthew C. Peck. —2nd ed. ISBN 978-1724466648 Contents Acknowledgments ............................................................................... i Preface ................................................................................................ iii Exposing the Gaps .............................................................................. 1 Social Security ..................................................................................... 9 The Many Moving Parts of Medicare ............................................ 25 Four Factors of Medicare ................................................................ 39 Bridging the Gaps in Long-Term Care .......................................... 47 Long-Term Care Planning: Things You Need to Know .............. 63 Minding the Income Gap with Modern Planning ......................... 85 Effective Income Solutions ............................................................ 101 Wealth is in the Eye of the Beholder ........................................... 109 Setting and Striving for Clearly Defined Financial Goals ........... 127 i I dedicate this book to my beautiful wife, Diana. Over the years her love and support while I work long hours have been irreplaceable. I was able to concentrate on my career while knowing that she was managing the home front and nurturing our four children. I know I would not be the man I am today without her dedication, love and support. Acknowledgments would like to express my gratitude to the many people who saw me through this project of updating the original 2013 version I of “Mind the Gap”. As they say, the one constant in life is change and after five years the old book needed to be updated. Thank you to the original team who provided support through the many coffee-shop conversations and brainstorming sessions that ultimately helped shape my observations and opinions for these books. Truly, it was the invaluable wisdom and life experiences of my clients that I was able to combine with textbook knowledge to generate a real-world account of the pitfalls and opportunities of retirement. Of course, this also includes my business partners, Derek Gregoire and Keith Ellis. It was their foresight that served as a catalyst to open SHP Financial’s doors and develop it into the strong company it has now become. Innumerable lives have benefited from the financial planning and insight that my partners and staff have provided. I appreciate the many individuals who allowed me to quote their remarks and assisted me in the editing, proofreading and design of this publication. I would especially like to thank my copy editor, Tom Bowen, for helping me focus my prose and get the book from my mind into print and ready for publishing. I appreciate the valuable assistance of Jenny Herrick at Advisors Excel Creative Services, whose idea mill was consistent with my own in influencing creative ideas for this book. i ii • MATTHEW C. PECK I would be remiss if I did not mention Amazon Publishing and the fine work they did in assisting me with this project. Preface here are gaps everywhere you look. There are gaps in the sidewalk, gaps in the road, and small gaps in our windows T sometimes where cold air seeps in during the winter. There are age gaps, philosophical gaps and communication gaps. One of the most infamous gaps in history was the 18.5-minute gap in a tape-recorded conversation that took place in the Oval Office of the White House during the presidency of Richard M. Nixon. That little gap was the silence heard ’round the world during the Watergate investigation of the early 1970s. Perhaps the most famous land mass gap is the American Grand Canyon. A little over a mile deep and 18 miles wide at its widest point, other chasms may be deeper and wider, but none has been visited, photographed and toured as much. Imagine the first humans who, trudging along on level ground, had their trek interrupted by that enormous gap, and how they must have felt as they pondered how to proceed. In life, gaps are imperfections … breaks in the seam … interruptions along our intended pathway. To all but those who lead charmed lives, they are unavoidable, and they seem to appear when we least expect them. The government has budget gaps. These are the holes in the nation’s fiscal fabric that appear to be unreceptive to any of the patches that have been applied — those applied in recent years, anyway. Budget gaps are the result of the federal government spending more money than it takes in. These are gaps that seem to widen every year and show no sign of closure. iii iv • MATTHEW C. PECK When it comes to our personal financial gaps, some of the more worrisome gaps are the empty spaces between what we hope to have, what we thought we had, and the reality of what we actually have in the end. The idea for the title of this book began as a kernel of thought about the gaps in our financial lives, our financial knowledge, how they impact us, and what we can do about them. Personal financial gaps are occasionally the result of a work layoff or a job demotion, which suddenly leaves us staring at a new and unexpected gap — the one between our expenses and our income. Then there is the tuition gap, caused by the rising cost of obtaining a college education. This gap between financial aid and out-of-pocket expenses has forced many moms and dads to refinance their homes to cover the gap, which can be as high as $70,000 per year in some cases. Young people sometimes start their adult lives with a prosperity gap caused by student loan debt that seems to never go away. It occurs to me that if life is a journey, you probably have a general idea where you are going, but the road sometimes takes you places that were not on your itinerary. You may be motoring along, enjoying the scenery, perhaps having one of those carefree, convertible-top-down-hair-blowing-in-the-wind moments, when the pavement abruptly ends and ahead of you is a cliff and a “Bridge Out” sign. That can be a bit scary. The purpose of this book is to provide education on how to avoid the gaps in your financial journey if possible, and how to bridge them when you have to. Sometimes you have the resources to build that bridge, but you just don’t know it. Other times, you need a map to help you find the detour. Every situation is different. MIND THE GAP • v Retirement Gaps Back in 2013 when I first wrote the book the goal was to educate and inform you, dear reader, on the retirement gaps, on how the entitlement programs work and more importantly where their help ends. We all need to know where our responsibility begins and over time this gap has only grown larger. In the private sector, the incessant march away from pensions and towards 401(k)s has not stopped and even pensions themselves are being bought out and pushed towards the consumer to manage. In the public sector, there has not been any action on fixing Social Security or getting the federal deficit under control. Whether we like it or not, it is our responsibility to know and to fix the gaps that are waiting for us. These could be the gaps in health care, income, investment returns, personal tax planning and estate planning. Yet the first step in filling these gaps is to fill the gap in our financial knowledge. The original book in 2013 was a step in that direction and I hope this updated revision will continue our journey towards that goal. Some retirement gaps are still well known. There is the insurance known as “Medi-gap coverage,” referring to health insurance purchased by those over age 65. It is designed to bridge the Medicare gap … to pick up where Medicare leaves off. Other gaps are not so well known. Unfortunately, it is human nature to procrastinate and not face hard realities, which will include developing and sticking to a budget. In other words, the retirement gap that people are most unaware of is their income gap. What is the difference between what I need to spend to enjoy my retirement and my dedicated income streams? Another serious gap that needs to be discussed is the long-term care gap, which could force you to spend thousands of dollars on the cost of home health care or skilled nursing home care. This money pit can siphon your resources until you are drained of everything you own. There is only so much you can do about the vi • MATTHEW C. PECK cracks in the sidewalks, the potholes in the street, or the increasing federal deficit, but there is a lot you can do about these retirement gaps, and it starts with knowing where they are. Just like it is up to you to insulate and caulk your own home, many of the formidable gaps that are likely to confront you during your retirement years are essentially your responsibility. With the help of a professional who is skilled in such areas as home repair and insulation, you can successfully deal with the cracks and gaps in your physical house.