Sunday, October 31, 2010



I don't have a financial practice anymore, but since I am closer to the grave than most folks, I often get calls and inquiries from people asking about reverse mortgages. This is a financial tool that can be very helpful to an elderly person under certain circumstances. Note that I am not offering financial advice or consultation but am merely offering some insight on what a reverse mortgage is.

Many mortgage brokers offer reverse mortgages without knowing the circumstances of the individual. As do many movie stars, T.V. stars and the cousins and well-meaning relatives who offer unsolicited advice.
A reverse mortgage is a method where a homeowner uses some of the equity in the home and makes no payments for the cash received from the mortgage. Let's say the house is worth $550,000 and there is a $200,000 mortgage on the property and the homeowner is 70 years old. Roughly, $144,000 is available to the homeowner after paying off the $200,000 mortgage balance.

The homeowner has about 3 options on the $144,000. He may take it as a lump sum, as a monthly payment for life for as long as he lives in the home or keep it as a line of credit in case of emergencies. No monthly payments are required, however, the amounts the homeowner receives, plus annual interest is added to the loan balance. This balance is paid after the homeowner dies or sells the home. The homeowner or heirs will never owe more than what the home is worth no matter how many payments are received or how high the interest rates go. This means that any amount owed above the market value of the home is "non-recourse" and the lender doesn't have any legal recourse to anything other than the house.

The reason this can be done is because in the example provided, they're only lending $344,000 ($144,000 plus the $200,000 mortgage to be paid off) on a house worth $550,000. As interest and fees are added each year, it'll take a while before the market value of $550,000 is reached. They also believe that the property will appreciate in value over the years.

Reverse mortgages generally have higher closing costs than regular mortgages. The loan origination fees are higher, mortgage insurance is required and the interest rates are adjustable although some lenders are offering fixed-rate interest. Currently, they use the interest rate of the 1 year T-Bill, LIBOR index or 1 year CMT. Other costs for the FHA- Insured Home Equity Conversion Mortgage are Title Insurance costs, Title Attorney and Recording fees, Property Appraisal and survey costs. There is also a monthly service charge (about $30) added to the balance of the loan. If the senior depends on welfare and Medicaid, the reverse mortgage payment may be factored in when eligibility tests are made for welfare qualification.

Qualifying is generally easy since credit scores and income are not part of the equation. The senior must be 62 years old, own the home and be living in the home as a primary residence. The amounts available depends on the age, interest rates and the value of the home. Currently, the maximum value of the home is capped at $625,000 until the end of 2010. In other words, calculations on how much one can borrow is based on the lesser of the market value of the home or $625,000.

If you use a reverse mortgage to increase your standard of living, you would be wasting a tool that is intended for emergency situations, such as needing resources for medical care as you age. If you use the cash to give money to your children or grandchildren, you will not have this tool left to take care of yourself. My experience with elders is that once the younger generation gets the elderly person's assets, the elderly is left to fend for himself. Harsh, but true in 50% of the situations I've dealt with.

Many seniors are going into reverse mortgages so they can take trips to Las Vegas or around the world. Again, this is, in my opinion, not what reverse mortgages ought to be used for. Further, as is noted in the example I provided, one only gets to use a small portion of one's equity with a reverse mortgage. It may be better to move to a smaller place and get the full equity out of one's property. Because the interest is not paid, it is compounded annually so the longer the kupuna lives, the more likely that the entire home equity will be depleted.

Fortunately, the kupuna is required to attend counseling sessions by an independent HUD (Housing and Urban Development) counselor prior to receiving a reverse mortgage. Many of these counselors only know the details of the reverse mortgage so I would recommend that the kupuna also seek the advice of a financial planner who does not deal with reverse mortgages so there is no conflict of interest or ethical violation. Such a planner can determine whether the program fits the kupuna's financial situation.

Sunday, October 24, 2010



I got to know Jenn when I noticed her ads in Craigslist, seeking volunteers for Hospice Hawaii. Over the course of a few months, I got to know her via email correspondence and needless to say, I'm impressed with her commitment and professionalism. Her education and training has been in Community Agency Counseling so it is a nice fit for both Hospice Hawaii and Jenn.

Jenn has been with Hospice Hawaii for about 18 months and is involved with recruiting and managing the volunteers. Medicare requires that 5% of a hospice's direct patient care be done by volunteers so hospices depend on volunteers a lot. Yet, the recruitment, management and training of the volunteers are not covered by Medicare reimbursement so they are also highly dependent on donations from the community to cover those expenses.

Volunteers who will have any kind of patient/family interaction are required to complete 20 hours of training after passing an extensive screening process. There is an interview, criminal background check, reference checks and TB checks. Once they begin training, the training process is also used as a screening tool to determine if the potential volunteer is emotionally prepared for this type of volunteering.

Many volunteers choose not to have patient/family contact and these individuals are able to volunteer right away doing clerical or other work not involving patient or family contact. Hospice Hawaii runs  2  training cycles a year so many of those who wish to volunteer right away are able to volunteer in non-patient/family contact situations while they wait for their training period to begin.

Hospice care is a range of services that provides for the health and comfort to individuals who are nearing the end of their lives. Typically, they are individuals who are terminally ill and are expected to live for six months or less and have refused or are not good candidates for additional curative treatment.

The hospice team is made up of physicians, nurses, social workers, therapists, aides, spiritual providers and volunteers. They work together to make the patient and family as physically and emotionally comfortable as possible. Acceptance of the ending of one's life is also a very important part of the program. Many patients, as do family members experience fear, anger, depression and other very intense emotions.

Volunteer trainees at Hospice Hawaii are trained by their Chaplain, who focuses on the significance of death and the intention and motivation of each volunteer who want to serve. He firmly encourages them to reflect on their own losses in life. The trainees are also exposed to the other members of the staff who each give insights from their own specialty's perspective. They are also exposed to a panel of caregivers so the trainees can obtain firsthand experiences of caring for a loved one facing death. Veteran volunteers also give the trainees insight on their volunteer experience.

After the 20 hour course, all trainees are required to complete 3 two-hour visits to one of Hospice Hawaii's in-patient units so that they gain experience in a supportive environment where staff members are on hand to supervise and mentor them. Following these visits, trainees are paired with veteran volunteers whom they shadow for a visit to a patient's home.

After these steps are completed, the volunteer is assigned his/her own patient. Jenn monitors the volunteers to make sure they maintain healthy boundaries of helping too much or not being able to let go after a death of a patient. Jenn herself volunteers with patients on her own time and that keeps her involved with the issues her volunteers may face from time to time. When Jenn herself needs help and support, the Chaplain is able to supervise and mentor her.

Jenn finds that working with her own patients also feeds her spiritually in ways nothing else does. She is also inspired by her co-workers because they share a common goal.... patients come first.

Many who are unemployed during this downturn in the economy turn to volunteering. Volunteering at Hospice Hawaii keeps one's mind active and also helps in networking for other opportunities. And that makes sense. Many business people are involved with nonprofits and often refer volunteers they meet to their network of business owners when good employment opportunities open up. The life's skills one learns through the volunteering experience are valuable to a prospective employer when he has a key position to fill.

To Jenn and her volunteers, I tip my hat.

Sunday, October 17, 2010



Employees who are covered under the State and County Employee Retirement System may be facing a serious situation where all possible options end up with negative consequences for everyone. Let me first state the first phase of the problem. Yes, it comes in two phases.

Employees who work for the State or Counties are covered under a defined benefit pension plan. This means that the retiree will receive or is receiving a certain benefit at normal retirement age based upon his years of service, highest 3 years of pay of the final 5 years multiplied by a certain percentage. The formula was changed for new hires a few years ago so we won't work with specific percentages.

As of a few months ago, the pension fund was underfunded by about $6.2 billion to as much as $7 billion dollars. Yes, that's billions. There is no way that the fund can make up that shortage to meet emerging liabilities of payments to retirees. Here's why.

When the actuaries set up the assumptions of a plan, they assume a certain rate of return (8% for ERS), a certain rate of turnover, a certain rate of deaths and disabilities. This brings them the annual cost of the plan to fund it to meet retirement payments. Most plans use funding assumptions that are conservative in nature and make funding corrections over a period of perhaps 10 years. Some may even use a second set of funding techniques, such as amortization schedules and use the most conservative funding schedule.

In the case of the ERS, it appears that in years that the plan had investment gains, the year's deposits were adjusted downward to lower the pension cost to equal the gains in the investments. This is well and good, but in defined benefit plans, shortages must also be made up immediately. That means, when the economy is good, the governments are flush with gains and cash and the politicians spend whatever excesses show up in the budget.

Just in case some of you went to private school, let me explain it simply. If you have a pension plan with one employee who is due to retire in 10 years, the "normal cost" (excluding interest, mortality, etc) each year is $10 to fund a $100 liability in 10 years. Suppose you're 5 years down the line and you experience an investment loss of 40%. So instead of having $50 in the fund, which is the reserves required, you only have $30. If you keep putting in the normal $10 each year rather than $14 to catch up, you will only have $80 to fund a $100 liability. Calculations become dynamic when you add in interest because for every year you're underfunded, you get further away from the possibility of making up the shortage. Now, plug in assumptions where you have to fund for potential 80,000 current and future retirees, some of whom are scheduled to retire in 1 year.

When the economy is bad, the sword is equally sharp and the governments must put in more to make up for the shortage at a time when tax revenues are down because business activity is down. So the shortage cannot be made up unless they increase tax rates on the private sector. When that happens, private investors will take their money and capital elsewhere, thereby increasing the shortage in tax collections.

In 1964, Hawaii changed the temporary 1% excise tax to a permanent 4% tax. Soon thereafter, the Big 5 companies left Hawaii, followed by Dillingham. No one in their right mind would domicile themselves in Hawaii and subject their world wide income to such a hideous tax. When they forced Bishop Estate to sell their land, Bishop took their investment capital that was now converted to cash out of Hawaii. At least with the land, they were stuck in Hawaii. We liberated their capital and it took Hawaii 10 years to recover from the recession caused by the first Gulf war.

States cannot print money. Aside from tax revenues, they can borrow by floating bonds. But no one would buy such bonds if the State faces such a liability in their pension plan. They could unload the pension obligation onto the Federal government under the Pension Benefit Guaranty program. Or, the employees could agree to take a fraction of the benefits promised.

We'll have to see how it plays out.

The retirees are also given free medical coverage by the State and Counties. Newly hired employees are not eligible for this program. Most retirees pay for their own Medicare premium and buy their own supplemental plans like Medicare Advantage. Not so with State and County retirees. They are reimbursed for their Medicare premiums and have free coverage for the supplemental benefits to where there is no co-pay, deductible or "donut" holes under Medicare Plan C.

Here's the bad news. Under the new Healthcare law that was just passed, it's difficult to determine how much the State and Counties are underfunded in their healthcare plan but a good guess would be between $7 billion to $10 billion.

What do they do? The employee/retiree under the ERS wears two hats. One as a taxpayer and another as beneficiary who was promised a benefit in retirement. If you believe that the State will tax the private sector, then you must stop being a taxpayer and divest yourself of all investment holdings in Hawaii. If you don't, you'll be asked to shoulder the taxes required to make the ERS whole.

If you're retired, you could consider moving to a state that is fiscally conservative and not subject your pension to Hawaii taxation. New York and California are in worse financial condition than Hawaii and they will tax residents to get out of the hole, thus further increasing the already high cost of living in those states. More likely, they will declare bankruptcy to offload their public employee pension liabilities. Then, we may see anarchy. Note France and Greece. Those public sector employees/retirees won't give up their entitlements.

There are solutions but I won't go into them. Politicians who attempt to solve the problem will be thrown out of office by the public sector unions.

We cannot control our politicians. We can only control how we react to the situation they've placed us in.They love money (power) and use people. We must, as a community, begin to love people and use money or resources to take care of each other without government interference.

Meanwhile, our kupunas will once again be thrown under the bus because they have already outlived their productive life. It is imperative that we step up our volunteering to help them.

I have not offered financial or investment advice. I merely point out potential solutions each individual could consider. Please see your financial and tax advisor before taking any action. Chew your food well before swallowing. Look both ways before crossing the street and, of course, when swimming, don't breathe while your head is under water.

Sunday, October 10, 2010

Patient Protection and Affordable Care Act of 2010, Phase 2

Healthcare, phase 2

The healthcare law, called the Patient Protection and Affordable Care Act of 2010, or PPAC has different phases which affects private coverages at different stages. The politicians passed the law without reading or understanding the 2500+ pages. 70% of the American public opposed the law but our leaders passed it anyway. To keep the anticipated costs below $1 trillion, they promised to cut $500 billion from Medicare. The $1 trillion is what they guessed would be politically acceptable to Americans.

Here are some provisions of the law:

1. Ban on annual and lifetime caps on claims.

2. Ban on underwriting (everyone who applies must be covered regardless of health)

3. Mandatory provision to allow children to remain on parents' policies.

4. Ban on cancellation of coverage due to sickness or accident.

5. Creation of an information exchange for comparison of different policies.

All of the above provisions will result in increased premiums for everyone. Of particular interest is the estimated 32 million uninsured people who will be given free (paid for by the government) insurance. This alone will tax the healthcare industry because we currently don't have enough doctors to service both  new and existing patients. When demand goes up for services and the supply remains the same, prices will rise.

As of September 23, there is "free" preventive care requirement for newly installed plans. Many plans will become "new" plans because they have to change substantially in order to meet other mandatory requirements. All plans must remove their lifetime and annual limits beginning with anniversary renewals starting on September 23. If you pay for your insurance yourself, you will see a big increase in premiums on your plan's anniversary date. If your employer pays for your premium, then many things could happen, including passing on the increase to you, terminating your health insurance plan or terminating your employment.

The $500 billion in Medicare cuts will hurt our kupunas because no doctor would provide services without adequate payment. We have already seen them beginning to turn away Medicare patients because the reimbursements are already too low. With fewer healthcare professionals servicing 32 million more people, the aged, who need more services, will be denied medical attention. There has also been a huge increase in Medicaid (welfare) recipients because of the high unemployment rate and that puts a strain on the providers.

Now, there are some tax credits that will come into play in 2014 to help the lower income people pay for medical insurance. This goes back to the redistribution of wealth that's so popular among politicians. This should scare you unless, of course, you went to a private school.

To pay for this new law, the politician is sticking his hand into your pocket. When you say "NO", they demonize you as being selfish and not having alternative solutions to the problem. The problem is actually created by our very government.  Just the increase in the government bureaucrats required to police and regulate this new law will increase the cost of healthcare.

Let me explain it another way. If a man imposes himself on a woman in spite of the woman saying "NO!", can he then justify himself afterwards by claiming that " 'No' is not a solution"? What solution is he looking for? Better yet, what's the problem other than his desire to violate the woman?

Just so that our politicians understand what "no" means, let me be clear. "MY MONEY IS MINE AND DOESN'T BELONG TO THE GOVERNMENT! TAKE YOUR HANDS OFF OF MY MONEY!" There! I feel better. I not only don't trust my government, I fear them. They're bullies.

Yeah, I know. Our elected officials are going to do whatever they want regardless of how I feel, but what we can do is come together as a community and help each other by stepping up our volunteering. The life you save may be that of your neighbor's.

Our elderly were promised certain benefits when Medicare was passed in 1965. Yes, the politicians made the promises in exchange for votes. The reality is that  the politician will not be around when the government breaks that promise when the costs get too high. For Medicare, that time is now.

Meanwhile, the elderly has already passed their productive lifespan and has no way of being able to produce an income to replace the promises that our government will not fulfill. We cannot change our politicians. But, we can all help if we get into the spirit of volunteering and help those who can no longer help themselves.

Sunday, October 3, 2010


MARY T. ROGERS... Hospice Volunteer

I met Mary as she was getting off her shift as a volunteer at St. Francis West Hospice. She looked Filipino so I played Da Hil Saiyo and followed with Ikaw, 2 very popular Filipino numbers. That got her attention and she decided to stop for a minute. She even bragged that most medical workers today are Filipino so I would be popular with the staff if I played more Filipino music.

I like being popular so I played Maala Ala Mokaya to see if staff members would come out and swoon over me. No such luck. So I took a short break to chat with Mary.

Mary has been volunteering with St. Francis for almost 35 years. She assists patients with whatever they need to have done for them as well as feed them at mealtime. A big part of her job is to keep them company as they face their final days on earth. She makes sure that they are treated with dignity at all times.

Mary grew up in the Kalihi-Palama area as I did. She's currently a Makakilo resident and also plays the ukulele in her spare time.

Mary had always wanted to volunteer and asked around but no one knew how or what she needed to do to get started. Then, in the late 70s, she talked to a priest at a church function who referred her to St. Francis Hospital who had a hospice program that needed volunteers. She jumped at the opportunity. After going through 6 weeks of training, she has been volunteering ever since. St. Francis has since sold their hospital operation and now operate two hospice physical plants, but most of their work is with home services for end-of-life care for patients and families.

Veteran volunteers like Mary know how important a patient's dignity is. The following is something an old man wrote as he awaited death in a hospital. It was found by the nurses among his belongings after his passing and has been circulated on the internet among healthcare providers since.

Crabby Old Man
What do you see nurses? . . .. .. . What do you see?
What are you thinking . . . . . when you're looking at me?
A crabby old man . . .. . . not very wise,
Uncertain of habit . . . . . with faraway eyes?

Who dribbles his food . . . . . and makes no reply.
When you say in a loud voice . . . . . 'I do wish you'd try!'
Who seems not to notice . .. . . . the things that you do.
And forever is losing . . . . . A sock or shoe?

Who, resisting or not . . . . . lets you do as you will,
With bathing and feeding . . . . . The long day to fill?
Is that what you're thinking? . . . . . Is that what you see?
Then open your eyes, nurse . . . . . you're not looking at me.

I'll tell you who I am. . . . .. . As I sit here so still,
As I do at your bidding, . . . . . as I eat at your will.
I'm a small child of Ten . . . . . with a father and mother,
Brothers and sisters . . . . . who love one another.

A young boy of Sixteen . . . . with wings on his feet.
Dreaming that soon now . .. . . . a lover he'll meet.
A groom soon at Twenty . . . . . my heart gives a leap.
Remembering, the vows . . . . . that I promised to keep.

At Twenty-Five, now . . . . . I have young of my own.
Who need me to guide . . . . . And a secure happy home.
A man of Thirty . . . .. . My young now grown fast,
Bound to each other . . . . . With ties that should last.

At Forty, my young sons . . .. . . have grown and are gone,
But my woman's beside me . . . . . to see I don't mourn.
At Fifty, once more, babies play 'round my knee,
Again, we know children . . .. . . My loved one and me.

Dark days are upon me . . . . . my wife is now dead.
I look at the future . . . . . shudder with dread.
For my young are all rearing . . . . . young of their own.
And I think of the years . . . . . and the love that I've known.

I'm now an old man . ... . . . and nature is cruel.
Tis jest to make old age . . . . . look like a fool.
The body, it crumbles . . . . . grace and vigor, depart.
There is now a stone . . . . where I once had a heart.

But inside this old carcass . . . . . a young guy still dwells,
And now and again . . . . . my battered heart swells.
I remember the joys . . . . . I remember the pain.
And I'm loving and living . . . . . life over again.

I think of the years, all too few . . . .. . gone too fast.
And accept the stark fact . . . . that nothing can last.
So open your eyes, people . . . . . open and see.
Not a crabby old man .. . . Look closer . . . see ME!!

People like Mary don't realize how she has made our community a better one through her volunteer work, but the patients and families she has worked with surely know how she has helped them with her end-of life care.