HOW WILL AN AGING AMERICA AFFECT YOUR RETIREMENT? 

    One of the comments I continually hear from people heading toward retirement is the fear of "running out of money."  In fact, it is the BIGGEST fear among those of use marching toward the date when we no longer have income coming in from a J-O-B.    

     Many folks I work with wonder if there will still be Social Security as we age into older years.  No one know the answer to that but some of the stats are alarming.  

     Among elderly Social Security beneficiaries, 22 percent of married couples and about 47 percent of unmarried person rely on Social Security for 90 percent or more of their income.  Ouch !  (May 12,2014) 

     The 109,631,000 living in households taking federal welfare benefits as of the end of 2012, according to the Census Bureau, equaled 35.4 percent OF ALL 309,467,000 people living in the United States at that time.  

     In an article published by the U.S. Census Bureau in May 2014 titled An Aging Nation: The Older Population in the U.S.:  The projected growth of the older population in the United States will present challenges to policy makers and programs, such as Social Security and Medicare. It will also affect families, businesses, and health care providers

The population 85 years and over will double by 2036 and then triple by 2049. The third perspective measures the size of the older population relative to the working age population, defined as ages 18 to 64. While currently there are 19 people aged 65 to 84 for every 100 working-age people, this ratio will climb to over 30 by 2028. That is to say, there will be approximately three working-age people to support each person aged 65 to 84.

     So, why should you care about statistics?   We used to plan for a 30 year retirement but now it is common to plan for a 40-year retirement scenario.  Will your portfolio last that long?  Have you allocated enough money to a "fixed-income" strategy so that you can weather the ups and downs of a volatile 30 or 40 stock market ride, bond rates hit with losses due to rising interest rates and projected health care costs?  

     The average lifetime retirement health care premium costs for a 65-year-old healthy couple retiring this year and covered by Medicare Parts B, D, and a supplemental insurance policy will be $266,589.  

     This does not include the cost of Long-Term-Care which is not covered by Medicare.  70% of married couples will need to spend another $250,000 or more for at least one spouse.  Do you spend the savings and leave the surviving spouse broke?  Losing one Social Security check is hard enough.  Do you sell the family home, do a reverse mortgage, move in with your kids?  

     These are just some of the very important talking points when meeting with a prospective client.  It's not so much about how much you have saved by the time you retire.  It's more about how you PRESERVE those assets and make sure they work for you for another 30 or 40 years.  

NOT HAVING A BUDGET CAN BREAK THE BANK

    I have been helping couples and successful individuals plan for an abundant retirement for over 25 years.  I am here to tell you that 99% of them didn't have a clue about what their monthly budget was when we met.  

     Knowing how much money you are spending on "fixed" costs like utilities, car payments, mortgage or rent is crucial. to save a d You MUST know what the fixed costs are if you want to be able to save a dime for later.  According to the Government Accounting Office (GAO) about 29% of households age 55 and older have neither retirement savings nor a pension.  That's about a million people with no plan and no money.  Who is going to pay for their retirement lifestyle?  If you think it's the government, think again.  Where does the government get their money?  From those of us who do work and pay taxes - that's where. Government risk (rising tax rates) is one of the BIG unknowns over a 30+ year retirement. 

    I'm not here to make a social comment, I'm here to encourage you to get a handle on what you spend a month and then figure out what it will cost you in retirement.  And don't be fooled by the government CPI numbers that tell us there is no inflation.  Bah Humbug!   Have you shopped for milk or bread or meat lately?   How much does it cost to fill up your tank these days?  

    Let's look back 20 years to 1996 to put this into perspective:   Average Cost of new house $118,200.00     Average Income per year $36,300.00     Average Monthly Rent $554.00    Cost of a gallon of Gas $1.22 US Postage Stamp 32 cents Average cost of new car $16,300.00 

    If your budget is $5000 per month today and you plan to retire in just 5 more years, you will need to add at least $500 per month to that budget.  If it's 10 years away, add add another $1000 per month to the projection.  

    Another of the "unknown" costs in retirement is health care. Many of my clients plan to retire before age 65 but they have no clue as to how much health care insurance will cost them until they can access Medicare at age 65.  Those 3 years of coverage can be about $1000 per month or $36,000 just for the coverage - not including deductibles and co-pays. So, if you plan to retire at age 62, figure it will cost you another $40,000 to cover health insurance to age 65.  

    Medicare means tests the premium you will pay based on income.  In 2016 Part "B" premium cost is $121.80 per month.  In 2017 it will be $134.00 per month.  If you are single and earn over $85,000 or are a couple and earn over $170,000 it is $171.50 and goes up to $389.80 based on income.  That is just the Part "B" cost and then you have to add a supplemental plan to cover what Medicare does not pay.  If you choose a "Medigap" plan that allows you the freedom to see any doctor in any state, you will also have to choose a "D" plan to cover prescriptions.  OK, you don't take any medications.  You sitll have to buy a "D" plan or pay a penalty for life.  

    Working with an experienced planner who has knowledge of the "hidden costs" is a critical component for any successful retirement.   We have now had 8 years of gains (with a lot of ups and downs) in the stock market but we had 10 years of zero gain prior to that. What will happen to your budget when you start taking money from savings to supplement your income and the market has one or more down years?  Having a "fixed income" strategy can add stability, peace of mind and more money to spend.  

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        LONG TERM CARE PLANNING IS A KEY COMPONENT OF YOUR RETIREMENT

   Long Term Care needs can derail your retirement plan faster than any other cost factor.  Most people saving for retirement use "qualified" accounts like IRAs, 401k, 403b.  Each of these accounts force you to pay taxes on 100% of withdrawals - plus, you are forced to take money out at age 70 1/2 even if you don't need that income so can deplete an account you thought you might use later.

   If you are a couple, at age 65, you have a 70% chance that one of you will need long-term at some point in your lifetime. If that happens prior to age 59 and you use money from a qualified account you have to pay not only the income tax on withdrawals but possibly the 10% penalty as well.  Plus, making withdrawals from qualified accounts means you deplete the money needed for "lifestyle" later.  Yes, you have some offset for the medical cost since you can write-off medical costs if they equal 10% of your Adjusted Gross Income (AGI) but, in my experience, depleting a qualified account early can wreack havoc on a family and often leaves a surviving spouse penniless.

    Having a "cash account" to draw from is one great solution.  If you haven't been able to save enough non-qualified cash, you can purchase a "pot-of-money" Long-Term Care policy.  Other options might be life insurance or annuity accounts that add a rider for long-term care.  Some riders offer to double the amount of monthly income for up to 5 years if you are taking income.  You can add an LTC rider to life insurance or simply design the plan for cash accumulation and withdraw money tax-free for lifestyle and/or long-term care costs.  All of these options buy you time to make other tough decisions.

    I tell my clients when planning for long-term care that any solution they choose is an immediate "stay-out-of-the-nursing-home" card and just the first step in a process that may include moving to Assisted Living, selling the family home/downsizing, moving in with a child or other relative, doing a reverse mortgage or liquidating other assets.

    Nobody knows who or when long-term care may be needed.  40% of people in Nursing Homes today are under the age of 65.  According to Genworth's 2014 Cost Report the average cost of Assisted Living is now about $3500 per month or $42,000 per year.  If you need ongoing medical care, a semi-private room in a Nursing Home averages $212.00 per day or $77,380 per year.  A private room runs about $240 per day or $87,600 per year.  I recently helped a client whose dad moved from memory-care room costing $5600 per month to a lock-down facility for Alzheimer's care and the bill jumped to $9700 per month.  And this was not in a Metro area where costs can be even higher.  The annual cost is growing by about 5.6% so a 2-year stay costing about $150,000 now will likely be over $300,000 in just 10 years.

     At least once a month my mom hears a story (from me or others) about someone who can no longer take care of themselves and says, "if that happens to me, just put me in a home."  This is "old thinking."  She refuses to accept the fact that she cannot afford to go to "a home."  She is a typical elder female with several chronic conditions; Atrial Fibrillation, Pacemaker, Crippling Arthritis with several joint replacements and more to come, High Blood Pressure, Hearing Loss, Macular Degeneration with limited vision and long-honed stubbornness. None of these is going to kill her any time soon - just cause discomfort and disability. I am in the process of removing every asset she still has from her name to prepare her for the eventuality of needing some type of state assistance. Every state has different limits and program limits and coordinate with "Medicaid" which is a Federal Program.  Work with a knowledgeable Long-Term Care expert who can help guide you to the resources you need and explain the various types of programs available.

    PLANNING EARLY IS THE KEY.  Having a talk with your parents before something happens is just the beginning.  If you are 45 or older, NOW it is the perfect time for YOU to look into Long-Term Care Planning.  DON'T WAIT until something happens - just do it now.

WHAT DOES MEDICARE PAY FOR and WHO NEEDS IT?

    During our working years we most likely have health insurance as part of the benefits package.  However, when we turn 65 many company employees are unsure of the protocol for health benefits under Medicare if you continue to work.  Or, if you are the spouse of someone who is still working and have benefits under their health plan - does your benefit continue?

    Does the employee or spouse stay on the "company plan?"  Does the employee or spouse need to sign up for "Part B" Medicare?  What does "Part A" cover and do I have to pay for it? 

Part A =       Hospital Visits (there is a deductible) no cost per month when you have worked 10 years

Part B =       Doctor’s visits (there is an annual deductible- currently $166.00) $121.80 per month

Part C =       These are called “Advantage Plans” – usually HMOs and PPOs

(some have no monthly premium and just co-pays and most also include Plan D benefits)

Part D =       Prescription Plans (cost depends on plan and medications you take)

Medicare Supplement (Medigap) – Allows you to choose any doctor who takes Medicare and usually pays all co-pays and out-of-pocket costs. Does not pay for presciptions. 

    I just worked with a new client who turned 65 in June.  His wife is younger and still employed so they have health coverage through her company plan.  I sent him very specific questions to ask HR prior to his birthday and they didn't know the answers.  We checked several times for clarification and they ultimately told him that he did have to sign up for "Part B" with Medicare (currently costing $121.80 per month) and that they would cover his Prescription (Part D) Benefits but not his Health Benefits.  

    He did sign up for "Part B" and paid a quarterly premium since he is not yet taking Social Security and payments usually are deducted from your Social Security check each month.  He also purchased a "Medigap" plan so that he can see any doctor who takes Medicare in any state.  

    Last week he complained to his wife that her company was still charging them $150.00 per month for his health coverage.  She went to HR Director and asked why and was told that they had made a mistake.  He was still covered under the company benefit plan.  The next day his doctor called to say that they had billed Medicare (as the primary provider) for a recent surgery and the bill had been denied.  Medicare stated that his "company plan" was the primary provider and should pay first.  

    When you take "Part B" Medicare and are covered by a "Company Plan" the Company Plan is the primary payor and Medicare pays second.  When you don't have a company plan, Medicare is the primary payor and your Medigap or Plan C pays second.  You may have to pay co-pays depending on the type of plan you have. 

    Due to the error from HR we were able to file an Appeal with the Medigap company asking that his premiums be returned.  He has a good chance of it being resolved in his favor.  

    When I began helping people with Medicare we did not have "Part C" plans.  "Part B" cost $60.00 per month and a full-coverage Medigap plan cost about $50.00 so for around $100.00 per month you had excellent coverage.  NOT ANYMORE.   Part B premiums went from $104.90 per month in 2015 to $121.80 per month in 2016.  Social Security payments have only paid a COLA increase 2 times in 5 years and it amounted to a $2.50 per month increase. 

    If you do not sign up for "Part B" and "Part D" at the time you turn 65 and do not have other coverage, there are penalties that you will be forced to pay for the rest of your life.  It's important to work with someone who knows how the system works and has the desire to make the calls or do the research if it is a sticky situation like this one.  

WHO PAYS THE TAXES ON AN INHERITED IRA? 

   I just met with a nurse who is 52 years old.  Her husband died 2 years ago just before his 50th birthday.  She is working 2 jobs to put 3 teens through college.

   Luckily, he left enough life insurance for her to be able to pay off the house and put a little bit of extra money into savings.  She inherited his IRA and 401k plan.  She has a 401k plan at work and and old IRA from another job and will have 2 pensions plus Social Security when she retires.  

   I'm analyzing whether she should continue to contribute to the 401k plan or use a tax-free alternative.  All of her income from pensions and Social Security will be taxed.  She will not have any write offs after the kids are out of school since the house is paid off.

   One of her first questions to me was, "how can I reduce my income taxes?"  I told her that she probably can't without taking a mortgage but it will only be worse when she retires and that is what we will focus on.

   Do you know who pays the tax when an IRA is inherited?  If it is inherited by the spouse, there is no tax upon inheritance.  However, it will be added the to total amount counted for RMD (Required Minimum Distribution) when the spouse reaches
age 70 1/2.

   If it is inherited by a person other than the spouse (son, daughter, etc.) they have a few options: 

Lump Sum Distribution:

• If a beneficiary, spouse or other person elects to take a lump sum distribution from a inherited IRA, the disbursed money immediately becomes taxable income. IRA proceeds are considered to be ordinary income and taxed like any other earned income. The single distribution option is an all-in option: the entire proceeds must be distributed and the taxes due must be paid in that tax year.

Five-Year Payout

• An option for non-spouse beneficiaries including individuals, the estate and trusts is to roll the IRA into an inherited IRA. This IRA then has up to 5 years to pay out the assets to the beneficiaries/new owners. The disbursements can be made any time in the 5 years including waiting until the end of the 5-year period. Any distributions during the 5 years will become taxable income to the beneficiary in the year they are received.

Required Minimum Distributions

• A non-spouse beneficiary of an IRA can elect to have the IRA paid out in annual installments based on the beneficiary's life expectancy. This option allows the bulk of the IRA money to remain tax deferred over a longer period of time. The minimum distribution option can be selected instead of the lump sum or 5-year inherited IRA plans. The distributions must start in the year the beneficiary inherits the IRA; at least the minimum must be withdrawn each year and be included in the taxable income of the beneficiary.

Disclaim the IRA

• Any beneficiary can disclaim their inheritance of an IRA. When this happens, the IRA passes down to the next in line beneficiaries. Based on the status of these beneficiaries, they may use one of the above-listed options to receive or roll over funds from the IRA. The original beneficiary has 9 months after the death of the original IRA owner to disclaim the inheritance. This generation-skipping tactic may be used to transfer the IRA money to beneficiaries in a lower tax bracket or to those who need the money more without paying taxes on it twice.

IRS pub 590  Individual Retirement Arrangements. Always consult a tax professional for detailed up-to-date rulings. 

                                           
 CASH AS AN ASSET CLASS          

                                                 

         Having just celebrated our nation's 240th birthday -  Let’s ask George Washington, “is there a difference between ‘tax avoidance’ and ‘tax evasion’?" The answer is YES, and it is a very big difference in fact. Knowing about and using the allowable tax codes to provide tax-free income is not a crime – it’s a brilliant!

               Building a cash reserve that can be used to pay taxes on qualified withdrawals, pay off a mortgage or simply offset market downturns is a key element to retirement planning but most folks just don't do it.  They stuff every cent they can into a 401k or IRA plan thinking it is saving them money.  The horrible truth is that they are literally mortgaging their retirement because Uncle Sam will, in fact, ask for much - if not most, -  of that money back when you need it the most.  

  Savvy investors use different kinds of investments to satisfy different financial needs. Relying only on stocks & bonds, and only a small amount of cash puts you at a disadvantage.  Due to an unprecedented and extended low interest rate environment and overall market volatility the old “4% Rule” has been adjusted down to a new “2.8%” to maintain a portfolio over a 30- year retirement.  That means even if you can save a million dollars for retirement you can only afford to withdraw $28,000 per year if you expect that money to last over 30 years.  What if you could bump that up to 5% or 6% without risk?   Would that change your lifestyle?

By using a combination of properly-structured financial instruments, a synergistic effect can be created that could minimize exposure to market risk, assure the continuation of tax-efficient income, significantly increase the after-tax amount received from Social Security and much more.  Bottom line is more spendable income.    

If your goal is to be one of the small percent of Americans who can retire at the same or similar pre-retirement lifestyle level, it will take more than “ordinary” planning. Putting one great idea into action today could change the way you eat, play and live in your golden years.  

Stay Wealthy! 

The Love-Hate-Love Caregiving Conundrum

AARP 2015 study shows an estimated 43.5 million adults in the U.S.have provided unpaid care to an adult or a child in the prior 12 months. That's 1 in 7 households in the entire U.S.  I am almost 65 taking care of an 83 year old mom who has had 2 knees and a shoulder replaced so far due to crippling arthritis.  She doesn't cook (unless you count egg salad) and is not steady on her feet.  I love her but sometimes I hate (strong word I know) the situation.  I love her but hate that her husband did not provide for her financially.  I love her but hate that she allowed him to spend almost all of her money before he died.  I love her but hate that she just shrugs her shoulders about the situation we are in and believes that some miracle will come along and make it all OK.

Long-Term Care is real.  It is not a "concept."  We are living longer and 3 out of 5 households will have someone who needs care before they go to the great beyond.  Are you going to be that 80 year old who tries to take care of your 85 year old spouse who can't get to the bathroom on their own?

I've been showing families how to solve this caregiving conundrum for over 25 years and there are more options now than ever.  Do you want to be the caregiver or the head nurse who directs the caregiver you hire?  Stay in the "love zone" and buy long-term care insurance for yourself and your parents while you can still qualify. There is no charge for looking at options.

Welcome To Our Blog

We educate clients on a big-picture perspective by communicating the tried-and-true principles that will be good for today, tomorrow and later on down the road. I'm blessed to work with a talented, educated and experienced team specializing in “Safe-Money” Retirement Strategies. I've also been an Estate Planning Paralegal since 1994. Plus, I have over 20 years of experience about Long-Term Care plans and how they fit into your retirement planning.