For millions of Americans, it’s the question of how they will fund their healthcare expenses in retirement, according to a recent poll by Franklin Templeton. With the high costs of care, hospitalization, pharmaceuticals, and nursing homes, these fears are well-founded, though they may be overblown.

With proper planning, healthcare costs in retirement are within the means of average and wealthy Americans, provided they are able to afford a Medicare supplement policy. Those who are unable to save for retirement because of illness or low income will go onto Medicaid. Millions of others will qualify for healthcare services and long-term care through the Veterans Administration, benefits that can go a long way to protecting a nest egg.

Though that should provide some comfort to Americans, planning for healthcare related expenses in retirement cannot be ignored. If a stress-free, comfortable retirement is your goal, you need to prepare for healthcare expenses, and it is never too early to start.

Worrying hurts your health

Stress damages health, so from that perspective, stressing out about healthcare costs runs counter to the whole purpose of healthcare. If you prepare ahead of time, there is little reason to worry about healthcare costs in retirement. But you have to understand how the Medicare system works and what you can expect to pay in out-of-pocket costs throughout your retirement. With the right amount for healthcare costs baked into your retirement plan, you can spend your time and energy on an exercise program instead of worrying about money, a habit that will keep you strong and healthy well into your golden years.

Medicare Parts A, B, C, and D

Part A was the original Medicare. It covers hospitalization. There are no monthly premiums, though a $1,340 deductible applies as of 2018. After 60 days of hospitalization, the patient becomes responsible for a $335/day coinsurance. After 90 days, the coinsurance goes to $670/day. After 60 more days, the patient’s coverage runs out.

The optional Part B covers doctor and treatment costs. Premiums vary based on location and other factors but average $134 per month. As of 2018, patients are responsible for a $184 deductible and 20 percent coinsurance. If you can afford a larger premium, you can consider Part C. Run by private companies, the so-called Medicare Advantage plans provide additional coverage options, such as vision, dental, pharmaceutical, and wellness programs. Part D covers prescription drugs.

Most retirees spend more on healthcare than at previous times in their lives

There’s no surprise here. The older we get, the more care we need and the higher the chances we will fall ill or get severely injured. We are also more likely to depend on prescription drugs.

For retirees who have enjoyed a strong suite of employer health benefits and are unprepared for retirement, the out-of-pocket cost difference can cause an uptick in the blood pressure. For retirement planning to be effective, it must budget for more out-of-pocket costs. With a 20-percent Part B coinsurance, many seniors can expect to pay several thousand dollars or more out of pocket each year. If you have long-term conditions requiring extensive care, it is easy to see how Part A and Part B out-of-pocket costs can eat away even a large nest egg.

Medicare Supplement Policies

To protect the assets you worked all your life to accumulate, you will need a Medicare supplemental insurance policy. The cost of this should be included in your retirement budget. Since a long-term hospital stay or chronic illness could send your medical bills into the five or even six figures, you stand to lose some or all of your assets if you do not protect them with a Medicare supplemental policy.

Since how much healthcare a person needs varies so greatly by the individual, estimating the actual out-of-pocket costs for your retirement years is difficult. Budgeting for Medicare supplemental policies can eliminate some of the guesswork. By some estimates, without a supplement, the average senior could face over $200,000 in out-of-pocket costs between age 65 and 90. For this reason, saving for out-of-pocket expenses and a supplement policy is essential. Also, retirement planning should factor in the costs of medical services and devices not covered by Medicare, such as hearing aids or customized orthotics.

Knowledge is power.  Right now, you likely have time to plan ahead for the “what-ifs” in retirement.  We are here to help you navigate the winding road of retirement planning.

When you think of retirement, you probably think of a relaxing lifestyle free from the stresses of a 40-hour workweek. Life could instead get more stressful due to rising health care costs, which is one of the most expensive post-retirement costs seniors must endure. The current generation likely doesn’t have access to a union or employer-sponsored health insurance like the previous generation, significantly increasing the individual burden. The Retiree Health Care Cost Estimate, stated that couples age 65 or older need to have $280,000 saved for healthcare costs alone. It’s wise to start planning now, so that you can create a strategy and implement it.

One smart move is to use a health savings account as long as your current insurance plan qualifies you for one. This type of account allows you to add money tax-free and take it back out tax-free for medical and healthcare expenses. Nothing compares for tax purposes. You must have a “high deductible” health plan to have an HSA. The individual plan minimum is $1,350 or $2,700 for a family plan. The most you can put in an HSA is $6,900 for a family plan or $3,450 for an individual plan. Those over 55 are allowed an additional $1,000 in contributions. These limits can change from year to year.

Another option is to wait until you turn 65 to retire instead of at 62 because retiring means losing your employer-provided insurance. Once you turn 65, you’ll be eligible for Medicare to ease expenses. The majority of retirees use Medicare for their health coverage. Medicare Part A, the portion responsible for hospital insurance, is available to most retirees at no cost as long as they paid taxes into Medicare while they worked.

Medicare Part B is for hospital care, physical and occupational therapy, doctor’s services, and home health care in some cases. The costs for Part B coverage is income-dependent and can range anywhere from $109 to a maximum of $428.60 every month.

If Medicare is your only insurance provider, expect to pay out-of-pocket costs for what they don’t cover. Their services are limited. An option many take advantage of is to purchase a Medigap or supplemental policy to pay for services Medicare won’t.

Purchasing a Medigap policy gives you more freedom when selecting doctors and services, but you’ll pay a higher premium in exchange. You will also be responsible for handling cards for both companies and coordinating policies for maximum coverage. An alternative to this is to purchase Medicare Part C, which is essentially an all-in-one plan combining Parts A and B with prescription drug coverage.

If you’re 50 or older and still working, you are allowed to make additional catch-up-contributions to a 401(k) or IRA. The limit is $6,000 per year for retirement plans offered by your employer, or $1,000 for an IRA. Don’t forget that those in this age group are also eligible to add $1,000 on top of the yearly limit to their HSA to maximize tax benefits.

Combine these different options together to create a plan that fits your lifestyle and financial expectations. Planning gives you the advantage of knowing ahead of time what you can expect Medicare to pay, and what costs you’ll be responsible for paying. You can ease the financial burden on yourself by purchasing a supplemental policy, contributing as much as possible to your 401(k) or IRA, and utilizing the tax benefits of a health savings account. Take advantage of the catch-up contribution exceptions if you’re 50 or older to make your dollars stretch as far possible.

There is a lot to think about and plan for when it comes to retirement.  Contact us today to put that plan in place.

Sadly, unscrupulous people often prey on the most vulnerable among us, and too often that means our senior citizens are targeted. Even worse, in some instances these abuses can go unreported. Perhaps because of embarrassment or fear others will think it a sign of mental incompetence, the scammers go unpunished and can be free to find the next victim. Here are a few tips to help you avoid retirement planning scams.

Insurance and Prescription Drug Scams

Scammers can seek out those who are on Medicare or Medicaid in an attempt to induce the victim to reveal their personal information. Sometimes the scammer will tell you that you need a new identification card or maybe that you qualify for a new level of benefit. Whatever the approach, if you reveal your personal identification number, the scammer can then bill Medicare for bogus medical tests or prescription drugs and pocket the money. It’s highly unlikely you will be contacted over the phone or in person by anyone legitimately from Medicare, and never reveal your ID number, which is essentially your social security number as well.

IRS Scams

This is one of the most prevalent retirement planning scams out there. You get a call from someone claiming to be an IRS agent, who may even have the last four digits of your social security number. You are told you owe back taxes or that there is some other issue with a recent tax return. The scammer asks you to verify your full nine-digit SSN, and you do. Once they have that information, they can open false credit card accounts, charge the maximum and leave you to pay the balance. Be wary of any telephone calls from someone purporting to be from the IRS – the IRS almost exclusively communicates via U.S. mail.

Telemarketing Scams

There are so many different telemarketing scams it can make you never want to answer the phone. Callers who excitedly tell you have won a fantastic prize, you qualify for some amazing discount on medical supplies or other such random stroke of good fortune are almost assuredly looking to take advantage of you. Somewhere in the conversation, they will ask you for a credit card number or bank account information for some minor fee or other expense. Don’t fall for it.

Home Repair

Mostly going door-to-door, these folks could over promise, under deliver or simply take a large down payment and never come back. If you need work done on your home, it may be best to get references, actually speak with the people who have used the repair person, check the better business bureau and check your state’s contractor licensing agency.

Investment Scams

Everyone is seeking better returns on their investments, but if too high a return is promised or a fee needs to be paid up front, it may be wise to be skeptical. Even if you learn of others who seemingly have earned great dividends, you should be careful. Certain Ponzi schemes actually pay early investors, but end up taking all the investments from those who come later. Make sure you know who you invest with and double check, no triple check, their credentials.

Family Members

This, arguably, could be the worst scam of all. There may come a time when you need a little help around the house or someone to assist you with balancing the checkbook, and you turn to a family member.  Be very cautious about adding anyone to your accounts as a joint tenant. It’s preferable to have a power of attorney that comes into play only if you become disabled.

With a bit of caution, some common sense and by keeping your eyes and mind wide open, you can enjoy your golden years free of scammers who are looking to rip you off.

Recent market volatility has some investors thinking about their “uncle point”.  Yes, your uncle point, that moment when the market drops and you emotionally cannot stomach the loss.  Managing risk in retirement is important for many approaching or still navigating a successful retirement.  This level can vary wildly from one person to another. It is important in your planning that you know what your “uncle point” is.

What Is The Appropriate Level For Me?

Determining your own tolerance for investment volatility is the first step to take when thinking about investing. You need to know this in order to select investments that are appropriate for your portfolio. Part of the equation to consider is your age and how far away retirement is for you.

Investopedia discusses this concept by saying that younger investors generally should have an appetite for more risk in their investments. This is the general theory because it is said that younger investors can take a hit to their account and still have plenty of time to regroup and get back those losses over time. They have the time horizon to be able to get back money they may lose by taking on investments that are too risky.

The upside for a young investor to take on a risky investment is that it has the potential to pay off big. Sometimes the stocks of very small companies for example are a type of investment worth taking a look at. They could go bust and end up dropping to zero, but on the other hand they could hit it out of the park and allow the investor to get a huge return on his or her money.

Planning Out Your Future

The age factor is not the only consideration to put into the equation. It is a good starting point, but one has to consider themselves as a person as well. What do you feel when your investments drop by say ten percent? Are you willing to hold on and wait for better times? Would you consider putting even more money into an investment that has become cheaper like this?

Some people can handle the ups and downs of the market just fine. They don’t even necessarily look at what the market is doing, they just focus on the long-term horizon that they have to consider for their investments. That is the type of person likely to do well in the market.

Trust Your Instincts

Instincts are a powerful thing. If you ever feel uncomfortable with a particular investment, it is probably best to avoid them altogether. If someone tries to sweet talk you into putting money into something that you are not interested in, they probably have only their own best interests at heart. You are the only person responsible for your financial situation, remember that when investing.

Before putting money into investments, think about getting out the pencil and paper to write some things out and try to figure out what your tolerance level is for volatility. Seeking help from a financial or retirement planning professional can help safely guide you to your goals.

One of the ways we help clients is by determining their optimal risk tolerance. We use a tool that uses decades of academic research to determine their comfort level and on the flip side its analyses their portfolio to make sure they are only taking on risk they’re comfortable with. Often, we see that new clients have been taking on considerably more risk than they thought they were, and while they may have known this at a subconscious level, they didn’t have any means to quantify it. Adjusting their portfolio to optimize their risk level provides the peace of mind that let’s uneasy investors sleep better at night.

If you’d like to determine your optimal risk number just take this brief risk tolerance questionnaire and we’ll schedule a complementary portfolio risk analysis. http://ow.ly/Vub330jZprp

Long-Term-Care is something that some Americans rarely discuss. This underdiscussed topic is something that could be life-changing for families, potentially saving them thousands in the long run. If you are in a position to have the conversation, the best time is to have it before it is necessary.

What is long term care?

Long-Term-Care is available encompasses all services that include personal care needs. Most long-term care isn’t covered under conventional policies. A long term care policy offers coverage for everyday activities and living support.

Impact of long-term-care for families

Long term care is utilized by 12 million Americans. According to research by the Bipartisan Policy Center, only 11 percent of seniors age 65 entering retirement have long term care policies. The growing number of aging seniors relying on Medicaid will need assistance with nursing home care.

Expenses of long term costs are underestimated

According to a Genworth study, a private room in a nursing home averages $97,500 in 2017. A year in an assisted living facility was $45,000. Over the past five years, the costs of care increased between 3 percent and 4 percent each year. Time spent in a nursing care facility can cost hundreds of thousands of dollars over one’s lifetime. A semi-private nursing home room can cost $7,418, according to a Genworth Cost of Care Survey. Most families will find it difficult to handle the out-of-pocket costs independently. Most people turn to alternate sources to assist with meeting care needs.

Choices of the care needed

When resources are limited, families will have to make tough decisions. The costs could be significant for families, so planning for long term care is essential. As resources diminish, tough decisions may have to be made that could affect the quality of care provided to those in need of the care. Long term care evaluations assists with managing the costs that come with caring for a sick person. If planning is done well enough in advance, you will be able to manage care costs using a combination of long term care insurance and other resources.

Life expectancy

The average person has a life expectancy of 78.8 years according to the CDC. If life expectancy is nearing 80 years, it is imperative that people plan for long term care. Only 11 percent of people with care means that the remaining 89 percent of households will likely experience hardship if the need for long term arises.

Long term care planning is one of the most overlooked topics, but it is an important discussion to have. People must be prepared to discuss the tough financial challenges that comes with managing the personal care needs of a family member like they would retirement plans. All people are encouraged to have this discussion sooner rather than later given the financial implications that come with being unprepared.

You’ve made it to the end, no more daily grind; you’re heading off in the sunset. Whatever metaphor you favor for beginning your golden years, it is an important milestone in your life. Your planning has focused on making certain your nest egg has grown sufficiently to outlast your life, and it’s just as important to be sure your tax obligation doesn’t foil your plans.

Withdrawals from a Traditional IRA or 401(k)

It was great to be able to stash money through these tax-advantaged plans while you were working, but now’s the time to pay the piper. Withdrawals are taxed as ordinary income, which is the highest tax rate. However, now that you are retired you are almost certainly in a lower tax bracket and hopefully your planning accounted for this. Of course, if you opted for a Roth IRA, you paid your tax in the year the money was earned and placed in the qualifying account, you now enjoy the investment returns tax-free.

Income from Pensions

Some retirees are fortunate enough to collect a pension as part of their retirement income. Although some military and disability pensions can be partially or completely tax-free, the average pension income is taxed as ordinary income.

Gains from Investments

If you hold investments outside your IRA or 401(k) accounts, gains are taxable. One way to minimize the tax burden is to ensure your gain is taxed as a long term gain as opposed to a short term gain. This can be accomplished simply by holding the asset at least one year and one day before initiating a sale.

In addition to earning income from the sale of an investment, you can earn income while retaining an ownership stake in an asset in the form of a dividend from a stock or an interest payment from a bond. Both are typically a taxable event, but favorable options exist. If you invest in a stock that pays a qualified dividend you can be taxed at the much more favorable long term gain tax rate rather than as ordinary income. Municipal bonds are tax-exempt from the feds and if you purchase in-state bonds you pay no state tax either.

Social Security

Many people are surprised and perhaps a bit outraged to learn social security benefits may be taxable, but if you have any other additional income, there is a good chance some of your social security will be taxed. The income threshold where taxes kick in is not very high, and often 50 percent or as high of 85 percent of your social security benefits are subject to taxation.

The old saying that nothing is certain but death and taxes may be true, and including tax planning for your retirement income is an important part of the big picture. Don’t make the mistake of ignoring the inevitable. Proper preparation can provide security and peace in your long awaited post work years. Create a retirement plan that considers every aspect of planning for retirement, including tax strategies, we can help guide you.  You deserve nothing less.  

Divorce rates are surging in the 50 and older age group.  Today, divorce for those 50 and older has more than doubled since the 90’s!  Divorce can be complicated at any age. However, older couples usually have more financial consequences. The financial consequences are particularly fraught when a couple has to divide their retirement funds. Traditionally, older couples have more assets. Retirement accounts can be the cause of many arguments. Older people may be unable to correct poor retirement planning decisions. Retirement divorce planning is very important. Retirement assets are not always equally divided in a divorce settlement.

Give Your Spouse the House
Many people assume a house is their largest asset. The marital home could be a liability as the value might plummet. Also, the home will have property taxes due every year. A well-diversified portfolio can be a better retirement funding option.

Do Not Overlook Retirement Account Withdrawal Fees
If you have not paid taxes on your retirement accounts, you will have to give away some of your money. The government will take a percentage of your pre-tax retirement accounts. You will not have to pay taxes on your after-tax savings accounts.

Moving Your Spouse’s Retirement Account May Have Financial Consequences
Some divorcing spouses can withdraw money from their ex’s pre-tax retirement accounts without owing the usual 10 percent tax penalty. The QDRO allows you to use the money to pay for your divorce expenses. If you withdraw the money after it has been moved to your account, you will have to pay the usual 10 percent tax penalty.

Do Not Take Too Much Money Out of Retirement Accounts
Many people are overly excited about avoiding the tax penalty, and they take extra money for shopping and vacations. Remember, you will need your retirement funds in the future. If you spend the money on frivolous purchases, you will panic when you need the money at a later date.

Be Mindful of Social Security
An ex-spouse can claim a social security spousal benefit.  The spousal benefit does come with stipulations; the marriage had to be at least 10 years, and the divorcee cannot remarry. The ex’s social security payments will not affect the primary beneficiary’s social security payments.

Get a Prenuptial Agreement for Your Second Marriage
If you tie the knot again, you should consider signing a prenuptial agreement. The agreement will protect your finances. Without a prenuptial agreement, your retirement accounts can be divided again after a second divorce.

In most divorces, one partner has a solid understanding of the couple’s finances. If you do not know how much money is in the retirement accounts, you will need to take an inventory of your marital assets. Also, do not underestimate your expenses when you are thinking about your retirement divorce planning. You will have to adjust your spending after the divorce, so you should be prepared for major lifestyle changes.

Tuesday saw the most volatility the stock market has seen in over a year.

The Dow Jones Industrial Average, which tracks 30 of the largest companies in the US, dropped 1,175 points, triggering a global sell-off.

While this was the largest point drop in history, as a percentage, it was “only” 4.8%.

The actual worst drop in history was on Black Monday – 19th October 1987, when the DOW dropped an eye-popping 22.6% in one day.

But coupled with the 1,800 point loss from the past week, the DOW and the S&p500 are now down about 8% from their highs, and down for the year.

Understandably, this has caused some panic.

But for most investors, it’s isn’t time to worry yet.

The past year has been the least volatile on record. The S&P500 hadn’t had two days with 2% percent decline since September 2016. This is a rarity we haven’t experienced in decades.

As I mentioned in September 2016, “I expect the economy will keep grinding higher for the next few years, just like it has been for the last five. And like the economy, our investments will likely slowly grind higher as well…”

And since then, the market has kept steadily grinding higher, rising without actually moving more than 1 percent in either direction.

Until last week, the S&P 500 gained 14% over a five month period without experiencing a single 1% up day.

This has never happened before.

While it’s true that we’ve recently seen a lot of positive economic news to propel the markets higher and maybe even justify these prices, the fact is that prices have simply gone up to quickly.

It’s time for the market to slow down and digest it’s gains.

You might be worried that we’re reaching the end of this bull market. And we may well be in the final innings, but I think we still have quite some room to run before the next recession rears it’s head. And if history is any guide, we’re unlikely to see the end of this bull without a recession.

If anything, today’s action just signals that the low-volatility period is over and the market has now returned to it’s normal behavior.

There’s really nothing to see here, and even less to do…apart from rebalancing your portfolios.

As usual, stick to your investment process and control the things you can actually influence – risk, cost, time and behavior.

Happy Investing!

Nirav
PS: If you’d like to discuss your investment performance, retirement plans, or you’d like a complimentary portfolio review, send me an email and we’ll schedule a time to talk.