Hi everyone. Below is a quick summary of the COVID-19 legislation that affects retirees. Before jumping into that, a quick apology. Sorry I haven’t written much lately. January and February are normally very busy months for me as I meet with clients for annual reviews. Just as that was wrapping up, the world (and markets) went haywire with the pandemic and I’m just now coming up for air.
New Rules That Affect Retirees
The coronavirus stimulus packages contain something for (almost) everyone: businesses, individuals, students and yes, retirees. I won’t bore you with a comprehensive list, but I’ll give you a quick overview of the elements that impact retirees.
Changes to Required Minimum Distribution (RMD) rules: The CARES Act allows you to suspend RMDs for 2020 from 401(k)s, 403(b)s and IRAs. If your IRA took a hit and you don’t need the money, it’s probably a good idea to skip your 2020 RMD. That will hopefully give your account time to recover from the recent downturn. If you have your RMD set to happen automatically each year, you’ll want to call your adviser or IRA custodian to stop it. If you’ve already taken it for the year, there is a provision that allows you to put it back. Certain restrictions apply, so check with your IRA custodian for details. Also keep in mind that Congress made another change to RMDs at the beginning of the year that pushed the required age from 70 ½ to 72.
Penalty waived for early retirement withdrawals: Normally, you have to pay a 10% penalty if you take a distribution from your IRA prior to age 59 ½. That penalty is waived for 2020 on amounts up to $100,000 for anyone affected by COVID-19 (e.g. sickness, job loss, reduced hours, etc.). You’ll still owe taxes on the distribution, but you can spread the taxes out over three years. And if you end up not needing some or all of the money, you can put it back into your IRA within three years and that contribution won’t count toward your annual contribution limit.
Stimulus checks: Even if you’re retired and not working, you may still be eligible for a stimulus check. The CARES act provides one-time payments of $1,200 for individuals and $2,400 for couples. The benefit begins to phase out at adjusted gross income of $75,000 for single filers and $150,000 for those married filing jointly. They phase out completely at $99,000 for singles and $198,000 for married filing jointly. Initially, people were required to file a 2018 or 2019 tax return in order to receive the benefit, but many retirees are not required to file a tax return, so the government now says it will look at SSA-1099 benefit statements. If you are receiving Social Security and are eligible for the benefit, the government will send out your stimulus check automatically in the same manner that you receive your regular benefits (likely via direct deposit).
Expanded loans from qualified plans: If you have a 401(k) or other qualified plan, you can now borrow 100% of your vested account balance, up to a maximum of $100,000. The deadline to initiate the loan is September 23, 2020. If you already have a loan outstanding, you can delay repayments for up to one year.
Delayed tax filing deadline: The due date for filing federal income tax returns (and paying any balance due) has been moved from April 15, 2020 to July 15, 2020. This extension applies automatically to all taxpayers and you don’t need to file any additional forms to qualify. The delay applies to 2019 returns as well as estimated tax payments for Q1 of 2020 that would otherwise have been due on April 15. If you’re still unable to file by July 15, you can file for a normal extension using Form 4868. Keep in mind that the regular rules still apply to that second extension (i.e. it extends the due date of your filing, but not the due date of any taxes due). Not all states extended their filing deadline, so be sure to check your state’s deadline to make sure you file on time.
Delayed mortgage payments: The CARES Act allows certain borrowers to delay their mortgage payments for up to a year. Be careful with this provision, however, because depending on who owns your mortgage (your bank or another servicer), you may be allowed to tack the payments onto the end of the loan or you may be required to pay all of your back payments in a lump sum at the end of the forbearance period. Check with your mortgage provider for details.
Medicare and COVID-19: Under earlier legislation (the Families First Coronavirus Response Act), health plans are required to cover COVID-19 testing at no cost to the patient. If you’re already on Medicare, it provides coverage as well. Medicare will cover COVID-19 testing and also covers hospitalization and treatment. In addition to these benefits, Medicare has expanded its coverage of telehealth benefits. For more information on all these things, visit https://www.medicare.gov/medicare-coronavirus.
These are definitely unprecedented times. Stay safe and touch base if you have any questions or if there’s anything I can do to help you.
Most people rely on Medicare to cover their health expenses during retirement, but it won’t pay for everything. Here are 5 things that Medicare doesn’t cover.
Deductibles, coinsurance and copayments: Depending on the type of Medicare you choose, you’ll still be responsible for certain premiums, deductibles, coinsurance and copayments. For example, Medicare Part A is usually free, but you’ll pay a $1,364 deductible for each benefit period and if you’re in the hospital for more than 60 days you’ll pay a coinsurance amount for each day. Beyond a certain number of days, you are responsible for all costs. Part B has premium costs, a $185 annual deductible and 20% coinsurance on most services. Parts C and D have costs as well.
Prescription drugs: Original Medicare (Parts A and B) doesn’t cover prescription drug costs. To get that coverage you need to purchase a Part D plan.
Routine vision care, dental care and hearing aids: Original Medicare (Parts A and B) doesn’t cover things like eye exams, most dental care, dentures, hearing aids, acupuncture or routine foot care. Medicare Advantage (Part C) may cover some of those things, but you need to pay extra for Medicare Advantage.
Long-Term care: As people age, they often need help with daily activities like eating, dressing, bathing and using the restroom. You can get help with these types of things by moving into an assisted living facility, but Medicare typically will not cover any of those costs.
Medical care overseas: Medicare will typically not cover medical costs you incur while traveling outside the U.S. and its territories. There are a few exceptions, such as when you’re on a cruise ship in U.S. territorial waters or if you’re traveling to or from Alaska via Canada and the closest hospital that can treat you is in Canada.
These uncovered costs can add up to hundreds of thousands of dollars over the course of your retirement, so you’ll want to plan accordingly. Earmark a portion of your nest egg for health expenses and then seriously consider purchasing additional insurance, such as long-term care insurance or a Medicare supplement plan, to cover anything not covered by Medicare. For more information on Medicare, visit www.medicare.gov.
Deciding when to retire isn’t always easy. Most people just base it on their birthday, but there are other factors you should consider as well. In the video below, I’ll give you seven signs that you’re ready to retire.
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There is a lot of uncertainty with healthcare lately, but two trends will likely continue: It will continue to get more expensive and you will continue to be responsible for more and more of the costs. Even with Medicare, it is estimated that the typical retiree will need between $200,000 and $400,000 to pay for health expenses during retirement. With that in mind you should seriously consider using a Health Savings Account (HSA) to help fund your retirement health expenses. You might be using one now, but if you’re like most, you’re not using it to its full potential. Let’s change that.
What is an HSA?
An HSA is a tax advantaged medical savings account available to people enrolled in high deductible health plans. Think of it as an IRA for your medical expenses. Unlike IRAs, however, HSA money is triple tax free: going in, as it grows and coming out. That is a huge advantage. The only caveat is that you need to spend the money on qualified health expenses or you’ll pay taxes and a penalty. The list of qualified expenses is rather long and even includes things like long-term care insurance premiums. Here are a few quick facts on HSAs:
Contributions are tax deductible.
The assets in the account grow tax free.
Withdrawals for qualified medical expenses are tax free.
If you take the money out for non-qualified expenses, you will pay taxes and a 20% penalty.
Unlike FSAs, HSA dollars are not “use it or lose it.”
Contributions can be made by either you or your employer.
2017 annual contribution limits are $3,400 for an individual and $6,750 for a family.
Those over age 55 can make an additional $1,000 catch-up contribution each year.
Money in the HSA can be invested in stocks, bonds and mutual funds.
A few things change at age 65…
Distributions after age 65 are never subject to a penalty, even if not spent on qualified medical expenses. For non-qualified expenses just pay the taxes and use the money for whatever you want.
At 65 you can pay for all Medicare premiums except Medigap with tax free HSA distributions.
Once you enroll in Medicare, you can no longer make contributions to an HSA, but you can continue to use the existing money in your HSA.
Your best strategy
HSAs are growing in popularity, but they are not being used to their full potential. Because of the HSA triple tax advantage (in, out and during), the money should be invested for growth and allowed to compound as long as possible. Instead, here’s how most people use their HSA: 1) Add some money, 2) Leave the money in a no risk/no return money market, 3) Use the money as soon as they incur a medical expense.
Here’s how you should use your HSA: 1) Contribute the maximum amount allowed each year, 2) Invest the money in stocks, bonds and/or mutual funds, 3) If possible, pay for your current medical expenses out of pocket and allow your HSA money to grow until you retire. By doing that you are getting the most bang for your buck and creating a pot of money for retirement that can be used tax free for medical expenses or for anything else as long as you pay the tax.
Have you ever wondered what it would be like to live in one of those newfangled senior living facilities that are popping up all over the place? I was curious too. So I moved into one. I have a friend whose company owns a number of these retirement centers and they had just finished building a new one called Aksarben Village in Omaha. Since it was new and not yet full, I asked him if they had room for a temporary resident. He pulled a few strings and before I knew it my name was on the door of room 217, I was getting my hair cut at the in-house salon and I was sitting down to meals with my fellow residents. How did it go, what are these facilities like, what are the pros and cons of assisted living and what can you learn from the experience if you ever need this type of care for yourself or a loved one?
Who’s the new guy?
“Hi, I’m Pat,” she said as I sat down beside her for lunch. She was friendly and had that gleam in her eye that immediately puts you at ease. She quickly introduced me to the others at the table, including Dick, Kris, Martha, Dee Dee and Alice. We spent that first meal talking and laughing and I got to know a little bit about each one. I heard about kids, pets, spouses and stories from back in the day. They knew I was writing an article about assisted living facilities, so I asked them what prompted them to move. Most gave two or three reasons, but a common thread throughout revolved around health.
There aren’t many certainties in life, but this is one: Your health is going to change. Your mental and physical abilities will look different at 70 or 80 than they did at 50 or 60. Sometimes the changes are minor and sometimes major, but about two thirds of us will need help coping with those changes. In the past, as abilities diminished, your choice was either a curtailed lifestyle (e.g. no driving, less cooking, etc.) supplemented by whatever assistance friends and family could provide or a move into a nursing home facility that was very expensive and provided way more care than you needed.
The basic idea of the new retirement living options is that they broaden the spectrum of help available. They provide a base level of services that cover issues most of us deal with as we age and then provide a laundry list of à la carte services so that people get help where needed while still maintaining their lifestyle and independence.
Care levels
I learned all about these different levels of care during the check in process. At one end of the spectrum are independent living facilities. As the name implies, residents basically live independently (similar to renting an apartment), but the facility provides services like housekeeping, home maintenance, some meals, security and a number of other amenities.
Assisted Living, where I stayed, is next on the spectrum and provides much more involved care. You have your own apartment (equipped with things like zero entry showers and an emergency response system), weekly housekeeping, laundry services, access to onsite medical personnel, transportation to outings or appointments and three restaurant style meals per day in the dining room. In addition you have a personalized care plan based on an assessment completed at admission and then updated every 30 days. This personalized care includes things like medication management, breathing treatments, bathing, grooming, using the restroom, mobility, dressing, safety checks and help with things like the phone or email.
People who need more intensive or specialized care—such as those suffering from dementia or Alzheimer’s disease—can move into either a memory care facility or a nursing home. These facilities have specially trained staff and caregivers who are there to provide care 24 hours per day.
Many facilities (including where I stayed) recognize that people may need all three of these levels of care at some point, so they build them together into a sort of senior living campus. This allows a person or his/her spouse to move up to the next level of care when needed.
Amenities and Activities
These new facilities are definitely not like nursing homes of old. For example, where I stayed there was a large movie theater complete with popcorn machine and iPad controls that are connected to cable, Netflix and just about every other streaming service you could imagine. There was a banquet room, private dining rooms for when family comes to visit and a full service kitchen with chefs who were more than happy to take any special requests. There is also a workout room, a physical therapy room, billiard room, beauty/barber shop, chapel, library and an activity/craft room.
Residents put these facilities to good use. Each month the lifestyle coordinator releases a new activity calendar containing church services, workout classes, movie nights, political discussion groups, cooking classes and trips to places like museums, stores and local restaurants. Partnerships with community organizations provide additional benefits. For example, the Omaha Public Library rotates new books each month through the library based on resident requests and Hy-Vee does free delivery of groceries each week to any resident that orders them.
Cost
As you can probably imagine, these services are not cheap. The more care a person needs, the more expensive it gets. Independent living averages about $2,500 per month nationwide. Memory care and nursing home care are higher, averaging $6,000-$7000 per month. Assisted living falls somewhere in the middle with the median cost of care nationwide around $3,600 per month. Studio apartments where I stayed start at $3,500, but you could spend much more if you wanted a 2 bedroom, 2 bath unit. The monthly care plan can add additional costs to assisted living. Where I stayed, services are given a point value and any additional costs are based on the point total. For example, someone who needs 2 medication reminders per day as well as assistance with shaving and getting dressed would have a point total of 14, which would cost about $285 extra each month.
How to pay
Except in very limited circumstances Medicare does not cover any long-term care costs. Medicaid does, but to qualify, you basically need to be both sick and poor. Even then, the amount Medicaid provides is limited, so most private facilities have a minimal number of beds set aside for Medicaid residents. Because of that, those who want to live in these facilities will need the means to pay for it, which can be a major obstacle. Most of the people I talked to were covering the costs from a combination of personal savings and payments from long-term care insurance. Those policies can be expensive, but one month of care will usually cost more than one year of insurance premiums, so having a policy can make financial sense if you end up needing it. In some cases, adult children were also helping to cover some of the costs so they could have peace of mind that mom and dad were well cared for.
Pros and Cons
One of the first people I met when I arrived at Aksarben Village was Colleen. She is suffering from mild dementia which affects her short term memory, but was otherwise healthy, sharply dressed and a kick to talk with. She has six kids and we spent the better part of an afternoon talking about each of them. On the last day of my stay, I actually got to spend some time visiting with one of her daughters, Sara Wachter. Her perspective gave me some great insights into the pros and cons of assisted living facilities.
Prior to moving into assisted living, she told me that her mom’s dementia was causing problems like social isolation, missed medications and missed meals. Even with a big, supportive family the memory loss was creating issues that were impacting Colleen’s health, safety and lifestyle. Their gerontologist said it was time to make a move so they started exploring options. “Mom grew up in this part of town, so it was a good fit,” Sara said. It wasn’t without challenges, however. Finding out she had to leave her home was initially a shock, but hearing the news from the gerontologist gave it more weight and took the pressure for that decision off Colleen and her family. Giving up her car was also tough, but since the facility had transportation the kids thought it was for the best. Expenses were also a concern, but Colleen’s mother lived to be 104 and was in a nursing home, so Colleen purchased a long-term care policy years ago which has helped with the costs.
As Sara and I talked, we saw her mom come down to the front lobby and start chatting with other residents. Dick Loneman, the driver at the facility, was getting ready to take them for an afternoon at the Joslyn Art Museum.
“Mom has thrived since moving in here,” said Sara. “The things she couldn’t take care of were all of a sudden being taken care of by someone else. Now she’s free to enjoy life and doesn’t have the responsibility for all those day to day things that had become so challenging for her. It’s less stressful for us too, because we know she’s in good hands.”
Quick Note: Sorry things have been quiet around the site for a few weeks. I was on vacation with family and friends and prior to that I was scrambling to get things wrapped up at the office. I’m home and caught up, so it’s back to regularly scheduled programming. Thanks for your patience.
Being on the road made me think of a question that clients often ask me:
“Does Medicare cover me when I travel?”
The answer, of course, depends. And it would be bad enough to get sick or injured on vacation without also finding out that Medicare won’t cover the expenses, so let’s take a look at whether your Medicare will travel with you.
What type of Medicare do you have?
Coverage varies depending on whether you have original Medicare or Medicare Advantage. Original Medicare is just Parts A and B (hospital and outpatient services) supplemented with a Medigap policy. Medicare Advantage is when you have Parts A and B and then also purchase Part C, which is coverage provided by Medicare approved third-party health insurance companies. Each of these types of Medicare works differently depending on where you travel.
Where are you going?
Original Medicare is extremely flexible within the U.S. (which includes all 50 states as well as Washington D.C., Puerto Rico, U.S. Virgin Islands, Guam, American Somoa and the Northern Mariana Islands.). There are no networks or preferred providers with original Medicare, so you can get care at pretty much any facility that accepts Medicare.
Medicare Advantage is a bit less flexible. Coverage is most comprehensive if you get care within the network of the private health insurance company that is providing you Medicare Part C. Generally speaking, the closer you are to home, the better your coverage will be. Having said that, if you’re having a medical emergency you can use your Part C pretty much anywhere in the U.S. and it will be covered. Call your insurance company if you’re unsure if a particular provider is “in network” or “out of network.”
Except in very limited circumstances, neither type of Medicare (original or Advantage) will provide coverage while you’re traveling outside the U.S. They may cover certain services while you’re on a cruise ship or while you’re traveling across Canada on your way to Alaska, but that’s about it. Some Medigap policies cover emergency medical services while traveling abroad, but there are limits to the coverage. They generally pay for 80% of covered services after meeting a $250 deductible with a lifetime maximum of $50,000. Bottom line—if you’re planning a trip abroad, it’s best to buy a separate travel insurance policy with generous health coverage. It’s also a good idea to get a policy that includes evacuation insurance. As you might imagine, it would be very expensive to pluck you from the bottom of the Grand Canyon or from the rain forest in Costa Rica if you are sick or injured. Those costs can run into the tens of thousands of dollars and neither Medicare nor Medigap covers the cost of a medical evacuation.
So before you hit the road, do a little research to make sure you’re covered and your trip will be a lot more enjoyable. Bon Voyage!
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