Congress just passed a law that made some changes to Medicare so I wanted to give you a quick summary of those changes and how they might affect your retirement plans.
Doctor Pay. The law repeals the physicians payment cut that had many doctors seriously considering whether they should stop accepting Medicare patients altogether. The law also institutes annual payment increases to doctors for certain Medicare services. This is good for Medicare patients because it will increase the likelihood that they will continue to have access to their doctor of choice.
Health Care Quality. The law also instituted new quality measures for doctors and hospitals which reward them for providing high quality care. This is obviously another plus for those on Medicare.
Identity Theft. If you’re currently on Medicare, you probably raised an eyebrow when you first got your Medicare card and saw your Social Security number printed on it. This obviously opens the door to identity theft if your card is lost or stolen. The new law stipulates that all new cards must come without Social Security numbers printed on them by April 16, 2019 and existing cards must be reissued within four years after that.
Means Testing. As the financial difficulties of Medicare and Social Security become more acute, one of the first “fixes” that Congress will likely reach for will be some form of means testing. This is already starting to happen in Medicare. For example, the law increases the amount that high-income beneficiaries will pay for Part B (doctor’s insurance) and Part D (prescription drug coverage).
To understand how premiums will increase, we need to understand how the premiums are calculated. Basically, the government calculates an overall premium based on the cost of the program and then they pay part of that premium and individuals pay the other part. Your income level will determine how much of the premium you will be required to pay.
Most people currently pay a premium of $104.90 per month for Medicare Part B, which equates to about 25% of the premium cost. High earners, however, pay an Income Related Monthly Adjustment Amount (IRMAA). The higher your income, the more you pay. This has been the case for many years now, but the new law reduces the income limits, thereby subjecting many more people to higher premiums.
Here’s what people are paying currently:
Less than $85,000
$85,001 to $107,000
$107,001 to $160,000
$160,001 to $214,000
More than $214,000
And here is how the income limits will adjust:
Less than $85,000
$85,001 to $107,000
$107,001 to $133,500
$133,501 to $160,000
More than $160,000
Notice that many more people fall into the “high income” category and will thus be responsible for a larger percentage of the premiums. It’s difficult to put a specific dollar value on these increases, because we don’t yet know what the premium costs will be in 2018, but here are two things we do know: 1) the premiums will be higher than they are now, and 2) those with higher incomes will be required to pay a larger percentage of the premium. I have seen some estimates that a person in Tier 4 or 5 might pay around $3,500 more per year ($7,000 per couple) than they would if they were in Tier 1 or 2.
Are there ways to avoid these increases? Yes! The increases won’t happen until 2018, but they will be based on your Modified Adjusted Gross Income in 2016 and beyond. Those who are retired (or close to it), should keep that in mind. Your adjusted gross income is made up of things like wages, taxable interest, dividends and distributions from IRAs. During retirement, you can control several of those things. When deciding which accounts to pull from first, how much to pull from your IRAs or whether or not to work part time, consider how those decisions will affect your income and whether or not that income is enough to bump you up into a higher Medicare bracket. If so, it might be wise to forgo part-time work or delay distributions from IRAs until the following tax year.
I know Medicare discussions can be a little dry, so I’ll leave you with a fun photo from over on our Facebook Page:
“Should I buy long term care insurance?” I get asked that question at least once a week. As you prepare for retirement, I’m guessing that question has crossed your mind a time or two as well.
Well, you’re in luck. I do my best to provide useful resources for my readers (who, like those in Lake Wobegon, are all strong, good looking and above average), so I called one of the country’s foremost experts on long-term care and asked her if she’d be willing to spend some time educating us on the ins and outs of this important area.
She agreed and we scheduled a conference call for June 12 at 11:00 a.m. Central Time. You’re all invited to attend. The first part of the call will be informational and then we’ll reserve time at the end for Q&A. The purpose of the call will be to provide you with information and options. It will not be a sale pitch.
What we’ll talk about
Preparing for when your health changes.
How does long term care work?
What is the range of care options available today?
Who should consider buying a policy?
How do Medicare and Medicaid factor into your decision?
What types of things should you look for in a policy?
When is the best time to apply?
How can you protect yourself against the rising cost of care?
How much will a policy cost?
What percentage of people will need some form of long term care (spoiler alert: 50 percent of men and 75 percent of women)
Call in details
The system I’m using has a limit of 96 people per call. Access will be on a first come basis.
The information is free. Your only cost will be whatever your phone company charges you for a normal long distance call (sorry, but I can’t pick up the phone bill for everyone)
The call will be June 12 at 11:00 a.m. Central. Call in 5 minutes early so we can get everyone situated and start promptly at 11:00.
The call in number is (712) 451-6000.
After calling the number, you will be prompted to enter your Participant Access Code. Enter 256869# and you will join the rest of us on the call.
If you plan on sitting in on the call and would like a reminder, just email me at firstname.lastname@example.org and I’ll try to send out a reminder email a few hours before the call.
If you have a specific question you’d like to make sure we cover, email it to me sometime over the next week or so at email@example.com. Thanks and I hope to see as many of you as possible on the call.
Quick Note: The material on the call will be for general purposes only. For specific legal, financial or insurance advice you should contact your attorney or financial adviser. You can also contact the guest speaker on the call (Marlene Lund) at 402-896-9193 if you have specific long-term care questions. FYI, I refer clients to Marlene and she and I work together to help them with their long-term care needs. Because of that, if you end up doing business with Marlene, I will likely receive some sort of compensation. I just wanted to make that totally clear. Thanks.
It’s no secret that prescription drug costs can put a big dent in your retirement budget. What you may not know is that the cost of those drugs can vary (sometimes drastically) based on which pharmacy fills your prescription.
The assumption is that drugs have set prices and every pharmacy charges the same price for the same drug. The reality is that pharmacists charge what they want. If you have a high deductible health plan or you’re in the “donut hole” on the Medicare Prescription Drug plan, going to the wrong pharmacy can mean much higher out-of-pocket costs. Until recently, there was no tool to compare what different pharmacies were charging for a certain drug in your area.
Doug Hirsch and Scott Marlette have changed that. They were early employees at Facebook until eventually moving on to pursue other ventures. One day Doug had a prescription that he needed to have filled. The price of the drug at his regular pharmacy seemed really high, so he shopped around and found that the cost varied significantly. Long story short, they figured out a way to create a huge database of drug prices from all over the country and launched a new website called GoodRX where people can enter a drug name and their location and get a comparison of what pharmacies are charging.
To get an idea of the diversity of prices, I went to GoodRX and compared prices on a variety of different drugs. For some drugs, the prices were very consistent from pharmacy to pharmacy. For others, there was a huge difference. For example, I looked up a variety of drugs used in the treatment of colon cancer. The high and low for my area are listed below.
Leuprolide—High: $436.17, Low: $188.52
Taxotere—High: $640.61, Low: $275.12
Flutamide—High: $50.14, Low: $29.20
As you can see, those are some pretty wide swings. If you visit the site, you’ll notice that there are coupons available for many drugs and there is also a mobile App available so you can check prices while you’re actually in the pharmacy.
Have a great weekend!
Photo by Wil Taylor. Used under Creative Commons License.
Chances are good that you’ve seen or heard something about Medicare open enrollment recently. What is it? You become eligible for Medicare when you turn 65. You have a seven month window to enroll in the program. The window opens three months before the month you turn 65 and continues for three months after the month you turn 65. If you are already collecting Social Security before you turn 65 you will automatically be enrolled in Medicare.
Once enrolled, each year you have an opportunity to make certain changes to your coverage. That period is called the open enrollment period. It begins next Monday (October 15) and runs through December 7. Any changes you make will take effect on January 1, 2013.
During the open enrollment period you can:
Change from Original Medicare to a Medicare Advantage Plan (or vice versa)
Switch from one Medicare Advantage Plan to another
Switch from a Medicare Advantage Plan that doesn’t offer drug coverage to one that does (or vice versa)
Join a Medicare Prescription Drug Plan
Switch from one Medicare drug plan to another Medicare drug plan
Drop your Medicare prescription drug coverage completely
You can review and compare coverage options at www.medicare.gov or by calling 1-800-MEDICARE. Also, feel free to call or email me if you have any questions.
Photo by Ben Lyon. Used under Creative Commons License.
One of the biggest obstacles to retiring early is health care. If you want to retire at 62, but don’t become eligible for Medicare until 65, you have a three-year window where you need to bridge the gap between your employer’s coverage and Medicare. Traditionally, that has meant either going without insurance (not a good idea) or paying for an individual policy (mucho deniro or not available due to pre-existing conditions).
The new health care law has elements that could make it easier to bridge the gap between employer coverage and Medicare, thus making early retirement a more viable option. The law phases in over time, so I’ll discuss the options available to you between now and 2014 and those after 2014.
Between now and January 1, 2014
In the short term, the law makes $5 billion available to employers to spend on insurance for employees who decide to retire early (visit www.errp.gov for more info). The drawback here is that your employer needs to offer retirement insurance benefits, which most don’t.
If you’re willing to buy an individual policy to bridge the gap, but don’t qualify due to a pre-existing condition, the new law also has a pre-existing conditions insurance plan. Visit HealthCare.gov to get details for your state and information on how to apply.
After January 1, 2014
Both the early retiree and pre-existing conditions programs mentioned above expire at the end of 2013. What replaces them? Starting January 1, 2014 insurers will no longer be allowed to deny coverage based on pre-existing conditions, so you can shop around with private insurers regardless of your health. If you want to retire early and still can’t find affordable coverage with a private insurance company, states will have “exchanges” where anyone can buy health insurance.
So if you plan on retiring early, it looks like you’ll have a few more options for health coverage. Work with a trusted adviser to see if these options are right for you.
As 2011 draws to a close, there are several financial moves that you should consider. Below are 10 steps that could help reduce your tax bill, solidify your investment strategy and ensure that your retirement planning is on track.
Review beneficiary designations
Many accounts, such as Individual Retirement Accounts (IRAs), 401(k)s, annuities, and insurance policies allow you to name a beneficiary who will receive those assets when you die. Many people don’t realize that those designations take precedence over their will, even if the will is more accurate and up to date. Because of this, it is important to review the beneficiary designations on all your accounts annually to make sure that they accurately reflect your wishes. Meet with your financial adviser and estate planning attorney to ensure that your designations not only pass property to the correct people, but also minimize expense and taxes.
Take required minimum distributions
If you turned (or will turn) 70 ½ during 2011 then it’s time to start taking required minimum distributions (RMDs) from IRAs and other tax deferred accounts like your 401(k). RMDs don’t apply to Roth IRAs. Your financial adviser can help you calculate your RMD based on IRS guidelines. You are required to take the distribution by December 31st of each year with one exception. If you turned 70 ½ during 2011 you can delay your distribution until April 1, 2012. If you do that, remember you will need to take two distributions next year—one for 2011 and one for 2012.
IRA charitable exclusion
The government extended the IRA charitable exclusion for 2011. Basically this exclusion allows you to distribute (tax-free) up to $100,000 from your IRA and direct it to a charitable organization. If you are charitably minded and don’t need the income from your distribution, then this could be a good way to avoid the tax bite on your RMD.
Medicare open enrollment
The Medicare open enrollment period is the time each year when those on Medicare can make changes to their existing plans to better suit their needs. If you are on Medicare, then you should review your health and prescription drug plans and decide if you want to stick with them or if you would be better served by switching to another plan. The open enrollment period typically runs from November 15 to December 31, but it has been moved up this year to October 15 through December 7. Visit www.medicare.gov for more information.
Year-end charitable contributions
One way to reduce your tax liability in a given year is to make charitable contributions. If you are considering making charitable contributions prior to year-end, consider using appreciated stock rather than cash. Not only will you benefit from the charitable deduction, but you could also avoid paying the built in capital gains tax on the stock.
Year-end gains and losses
Capital gains and losses can be used to offset each other. If you took profits in some of your investment positions this year, look to see if you have any positions that could be sold for a loss to offset the gain and minimize your taxes. Excess losses can be used to offset up to $3,000 in ordinary income taxes. Losses beyond that can be carried forward indefinitely to offset future gains.
Maximize retirement contributions
For 2011, you can contribute a maximum of $5,000 to your IRA and $16,500 to your 401(k). If you are over 50, you can contribute an additional $1,000 to your IRA and $5,500 to your 401(k) per year. By maximizing your contributions each year, you greatly increase your chances of being able to adequately fund your retirement.
Review your asset allocation
The market upheaval of the last several years and investors’ response to that upheaval has wreaked havoc on many people’s asset allocations. Rather than having a balanced, diversified portfolio, many have sought safety by moving everything to cash or bonds. That could cause serious problems in the future if inflation picks up or the bond market stumbles. To protect your assets and maximize your returns, you should meet with a trusted adviser and make sure the investments you hold are appropriate based on your risk tolerance, goals and time frame.
Review your estate plan
Your estate plan should not be a static document. As your life changes, your planning must change with it. Getting married or divorced would likely change how you want to distribute your property; likewise if there is a death in the family. Each year you should review your documents, including your will, trust, and powers of attorney to make sure that they still reflect your wishes and have the correct people taking charge if you were to die or become incapacitated. Also, if you move to another state when you retire, meet with your attorney to make sure that your documents will be valid in your new state of residence. Make revisions as necessary.
Shred unnecessary paperwork
Much of the paperwork you have can be purged once a year. For example, if your December investment statements summarize the year’s activity, you can shred the statements for the previous 11 months. Likewise, any bills, credit card statements, and receipts that you are not using as supporting documentation for your taxes can go.
According to the IRS, you should keep your tax records for “the period of time during which you can amend your tax return to claim a credit or refund, or that the IRS can assess more tax.” Seven years should do the trick for most tax documents, such as returns and any supporting documentation like cancelled checks, receipts, or credit card statements. Identity theft is on the rise, so always remember to shred documents before discarding them.
As you can see, by taking a few simple steps before year-end you can enter 2012 organized and on a firm financial footing.
Note: I first published this article at www.fpanet.org and the Omaha World Herald.