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Now 64? Prepare to Sign Up for Medicare

This is the time to arrange lifelong health coverage.

Age 64 is the age when you are reminded that you are a baby boomer growing older. Regardless of how young or old you feel at 64, you should make sure to sign up for Medicare.

The sign-up period will be here before you know it. In fact, you might already be within it, so act quickly if you are. Medicare gives you a 7-month window in which to enroll. That initial enrollment window opens three months prior to the month in which you turn 65 and closes three months after the month in which you turn 65. 

If you fail to enroll within that 7-month period, the chances are good that you will end up paying a late-enrollment penalty for not signing up for Part B coverage on time. That penalty is permanent. You will also have to wait until the next general enrollment period (January 1-March 31) to sign up.1,2
   
Are you already receiving Social Security retirement benefits? Have you received them for 24 straight months at any point? If your answer to either of those two questions is “yes,” then you will be enrolled in Medicare Part A and B, automatically. You will get your Medicare card in the mail about three months prior to turning 65.2
 
Are you currently covered under an employer or former employer’s health plan? If so, you may qualify for a special enrollment period. On the other hand, you may not.

The rules are complex here. If you are approaching your 65th birthday, your employer (or your health plan administrator) may require you to enroll in Medicare at the first opportunity.  Not all companies demand this. If yours does not, then you can sign up for Medicare coverage later, without being hit with late-enrollment penalties.2

If you are still working at 65 and have employer-sponsored health coverage, you face no requirement to sign up for Medicare until you retire or that coverage disappears. (This also applies if you are retired, but your spouse has employer-sponsored health coverage.)2
 
The month after your employment ends or your employee health benefits linked to that employment end (whichever comes first), an 8-month enrollment period will open for you to enroll in Medicare.2
 
By the way, COBRA does not meet Medicare’s definition of employer-sponsored health insurance. Neither does a health plan sponsored by one of your past employers. You will be allowed no special enrollment period under these coverage circumstances.2
  
You will need to decide what types of coverage you prefer. Parts A and B are the basic parts of Medicare. (Sometimes they are simply referred to as “Original Medicare.”) Part A is hospital insurance, and Part B is medical insurance.

Most people pay nothing for Part A; effectively, they have prepaid for the coverage by paying Medicare taxes during years on the job. Every Medicare recipient pays a monthly Part B premium. At this writing, the Part B premium for most Medicare recipients is $134. Should you still be working, this may be all the coverage you need if your employer offers health benefits.1

You may want more coverage than Parts A and B provide. You might be interested in a Medicare Supplement Insurance (Medigap) policy or a Part D plan to help you pay for medicines. Or, you could sign up for a Part C (Medicare Advantage) plan, offering all basic Medicare benefits, plus prescription drug and medical coverage.3

Contact a Medicare specialist before you enroll. Even with its user-friendly website and plenty of online third-party guides to help those new to it, Medicare remains intricate; its nuances, hard to grasp. A financial or insurance professional well versed in Medicare enrollment, benefits, and regulations may make the process simpler for you.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – medicare.gov/people-like-me/new-to-medicare/getting-started-with-medicare.html [11/20/17]
2 – fool.com/retirement/general/2016/05/14/do-i-get-medicare-when-i-turn-65.aspx [5/14/17]
3 – kiplinger.com/slideshow/retirement/T039-S001-10-things-you-must-know-about-medicare/index.html [5/17]
1-676698

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Your Social Security Benefits & Your Provisional Income

Earning too much may cause portions of your retirement benefits to be taxed.

You may be shocked to learn that part of your Social Security income could be taxed. If your provisional income exceeds a certain level, that will happen.

Just what is “provisional income”? The Social Security Administration defines it with a formula.
Provisional income = your modified adjusted gross income + 50% of your total annual Social Security benefits + 100% of tax-exempt interest that your investments generate.1

Income from working, pension income, withdrawals of money from IRAs and other types of retirement plans, and interest earned by certain kinds of fixed-income investment vehicles all figure into this formula.

If you fail to manage your provisional income in retirement, it may top the threshold at which Social Security benefits become taxable. This could drastically affect the amount of spending power you have, and it could force you to withdraw more money than you expect in order to cover taxes.

Where is the provisional income threshold set? The answer to that question depends on your filing status.

If you file your federal income taxes as an individual, then up to 50% of your annual Social Security benefits are subject to taxation once your provisional income surpasses $25,000. Once it exceeds $34,000, as much as 85% of your benefits are exposed to taxation.1,2

The thresholds are set higher for joint filers. If you file jointly, as much as 50% of your Social Security benefits may be taxed when your provisional income rises above $32,000. Above $44,000, up to 85% of your Social Security benefits become taxable.2

The provisional income thresholds have never been adjusted for inflation. Since Social Security needs more money flowing into its coffers rather than less, it is doubtful they will be reset anytime in the future.

When the thresholds were put into place in 1983, just 10% of Social Security recipients had their retirement benefits taxed. By 2015, that had climbed to more than 50%.2

In 2017, the Seniors Center, a nonprofit senior advocacy organization based in Washington, D.C., asked retirees how they felt about their Social Security benefits being taxed. Ninety-one percent felt the practice should end.2

How can you plan to avoid hitting the provisional income thresholds? First, be wary of potential jumps in income, such as the kind that might result from selling a lot of stock, converting a traditional IRA to a Roth IRA, or taking a large lump-sum payout from a retirement account. Second, you could plan to reduce or shelter the amount of income that your investments return. Three, you could try to accelerate income into one tax year or push it off into another tax year.

Consult with a financial professional to explore strategies that might help you reduce your provisional income. You may have more options for doing so than you think.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    
Citations.
1 – kiplinger.com/article/retirement/T051-C032-S014-can-you-cut-taxes-you-pay-on-your-social-security.html [9/13/17]
2 – fool.com/retirement/2017/03/26/91-of-seniors-believe-this-social-security-practic.aspx [3/26/17]
LPL Tracking 1-659036

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Health Care Costs Are Cutting into Retirement Preparations

This is happening in subtle and not-so-subtle ways.

You may have seen this statistic before or one resembling it: the average 65-year-old retiring couple can now expect to pay more than $250,000 in health care expenses during the rest of their lives.

In fact, Fidelity Investments now projects this cost at $275,000, up 70% from its initial estimate in 2002. The effort to prepare for these potential expenses is changing the big picture of retirement planning.1

Individual retirement savings strategies have been altered. How many people retire with a dedicated account or lump sum meant to address future health costs? Very few. Most retirees end up winging it, paying their out-of-pocket costs out of income, Social Security benefits, and savings.

The older retirees are, the heavier this financial burden seems to be. According to a study from the Employee Benefit Research Institute, people aged 85 and older devote an average of 19% of their household expenses to health care, compared to 11% of household costs for those 65-74.1

People are starting to wonder if they should assign specific retirement assets to health care. The average man retiring today at 66 is projected to receive $280,000 in Social Security benefits over the balance of his lifetime. That would cover the $275,000 in projected costs referenced above. Fidelity notes that the average workplace retirement plan balance for someone in their sixties is $123,000. Right now, that would approximately cover one retiree’s projected health care costs.1

Few people approach retirement with savings large enough to permit these assignments. For the rest of us, the takeaway is to save even more. Some of us may want to consider a Health Savings Account (HSA), which is routinely used in tandem with a high-deductible health plan (HDHP). Contributions to HSAs are tax free, and withdrawals are tax free when used for qualified medical expenses. Money in an HSA may also be invested, and the accounts feature tax-free growth. Current annual HSA contribution limits are $3,400 for individuals (with a $1,000 catch-up contribution allowed for those 55 and older) and $6,750 for families.1,2

While households have begun adjusting their retirement expectations in light of projected health care expenses, businesses have also quietly made some changes.

Employer matching contributions have been affected. A new study from employee benefits giant Willis Towers Watson says that company matches to retirement plan accounts decreased about 25% between 2001 and 2015 (from 9.1% of worker pay to 6.8% of worker pay). Why? It appears at least some of those dollars were shifted into health care benefits. In the same period, employer allocations to company health care programs more than doubled, rising from 5.7% to 11.5% of employee pay.3
             
There is no easy answer for retirees preparing to address future health care costs. Staying active and fit may lead to health care savings over the long run, but some baby boomers and Gen Xers already have physical ailments. Barring some sort of unusual economic phenomenon or public policy shift, the question of how to pay for hundreds of thousands of dollars of medical and drug expenses after 65 will confound many of us.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

    
Citations.
1 – marketwatch.com/story/how-to-plan-for-health-care-in-retirement-without-going-broke-2017-08-25/ [8/25/17]
2 – goerie.com/business/20170824/picking-right-health-savings-plan [8/24/17]
3 – towerswatson.com/en/Insights/Newsletters/Americas/Insider/2017/07/shifts-in-benefit-allocations-among-us-employers [7/14/17]
LPL Tracking 1-649969

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The Cost of Long Term Care 2017

For American’s looking forward to financial independence, the risk of Long Term Care (LTC) continues to represent the biggest risk to their financial independence. Look around you, and you will find either family members or friends with family where LTC has changed the dynamics of those impacted, and their loved ones.
To give some insight on the cost of this risk, I have access to an excellent resource that can provide costs of various long term care services, by submarket (ex. San Fran, Stockton, Amarillo TX, etc.). This is anywhere in the country, the info is real time, and the output can provide a breakdown of costs for
Skilled Nursing – Daily Averages

  • Semi-Private Rooms
  • Private Rooms

Home Health Care – Hourly Wages

  • Home Health Aid
  • Licensed Nurse
  • Registered Nurse

Assisted Living Facility – Monthly Averages

  • Studio Apartment
  • 1-Bedroom Apartment
  • 2-Bedroom Apartment

Big picture, the photo is a heat map of overall long term care costs. But like I said, I have access to this information by sub market. My office is also available to help with discussions on long term care (the risk, and insurance), life insurance, disability income replacement, and advanced estate planning. Please let us know if we can help.