Don't Ignore These Retirement Expenses (Blackrock)

Top 10 Forgotten Retirement Expenses

Are you considering all of your retirement expenses in your planning?

You've no doubt got a sense of how much retirement income your 401(k), IRA, Social Security benefit and other investments will be able to generate for you in retirement. But have you taken a careful and detailed look at your expected monthly outgo in retirement?

Understanding your retirement expenses is an equally important step in successful retirement planning.

As you work your way through this interactive retirement expense worksheet, take the time to carefully consider some of the most overlooked retirement expenses:

1. Health care
   Yes, you are eligible for Medicare beginning at age 65, but Medicare comes with monthly premiums. "If you're transitioning from an employer defraying the cost of health insurance to covering all your costs on your own, you need to understand what that means," advises Chad Terry, BlackRock's Director of Retirement and Investment Education. For 2014, the standard monthly premium for Medicare Part B was $104.50, but high-income households paid as much as $230.80 a month. Prescription drug coverage (Medicare Part D) is an additional cost, and you need to prepare for expenses that Medicare does not cover.
2. Income tax on traditional 401(k) and IRA withdrawals
   Even if you don't need the cash, Uncle Sam requires you to take required minimum distributions (RMD) from traditional individual retirement accounts by April 1 of the year after you turn 70 ½ years old. And such withdrawals generally are taxed as ordinary income. Depending on the size of your RMDs, you might even find yourself bumped into a higher tax bracket.

   Note: Roth IRAs don't have withdrawal requirements, and you may not have to make 401(k) withdrawals if you are still working.
3. Income tax on Social Security benefits
   Yep, there are more potential taxes on retirement income out there. Individuals with income of more than $34,000, and married couples filing joint federal tax returns with more than $44,000 in income generally owe federal income tax on up to 85% of their Social Security benefit.
4. Housing
   Okay, what you spend on housing isn't exactly forgotten, but have you carefully tallied all the various expenses? It can be an eye opener. According to the Survey of Consumer Expenditures, basic housing costs account for more than one-third of spending by Americans over age 65. Utilities eat up another 9% of retirement spending. Downsizing can be one way to reduce your housing expenses—especially if it means being able to pay off a mortgage. About one in four Americans who are at least 65 years old, who own a home, are still making mortgage payments.
5. Adding a vacation spot
   If you buy or rent a vacation property, you are adding a whole new round of housing costs to your retirement expenses.

   Note: You could also encounter different tax rates or treatment for property in another state.
6. Helping elderly parents
   One in five middle-aged Americans provide some financial support for a parent who is at least 65 years old, according to the Pew Research Center. "Helping your family is an important unforeseen expense to think about," Terry says. According to a recentnational survey conducted by caring.com, almost half of the families who provide care spend more than $5,000 a year.
7. Helping adult children
   Forty-eight percent of parents with adult children (at least 18 years old) provided some support to their kids in 2012, according to Pew. That's up from 42% in 2005.
8. Helping grandchildren
   Do you intend to contribute to a 529 college savings plan, or help pay other education costs, such as preschool bills? Those are expenses you should take into account.
9. Insurance premiums
   Don't forget this ongoing expense. Especially if you have long-term care insurance, for which annual premiums can often run more than $2,000.
10. Inflation
    You may be on a fixed income, but there's nothing fixed about many expenses you'll be paying through what can be a very long retirement. In fact, the inflation typically experienced by older Americans is slightly higher than the general inflation rate that generally hovers around 3% or so a year*. (Later life medical expenses are often to blame for that.) What costs $1 today will cost more than $2 in 25 years, assuming an annualized inflation rate of 3%.

Smart Medicare Choices (New York Times)

Beware of Shifting Options Within Medicare Plans

By TARA SIEGEL BERNARD

OCT. 3, 2014

For millions of older Americans, it is time to sift through the mind-boggling array of Medicare plans. There is an average of 29 drug plans to digest, and about 18 options for Medicare Advantage, the plans delivered through private insurers. Then there are the 10 supplemental plans that cover what traditional Medicare does not.

The choices can be paralyzing for anyone, and they can be even more challenging as you age. The Medicare open enrollment season, which runs from Oct. 15 through Dec. 7, gives individuals a chance to rethink it all and reassess whether their plan still fits their needs.

While no broad-based changes are expected, there could be meaningful shifts within individual plans. Maybe your Part D prescription plan will no longer pay for one of your drugs, or you started a new one. Perhaps your Medicare Advantage plan dropped your favorite doctor (or worse, a cancer treatment center) from network.

“People treat this as a momentous decision but they get scared of it, and the thing that worries me is that they don’t make the changes that they should,” said Joe Baker, president of the Medicare Rights Center in New York. “Don’t stay in a plan because you’re overwhelmed with the choices.”

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Elizabeth Cooper, a 68-year-old former elementary schoolteacher, weighs her options each year. She has already tried a couple of plans, including one through Medicare Advantage, which lured her in because it had no monthly premium. But the plan required her to shoulder a significant share of her medical costs.

She is healthy now, but she has a history of skin cancer. “I didn’t feel that would give me a sense of ease because of the co-pays and the possible unexpected expenses that can crop up,” said Ms. Cooper, of Birmingham, Ala.

So she backed out of that plan during the trial period, and opted for peace of mind. She enrolled in original Medicare, and bought a supplemental policy for about $135 a month that covers items like deductibles and her share of each bill. After having a few diagnostic tests this year, her decision already paid off.

“Had I been on the Advantage plan, I would have had to come up with the money for each test,” she said. “It turned out to be a reasonable plan for me. And for that reason, I plan to stick with it.”

Here are some ideas on how to approach the decision-making process.

A REFRESHER COURSE Before delving into the details, here is a quick primer on original Medicare: Part A covers hospital and skilled nursing facility stays, as well as some home health visits and hospice care. Part B covers preventive care, doctor visits and outpatient services. Premiums, for most retirees, were $104.90 a month last year and are projected to be the same in 2015.

Deductibles, co-payments and coinsurance (that is when you pay for a percentage of medical services) can be burdensome since there is no out-of-pocket ceiling, experts said. That is one of the reasons most people buy supplemental coverage, known as Medigap, to cover out-of-pocket costs on Parts A and B. People lucky enough to have retiree employer coverage rely on that instead.

Continue reading the main story

Medicare Part D, which is offered only through private insurers, covers drugs. The average monthly premium for such plans is estimated at $32 in 2015, according to the Centers for Medicare and Medicaid Services.

Alternatively, you can just buy a Medicare Advantage plan from a private insurer, also referred to as Part C. It can serve as a one-stop shop because it covers Parts A, B and often a drug plan — and sometimes throws in extras like dental and vision coverage. Average monthly premiums for Advantage plans are estimated to rise to $33.90, a $2.94 increase, in 2015, according to the Centers for Medicare and Medicaid Services. (You pay that in addition to the Part B premium).

ORIGINAL OR ADVANTAGE? Some consumer advocates favor using traditional Medicare with a supplemental plan, largely because it is more predictable and you are free to see any doctor who accepts Medicare.

That is what Mr. Baker said he would recommend for his own grandmother. “I would say enroll in original Medicare and let’s get you the Medigap plan you might need when you are older or sicker,” he said. “If you are in original Medicare and you have a Medigap plan, you are pretty much set for life if you are happy with those things.”

Medigap, with 10 plan levels that are labeled with letters from A to N, is federally standardized coverage, which means coverage must be exactly the same across insurers. For instance, the option known as Plan F will pay for your Part A and Part B deductibles. “This is one area, once you decide on the level of coverage you want, where you can go for the lowest price because you know Plan F will be exactly like any other Plan F,” said Jocelyne Watrous, advocate at the for the Center for Medicare Advocacy.

Depending on the plan, the total cost of your premiums could come close to your final out-of-pocket cost for the year. In Connecticut, for instance, one of the most comprehensive Medigap policies is called Plan F. It costs an individual about $218 a month, or $2,622 annually. “But that’s it,” Ms. Watrous said. “You will pay that premium and it will cover all of your co-payments and deductibles.”

If you are contemplating switching from Medicare Advantage back to original Medicare — and you want to buy a supplemental policy — that is something you may want to do while you are younger and healthier. Later on, coverage may become more expensive or you can be denied altogether. With some exceptions, individuals are guaranteed coverage only if they buy it during a special period six months after their 65th birthday. During that time, insurers cannot refuse to sell you a policy because of a pre-existing condition or other medical issue, nor can they charge you more.

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Outside of that safe period, you aren’t guaranteed coverage under federal law, though many states, including New York, extend greater protections. It is important to ask your local State Health Insurance Assistance Program, or SHIP agency, for more details. After you buy a Medigap policy, it generally cannot be canceled because you are old or sick.

Continue reading the main story

Continue reading the main story

ADVANTAGE Nearly 16 million people, or 30 percent of all Medicare beneficiaries, enroll in a Medicare Advantage plan. Most people are attracted by the plans’ enticingly low and sometimes zero premiums and, for certain services, low co-payments. Some even offer limited dental or vision coverage, advocates said.

The drawback of Advantage plans are their limited networks of providers. Doctors can drop out midyear. And consumers are responsible for all cost-sharing, which can be unpredictable. Those are capped at an out-of-pocket limit for in-network services of $6,700 in 2015, although the Center for Medicare and Medicaid Services recommends a limit of $3,400, according to Kaiser.

But it is difficult to calculate how fast you might reach those ceilings. “The cost-sharing requirements are often harder to compare because it requires consumers to anticipate what their health care needs might be,” said Tricia Neuman, director of the Medicare policy program at Kaiser. “Some advisers suggest considering what services you would need if you were sick and take a careful look at potential costs under various plans.”

People who travel frequently or who spend a significant chunk of time in another state also need to ensure that they will be covered. “Snowbirds need to consider whether the networks and coverage extends to two places,” said Nicole Duritz, vice president for health, education and outreach at AARP.

If you are already enrolled, the “annual notice of change” sent to plan enrollees will detail changes in coverage, costs and networks. But if you are dissatisfied with your Advantage plan for any reason, you can unenroll from Jan. 1 to Feb. 14 and switch to original Medicare.

DRUGS Even if you are happy with your Part D coverage, don’t assume it will remain exactly the same. Lists of covered drugs often change or the company may insert new restrictions, limiting quantities or requiring you to try another drug first.

Go to the Medicare website’s Plan Finder, where you can enter your drugs, the dosage and frequency, as well as where you like to buy them. It will then show you what the plans cover and your total estimated costs for the year. “The plans are so complicated and there is so much variation and the only way to really compare is to use the Plan Finder,” Ms. Watrous said.

Don’t shop on price alone. “The best and cheapest plan for you is the one that covers your drugs the best,” said Mr. Baker, who advised calling the plan, or even your doctor or pharmacist, who has a lot of interaction with the different plans.

RESOURCES Besides local SHIP agencies, advocates suggest that people check out the latest Medicare & You booklet, which all 54 million enrollees should have received in the mail by now. It’s remarkably clear. To talk to someone live, call 1-800-Medicare. Whatever you do, Mr. Baker advised, “Don’t renew blindly.”

Young Retirees: Can you use Obamacare before Medicare? (Morningstar)

Obamacare and the Early Retiree

One of the biggest risks for the early retiree has been the rising cost of health care and the pressure on savings when health issues arise.  

Helen Modly and Tommie Monez, 04/17/2014

We've all seen it--clients who are unrealistic about their spending habits, overly optimistic about the strength of their portfolios and the direction of the markets, and who just can't wait to embark on a leisurely retirement in their 50s or early 60s. But all too often, health-care expenses in the period between early retirement and Medicare eligibility have cratered those plans and dreams.

Enter Obamacare. Love it or hate it, the Affordable Care Act (ACA) offers an element of predictability in the health-care marketplace. Premiums based on pre-existing conditions are a thing of the past. The only criteria for setting premiums are age, geography, family size, and whether or not the applicant is a smoker. And, interestingly, not all states consider smoking status when setting premiums.
Levels of Coverage  There are four levels of coverage designated as Bronze, Silver, Gold, or Platinum. Premiums are lowest at the Bronze level and highest at Platinum. The difference is the out-of-pocket costs, which are highest for Bronze and lowest for Platinum. Bronze plans cover approximately 60% of the enrollee's total cost, 70% for Silver, 80% for Gold, and 90% for Platinum.

All plans must cover "essential health benefits" such as preventive care, prescription drugs, lab services, mental health treatment, pediatric care, maternity care, hospitalization, and emergency services (with no pre-authorization required). There are no longer lifetime limits on the amount of coverage.

Health-Care Premiums  Under the old rules, basically there were no rules. The insurance companies could use occupation, age, health history, or more to determine premiums. Under the ACA, rates for older adults cannot exceed three times the rate of a younger person. This is the heart of the concern that not enough young people will participate in ACA plans for the economics to be financially viable. However, this pricing restriction can be very beneficial to the younger retiree.

Premium Subsidies This is where the planning opportunity comes in. Government subsidies in the form of a tax credit will be available to help pay insurance premiums based on income. This assistance is available for people with family income that is between 100% and 400% of the federal poverty level. For 2014 that range is $15,730 to $62,920 for a family of two.

Premium calculations for purposes of the subsidy are based on the second lowest-cost Silver Plan, although the participant is free to choose a higher- or lower-cost plan. The maximum premium for those eligible for the subsidy is between 2% and 9.5%, based on family income. Since health-care premiums are higher for older people but the amount of the subsidy is based on income, the older enrollees derive a greater relative benefit.

Family income is defined as modified adjusted gross income (MAGI) using the IRS definition. MAGI includes wages, salary, foreign income, interest, and dividends. It also includes non-taxable income (i.e., muni bond interest) and non-taxable Social Security income. MAGI does not include income in the form of gifts or inheritance, and it does not take assets into account.

Here's how it works:

•  Sally and Russell are 62-year-old non-smokers earning $40,000 per year. This is 258% of the Federal Poverty Level
• Their maximum premium is 8.28% of income, or $3,312 per year ($276/month)
•  Annual premium for the Silver Plan is $14,500 (varies by state)
•  Government subsidy is $11,188 (77% of the plan cost)
•  Premium cost for Sally &  Russell is $276 per month if they choose the Silver Plan
•  In this Silver Plan, the maximum annual cost for health care is capped at $12,700 over and above the premium. Preventive services are covered without cost sharing.
•  For planning purposes, the worst-case scenario would be health-care costs of $16,012 per year ($3,312 premiums + $12,700 out-of-pocket expenses), or $1,334 per month.
• Cost sharing varies according to the plan type. A Platinum plan would have the highest premiums and lowest cost sharing limits.

How to Enroll An open enrollment period will be scheduled at the end of each year to purchase coverage effective the following year. 2014 open enrollment is Nov. 15, 2014, through Feb. 15, 2015. Coverage begins Jan. 1, 2015, if enrolled by the end of 2014. Enrollment may also be allowed throughout the year if there is a qualifying event such as marriage, birth of a child, or loss of employer coverage.

Is There a Catch? The premium subsidy is only available for participants who sign up using the exchanges, also known as the marketplace. Participants who purchase qualifying plans through health insurance brokers are not eligible for the tax credit. Clients who prefer to use a specific physician may find that the doctor participates in broker-sold plans, but not necessarily in the exchange-offered plan.

Individual health insurance plans in place on or before March 23, 2010, are grandfathered under ACA. They are not required to provide the essential benefits mandated by the ACA and therefore do not qualify for the premium subsidy.

What Happens if the Participant Makes Too Much Money? This is similar to any other underpayment or overpayment of taxes. When applying for health insurance on the exchange, applicants give their best guess as to income for the coming year. They can apply all, part, or none of the subsidy to the premium. At tax time, the account is settled as part of the personal income tax filing. If the income estimate is too high, some or all of the subsidy may need to be returned. If income is lower than expected, or if the taxpayer elected not to apply the subsidy to the insurance premium, the subsidy will come in the form of a refund.

Making the Numbers Work

•  Lower the MAGI--Bronze plan participants may be able to contribute to a Health Savings Account, which reduces the MAGI.
• Contribute to an IRA--If the early retiree has worked part time or retired during the year, he or she may be eligible for a deductible IRA, which will reduce the MAGI--a great last-minute planning opportunity.
• Prepare income and dividend projections for the existing portfolio.
•  Consider dividend and income before making changes to asset allocation.
• Determine whether or not smoothing income or staggering high- and low-income years provides the greater benefit.

The system was designed to make health-care costs comprehensive and affordable at all income levels. Right or wrong, by ignoring assets as a criteria, the system can also provide benefits for those who are relatively affluent. Whether or not the early retiree is eligible for subsidies or prefers to shop outside the exchanges, advisors now have better tools for predicting future health-care costs than in the past. Removing the fear of financial ruin due to unpredictable health-care costs should make for a more carefree retirement.

Find the Best Medicare Supplemental Policy in Your Area (Free from Weiss Ratings)

http://www.weissratings.com/medigap-search

Medicare Supplement Insurance Policy Search
Weiss Ratings’ Medicare Supplement Insurance (Medigap) Policy Search will inform and educate you by tapping into a comprehensive database of Medigap insurers in every zip code nationwide.

Weiss DOES NOT SELL INSURANCE or have any interest in any of the companies you will learn about in your final report. You will NOT be contacted by an insurance agent as a result of using this tool. You are in control! We are simply giving you the benefit of data we have been gathering for our professional users since 1997.

By following these simple steps, you will find out for FREE how much money you can save on a plan of your choice, and then you will have the opportunity to purchase a detailed report listing all companies selling Medigap in your area along with the rates they charge – both tailored specifically for you!

http://www.weissratings.com/medigap-search

Obamacare Alert - Insurance Changes This Week ( State of Florida)

Insurance Consumer Advocate Urges Floridians To Learn About Health Insurance Reforms That Take Effect Sept. 23

Terry Butler, Interim Insurance Consumer Advocate

Many consumers have been confused about or unsure as to when many of the reforms in the Patient Protection and Affordable Care Act (PPACA) will take effect. Some of the reforms do not take effect until 2014 or even later. However, on Thursday, September 23, 2010, many very important PPACA provisions will go into effect and the Office of Insurance Consumer Advocate urges Floridians to be aware of and take advantage of the changes.
The most important changes will ensure that consumers are able to retain coverage and remain covered regardless of their circumstances. While the following provisions take effect next week, some policyholders may not be able to take advantage of all of these new provisions until policy renewal, which for many employees in group plans is in January.

The benefits that will be effective on September 23, 2010, are as follows:

Currently, most health insurance policies have provisions stating that the maximum the insurer will pay during the life of the policy is $1 million or maybe $2 million. In addition, they have a maximum the insurer will pay in any calendar year, usually around $250,000. As of this Thursday, insurers will be prohibited from limiting the amount they will pay over the lifetime of the policy. However, until 2014, plans will still be allowed to have an annual limit on coverage payments.

All health plans will be prohibited from dropping consumers from coverage just because they get sick.

Children under the age of 19 with pre-existing medical conditions will no longer be denied coverage by employer plans or new plans in the individual market because of their pre-existing condition.

New private plans will be required to cover preventative services and neither copayments nor deductibles will apply to the cost of these services.

All new plans will have to provide consumers with two levels of appeal when the plan denies payment for medical services. The first level would be a review by the plan itself. The second level would be an independent review process in which an outside group of medical experts review the claim to determine whether the plan followed its own rules in denying the claim.

Employer health plans will be prohibited from establishing any eligibility rules for health care coverage that have the effect of discrimination in favor of higher wage employees.

Health plans will be required to allow young people to remain on the parents’ health plans up to their 26th birthday, provided that they do not have access to coverage on their own plan.

Consumers will have more freedom of choice in the selection of their physicians.
Consumers should contact their insurer or their employers’ benefit administrator to obtain any additional information regarding changes to their specific policy.

As more information is available and additional changes become effective, the Office of the Insurance Consumer Advocate will generate advisories regarding their effect on consumers. More information regarding the PPACA can be found on the website of the Insurance Consumer Advocate at http://www.myfloridacfo.com/ica/federalhealthcare.asp.

The Insurance Consumer Advocate is appointed by Florida CFO Alex Sink and is committed to finding solutions to insurance issues facing Floridians, calling attention to questionable insurance practices, promoting a viable insurance market responsive to the needs of Florida’s diverse population and assuring that rates are fair and justified.