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Category: Healthcare Costs

How Rich Do You Have to Be in Order to Retire?

August 24, 2020

Even though perceptions have changed during the pandemic with more Americans now saying they need less money to feel rich1, when it comes to retirement, most people are still unclear about how much they will need to have saved before they can quit their jobs.

The answer to that question is different for every person.

Here are some of the things you need to think about in order to get a realistic retirement number in mind.

 

What do you want to do during retirement? Where will you live?

Different people have different retirement goals and visions. You may not realize that you need to answer lifestyle questions before you can answer the “how much do I need” question.

Think about it this way. A single woman downsizing into a tiny home in a rural community to enjoy hiking in nature is going to need to have saved up a lot less money than a couple who wants to buy a big yacht, hire a crew and travel around the world docking at various international ports. A man who wants to spend all his time woodworking in his garage in the Midwest will need a smaller nest egg than a power couple collecting art and living in a penthouse in New York.

Most people are somewhere in the middle of these extremes. Yet answering these questions for yourself is very important both financially and emotionally for everyone entering retirement. You don’t want to end up feeling lost or bored not working—you want to feel that you are moving forward into a phase of life that is rewarding to you. And you certainly don’t want to run out of money because you miscalculated.

Take some time to get specific about your needs and desires. Will you want to spend holidays with family or friends? Start an expensive new hobby like golf? Take a big vacation every year? (The pandemic will end eventually!) Visit your grandchildren who live across the country multiple times? Go out to eat every day?

Based on your goals and objectives for your retirement lifestyle, your financial advisor will help you prepare a realistic monthly budget, adding in calculations for inflation through the years.

Once you’ve developed your monthly budget, it can be compared against your Social Security benefit to give you a good idea of how much additional monthly retirement income you will need to generate from your savings. From there, your advisor can come up with strategies to help you create income from savings, and then give you a realistic figure that you will need to have saved up before you retire.

But in addition to your retirement lifestyle, there are a couple of other things that need to be considered.

 

How is your health?

Nearly every retiree looks forward to the day they can sign up for Medicare. But Medicare is not free; the standard Part B premium for 2020 is $144.60 per month2 for each person. Your premiums for Medicare are usually deducted right from your Social Security check.

If you elect to purchase additional coverage through Medicare Advantage, Medigap and/or prescription drug plans, your premiums will cost more. And there will still be deductibles to meet and co-pays you will owe.

Some estimates for health care expenses throughout retirement are as high as $295,000 for a couple both turning 65 in 2020!3

Even worse, keep in mind that this figure does not include long-term care expenses—Medicare doesn’t cover those after 100 days.4

 

Have you planned for taxes?

It’s not how much money you have saved, it’s how much you get to keep net of taxes.

When designing your retirement plan and helping you calculate how much you need to save, your advisor will take into consideration an important piece of the puzzle—taxes. Tax planning is often different than the type of advice you get from your CPA or tax professional when you do your tax returns each year. Tax planning involves looking far into the future at what you may owe later, and finding ways to minimize your tax burden so you will have more money to spend on things you enjoy doing in retirement.

Different types of accounts are subject to different types of taxation. “After-tax” money that you invest in the stock market can be subject to short- or long-term capital gains taxes. Gains accrued on “after-tax” money that you have invested in a Roth IRA account are not taxed due to their favorable tax rules. Interest paid on “after-tax” money in savings, CDs or money market accounts is taxed as ordinary income, although this usually doesn’t amount to much especially with today’s low interest rates.

What your financial advisor will be most concerned about is your “before-tax” money held in accounts like traditional IRAs or 401(k)s which are subject to ordinary income taxes when you take the money out, which you have to do each year starting at age 72 per the IRS. (These mandatory withdrawals are called required minimum distributions.)

If “before-tax” money like 401(k)s are where the bulk of your savings is held, you will want to run projections to calculate how much of a bite income taxes will take out of your retirement, especially since tax brackets will go back up to 2017 levels5 beginning in January of 2026. There may be steps you can take now to help you lower your taxes in the future.

 

Please contact us if you have any questions about your retirement. Please contact your private wealth advisor at Silverhawk Private Wealth at 480.296.0200. We have offices across the United States to serve you.

 

 

Sources:

1 https://www.financial-planning.com/articles/americans-now-say-they-need-less-money-to-feel-rich

2 https://www.medicare.gov/your-medicare-costs/medicare-costs-at-a-glance#

3 https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

4 https://longtermcare.acl.gov/medicare-medicaid-more/medicare.html

5 https://taxfoundation.org/2017-tax-brackets/

Annual Medicare Open Enrollment Ends December 7

September 24, 2019

If you’re already enrolled in Medicare it may be time to evaluate your current coverage, make changes or switch plans during the open enrollment period from October 15 through December 7. If you have a Medicare Prescription Drug Plan, and are considering making changes from Original Medicare (Parts A and B) to a Medicare Advantage Plan, or vice versa, now is your chance to make changes or enroll.

Medicare health and drug plans are allowed to make changes to their offerings each year, including changes to costs, coverage, and what pharmacies and providers are in their network. If they no longer meet your requirements, during the Open Enrollment Period you can change Medicare health plans and prescription drug coverage for the following year. Changes made during Open Enrollment (also known as the Annual Enrollment Period) are effective for coverage as of January 1, 2020.

During Open Enrollment you can:

  • Switch from Original Medicare to a Medicare Advantage plan, and vice versa
  • Switch from one Medicare Advantage plan to another
  • Switch from one Part D plan to another
  • Change from a Medicare Advantage plan that doesn’t offer prescription drug coverage to one that does, and vice versa

You can also join a Prescription Drug (Part D) Plan for the first time if you missed your personal deadline for signing up. Or, you can drop your Part D coverage altogether.*

Do I Need to Change Plans?

If you’re enrolled in a Medicare health or prescription drug plan, review the materials that your plan sent you like the “Annual Notice of Change” (ANOC). If your plan is changing, be sure that it still meets your needs for the following year. If it doesn’t, now is the time to review your plan so that you’re satisfied with the level of care and coverage your receiving. Also, consider if your health has changed, if you may need additional care in the coming year, or if your premiums and out-of-pocked expenses are too high.

Since health care and drug expenses make up a good portion of a retiree’s budget and the budget of those close to retiring, we are available to answer your questions and help you with your options. Drug costs may differ substantially depending on the drug plan, so we suggest you review your current plan against others to see which offers the lowest out-of-pocket expenses for the particular brand-name and generic drugs, if any, that you use.

Among this year’s changes for 2020 is the closing of the coverage gap, or donut hole, for generic drugs. The gap was closed in 2019 for prescription drugs.

Here’s how the coverage gap works, according to Medicare. After you and your drug plan have spent a certain amount of money for covered drugs, you may have to pay more for your prescription drugs up to a certain limit. In 2019, once you and your plan have spent $3,820 on covered drugs, you’re in the coverage gap (this amount may change each year, and Medicare has yet to announce any changes).

Once you reach that coverage gap, you’ll have to pay 25% of your out-of-pocket costs for brand-name and generic drugs. You continue to pay those costs until you reach the threshold for catastrophic coverage, which for 2019 is $5,100 (again, this could change for 2020). Once you hit that limit you have to pay no more than 5% of your drug costs for the rest of the year.

Other changes to the Medicare program coming in 2020 are to Medigap plans (Medicare supplemental insurance). In general, Medigap policies are sold by private insurance companies and cover some of the health care costs that Medicare doesn’t, including co-payments, coinsurance and deductibles. They are standardized plans that must provide the same basic benefits, but some offer additional benefits and premiums vary.

For 2020, Medigap plans sold to new people with Medicare won’t be allowed to cover the Part B deductible. Because of this, Plans C and F will no longer be available to people new to Medicare starting on January 1, 2020. If you already have either of these two plans (or the high deductible version of Plan F) or are covered by one of these plans before January 1, 2020, you’ll be able to keep your plan. If you were eligible for Medicare before January 1, 2020, but not yet enrolled, you may be able to buy one of these plans.

ARE YOU ABOUT TO TURN 65?

The Open Enrollment Period doesn’t apply if you’re new to Medicare.

If you are 65 or older or turning 65 in the next three months and not already getting benefits from Social Security you should sign up for Medicare Parts A and B, unless you are working for a company with 20+ employees.

*If you don’t elect to get Part D coverage when you are first eligible, you may have to pay more to get this coverage in the future.

 

Medicare is an important part of retirement. Let’s discuss your retirement plan. Contact Silverhawk Private Wealth at 480.296.0200.

 

 

 

Sources:
“What actions can I take during Medicare open enrollment each year?” AARP. https://www.aarp.org/health/medicare-qa-tool/actions-to-take-during-open-enrollment/
“Closing the Coverage Gap—Medicare Prescription Drugs are Becoming More Affordable,” Medicare.gov, The Official U.S. Government Site for Medicare. https://www.medicare.gov/Pubs/pdf/11493.pdf.
“How to compare Medigap policies,” Medicare.gov, The Official U.S. Government Site for Medicare. https://www.medicare.gov/supplements-other-insurance/how-to-compare-medigap-policies

Make Room for Rising Healthcare Costs in Retirement

August 19, 2019

Does your retirement plan include strategies to plan for, manage, and even reduce healthcare costs in retirement?

It is projected that an average healthy 65-year-old couple retiring this year will incur total lifetime healthcare costs of $387,644 in today’s dollars, according to research by HealthView Services, a provider of retirement healthcare, long-term care and Social Security optimization tools for the financial services industry. The figures were released in early July.

To no surprise, as the couple ages, costs will be significantly higher later in retirement than at the beginning. In the first year of retirement, the couple’s total annual premium and out-of-pocket expenses may average $12,286. In twenty years, at age 85, you may need $34,268 to cover these costs.

These figures include Medicare premiums, Medigap or Medicare Supplemental premiums, dental and out-of-pocket costs related to hospitalizations, doctor visits, and drugs, among other items. (But they do not include long-term care.)

We recently wrote about the idea that traditional thinking suggests that, when you retire, you will need to replace less of your current income or what you were earning while you were employed, (generally, about 80%). We noted that some retirement specialists disagreed and even suggested as much as a 20% increase above what you might think you need – partly for higher travel and entertainment expenses during your “Go-Go” years, unexpected expenses and inflation.

We also called your attention to healthcare costs and spending. What is important to note here is that standard benchmarks about what percentage of your income you will need to replace in retirement may assume that a portion of your healthcare expenses are covered when they may not be. “New retirees, who generally paid approximately 25% of their medical premiums during their working years, are often surprised by the cost of healthcare in retirement, when they are responsible for 100%,” HealthView Services says in the white paper.

Another risk to think about when planning for healthcare costs is longevity, an important retirement risk we also address with you when it comes to income planning. On average, healthy Americans’ projected annual healthcare costs will be lower than those with health conditions. Yet, since they are expected to live longer, the lifetime costs they need to plan for will be higher.

Here’s an example. A healthy 55-year-old woman living to her actuarial longevity of 89 will need to plan, on average, for $424,875 in lifetime healthcare costs (future value, not today’s dollars). If she has Type 2 diabetes, her actuarial longevity falls to 80 and projected total costs would be $266,163, according to HealthView Services.

It’s never too soon to start planning because healthcare cost inflation, projected by HealthView Services to be 4.41%, and its compounding effect will drive higher healthcare expenses for those currently in their 40s and 50s.

On the bright side, Ron Mastrogiovanni, CEO of HealthView Services and HealthyCapital, says we’re not powerless when it comes to planning for future healthcare costs. “Taking steps to improve health can reduce annual medical expenses. Investing these savings, increasing contributions to retirement plans, and working with an advisor to optimize product selection with healthcare in mind can significantly reduce this retirement burden,” he said.

If you are a few years away from retirement, we can plan now to offset your potential future healthcare costs.

Call us to schedule a retirement plan checkup. We will review your income sources and expenses to fine tune and manage your plan so you stay on track for the healthy retirement lifestyle you want to experience. To speak with a financial consultant at Silverhawk Private Wealth, call 480.296.0200. We have offices in Scottsdale, Irvine, Seattle, Memphis and Denver to serve you. 

 

 

Sources:
“Why Health Needs to Be Part of Retirement Planning,” July 8, 2019. HealthView Services. Retrieved from: http://www.hvsfinancial.com/why-health-needs-to-be-part-of-retirement-planning/
Here is a link to the full white paper: http://www.hvsfinancial.com/wp-content/uploads/2019/07/Health-in-Retirement-Planning.pdf

7 Things You Should Know About Medicare Before You Retire

August 17, 2018

It’s important to understand the facts about Medicare before heading into retirement.

Here is a basic overview of seven things you should be aware of when it comes to this important federal health insurance benefit. But keep in mind that certain parts of the Medicare program vary by state, so you will want to get more in-depth information before you turn 65 based on your primary retirement residence.

  1. It’s not free.

Even though studies have shown that Medicare is cheaper than most health plans offered by private insurers, it still does not cover all health costs when a person retires. In some cases, Medicare is one of the largest expenses for retired individuals. A retired couple aged 65 in 2018 may need an average of $280,000 to cover Medicare expenses (not including over-the-counter medications, most dental services, or long-term care) according to Fidelity Investments.1

  1. There is no out-of-pocket annual or lifetime limit.

When it comes to Medicare, there is no yearly or lifetime out-of-pocket maximum. In addition to deductibles, for Medicare Part B retirees usually pay at least 20% coinsurance for approved costs, regardless of how high the costs may be.

  1. The four parts of Medicare.

The “alphabet soup” of Medicare consists of four separate parts: A, B, C, and D.

Part A: This part is sometimes called “original” Medicare, and is basically hospitalization insurance. It covers inpatient care, short stays at skilled nursing facilities, hospice stays, lab tests, surgery, doctor visits and home health care related to a hospital stay. Part A is usually free.

Part B: Part B is the medical insurance portion of “original” Medicare coverage. It covers outpatient care, doctor’s office visits, lab work, preventative services, ambulance services, and medical equipment. The standard premium for 2018 is $134 per person, per month, but premiums are higher for people in higher income brackets.

Part C: This optional part refers to Medicare Advantage plans. Medicare Advantage is not a separate benefit, but is used for private health insurers that provide Medicare benefits. Part C plans replace Parts A and B, and usually replace Part D (optional).

Medigap: Sometimes called Medicare supplement insurance, Medigap is not a Part C plan. Medigap policies do not replace Parts A and B, in fact, Parts A and B are required in order to have it. Medigap is private insurance that helps supplement or pay some of the costs not covered by Parts A and B, which may include copayments, coinsurance, and deductibles. There are many rules which apply to Medigap, and plans are standardized by state.

Part D: This optional part provides prescription drug coverage. A person is eligible for Part D if they are enrolled in Part A and B, or Part C replacement coverage (which may include Part D coverage.) Part D coverage varies by plan and types of prescription drugs.

  1. Medicare does not cover everything.

The question in regard to Medicare is not what is covered, but what is not covered. Parts A and B of Medicare do not cover the following:

  • Amounts not covered by deductibles and coinsurance (20%), with no limits
  • Care outside of the U.S.
  • Eye exams (except for diabetics), vision care or eyeglasses
  • Hearing exams or hearing aids
  • Most dental care services or dentures
  • Routine foot care (except for diabetics)
  • Limited physical therapy, occupational therapy, speech pathology services
  • Long-term care (LTC) or custodial care

Some Part C or Medigap plans may offer some coverage for these, depending on the policy or plan.

  1. Medicare is mandatory.

Once you are 65 and receive Social Security there is no way to opt out of Medicare.

  1. When to sign up for Medicare.

An individual must sign up for Medicare within three months after they turn 65 years old, unless they are covered by an employer plan (subject to certain rules.) If a person is already receiving Social Security benefits when they turn 65, they will automatically be enrolled in the original Medicare plan Parts A and B.

  1. How Medicare is deducted.

Medicare Parts A and B are automatically deducted from a Social Security check if the individual is 65 and receiving Social Security benefits. Coverage begins the first month that an individual turns 65-years-old. Medicare Part B premiums must be deducted from Social Security if the monthly benefit amount covers the deduction. If deduction exceeds the benefit amount then the individual will be billed quarterly. Optional plans like Part C, Medigap or Part D may have other payment options, or may also be deducted from Social Security.

For more information about Medicare, as well as many other retirement issues, please reach out to your personal wealth advisor at Silverhawk Private Wealth.

Silverhawk Private Wealth – Headquarters
21090 N. Pima Road
Scottsdale, AZ 85255
Irvine Office 
949.207.6036
Seattle Office
1601 5th Ave Suite 1100
Seattle, WA 98101

Be sure to request your free copy of our Medicare whitepaper, which goes into more detail about the Medicare program.

 

Sources:
This overview has been compiled from information sourced from the official Medicare website, https://www.medicare.gov/. Please visit the site for more information.
1 Fidelity Investments, “How to plan for rising health care costs,” April 18, 2018. Fidelity.com. https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs (accessed August 7, 2018).

 

Healthcare Costs for Retirees Are Growing

November 1, 2017

One of the biggest expenses for retirees is healthcare–and it’s getting more expensive.

A recent analysis from Fidelity Investments shows that a healthy, 65-year-old couple retiring this year will need $275,000 to cover their healthcare costs during retirement. That’s up six percent from 2016. 1 Fidelity’s calculations include premiums and out-of-pocket costs associated with Medicare parts A, B and D. The numbers don’t, however, include over-the-counter medications, dental services or long-term care.

HSA

Even faced with these staggering amounts, pre-retirees do have choices to help reduce healthcare costs in retirement. One option, a health savings account (HSA), offers some attractive tax savings. Any worker who has a high-deductible healthcare plan can open an HSA. You’re currently allowed to save up to $3,400 annually, or $6,750 for family coverage in the account. 2 You don’t pay tax on your contributions, they’re allowed to grow tax-free, and as long as the funds are used to cover qualified healthcare expenses, you don’t pay any taxes when you withdraw the funds either. You can even use them to pay certain Medicare premiums.

Long-Term Care

It’s important to consider long-term care. Medicare does not cover it, and in order to be covered by Medicaid, a family needs to completely and drastically spend down all assets. A private room in a nursing home now costs consumers more than $8,000 per month, or $97,455 per year, according to the “Genworth 2017 Cost of Care Survey,” released September 26, 2017 by Genworth Financial, which provides national median figures. 3 Long-term care costs can easily sabotage your retirement objectives, as well as your legacy, so it is critical to have a plan in place.

 

If you are concerned about healthcare in retirement, now is the time to review your plan. Contact your personal wealth advisor at Silverhawk Private Wealth to schedule an appointment. Silverhawk has offices in Scottsdale, AZ, Irvine, CA and Seattle, WA to serve you.

 

Sources:
 1 https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise
2 http://money.cnn.com/2017/08/24/retirement/health-care-cost-retirement/index.html
3 https://www.forbes.com/sites/nextavenue/2017/09/26/the-staggering-prices-of-long-term-care-2017/#797271ac2ee2