Navigating Healthcare Options

Navigating Healthcare Options

 

We strive to deliver peace of mind to our clients, not just about investments and taxes but about everything that touches their financial lives. One subject that continually comes up is healthcare. How will I be able to afford healthcare? Should I work until age 65 so that I qualify for Medicare? To help answer this question, we partner with outside experts to help our clients evaluate different healthcare options. We spoke to Ed Steffens at Propel and asked about health insurance through the Exchange versus COBRA.

 

How do you help your clients?

I help clients navigate their options with individual healthcare, Medicare, life insurance, and long-term care insurance.

 

COBRA vs Affordable Care Act (ACA)

Since the rate increases in the individual market back in 2017, COBRA is usually the better option, depending on the tax credits (subsidies) available to you. If you have to pay full price on the ACA exchanges, COBRA plans tend to be better. The network of doctors with the COBRA plan option has fewer limitations and is generally available throughout the US. These networks offer coverage in and of network, with higher costs using an out of network doctor.

ACA plans, on the other hand, use more restrictive networks of doctors. Generally, your available network is your home area and surrounding areas. There is no coverage out of network, with exception to true emergencies. In this case, ER and ambulance are covered anywhere in the country.

Before you choose a COBRA or ACA plan, spend time with a professional and/or on the healthcare website: https://www.healthcare.gov/glossary/exchange/ and www.wahealthplanfinder.org.  Subsidies are estimated based on the current year of total estimated MAGI. When determining MAGI, your income includes unemployment benefits and your spouse’s income. If the tax credits are deep enough, ACA may end up being a better option than COBRA.

 

When should people reach out to you?

The sooner the better. Separation from service, marriage, death, permanent move, and the birth of a child are all qualifying events. It might just be a 10-minute call. If tax credits are an option, however, a longer conversation will be necessary. For Medicare, please reach out three months before your 65th birthday. 

 

How are you compensated?

I am compensated by salary and not by enrollments. This allows me to work in the best interest of my clients.

 

What kind of clients do you most enjoy working with?

I enjoy helping everyone. People who are in their fifties and sixties are the most common clients I work with, as they are more likely to experience the above-mentioned qualifying events—including those who are contemplating retirement. I am unable to help people with Medicaid though Such cases are redirected back to the state. 

 

What would you tell someone who does not think they should retire because of the cost of healthcare?

People should analyze their situation and explore the options. They are often pleasantly surprised. It should really be explored on a case-by-case basis, regarding both the coverage available and the cost of coverage. This analysis should be taken into account along with the individual’s entire financial picture in order to make this life transition.

 

What are common misconceptions about healthcare on the open market?

It goes both ways. Some people think they should get tax credits but don’t. Other people think they won’t get credits and do. The amount of tax credits you may receive is unrelated to the level of health coverage (labeled as Gold, Silver, or Bronze, depending on what coverage you purchase). In general, the three tiers of health coverage look like this:

Bronze level plans: Lowest cost, highest deductibles, highest cost sharing after deductible.

Silver level plans: “Reasonable” cost, deductibles and cost sharing.

Gold level plans: Highest cost, highest level of coverage, lowest deductibles and cost sharing.

 

Tell me about the recent changes in the stimulus package. 

The new administration opened new enrollments through May 15, and then extended it to August 15t. They raised income limits on tax credits. Everyone has an opportunity to make changes now through August 15th. The government is trying to make insurance as accessible as possible. You can use a subsidy calculator for an estimate.

 

How should clients contact you?

I can be reached at 541.494.7714 or via email at ed.steffens@propelinsurance.com to schedule an appointment.

 

Disclosure: Edward Steffens is a licensed insurance agent/broker for Propel Insurance. All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the article. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any particular individual. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax or legal or accounting advice, and nothing contained in these materials should be taken as such.

Medicare Income-Related Monthly Adjustment Amount (IRMAA) Surcharge – What Does It Mean, What Can I Do, and How?

Medicare Income-Related Monthly Adjustment Amount (IRMAA) Surcharge – What Does It Mean, What Can I Do, and How?

 

 

Co-written with Jeffrey Barnett

 

The first question on many retirees’ minds is how to pay for expensive healthcare costs and health insurance when you’re no longer covered by the employer plan you relied on throughout your career. Medicare is the U.S. government’s answer for supporting healthcare costs throughout retirement. While you might have already enrolled in Medicare or are at least looking forward to beginning benefits at age 65, you may not know how Medicare premiums work. Let’s explore Medicare premiums and an important potential speedbump known as IRMAA.

 

What Is IRMAA?

 

To provide some background, approximately 75% of the costs of Medicare Part B (Medical Insurance) and Part D (Prescription Drug) are paid directly from the General Revenue of the Federal Government, with the remaining 25% covered through monthly premiums paid by Medicare enrollees. If you receive Social Security or Railroad Retirement Board benefits, your Medicare Part B premiums are typically deducted automatically from your monthly benefits. For those who don’t receive these benefits, you’ll receive a bill to pay your premiums instead. Medicare premiums increase as your income grows through Income-Related Monthly Adjustment Amount (IRMAA), which is an additional surcharge for higher income individuals on top of the 2021 Medicare Part B baseline premium of $148.50.

 

Medicare premiums and any surcharges are based on your filing status and Modified Adjusted Gross Income (MAGI) with a two-year lookback (or three years if you haven’t filed taxes more recently). That means your 2021 premiums and IRMAA determinations are calculated based on MAGI from your 2019 federal tax return. MAGI is calculated as Adjusted Gross Income (line 7 of IRS Form 1040) plus tax-exempt interest income (line 2a of IRS Form 1040). The table below details the base premium amount you’ll pay for Medicare in 2021 depending on your MAGI and filing status, inclusive of any additional IRMAA surcharge.

 

 

Fortunately, the Social Security Administration (SSA) tracks these numbers for you and uses MAGI data from the IRS. For every year that they determine IRMAA applies to you, you’ll receive a pre-determination notice explaining what information was used to make the determination and what to do if individuals feel the finding is incorrect, like due to a life-changing event as defined by the SSA. After 20 or more days, the SSA sends another notice with additional information regarding your appeals rights. For the instances you feel an incorrect determination was made, you can request a “New Initial Determination.”

 

Am I Eligible to Request a New Initial Determination?

 

There are five qualifying circumstances where an individual may be eligible to request a “New Initial Determination.” They are:

  1. An amended tax return since original filing
  2. Correction of IRS information
  3. Use of two-year-old tax return when SSA used IRS information from three years prior
  4. Change in living arrangement from when you last filed taxes (e.g., filing status is now “married filing separately” but you previously filed jointly)
  5. Qualified life-changing event(s)

 

According to the SSA, a Life-Changing Event (LCE) can be one or more of the following eight events:

  • Death of spouse
  • Marriage
  • Divorce or annulment
  • Work reduction
  • Work stoppage
  • Loss of income-producing property
  • Loss of employer pension
  • Receipt of settlement payment from a current or former employer

 

A common scenario we often see is with new retirees age 65 or over where income is much lower in retirement than it was two years ago, but the SSA determines that the IRMAA surcharge should be applied to your premium costs given the lookback period. Fortunately, an exception can be requested under the “work stoppage” LCE, and we can help you navigate that process. Luckily, this is typically irrelevant after the first or second year of retirement since post-retirement income is often significantly reduced and naturally falls below the IRMAA threshold. Another common scenario for retirees is having portfolio income that pushes you above the IRMAA tiers. However, it’s important to point out that portfolio income from things like capital gains or Roth conversions are not allowable exceptions to request for the IRMAA surcharge in a high-income year.

 

If you don’t qualify to request a new initial determination based on the 5 qualifying circumstances noted above, you also have the right to more formally appeal the determination, which is also known as requesting a reconsideration.

 

 

Requesting a New Determination

 

If any of the above life-changing events apply, individuals are likely eligible to request a new initial determination by calling their local Social Security office or, alternatively, completing and submitting this form for reconsideration along with appropriate documentation. We highly recommend calling the Social Security hotline at 800-772-1213 to discuss if more than one LCE applies to you, if you have questions about why IRMAA applies to you, or if you have questions about requesting a reconsideration.

 

We know that Medicare can be tricky and that this only scratches the surface, so we also encourage you to contact us if you have any questions. We regularly serve as a resource for questions around enrolling for Medicare along with many of the other factors involved in planning for retirement, and we are happy to help you as those questions move to the forefront.

Sources:
2021 Income Thresholds:  https://www.medicare.gov/your-medicare-costs/part-b-costs

Life-Changing Event: https://www.ssa.gov/OP_Home/handbook/handbook.25/handbook-2507.html

Determination Notices: https://secure.ssa.gov/poms.nsf/lnx/0601101035

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

Downsizing? Tips for Getting the Best Property Size

Downsizing? Tips for Getting the Best Property Size

 

Downsizing has been a rising trend among retired and almost retired Americans. But the drama last year due to the pandemic has caused younger Americans to rethink their priorities.

Decade-high unemployment figures, soaring healthcare and health insurance costs, and loneliness have forced a fifth of adults to move homes. Many have made significant decisions about their careers, lifestyles, and relationships.

Americans are rethinking what they value and how they want to spend their precious moments.

Is your monthly mortgage tab far too high? Do you think your family could be just as comfortable in a smaller place (no matter your age)?

You are not alone. Millennials prefer better lifestyles to humongous homes. If you are about to retire and want to make the most of your golden years (paying fewer bills and being around people, not empty hallways or dusty furniture), read on. These tips will help you make the most from downsizing.

 

What is downsizing anyway?

When you move to a smaller home to cut down on the upkeep and mortgage costs, you are downsizing. This change is often associated with retirees or those who are approaching retirement age. But a growing number of younger professionals are opting for a more fulfilled life—as opposed to more square feet.

Candidates for downsizing often do not have a large retirement nest egg and have smaller families.

Although downsizing should help you cut down your costs, that’s not always the case. Soaring demand for homes due to dwindling mortgage rates has triggered a 9.5% increase in prices. Downsizing the square footage of your home may not always result in lower bills. Therefore, you should think and research before executing such a plan. These tips will help you make a more fulfilling choice.

 

Be smart when downsizing

Smart downsizing means ensuring the move results in maximum rewards for your goals. Accordingly, you need to figure out your goals first. Consider how downsizing will affect your cost of living and healthcare. After you take in the considerations and make the calculations, consult the experts and make your move.

 

Figuring out your goals

Oftentimes the goals for downsizing focus on improving your financial state and maintaining or enhancing your lifestyle.

Transamerica did a survey and found that more than 50% of retirees consider cost of living and proximity to family and friends as the most critical factors when choosing where to live. Nearly 40% considered healthcare as the most important.

Concerning financial goals, the objective is to access as much equity as possible or maximize savings on monthly mortgage payments.

As for lifestyle goals, the objective is to minimize any adverse impacts on family and ensure access to services, amenities, and quality healthcare.

What impact will downsizing have on your finances and your lifestyle?

 

Think about how downsizing will affect your expenditure

Reach out to a financial advisor for an objective review of how the move will affect your financial status. Darren Robertson, a real estate agent at Northern Virginia Homes, explains, “A cost reduction of $500 per month in a 15-year, $200,000 mortgage at 4.5% could slash four years from the term and save you $25,000 in payments.”

Downsizing can also help you cut down on living expenses. How much do you spend on groceries, travel, and other services? If changing towns is not out of the question, use this calculator by CNN to estimate how your cost of living would shift.

 

What about healthcare?

If you are about to retire or are retired, consider health costs separately.

Although most Americans 65 years and above are enrolled in Medicare, you should brace yourself for a “health cost gut punch.” Retirees in America incur healthcare costs averaging $122,000 between the age of 70 and death.

Worse still, the inequalities of healthcare services in the US are no longer a myth—the pandemic just made them more apparent.

Look for ways to boost your Health Savings Account and make the most of it. Also, consider where you can access high-quality, affordable healthcare.

 

Consult the experts

Perhaps you are not so proud of some of the moves you made when acquiring your current home. This could be your chance at redemption.

Remember, this is for the long haul. You want to clinch a great deal that is not too far away from family, friends, and opportunities.

Scope the real estate market and reach out to a couple of agents. Find out what they think about the market and about selling your home and downsizing. Also, enquire about smaller homes in the market. If you find some that you like, ask the right questions about them, keeping in mind how much you want to save.

Experienced professionals will help you identify the best options for low-priced homes in your preferred locations. They can even recommend excellent new spots based on real estate projections and trends. They will help you to:

  • Evaluate your financing options.
  • Negotiate great deals amidst stiff competition.
  • Save on taxes and offer practical ways you can cut down your costs.

 

Commit to substantial downsizing

Don’t wait until after the move to start downsizing your belongings. Start to declutter as soon as you make the decision, beginning with smaller items.

Take photos of those kindergarten crafts by the kids (who are all grown up now) and keep the memories in the Cloud. Donate or have a garage sale for old furniture and any other antiques you’ve not touched in ages.

The more you visualize yourself in a smaller space, the more likely you will make it happen.

 

In conclusion, when downsizing, the best property sizes are not always the least in square feet. They are the properties that offer an opportunity to maximize your financial and lifestyle goals. These tips will help you to make smart decisions in this area.

 

 

 Written Exclusively for Merriman.com by Madison Smith

Madison Smith is a personal and home finance expert at BestCompany.com. She works to help others make positive financial stride in their lives by providing expert insight on anything from credit card debt to home-buying tips.

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

 

 

 

 

 

Should I Set Up a Traditional 401k for My Business?

Should I Set Up a Traditional 401k for My Business?

 

Whether you recently transitioned to being self-employed or have been a business owner for years, you may have wondered what the best way is to save for retirement. While it is commonplace for established companies to offer a retirement plan to their employees, many self-employed individuals may not realize the potential for significant retirement savings by establishing their own plan.

However, the decision as to which type of plan to choose is far from simple. There are a multitude of questions a business owner must ask themselves before they can identify the best fit for their goals and preferences. To assist in this decision, the following flowchart poses the most pertinent of these questions.

 

 

Whether you are considering a SIMPLE IRA or are curious how a defined benefit plan can help you achieve your savings goals, Merriman’s team of knowledgeable advisors are here to help you make the most optimal selection. Please don’t hesitate to contact us if you have questions about your unique situation.

 

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such.

1 In 5 Americans Are Delaying Retirement, and Here’s Why

1 In 5 Americans Are Delaying Retirement, and Here’s Why

 

The devastating effects of COVID-19 are still making themselves known, as cities all over the world face longer lockdowns and restrictions in a bid to stop the spread of the virus. Life has certainly changed, with working from home now the new normal and public transport dwindling to a few people on each bus or train.

You may find that your life has been uprooted severely, and adjustments have had to be made in order to cope. With unemployment at an all-time high, there is a global concern for all of our futures. Many older workers were also looking to retire this year, but with the uncertainty surrounding when exactly life will return back to something resembling normal, seniors have been putting their plans on hold—and it might be time you followed suit.

Assessing retirement options

Currently, one in five American workers of retiree age have put their twilight-year plans on hold specifically due to COVID-19. With so many families’ finances taking a turn for the worse during this incredibly difficult time, delaying retirement could be a very smart idea.

The benefits of delaying retirement

Older workers may find employment more difficult to navigate due to the high level of young workers also vying for a small number of positions. With 13 applications for every 1 job available, recruiters and employers may find that the younger generation have more qualifications and are physically more fit than their senior counterparts. Older workers are often looked over despite their decades of experience; also, knowing retirement is on its way, it’s more cost effective for the business to hire someone who is guaranteed to be there for the long term.

Delaying retirement eliminates this issue. The employer you already work for and have been employed with for some time has been happy with your work; perhaps you’ve been in the same role for 15+ years. It’s a lot smarter to stay there and put your retirement on hold for now. Remember—it won’t be forever. Think of it more like a “putting in the last extra mile” situation.

Putting the brakes on your retirement plans for now also gives you further opportunity to add more funds into your superannuation account. Some super funds even have a clause that means you’ll receive more money by delaying withdrawing for a few years, with potentially up to 24% more benefits coming your way.

The differences between what a 65-year-old may receive once retiring in comparison to what a 70-year-old could receive may be as high as an 8% difference in funds per year. It’s a good idea to have a look at your super fund at this time, just in case you weren’t aware of such retirement clauses.

The cons of delaying retirement

By making the decision to delay retirement, there are a few cons to be on the lookout for. Firstly, your physical health is very important, and any issues that arise in the future could find you out of a job. Even if you look after yourself well, accidents and falls are statistically at a much higher level amongst older people. Regardless, many may find that they also need to leave work earlier to care for a partner or family member who has become too unwell to continue working.

It also might be tempting to get yourself further into debt throughout the pandemic as well. Taking out credit cards and personal loans might help in the short term to help you get back on your feet, but paying these off in the long term can result in even further debt. It’s important to have Plan Bs for all scenarios, just in case those retirement plans don’t pan out the way you expected them to.

Holding out on retirement a little longer

There is absolutely nothing wrong with planning for your retirement at this stage, but as 2020 has proven to all of us, it’s a good idea to ensure you stay flexible or have adaptable plans that can easily be changed. The future is so unexpected that it’s hard to stay one step ahead, but being as organized as you can will assist with navigating these uncertain times.

However, it’s also important to note that delaying retirement at this time might just not be possible, and you’ll need to look at every angle to see what an unexpected retirement might look like for you and your family.

 

Written Exclusively for Merriman.com by Madison Smith

Madison Smith is a personal and home finance expert at BestCompany.com. She works to help others make positive financial strides in their lives by providing expert insight on anything from credit card debt to home-buying tips.

 

 

Making Sense of the WEP and GPO

Making Sense of the WEP and GPO

Do you have a federal or local government pension? Don’t let the WEP or GPO surprise you. The Windfall Elimination Provision and Government Pension Offset, often called the WEP and GPO, are two rules that can leave you scratching your head. Not only do many people find these rules confusing, but they are also often completely overlooked, which may result in a big surprise when filing for Social Security benefits. Unfortunately, this is not one of those good surprises.

What are the WEP and GPO?

The WEP reduces a worker’s own Social Security benefit while the GPO reduces spousal and survivor benefits received from another’s work record, such as a spouse.

Who is affected?

The WEP and GPO affect individuals who qualify for a pension from non-covered (did not pay Social Security tax) employment. These are typically your federal and local government workers, such as teachers, police officers, and firefighters. Whether these jobs are non-covered will depend on the state/employer. Overseas employees may also fit under this category.

For the WEP to apply, the individual must have an additional job with covered earnings (did pay Social Security tax) that qualifies them for Social Security benefits. Thus, the WEP applies to those who have a mix of covered and non-covered employment. Specifically, they qualify for Social Security benefits and receive a non-covered pension. The GPO applies when an individual with a non-covered pension receives a spousal or survivor benefit. Are you scratching your head yet?

WEP example:

Dan works as a public school teacher in California, one of 15 states where teachers do not pay Social Security tax. He qualifies for a pension through the California State Teachers’ Retirement System (CalSTRS). To make extra money for his household, Dan works an additional job during the summer, where he does pay Social Security tax. By the end of his career, he has worked enough summers to qualify for a Social Security benefit. The WEP will reduce Dan’s benefit since he has both a non-covered pension from his career as a teacher and qualifies for Social Security benefits from his summer job.

How will the WEP affect my benefit?

Understanding the details of the WEP is quite complicated. To simplify, the WEP tweaks the Social Security benefit formula, resulting in a reduction of the worker’s Primary Insurance Amount (PIA). The PIA is the benefit amount one would receive at full retirement age. The amount reduced depends on the number of years with “substantial earnings” in covered employment. The Social Security Administration provides the WEP Chart as a reference to understand the potential benefit reductions based on the number of years of substantial earnings. The maximum monthly reduction is capped at $480 in 2020. The amount reduced stays constant for the first 20 years of substantial earnings before decreasing incrementally per year until it is completely eliminated upon reaching 30 years of substantial earnings.

This offers an incredible planning opportunity for those who have already accumulated a number of years of substantial earnings. If you are thinking of retiring and have accumulated 20 years of covered work, it could make a lot of sense to work for ten more years to eliminate the WEP completely. Remember, you only need to have substantial earnings, so part-time work would count as long as you make what is deemed “substantial” in that year. For someone subject to the full WEP reduction and assuming a 20-year retirement, it could be worth more than $100,000.

It is important to note that the reduction is limited to one-half of an individual’s non-covered pension. This primarily comes into play when the majority of an individual’s earnings are in covered employment but have a small non-covered pension. For example, if you had a pension of $600 per month and your Social Security benefit was $1,200 per month, your benefit will not be reduced by more than $300 (half of your pension income).

How will the GPO affect my benefit?

This rule is more straightforward to understand than the WEP. The GPO will reduce an individual’s spousal or survivor benefit by two-thirds of their non-covered pension benefit.

GPO example:

Sarah qualified for a pension of $2,100 per month from a government job. Her husband, Drew, worked as an engineer for a large corporation. Drew applied for his Social Security benefit at his full retirement age and receives $2,600 per month. Sarah applies for a spousal benefit once she reaches full retirement age. This benefit would generally be $1,300 (50% of her spouse’s); however, the benefit is reduced by two-thirds of her non-covered pension. In this case, she would not receive anything since two-thirds of her pension ($1,400) is greater than what her spousal benefit would be.

Let’s say Drew passed away unexpectedly. Sarah would normally qualify for a survivor benefit equal to Drew’s entire benefit of $2,600. Because of the GPO, she will only receive $1,200 since the benefit would first be reduced by two-thirds of her pension ($2,600 – $1,400).

Keep in mind the GPO only applies to the individual’s own non-covered work. If a surviving spouse is a beneficiary of a non-covered pension, their Social Security benefits will not be reduced.

Conclusion

These rules are tricky to navigate and important to understand for those affected. What makes it worse is that your Social Security statement will not reflect the reduction in benefits from the WEP and GPO. This means it requires work and effort on your part to figure out! The Social Security Administration has provided an online WEP and GPO calculator to help with this. It will ask for a birthdate, non-covered pension benefit amounts, and other relevant information to calculate your new benefit factoring in the rule. If you have a family member or friend with a non-covered pension, they may be subject to these two rules. Please forward this on to them or anyone else who may find it useful.