Of all the changes that come in retirement, few are likely to give you more concern than dealing with money. Your concern is, of course, understandable and widely shared because so much of what will happen is unpredictable. That’s especially true of how long and how well you may live—whether you live long enough to have to lower your standard of living so that you can stretch your nest egg to avoid the horror of outliving your money.
Although you may improve your situation by taking good care of your health and living without extravagance, you should be adequately covered against unforeseen losses by the right kinds of insurance. If you think of insurance as a product to be bought and focus only on its costs, you may consider it a luxury that you cannot afford.
But if you regard it as a vehicle for managing risk—at a time in your life when you probably will be more vulnerable to the risk of substantial losses and less able to recover quickly—you may think of certain types of insurance as necessities while considering others only as optional. During retirement there are three major risks: risks to health, longevity and to our property. Some of these risks are ones should be addressed before the age of retirement.
NECESSITIES
Medicare supplement (Medigap) or Medicare Advantage insurance. This coverage helps you to pay Medicare deductibles and the portion of hospital and medical charges that are approved by Medicare but not paid by it in a year when your total hospital and/or medical charges are high—something that can happen when you get older.Those who are willing to pay more to have a greater choice of services generally choose a Medigap policy.Those who prefer to save money and use a limited pool of medical service providers might prefer to use the Medicare Advantage program.
Prescription drug coverage. At a time when your need for prescription drugs may grow, be sure that you have insurance to cover a substantial share of those costs. In some cases, a retiree will have the choice of using a prescription drug plan offered by a former employer. In other cases, a retiree’s only choice will be to sign up for the new Medicare Part D drug plan. The latter is a voluntary program, however, so don’t hesitate to sign up if that’s your only option.
POSSIBLE NECESSITY
Long-term care (LTC) insurance. This insurance is designed to help you to meet the high costs of nursing facility, assisted living and/or home care that you might incur if and when you are not able to handle the activities of daily living such as bathing and dressing.
While LTC insurance might not be for everyone, it is very important to evaluate such insurance while you are young and healthy, generally in your early 50s.The cost of this coverage is based on your age and health at the time you apply for coverage.By waiting to consider LTC insurance, many people risk the onset of health conditions that may subject them to higher risk classes with higher premiums, or, even worse, may make them uninsurable for LTC insurance.One of the biggest mistakes made when purchasing LTC insurance is to inadequately cover for inflation of LTC costs.LTC insurance can be purchased as an employee benefit, through an association or individually.Group plans often provide discounts or underwriting concessions.
OPTION
Additional life insurance. If you have sufficient life insurance coverage—under a group and/or individual policy—and/or financial assets to provide for your spouse and/or other beneficiaries, including enough to help them during the first year after your passing, you probably won’t need additional life insurance coverage. If not, shop among strong insurance companies for the plan that best meets your personal needs and is priced reasonably.
CONTINUING COVERAGE
In retirement, of course, you must maintain and budget for other insurance policies—such as for your home and cars—because retirement does not change your need to protect yourself against the risks of fires, floods, natural disasters, accidents, or other potential causes of losses.However, you should examine these policies to see whether you should add or delete anything—or raise or reduce the values of specific items such as jewelry or electronic equipment. You may find that you are still paying a premium for an item that you disposed of years ago. It’s always a wise move to reevaluate your insurance needs as you transition into retirement.
January 2006— This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bold Financial Planning, LLC, a local member of the FPA.
There was a time when family members – grandparents, parents and children alike – lived in close proximity to each other, often in the same house. But that was then and this is now. And now, it’s becoming increasingly common for family members to live in different parts of the country. That trend is fast colliding with care-giving for the elderly.
According to the MetLife Mature Market Institute’s Since You Care guide, there are some 34 million Americans providing care to older family members. And 15 percent of these caregivers, or 5.1 million, live one or more hours from the person for whom they are providing care.
According to MetLife, these “long-distance caregivers,” in many instances, are caring for a parent or other older relative and are also employed and have dependent children of their own. Because of this, they are often referred to as the sandwich generation. “In some circumstances, due to actual physical distance and/or other constraints, the long-distance caregiver may be unable to provide the direct, everyday, hands on care, but is responsible for arranging for paid care and coordinating the services that are provided.”
And that’s no easy task. In many cases, long-distance caregivers must often juggle the demands of two households. Often, they have to rely on reports from others about daily events. Just as often, they have to arrange and then rearrange work schedules, business trips and doctors’ appointments. In short, the task can be difficult, stressful, and time consuming, according to AARP. But there are a number of steps you can take to make the task more manageable.
Gather information and assess the need. Adult children should determine with their parents (and other family members) what help is needed. In some cases, adult children should consider hiring a professional geriatric care manager who can assess a family member’s needs and who, if need be, can provide ongoing case management. Geriatric care mangers are often familiar with the services that are available to aging parents. Finding a professional geriatric care manager is easy enough, say experts. The National Association of Professional Geriatric Care Managers has a Web site that provides links to association members, many of whom are former nurses or social workers (www.findacaremanager.org). A professional geriatric care manager might charge $100 to $500 for an assessment and $60 to $90 an hour for on-going care. If you choose this option, work with geriatric managers who are licensed or certified by the states in which they work and be sure to conduct a full background check before you hire. Many states and municipalities typically have benefits and resources that can be used by qualifying individuals to help cover the costs of some of these services. Another resource, the Eldercare Locator (800.677.1116) can tell you which local agencies provide services and will refer you to the area agency on aging in your parents' community.
Be prepared. Before a crisis occurs, caregivers and older family members should complete and distribute widely a “caregiver emergency information” kit. That kit should contain all necessary medical, financial, and legal information, including doctors, medications, insurance information, assets, and Social Security numbers, wills, living wills, durable powers of attorney and health care proxies. Adult children should ask their parents to complete privacy release forms, HIPAA compliant, and keep copies on file with their parent’s doctor’s office. That way, the parent’s doctor can discuss an older family member’s health. MetLife has a caregiver booklet that can be downloaded from its Web site, www.maturemarketinstitute.com. AARP also has useful long-distance care-giving resources at its Web site, www.aarp.org. Caregivers might also consider using a personal medical alert emergency response system.
Develop an informal network. Experts say adult children should establish an informal support network composed of family, neighbors, friends, clergy, and others who might help. Adult children, when visiting their parents or older family members, should introduce themselves to neighbors and friends and keep their phone numbers and addresses handy. If an adult child can't reach a parent, calling that informal network can provide peace of mind. Plus, they may also be able to help with some needed tasks.
Visit as often as you can. Long-distance caregivers should visit their older family members every few months to check for signs of trouble – which might include changes in personal hygiene, old food in the refrigerator and chores not done. Long-distance caregivers should note, however, that such care can be expensive. According to MetLife, caregivers spend an average of $193 per month on out-of-pocket purchases and services for the care recipient and another $199 per month in traveling and long-distance phone expenses.
It might make sense to consult your financial planner early-on, to ensure that your loved ones are properly cared for in the future.
January 2005— This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bold Financial Planning, LLC a local member of the FPA.
To taxpayers, the Economic Growth and Tax Relief Reconciliation Act of 2001 may have meant income tax cuts resulting in more current after-tax income, but to financial planners it has meant more work for clients to develop strategies to minimize both federal and state estate taxes, a less widely-publicized section of the 114-page law.
Why? For starters, it has changed the basic provisions of federal estate tax law, culminating in their expiration in 2010, which planners have had to factor into existing and new estate plans:
•A gradual increase in the portions of estates’ values that are exempt from the federal estate tax from $675,000 for those of people dying in 2001 to $3.5 million for those of people dying in 2009.
•A gradual reduction in the maximum tax rate from 55 percent to 45 percent for estates of people dying in 2007, 2008, and 2009.
•The uncertainty as to whether such changes will be made permanent, be amended under some future law, or be undone in the improbable, but not impossible, absence of any new legislation applicable to 2011 and beyond.
At year-end 2005, exemption from the federal tax rises from $1.5 million to $2.0 million for estates of those dying in 2006 (and as its maximum rate falls from 47 percent to 46 percent). But consumers will also have to cope with the continuing proliferation of changes at the state level resulting from the act.
Why? Since 1926, states have been able to piggyback on the federal estate tax, enacted in 1916, by adopting state estate taxes for which they siphoned off a limited share of the revenues collected from their deceased residents’ estates in accordance with the federal tax’s provisions—without raising estates’ total tax bills. The limit: 16 percent of taxable estates’ values, equal to the maximum for which estates could claim credit for state taxes on their federal tax returns.
As adoption of the “pick-up” tax spread, states came to rely more on it and less on other wealth transfer or “death” taxes. In 1980, as noted by Daphne A. Kenyon in State Tax Notes last May, 12 states relied exclusively on pick-up taxes, 29 on a combination of inheritance and pick-up taxes, and eight on free-standing estate and pick-up taxes. By 1998, the number relying exclusively on pick-up taxes had jumped to 33, the number imposing both inheritance and pick-up taxes had slumped to 13, and the number collecting both free-standing estate and pick-up taxes had fallen to four.
The 2001 act impacted this pattern in three major ways:
It repealed the credit for state estate taxes in 25 percent increments over a 4-year period ending this year, raising revenue going to the Treasury and leaving states—of which 37 relied on the pick-up tax exclusively by last year—scrambling for a substitute source of funds. In the aggregate, all forms of state wealth transfer taxes accounted for only 1.2 percent of all state tax revenues in 2003, according to Kenyon.
It precipitated a flurry of activity in state capitals to decide how to make up the lost revenue. States without estate taxes were encouraged to adopt them. States with estate taxes were encouraged to raise their rates and/or otherwise raise more funds. The result: a varied pattern with differences in maximum estate tax rates and exemptions among the states as well as between the states and the federal government, even leading to cases of states taxing estates whose values are too low to be taxed by the feds, now that exemptions are higher. State governments have not been alone in being engaged in a flurry of activity to deal with estate tax reform. With the changes in state taxes and a decline in their uniformity, financial planners have had to scurry to develop suitable estate plans for clients in a wider range of circumstances, giving unprecedented attention to state estate taxes.
It allowed estates to deduct state estate taxes on federal estate tax returns, starting this year.
With estate tax credits and the pick-up tax becoming only a memory, will the same fate be in store for other state wealth transfer taxes, relieving financial planners from having to deal with them?
Kenyon seemed to think so. “I expect over time the remaining states with wealth transfer taxes will come under pressure to repeal them,” she wrote, “and unless the federal estate tax and accompanying state credit is reenacted, I think state wealth transfer taxes will eventually disappear.”
January 2006— This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by Bold Financial Planning, LLC, a local member of the FPA.
