SAFEGUARDING PARENTS' FINANCES IN RETIREMENT

Transcription

1 SAFEGUARDING PARENTS' FINANCES IN RETIREMENT Sponsored by: James J. Holtzman, CFP, CPA

2 JAMES J. HOLTZMAN, CFP, CPA James J. Holtzman, CFP, CPA is an Wealth Manager and Shareholder with Legend Financial Advisors, Inc. (Legend) Jim has been selected five consecutive times by Medical Economics as one of The 150 Best Financial Advisors for Doctors in America. He has also been selected by Dental Practice Report as one of The Best Financial Advisors, for Dentists in America. Jim has also been previously selected by Pittsburgh Magazine as one of the Pittsburgh area s FIVE STAR Wealth Managers, a list that represents the most elite financial advisors, in Pittsburgh. Jim serves as the firm s Income Tax and Education Funding and Planning Specialist. Jim s previous professional experience includes employment with various CPA and Financial Advisory organizations where he provided tax, accounting, auditing and financial consulting services to individuals and businesses. His area of concentration include investment management, income tax planning, estate planning, stock option exercise planning, insurance analysis, retirement planning and education planning. Jim is a member of the Pennsylvania and American Institute of Certified Public Accountants. He is also a graduate of the Pittsburgh Leadership Development Initiative, which provides young leaders with the tools necessary to affect positive change in the Pittsburgh region, and Pittsburgh Leadership Onboard Programs. Jim also serves on the LaRoche College Board of Governors, is a member of Pittsburgh Cares, and is a former member of the Finance Committee for the Pittsburgh Downtown Partnership. Jim has been quoted in The Wall Street Journal, The Wall Street Journal Online, MSN Money, CBS Marketwatch, Pittsburgh Post-Gazette, Bloomberg Wealth Manager, Financial Planning Magazine, Financial Advisor Magazine, National Underwriter, Smart Money, Investment News, Physician s Personal Advisory, and in Bottom Line Personal. Jim has been interviewed on CNNfn s Your Money and Business Unusual, as well as WPXI-TV s Our Region s Business television programs.

3 LONGEVITY RISK A 65-year-old individual has at least a 40.0% chance of living into their 90s. The Expected healthcare expense for a 65-year-old couple is approximately $250, (does not include long-term care). Annual withdrawal rates are extremely important to be aware of.

4 LIFE EXPECTANCY AT AGE 65 By Sex and Calendar Year (Based on Period Tables)

5 LIFE EXPECTANCY AT AGE 0 By Sex and Calendar Year (Based on Cohort Tables)

6 NURSING HOME Features o Licensed o Services are performed by or under the supervision of a registered nurse, licensed practice nurse or licensed vocational nurse o On-site 24-hour care Average price of a private room at a nursing home is approximately $ per day

7 ASSISTED LIVING FACILITIES Features o Licensed o 24-hour on-site staff to provide Custodial Care o 3 meals a day A recent trend is that facilities are organizing more services as a package. Packaging of services can be problematic because you are possibly paying for services that you do not need. The nationwide average for daily costs is $

8 ADULT DAY CARE SERVICES Provide social type activities in a group setting Some services are provided in separate facilities or long-term care facilities. Daily rates average between $75.00 and $

9 HOME HEALTH CARE Hourly rates average approximately $20.00-$ The nationwide average is $ per day. Services can include meal preparation and housekeeping, bathing, etc. Flexible scheduling Prescribed by a doctor and administered by Registered Nurses, Licensed Practical Nurses and Licensed Vocational Nurses.

10 CONTINUING CARE RETIREMENT COMMUNITIES This is a retirement community that offers several levels of care in one place. o Independent Living o Assisted Living o Skilled Nursing and Rehabilitation Usually require a large entrance fee (range from $100, to several hundred thousand dollars) Monthly expenses can range from $3, to $5, types of contracts o Life Care or Extended: Unlimited o Modified Contract: Set period of time o Fee-For-Service Contract: Small enrollment fee but assisted living and nursing care are paid for at then current rates. Financial stability of the facility is critical request financial statements Some entrance fees are refundable at death Review contract with attorney

11 INDEPENDENT LIVING FACILITIES Similar to continuing-care retirement communities but typically do not require large up-front payment. Can usually obtain your own home healthcare. The nationwide average monthly cost is $2,

12 LONG-TERM CARE INSURANCE WHAT IS IT? Provides coverage for o Nursing Home o Assisted Living o Adult Daycare o Home Healthcare Important features: o Inflation Protection o Daily Benefit o Tax Qualified o Elimination Period o Benefit Period

13 LONG-TERM CARE INSURANCE RECENT TRENDS Since 2010, five major carriers have exited the market. There are an increasing number of insurance companies discontinuing long-term care insurance. The reason for the dramatic change in the industry is due to high claims being paid and for longer periods of time and the low interest rate environment. Approximately 70.0% of individuals will need some type of long-term care. There have been premium increases from 10.0% to 90.0% at one-time. If you face a large premium increase that you cannot afford, you can trim back on some of the benefits.

14 LIFE INSURANCE WITH LONG-TERM CARE INSURANCE RIDER Becoming more popular because of the death benefit feature which means there will be some return on your money. The premiums are still expensive. Usually has a death benefit/long-term care insurance rider of $500, or less.

15 MEDICAL INSURANCE Medicare Part A (hospitalization) Medicare Part B (outpatient services) Medicare Advantage Plans Part C (private insurance that covers Medigap and more) Medicare Part D (prescription drug coverage) Medigap (government-regulated private insurance fill in for copayments and deductibles)

16 MEDICARE PART B AND PART D PREMIUMS

17 PART B INCOME-RELATED PREMIUM AMOUNTS IF YOUR ANNUAL INCOME IS Percent of Cost Covered Actual 2012 Premium Actual 2013 Premium Individual Tax Return Joint Tax Return $85,000 or less $170,000 or Less 25% $99.90 $ $85,001 - $107,000 $170,001 - $214,000 35% $ $ $107,001 - $160,000 $214,001 - $320,000 50% $ $ $160,001 - $213,000 $320,001 - $428,000 65% $ $ Over $213,000 Over $428,000 80% $ $335.70

18 2012 PART D INCOME-RELATED MONTYLY ADJUSTMENT AMOUNTS IF YOUR ANNUAL INCOME IS Actual 2013 Premium Individual Tax Return Joint Tax Return You Pay $85,000 or less $170,000 or Less $85,001 - $107,000 $170,001 - $214,000 $107,001 - $160,000 $214,001 - $320,000 $160,001 - $213,000 $320,001 - $428,000 Over $213,000 Over $428,000 Your Plan Premium $ Your Plan Premium $ Your Plan Premium $ Your Plan Premium $ Your Plan Premium

19 WHAT DOES MEDICARE COVER? Medicare will cover a short stay in a skilled nursing facility, hospice care, or home health care under certain conditions. Medicare covers: costs for up to 100 days for skilled nursing care. o For the first 20 days, Medicare pays 100% of the costs. o For days 21 through 100, you pay expenses up to $ in 2013 per day. o After day 100, the insured is responsible for 100.0% of the costs. There is also some coverage for home health care services. There are limitations as to dollar amount and your doctor needs to reorder every 60 days.

20 DON T CONFUSE MEDICARE WITH MEDICAID They are both government-sponsored and are designed to cover healthcare costs. Medicare is designed to assist with medical costs for the elderly and is attached to Social Security. Parts A and B are paid by payroll taxes and deductions from social security income. Medicaid is designed to cover healthcare costs for the poor. It is a joint program between federal and state. The eligibility requirements vary state by state.

21 INCOME TAX PLANNING Roth IRA conversions. Medical expense deductions. Social security income taxation. Depending on income tax bracket, consider taking withdrawals from retirement accounts to control income tax bracket.

22 INCOME TAX BREAKS FOR CAREGIVERS Could claim recipient as dependent on caregiver s tax return. Medical expense deduction is possible along with dependent care credit. It is possible to claim head of household. More than half the support must be provided.

23 PROPERTY AND CASUALTY INSURANCE Make sure that the liability coverage is still in place for a resident of a longterm care facility. Renter s insurance policy is a possible answer. Normally, when someone sells their residence to move into a long-term care facility, they drop their homeowners insurance. Talk to your property and casualty insurance agent about how to handle this.

24 REQUIRED MINIMUM DISTRIBUTION The required minimum distribution needs to begin at age 70 ½. The penalty is 50.0% of the required minimum distribution not taken. Subject to ordinary income taxation. In 2013, the required minimum distribution can be sent to a charity and the distribution is not be included in ordinary taxable income.

25 Age of Retiree REQUIRED MINIMUM IRA DISTRIBUTIONS Distribution Period (In Years) Age of Retiree Distribution Period (In Years) Age of Retiree Distribution Period (In Years) or older 1.9

26 ESTATE PLANNING Testamentary Letter. Who are the executors and back-up executors? Who are the trustees and back-up trustees? Do the distribution provisions make sense? Were their estate planning documents set up when a lower federal estate tax exemption was in effect?

27 CREDIT REPORTS Monitoring your parent s credit reports on a consistent basis is a way to be alerted to anything out of the ordinary. Use one of the 24-7 credit monitoring services such as Experian.

28 Definition a home loan that allows you to convert part of your equity into cash. The loan does not have to be repaid until the home is no longer used as a primary residence. Must be at least 62 years old. REVERSE MORTGAGES The amount you can borrow depends on age, interest rates, appraised value, mortgage insurance premium. Select a term for how the money is to be paid to you (e.g. monthly, line of credit).

29 INVESTMENT PLANNING Revisit the risk profile for your parents if they are going through a transition (e.g. moving to a nursing home). The withdrawal rate from the investment portfolio could increase to a level that could be detrimental to your parent s long-term plans.

30 ANNUITIES Be aware of the riders. Surrender charges (which can be as high as 10.0%). Low interest rate environment is not the best time to purchase fixed annuities. Financial stability of the insurance company is important to review for a fixed annuity. Understand the annuitization options. Variable annuities are only as good as the investment options that they provide.

31 SOCIAL SECURITY PLANNING Consider survivor benefits. Don t automatically start at age 62. File and suspend strategy. 8% increase in benefit for each year that you wait until age 70.

32 HOW TO KNOW WHEN ELDER CARE BECOMES AN ISSUE Be aware of memory loss. Is the house being neglected? If possible, be involved with your parent s doctor, financial advisor, accountant. There are local agencies that focus on taking care of the elderly if distance is an issue.

33 Potential eligibility for care at VA nursing homes, and other VA facilities with different levels of care. Eligibility varies by state. Need to ask Many veterans qualify but don t realize it. The approval process can take months but the first check is retroactive to application date. Disability pension for non-service related injury. Home loans. VA BENEFITS

34 ELDER FRAUD Common Fraud Scams - Telemarketing Fraud - Nigerian Letter or 419 Fraud - Identity Theft - Advance Fee Schemes - Health Care Fraud/Health Insurance Fraud - Redemption/Strawman/Bond Fraud Investment-Related Scams - Letter of Credit Fraud - Prime Bank Note Fraud - Ponzi Schemes - Pyramid Schemes Internet Scams - Internet Auction Fraud - Non-Delivery of Merchandise - Credit Card Fraud - Investment Fraud - Business Fraud - Nigerian Letter or "419" Fraud Fraud Target: Senior Citizens - Health Care Fraud/Health Insurance Fraud - Counterfeit Prescription Drugs - Funeral and Cemetery Fraud - Fraudulent "Anti-Aging" Products - Telemarketing Fraud - Internet Fraud - Investment Schemes - Reverse Mortgage Scams

35 FINANCIAL ADVISORS ROLE The financial advisor s role is to be the quarterback of the parent s entire financial situation. Rarely does the accountant, estate planning attorney or insurance agent have enough of a global understanding of the parent s entire financial situation to be able to provide guidance or coordinate with the other advisors.

36 QUESTIONS AND ANSWERS

37 CONTACT US Legend Financial Advisors, Inc Corporate Drive, Suite 350 Pittsburgh, PA Phone: (412) EmergingWealth Investment 5700 Corporate Drive, Suite 360 Pittsburgh, PA Phone: (412)