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1 Life & Health Insurance Advisor MRCT Benefits Plus is a comprehensive employee benefits, wellness and Human Resources consulting firm offering a variety of financial services to businesses and individuals Retirement Planning July 2012 Volume 5 Number 7 Have You Budgeted for Your Retirement Health Needs? 230 S. Bemiston; Suite 900 Clayton, MO (314) FAX (314) A recent Nationwide Financial survey found that nearly three-fourths of soon-to-be-retired, high-net-worth Americans ranked out-of-control healthcare costs as among their top retirement fears. Nearly one-half reported being terrified of what health costs could do to their retirement plans. Those survey respondents have good reason for their fears. Consider the following statistics: Y In 2007, persons reaching age 65 had an average life expectancy of an additional 18.6 years (19.9 years for females and 17.2 years for males). Y Most older people have at least one chronic health condition; many have more than one. This Just In The percentage of Americans who are asking for pricing information before receiving healthcare has gone up, from 11 percent in 2010 to 16 percent in the past year. Moreover, 70 percent of those who had asked for pricing information are using that information to choose healthcare providers, according to a recent Thomson Reuters- NPR Health Poll. Respondents used a variety of sources to find pricing information: 49 percent used their insurance companies, 50 percent asked their physicians directly and 45 percent found information online. Although most (89 percent) said the pricing information they received was accurate,

2 Life Insurance Life & Health Insurance Advisor July 2012 Y 32 percent of older persons have some type of heart disease. Y 22 percent have some type of cancer. Y 18 percent have diabetes. Y Fewer than half (41.6 percent) of non-institutionalized older people assessed their health as excellent or very good, as compared to 64.5 percent of people aged years. (Source: U.S. Department of Health and Human Services, Administration on Aging) Y Health-related expenses increase with age, reports the Employee Benefits Research Institute. Healthcare expenses account for 10 percent of the household budget for individuals ages 50-64, but increase to 20 percent for people age 85+. Y Fidelity Investments estimated that a 65-year-old couple retiring this year would need about $10,476 for their annual healthcare expenses today. By 2027, that figure would reach about $25,000 a year. In 2008, the RETIRE Project at Georgia State estimated that households with earnings of $50,000 and up needed a retirement income of about 80 percent of pre-retirement earnings to maintain their pre-retirement level of consumption. However, if your retirement plan doesn t include provisions for medical costs, then it s time to take another look. What about Medicare? Although Medicare, the federal health insurance program, provides an important safety net, it does not cover all medical costs. Qualifying Americans receive Medicare Part A without paying a premium, but must pay a premium for Part B, which covers medical services, and Part D, which covers prescription drug expenses. They may also buy a Medicare supplement ( Medigap ) policy through a private insurer to cover costs Medicare does not cover. Alternatively, they can buy a Medicare Advantage plan from a private insurer, which replaces Medicare Parts A and B, and may also provide prescription drug coverage. No Medicare option covers all costs: in addition to premiums, Medicare beneficiaries must pay annual deductibles and a co-payment each time they access a service. In fact, a study by the Employee Benefits Research Institute (EBRI) estimated that the typical older couple may need to save $271,000 to pay for healthcare costs not covered by Medicare. Furthermore, planning to rely on Medicare as it currently exists might not prove wise for pre-retirees. Medicare trustees have projected the Medicare HI hospital insurance trust fund will be insolvent by there are no provisions in the Social Security Act governing what would happen in such an event, said a U.S. Senate report on aging. There is no authority in law for a general revenue funding of the shortfall. The fund would continue to have payroll taxes credited to it though these would be insufficient to pay all the pending claims. The major threat to retirees economic security is that rising Medicare premiums and out-of-pocket health care expenses will rapid- This Just In that number was lower than two years ago, when 98 percent said they received accurate pricing information. As more pricing information becomes widely available, along with quality comparisons, and more providers and health plans share their data transparently, we will see the emergence of a healthcare system that is more competitive and ultimately more sustainable, said Raymond Fabius, M.D., chief medical officer at the healthcare business of Thomson Reuters. For information on other ways to control your healthcare costs, please contact us. ly consume their relatively fixed sources of income, leaving them more vulnerable to large unanticipated expenses. According to the U.S. Social Security Administration, The threat is greatest for those with lower incomes who are not covered by Medicaid, and those with the highest medical expenses. Although amassing a healthcare savings fund well into the six figures may sound daunting, remember that you will need this money over your lifetime you do not need to have all this money set aside the day you retire. Most retirees have their Medicare premiums deducted from their monthly Social Security check, for example. If you are near retirement, you can receive an estimate of your Social Security benefit at mystatement, and premiums for Medicare Part A and Part D or Medicare Advantage

3 Life & Health Insurance Advisor July 2012 plans at You can also build savings that you can use for medical expenses during retirement in a health savings account (HSA). These savings plans require you to have health insurance coverage under a qualified high-deductible health plan (HDHP) and no other first-dollar medical coverage, such as an employer group plan or individual medical plan. You can deduct contributions to your HSA from your taxable income and your investment grows tax-free. Any withdrawals you make to pay for qualified medical expenses are free from taxation. After enrolling in Medicare, you can no longer make contributions; however, you can continue to use money in your account to pay for qualified medical expenses, including Medicare premiums. For more information on HSA-qualified high-deductible health plans, Medicare supplement and Medicare Advantage plans, please contact us. And if you need assistance with your retirement planning, we can help with a variety of life insurance and annuity products. Please call us for more information. The End of Long-Term Care Insurance as We Know It? The Baby Boomer generation numbers some 78 million. Nursing home costs are skyrocketing. Yet only 7 to 8 million individuals, some of them already over age 65, have bought long-term care insurance. Is long-term care insurance as we know it a dying product? For some reason, a majority of individuals can t bring themselves to buy insurance to protect their family from the financial burdens of longterm care. Maybe it s denial nobody likes to consider the possibility of poor health. Or maybe it s just reluctance to spend money on a product they might never need. To fill this coverage gap, insurers have begun offering different products that can help finance long-term care needs. They include hybrid life insurance policies and long-term care annuities. Life insurance: Many insurers now offer riders that add long-term care (LTC) coverage to their life insurance policy. You ll pay an additional premium, but it s usually less than the cost of a standalone LTC policy. To get combined life/ltc coverage, you need a permanent life policy whether whole life, universal life or variable life. This approach works best when you have a policy with a large face amount, to ensure you have enough funds available to meet your long-term care needs. If you need long-term care, the rider will pay a fixed percentage of the policy s death benefit in long-term care benefits each month usually between 2 and 5 percent. Life Insurance Most life insurance policies limit the amount of the policy s face value that you can withdraw for long-term care needs to 50 percent. Annuities: Individuals can buy several types of annuities to fund long-term care needs. The deferred annuity has two funds: 1 A long-term care fund that can directly pay for long-term care services or pay for long-term care insurance. This fund may grow at a high interest rate.

4 Life & Health Insurance Advisor July A regular cash fund that grows at a guaranteed rate of three percent. To be eligible for this annuity, you have to be under age 85 and answer a few questions about your current health. Some conditions will disqualify you from this type of annuity (for example, dementia or Parkinson s disease). If you are eligible, your long-term care coverage can start after the seven-day waiting period. The monthly long-term care benefit payout depends on the deferred annuity value. Most deferred annuities provide coverage for up to 36 months. You may be able to buy additional months of coverage for an extra cost. An immediate annuity can provide coverage for those who can t buy insurance because of health conditions (for example, dementia or Parkinson s disease). With this type of annuity, you make a single premium payment, which the insurer will convert into a guaranteed monthly income you will receive for the rest of your life. The insurer will use medical underwriting to determine your premium and the annuity s payout schedule. You must answer medical questions on an application; the insurer may require further information. Advantages and Disadvantages of Hybrid Products Advantages: Using life insurance with an LTC rider or an LTC annuity can have some advantages over a traditional, standalone LTC policy. First, they may be easier to qualify for than a traditional LTC policy. Even those currently receiving long-term care might be able to obtain an immediate annuity. Second, adding a rider to your life policy will likely cost less than a standalone LTC policy. With a permanent life insurance policy, the insurer cannot raise your premiums. With a traditional LTC policy, an insurer might be able to raise your rates if it raises rates for all individuals in your rate class (for example, all insureds over age 65) based on new actuarial information. You can also use a hybrid product as backup to a standalone LTC policy with a short (less than five years) benefit term or a low monthly benefit, tapping into the coverage as you need it. Disadvantages: Using your life insurance policy for LTC needs will leave less for your heirs when they might need it most. Hybrid products also lack many features available in standalone policies. Without inflation protection, the benefits you buy today may be inadequate by the time you need them. LTC policies often offer other valuable features, such as return-of-premium options, benefits for in-home care, and more. You can deduct LTC insurance premiums from your taxable income as a medical expense, subject to certain limits that vary with age. Life insurance premiums do not qualify as a deductible expense, and annuities may subject you to tax liabilities. For more information, consult your tax advisor. To discuss your long-term care and other financial planning needs, please call us. Retirement Planning Credit Insurance: Should You Buy It? You open your credit card statement and find a special offer from your credit card issuer if you sign up for a payment protection plan. What do these plans cover, and do you need one? Payment protection plan is another name for credit insurance. You can buy four types of credit insurance: Y Credit life, which will make payments on your credit card or loan if you die, Y Credit disability, which will make payments if you become disabled and cannot earn a living Y Involuntary unemployment insurance, which will make payments on your credit card or loan if you involuntarily lose your job, and Y Credit property insurance, which will pay to repair or replace personal property you buy with the credit card or loan if it is lost, damaged or stolen. Many card issuers, such as American Express, automatically include this type of coverage with some of their cards check your cardholder agreement for details. Unlike with the other three types of credit insurance, this coverage has no relationship to your ability to pay off your debt.

5 Retirement Planning So what exactly is credit insurance? Except for credit property insurance, credit insurance is a form of decreasing term insurance. Like term life insurance, it will pay a benefit if the event insured against (death, disability or job loss) occurs within the policy term. Many financial experts recommend skipping the credit insurance and simply ensuring your life and disability insurance limits are high enough to cover your debt payments. For many people, this makes sense. Term life insurance has become less expensive over the last decade or so, and if your health and finances permit, term life and disability insurance can cost less per thousands of coverage than credit insurance. Credit insurance also has other disadvantages. With life and disability insurance, policy proceeds go to your family or you, to spend as you choose. With credit insurance, benefits go directly to the card issuer or loan holder your family will see nothing. And, if the cost of credit insurance is added to your loan balance, you will pay interest on these premiums. However, credit insurance does have its place. Sometimes a health condition prevents individuals from buying affordable life or disability insurance. Most credit insurance does not require underwriting. If you are between the ages of 18 and 65 (70 in some states) and have not been diagnosed with a terminal disease, you can obtain coverage, and you will pay the same rate as other eligible borrowers. Life insurance also has relatively high minimum coverage amounts most insurers will not write a term life policy for less than $50,000. If your loan or credit card balance is much less than that, you might not want to pay for the additional coverage. Life & Health Insurance Advisor July 2012 How Much Does It Cost? Before buying credit insurance, ask the following questions: Will the premium be financed as part of a loan? If so, it will increase your loan amount and you ll pay additional interest and more for points (if your loan carries points). Can you pay monthly instead of financing the entire premium as part of your loan? Will the insurance cover the full length of your loan and the full loan amount, or will your premiums drop as your balance drops? Is there a waiting period before the coverage becomes effective? Can you cancel the insurance? If so, what kind of refund is available? Before you sign any loan papers, ask the lender whether the loan includes any charges for voluntary credit insurance. Lenders can t deny you credit if you don t buy optional credit insurance or for not buying it directly from them. If a lender tells you that you ll only get the loan if you buy the optional credit insurance, report the lender to your state attorney general, your state insurance commissioner or the Federal Trade Commission. And before you decide to buy credit insurance, please call us for a quote on term life insurance. Rates have been going down for the last several years, so coverage may be less expensive than you think.

6 Life & Health Insurance Advisor July 2012 How to Protect Your Credit Rating Your credit rating provides an important indicator of your financial health. It helps determine whether you can get a mortgage, loan or credit card and your interest rate, and may affect your ability to get a job. These three simple steps can help you protect your all-important credit rating. 1 Always review bank statements, credit card statements and other financial documents within 30 days of receipt. If you find unauthorized or incorrect transactions, dispute them immediately. 2 Get a copy of your credit report once a year. Each of the nationwide credit reporting companies Experian, TransUnion, and Equifax must provide consumers with a free copy of their credit report once every 12 months. To order yours, visit annualcreditreport.com or call You can also receive a free report if a company has taken adverse action against you based on information in your report, such as denying your application for credit, insurance or employment. You must ask for your report within 60 days of receiving notice of the action. The notice will give you contact information for the credit reporting company. 3 Review the contents of your credit report carefully, and contact the credit bureau(s), in writing, to correct any errors. Your letter should clearly identify each item in your report that you dispute, why you dispute it and a request that it be removed or corrected. Include copies (not originals!) of any documents that support your position. Your letter should also provide your complete name, address and contact information. Credit reporting companies must investigate the items in question, usually within 30 days. When the investigation is complete, the credit reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. If you ask, the credit reporting company must send notices of any corrections to anyone who received your report in the past six months. And if an item is changed or deleted, the credit reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. SmartsPro MARKETING The information presented and conclusions within are based upon our best judgment and analysis. It is not guaranteed information and does not necessarily reflect all available data. Web addresses are current at time of publication but subject to change. SmartsPro Marketing does not engage in the solicitation, sale or management of securities or investments, nor does it make any recommendations on securities or investments. This material may not be quoted or reproduced in any form without publisher s permission. All rights reserved SmartsPro Marketing. Tel