What You Don't Know About Medical Expenses in Retirement Can Hurt You!

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1 What You Don't Know About Medical Expenses in Retirement Can Hurt You! 76 Million Baby Boomers. 10,000 retiring each day. Controlling close to $19 Trillion in assets. Source: US Census Common Goal of Retirees: Retire as planned. Decrease in Expenses. Have enough assets to maintain lifestyle. Source: Wall Street Journal 1

2 Common Experiences of Retirees: Less than 50% retired as planned. Expenses either remained level or increased. 88% can t meet expenses. Copyright Source: Jester Financial Wall Street Tech. All Journal rights reserved. Why the difference? Prices for things, such as medical services, home healthcare, and nursing homes, have experienced more inflation than the official consumer price index. Wall Street Journal Healthcare accounts for 33% of expenses for Americans 60 years old and older. Source: Credit Suisse EuroMonitor 2

3 Healthcare is the only expense that does NOT go down as you get older! There is no cutting back on your health! 92% of Americans lack a retirement plan that factors healthcare! - SunLife Flying Blind Surprising Stat: 97% of Americans, 65 years old or older, who are retired are enrolled into Medicare! Source: Nationwide 3

4 Everyone has a mandatory expense in retirement. Health Coverage In order to collect Social Security you must enroll into Medicare when eligible. Source: Social Security Program Operations Manual What are the costs in 2015? Source: Centers of Medicare Services (CMS) 4

5 Note: Part B and D Premiums have a late enrollment penalty that is compounding and perpetual. Part B 10% penalty for every 12 months missed. Part D 1% penalty for every month missed. Source: Centers of Medicare Services (CMS) Example of person delaying for 5 years: Part B = Five 12 month cycles w/o coverage: 50% penalty. Part D = 60 months w/o coverage: 60% penalty. Penalty assessed at current rate for rest of life! Source: Centers of Medicare Services (CMS) What are the costs? 7% + Inflation Rate Medicare Part B 7.56% since inception Medicare Part D 7.15% projected through 2022 Gap Plan 3% to 5% since 1993 (AARP) Source: Medicare Board of Trustees 5

6 What are the costs? 65 year old Massachusetts couple retiring today and planning to live until age 85: $327,232 Medicare Premiums alone! Source: Jester Financial Scepter Software Medicare is means tested Your health costs are no longer about medical history! The more you have in income the more you pay for your health coverage. Source: Medicare Modernization Act, Affordable Care Act Current Brackets (2015) 6

7 Same Massachusetts couple: Earning $1 too much: $431,393 Earning Maximum: $713,822 Source: Jester Financial Scepter Software Proposed Brackets (2018) Income Part B Part D Individuals MAGI Couples MAGI $60k < $90k Premium Premium (varies) $60k To $82k $90k - $123k Premium + 60% $82k to $135k $123k - $202.5k Premium + 120% $135kto $189k $202.5k - $283.5k Premium + 280% Over $189k Over $283.5k Premium + 360% Premium + $ Premium + $ Premium + $ Premium + $ year old couple, retiring at age 65 and planning on living until age 85 At 5% inflation rate: Standard $478,794 $1 too much $568,940 Maximum Income $1,269,548 7

8 Income is not what you think. Your adjusted gross income plus and tax exempt interest you may have or everything on lines 37 & 8b of the IRS form Source: Social Security Board of Trustees Examples of Income: Social Security Wage Pension Income Rental Income Capital Gain (including home*) Dividends (including Muni s) Certain Annuities 401(k) Traditional IRA s 403(b) 457 SEP IRA Bulk of health costs deducted directly from your Social Security benefit! Automatic: Part B premiums, late penalties, surcharges from income Optional: Part D premiums Source: Centers of Medicare Services (CMS) 8

9 According to Social Security 52% of all married couples and 74% unmarried persons relay on Social Security to be their only income Cost of living adjustment (COLA): 2.8% maximum for foreseeable future! Social Security Board of Trustees (2014) Example: 60 year person who earned $75,000 throughout career. Retires at age 66. Opts to take Social Security at age 66. Social Security benefit of $2,350 per month or $28,200 annually Social Security Quick Calculator Impact of Health Costs on Social Security $60, yr. old retiring at age 66 $50, $40, $30, $20, $10, $ Social Security Total Health Premiums Actual Benefit 9

10 Impact of Health Costs on Social Security $60, Earning $1 Too Much (2018) $50, $40, $30, $20, $10, $ Social Security Total Health Premiums Actual Benefit Impact of Health Costs on Social Security Maximum Income $70, $60, $50, $40, $30, $20, $10, $- $(10,000.00) $(20,000.00) Social Security Total Health Premiums Actual Benefit Impact of Health Costs on Social Security Average median income $30, $25, $20, $15, $10, $5, $ Social Security Total Medicare Actual Income 10

11 The wrong income leads to: Higher Health Costs. Lower Social Security. More in taxes paid. Some solutions to controlling this cost: Roth Accounts Health Savings Accounts 401(h) plans Specific Annuities Home Equity Certain types of Life Insurance 11

12 LTC It is no longer about protecting assets, it has now become the key negotiating chip to access care! Less than 8 million people have plans that take into account LTC planning! Source: NPR Family Matter

13 70% of all Baby Boomers will need some form of LTC in retirement. 25% are expected to have to stay in a Nursing Facility for at least 3 years. Source: Dept. of Health and Human Services The problem: 15,465 Nursing Facilities in the US. 1,646,302 Number of beds in Nursing Facilities. 1,366,390 Number of occupied beds in Nursing Facilities. Source: Kaiser Family Foundation The problem: Projected Supply and Demand of Physicians: Source: American Medical Association

14 Nursing Shortage: Over the next 20 years, the average age of RNs will increase and the workforce will plateau as RNs retire. Source: The Future of the Nursing Workforce in the United States Projected Cost of Care Nationally: 2015 Private Room $93,850 Semi Private Room $85, Private Room $220,815 Semi Private Room $182,070 Projected Cost of Care Nationally: 2015 Home Health $41,060 Assisted Living $30, Home Health $162,700 Assisted Living $102,655 14

15 What are the costs? Average Stay Female Male Married Single / Never Married Widowed Divorced / Separated 2.6 years 2.3 years 1.6 years 3.8 years 2.3 years 2.7 years Medicaid Recovery Act: Authorizes the Dept. of Health Care Policy and Financing to recover all benefits paid on behalf of Medicaid clients from the estates of deceased Medicaid clients who were permanently institutionalized or were over the age of 55 when benefits were provided. 15

16 Filial Support Laws Law that impose a duty upon adult children for the support of their impoverished parents. In some cases it is extended to other relatives. Such laws may be enforced by governmental or private entities and may be at the state or national level. Filial Support Laws 29 States Alaska Indiana Mississippi N. Dakota Tennessee Arkansas Iowa Montana Ohio Utah California Kentucky Nevada Oregon Vermont Connecticut Louisiana New Hampshire* Pennsylvania Virginia Delaware Maryland New Jersey Rhode Island W. Virginia Georgia Massachusetts N. Carolina S. Dakota 16

17 Step 1: Plan You must work with financial professionals who understand the issues that lie ahead in the future. Look to work with just one firm if possible! Step 2: Know all of the costs of retirement Do not rely on just the good news! Step 3: Look at all options: Long-Term Care policies. Life Insurance. Annuities. Investments (Roth). 17

18 Questions Dan McGrath Phone: Website: Free Report: Author: What you don t know about retirement will hurt you! Medicare a Practical Guide 18

19 The Rules of Retirement have changed. What you don t know WILL hurt you! Due to legislative changes over the past few decades, the rules of what is considered to be retirement have changed. There are four distinct rules that every person planning a financial future in retirement should be aware of:. 1. Medicare is mandatory. In order to collect Social Security, retirees must acquire Medicare when eligible. Failing to do so means forfeiting all current, future, and past Social Security benefits. Retirees now have a mandatory expense, health coverage. 2. Medicare is means tested. The one expense retirees must have in order to collect Social Security is also the one expense that is determined by the amount of income they generate in retirement. The more income an individual or couple has, the higher their health will cost. 3. Income is your financial plan: Social Security defines income as, your adjusted gross income, plus tax exempt income, or everything on lines 37 & 8b of the IRS form What will not be counted? Specific Annuities Certain Life Insurance Roth accounts Health Saving Accounts (HSA s) 4. The bulk of health costs are automatically deducted from Social Security benefits. Medicare Part B premiums, along with any surcharges due to income, are deducted directly from Social Security. Part D premiums are currently optional, but strongly recommended. The issue: For the past 47 years, Medicare has been inflating over 7%. The expected COLA s for Social Security are projected to be no higher than 2.8% for the foreseeable future. Retirees are finding that due to a lack of planning, their main source of guaranteed income, may never increase, and coule possibly decrease over time, especially when needed. It s time to protect your greatest asset. Your Health. For more information, including a free, no obligation report on what you can expect to incur as a cost for your health in retirement, please visit us at For more information, please contact: (this will be their own personalized url) Dan McGrath Your contact information & logo here dmcgrath@jesterfinancial.com