Why Medicare Should Be Part of Your Retirement Planning

Posted by on Jun 3, 2018 in Uncategorized | 0 comments

The premiums and coverages vary, and you must realize the differences.   Provided by Frederick Saide, Ph.D.   Medicare takes a little time to understand. As you approach age 65, familiarize yourself with its coverage options and their costs and limitations.   Certain features of Medicare can affect health care costs and coverage. Some retirees may do okay with original Medicare (Parts A and B), others might find it lacking and decide to supplement original Medicare with Part C, Part D, or Medigap coverage. In some cases, that may mean paying more for senior health care per month than you initially figured.   How much do Medicare Part A and Part B cost, and what do they cover? Part A is usually free; Part B is not. Part A is hospital insurance and covers up to 100 days of hospital care, home health care, nursing home care, and hospice care. Part B covers doctor visits, outpatient procedures, and lab work. You pay for Part B with monthly premiums, and your Part B premium is based on your income. In 2018, the basic monthly Part B premium is $134; higher-earning Medicare recipients pay more per month. You also typically shoulder 20% of Part B costs after paying the yearly deductible, which is $183 in 2018.1    The copays and deductibles linked to original Medicare can take a bite out of retirement income. In addition, original Medicare does not cover dental, vision, or hearing care, or prescription medicines, or health care services outside the U.S. It pays for no more than 100 consecutive days of skilled nursing home care. These out-of-pocket costs may lead you to look for supplemental Medicare coverage and to plan other ways of paying for long-term care.1,2   Medigap policies help Medicare recipients with some of these copays and deductibles. Sold by private companies, these health care policies will pay a share of certain out-of-pocket medical costs (i.e., costs greater than what original Medicare covers for you). You must have original Medicare coverage in place to purchase one. The Medigap policies being sold today do not offer prescription drug coverage. A monthly premium on a Medigap policy for a 65-year-old man may run from $150-250, so keep that cost range in mind if you are considering Medigap coverage.2,3   In 2020, the two most popular kinds of Medigap plans – Medigap C and Medigap F – will vanish. These plans pay the Medicare Part B deductible, and Medigap policies of that type are being phased out due to the Medicare Access and CHIP Reauthorization Act. Come 2019, you will no longer be able to enroll in them.4   Part D plans cover some (certainly not all) prescription...

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The Saver’s Credit

Posted by on Apr 22, 2018 in Uncategorized | 0 comments

A special tax break for part-time, low-income, and moderate-income workers.   Provided by Frederick Saide, Ph.D.   Do you work part-time, or earn less than $65,000 a year? If so, you might be eligible to fully or partly claim the Saver’s Credit – a federal tax credit that gives part-time, low-income, and moderate-income workers an extra incentive to make retirement account contributions.1   Unlike a deduction (which simply exempts a portion of your income from being taxed), a credit lets you lower your tax liability, dollar-for-dollar. A $1,000 federal tax credit, for example, saves you $1,000 in federal taxes.2   The maximum possible Saver’s Credit that a household can claim for a year is $2,000. If you contribute to an IRA, a 403(b) or 401(k), a governmental 457(b) plan, a 501(c)(18) plan, or a SIMPLE IRA or SARSEP, you might be able to take this credit.1,3   An eligible taxpayer can claim the credit for 50%, 20%, or 10% of the first $2,000 directed into a retirement account in a year. Therefore, the maximum credit amounts that an individual taxpayer can claim per year are $1,000, $400, or $200, respectively. Married joint filers who are eligible, however, can each claim respective credits of $1,000, $400, or $200.3   How do you know if you are eligible for the Saver’s Credit? First, three basic tests must be met. You a) must be at least 18 years old, b) must not be a full-time student, and c) cannot be claimed as a dependent by another taxpayer on his or her federal tax return.1   Then there is the adjusted gross income (AGI) test. As you see, different credit amounts correspond to different AGI ranges in 2018:   Credit Rate                                          Married Filing Jointly      Head of Household         All Other Filers 50% of your contribution                   AGI $38,000 or less             AGI $28,500 or less             AGI $19,000 or less 20% of your contribution                   AGI $38,001 – $41,000       AGI $28,501 – $30,750       AGI $19,001 – $20,500 10% of your contribution                   AGI $41,001 – $63,000       AGI $30,751 – $47,250       AGI $20,501 – $31,500 0% of your contribution                     AGI above $63,000              AGI above $47,250              AGI above $31,500   The AGI thresholds for the credit are periodically adjusted for inflation.1   To claim the Saver’s Credit, fill out Internal Revenue Service Form 8880. This form becomes an attachment to your 1040, 1040A, or 1040NR. (If you want to claim this credit, you cannot file Form 1040-EZ.)3   You can work part time and qualify for the Saver’s Credit. If you are a married joint filer with a part-time job, chances are you will earn $63,000 or...

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Try the Bucket Approach

Posted by on Feb 5, 2018 in 401k, 403b, atuos, bank statements, Boomers. Millenials, cars, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicaid Planning, Medicaid Recovery, Medicare Planning, Retire Happy Now, Retirement, retirement planning, sales, social security, tax returns, taxes, TSA, Uncategorized | 0 comments

Constructing a portfolio this way may help you ride through a bear market in retirement.   Provided by Frederick Saide, Ph.D.   Stocks sometimes retreat. That reality can be overlooked in a long bull market. Bear markets do appear, and a deep downturn could force you to sell securities in retirement, so you can pay for necessary expenses.   Right now, you might have too much money in stocks. Years of steady gains may have unbalanced your portfolio and heightened your risk exposure. If you are 60 or older, that constitutes a warning sign, especially given this bull market’s age. What would a downturn do to your retirement fund and your retirement income?   If you are wondering how to respond to this risk, consider the bucket approach to retirement income planning.      The bucket approach may help you through different market cycles in retirement. This investing strategy, credited to a Florida financial planner named Harold Evensky, has simple and complex variations. It assigns fixed-income and equity investments to different “buckets” with the goal of providing sufficient cash flow to retirees during different stages of their “second acts.”1,2   The simplest version involves just two buckets. One holds the equivalent of 1-5 years of cash reserves (in deposit accounts and/or fixed-income investments), and the other holds everything else in the investment portfolio. When you need to fund your expenses, you turn to the cash and the fixed-income vehicles and leave equities untouched. Rebalancing your portfolio (that is, selling investments in an overweighed asset class) lets you increase the size of your cash bucket.1,2   Other versions of the bucket approach have longer time horizons. In one variation designed to be used for at least 25 years, a cash reserve bucket is created to fund the first two years of retirement, its size approximating 10% of the portfolio; the cash comes from FDIC-insured sources or Treasuries. A second bucket, intended to generate somewhat greater income, is planned for the rest of the first decade of retirement; this bucket is filled with longer-duration, fixed-income investments and comprises about 35% of the portfolio. The third bucket (the other 55%) is designed for the years afterward and contains a sizable equities position; the goal here is to realize some growth and compounding for a decade, then tap into that bucket for income.1,2     In glimpsing the details of the bucket approach, you can also see the big picture. Suppose a bear market occurs just as you retire. Since your retirement income strategy pulls cash from deposit accounts and fixed-income investments first, your equity positions have time to rebound. You have a chance to avoid selling low (and selling off part of...

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The Republican Tax Reform Plan

Posted by on Nov 5, 2017 in 401k, 403b, atuos, bank statements, Boomers. Millenials, cars, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicaid Planning, Medicaid Recovery, Medicare Planning, Retire Happy Now, Retirement, retirement planning, sales, social security, tax returns, taxes, TSA, Uncategorized | 0 comments

What is in it? What could its changes mean for you, if they become law?   Provided by Frederick Saide, Ph.D.   Major changes may be ahead for federal tax law. At the start of November, House Republicans rolled out their plan for sweeping tax reforms. Negotiations may greatly alter the content of the bill, but here are the proposed adjustments, and who may and may not benefit from them if they become law.   The corporate tax rate would fall from 35% to 20%. Wall Street would cheer this development, perhaps with a significant rally. Sole proprietorships, partnerships, and S corporations would also see their top tax rate drop to 25% (although W-2 wages for business owners who invest in these pass-through entities would still be taxed at the owner’s marginal tax rate).1,2   The estate tax and Alternative Minimum Tax would be eliminated. The AMT would die immediately, saving more than 5 million high-earning taxpayers from an annual bother. Death taxes would sunset within six years, and in the interim, the estate tax exemption would be doubled, leaving the individual exemption at about $11 million. This would be a boon for many highly successful people and their heirs.2   Personal exemptions would go away, but the standard deduction would nearly double. The loss of the personal income tax exemption (currently $4,050 per individual claimed) would be countered by standard deductions of $12,000 for individuals and $24,000 for married couples. This could lessen the tax burden for many middle-class households. On the downside, the larger standard deduction might reduce the incentive to donate to charity.1,2   Only four income tax brackets would exist. While the top marginal tax rate would remain at 39.6%, the other brackets would be set at 12%, 25%, and 35%. Individuals earning $45,000 or less and spouses with combined earnings of $90,000 or less would fall into the 12% bracket. Households earning less than $260,000 would be in the 25% bracket. The individual threshold for the 39.6% bracket would be moved up to $501,000 from the current $418,401; it would apply to couples who earn more than $1 million.3    Some state and local tax deductions might vanish. Taxpayers who face higher state income tax rates – such as those living in New York, California, and New Jersey – could lose a big tax break here. The reform bill’s author, House Ways & Means Committee Chair Kevin Brady (R-TX), says that a new revision to the bill would at least let homeowners deduct state and local property taxes up to a $10,000 cap.3   Speaking of caps, the mortgage interest deduction would be halved to $500,000. Real estate investors, developers, and agents are unhappy...

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Questions After the Equifax Data Breach

Posted by on Oct 1, 2017 in 401k, 403b, atuos, bank statements, Boomers. Millenials, cars, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicaid Planning, Medicaid Recovery, Medicare Planning, Retire Happy Now, Retirement, retirement planning, sales, social security, tax returns, taxes, TSA, Uncategorized | 0 comments

Consumers may be at risk for many years.   Provided by Frederick Saide, Ph.D.   How long should you worry about identity theft in the wake of the Equifax hack? The correct answer might turn out to be “as long as you live.” If your personal data was copied in this cybercrime, you should at least scrutinize your credit, bank, and investment account statements in the near term. You may have to keep up that vigilance for years to come.   Cybercrooks are sophisticated in their assessment of consumer habits and consumer memories. They know that eventually, many Americans will forget about the severity and depth of this crime – and that could be the right time to strike. All those stolen Social Security and credit card numbers may be exploited in the 2020s rather than today. Or, perhaps these criminals will just wait until Equifax’s offer of free credit monitoring for consumers expires.   Equifax actually had its data breached twice this year. On September 18, Equifax said that their databases had been entered in March, nearly five months before the well-publicized, late-July violation. Its spring security effort to prevent another hack failed. Bloomberg has reported that the same hackers may be responsible for both invasions.2     Should you accept Equifax’s offer to try and protect your credit? Many consumers have, but with reservations. Some credit monitoring is better than none, but those who signed up for Equifax’s TrustedID Premier protection agreed to some troubling fine print. By enrolling in the program, they may have waived their right to join any class action lawsuits against Equifax. Equifax claims this arbitration clause does not apply to consumers who sought protection in response to the hack, but lawyers are not so sure.1   Should you freeze your credit? Some analysts recommend this move. You can request all three major credit agencies (Equifax, Experian, Trans Union) to do this for you. Freezing your credit accounts has no effect on your credit score. It stops a credit agency from giving your personal information to a creditor, which should lower your risk for identity theft. The only hassle here is that if you want to buy a home, rent an apartment, or get a new credit card, you will have to pay a fee to each of the three firms to unfreeze your credit.1   Three other steps may improve your level of protection. Change your account passwords; this simple measure could really strengthen your defenses. Choose two-factor authentication when it is offered to you – this is when an account requires not just a password, but a second code necessary for access, which is sent in a text message to the accountholder’s...

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Is a Home an Investment?

Posted by on Sep 25, 2017 in 401k, 403b, atuos, Boomers. Millenials, college planning, Consumer Tools, credit card statements, Deflation, Elder Care, estate planning, family finances, financial planning, Fixed Income Investing, Inflation, insurance, Investing, IRA, IRS, Medicaid Planning, Medicaid Recovery, Medicare Planning, Retire Happy Now, Retirement, retirement planning, sales, social security, tax returns, taxes, TSA, Uncategorized | 0 comments

From one perspective, the answer is yes; from another, no.   Provided by Frederick Saide, Ph.D.   When you buy a home, are you investing? If you buy it to flip it or buy it as a rental property, the answer is yes. If you buy a home simply to live in it, the answer may be no.   Your home is an expression of your lifestyle, a wonderful setting for your life, and a place you can enjoy in privacy and comfort. As an investment, though, it is essentially illiquid, and its rate of return is no sure thing.     Home values do not automatically increase with time. Buyers learned that lesson in the Great Recession. Simply using the S&P/Case-Shiller home price index as a barometer, house prices today are roughly where they were in 2007 – it has taken the residential real estate market that long to recover from the mortgage meltdown.1   Through the decades, real estate values have risen, and they will probably keep rising for the near term – but perhaps, not as quickly as some buyers hope. Why, exactly?   Home prices are inexorably linked to wages. Over the past year, hourly earnings have grown 2.5%. This has mystified many economists and frustrated others. Normally, when the jobless rate is below 5%, you have much greater wage growth. Six months before the start of the Great Recession (March 2007), the unemployment rate was 4.4% (right where it is now), and wages were growing at 4.2% a year.2,3   Ideally, wage growth keeps pace with rising real estate values. That is not happening now. Across the past year, the 20-city S&P/Case-Shiller home price index has shown home values appreciating at a rate of between 5.5-6% annually. If real estate values continue to climb 6% per year and wages rise just 2.5%, you will soon see buyers priced out of the market – unless, of course, home prices drop because sellers can no longer get the prices they want. That is something prospective sellers (and buyers) ought to keep in mind, plus some other truths.4   The fact is, stocks have appreciated more than real estate in the long run. Through the decades, home values have increased about 4% annually and stocks have increased about 10% annually (albeit with some remarkable year-to-year volatility).1     Stocks do not need upkeep. You will never need to tear out, reroof, or repaint a portfolio. Houses need all kind of repairs with time, and repair costs can eat into your gains. You must also pay property taxes. If you envision your home as an income-producing asset, that means playing landlord on some level. Many homeowners are not ready to...

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