Don’t overlook planning for health care during retirement

By Mary Beth Franklin, Investment News.com, Jan 19, 2014

More than 40 years ago, author and futurist Alvin Toffler stunned the world with his predictions of rapid industrial and technological changes that would result in the information overload we all experience today.

At some point decades in the future, aging baby boomers and their financial advisers may look back and wonder why they didn’t heed today’s warnings laid out in “What You Don’t Know About Retirement Will Hurt You!” (People Tested Books, 2013), a self-published book by financial professionals Dan McGrath and Michael Gerali, and several of their like-minded colleagues.

The book is based on the premise that planning for health care is the most overlooked component of financial planning and that Medicare will cost people a lot more than they think.



The authors cite the three new rules of retirement: Medicare is mandatory, Medicare is means-tested and Medicare considers all but a few income sources to be includable in its means-testing formulas.

They argue that traditional financial planning practices are on a collision course with skyrocketing health care costs in retirement.

For those who didn’t know that Medicare is mandatory: People 65 or older who sign up for Social Security benefits must sign up for at least Medicare Part A, which covers hospital costs.

For those who wonder what the big deal is because Medicare Part A is free, just ask anyone who has a health savings account and takes advantage of tax-deductible contributions allowed when paired with a high-deductible health insurance plan. Once an individual signs up for Medi-care, he or she can no longer contribute to an HSA. Those 65 or older must sign up for Medicare or they can’t collect Social Security benefits.

Medicare is means-tested. That means the higher a person’s income during retirement, the more he or she will pay for Medicare Part B premiums, which cover doctors’ visits and outpatient services, as well as Medicare Part D prescription drug coverage.

The majority of Medicare beneficiaries pay the standard $104.90 per month for Medicare Part B coverage, and the premiums are deducted from monthly Social Security benefits.

But those who are single and whose modified adjusted gross income tops $85,000, or married and whose adjusted income tops $170,000, will pay more, with surcharges ranging from $42 to $230.80 per month per person.



And those who earn just $1 more than the base income amount will be hit with a surcharge.

As these base amounts aren’t indexed for inflation, it is likely that more retirees will pay higher Medicare premiums in the future, thanks to annual cost-of-living adjustments in their Social Security benefits and investment growth that will lead to larger required minimum distributions from their retirement accounts.

Given the fact that Medicare Part B premiums have been going up at a rate of more than twice that of projected Social Security cost-of-living adjustments, the authors predict that it is just a matter of time before Medicare premiums could consume a large portion, if not a majority, of a person’s Social Security benefits.

And that is under current law. There have been budget proposals to increase Medicare means testing until 25% of all retirees pay an additional surcharge above the basic monthly premium.

The authors warn that traditional financial planning’s emphasis on funding tax-deferred retirement accounts during one’s career could lead to higher-than-expected health care costs during retirement.

As Medicare premiums rise, retirees may be forced to take more money out of their tax-deferred accounts to maintain their lifestyle, boosting their taxable income and possibly pushing them into an even higher Medicare premium bracket. And even though their net Social Security benefits would be smaller, they would continue to be taxed on that phantom income.

For Medicare premium purposes, income is defined as the total of adjusted gross income, plus any tax-exempt interest income. In addition to retirement plan distributions, income includes wages, the taxable portion of Social Security benefits, pensions, rental income, capital gains and dividends.

“Basically, the traditional financial plan for income in retirement is going to be used against people when they retire,” the book says.

But all isn’t lost. A handful of investment products aren’t counted as income by Medicare.

They include distributions from health savings accounts, qualified distributions from Roth individual retirement accounts and Roth 401(k) plans, proceeds from a reverse mortgage, income from cash-value life insurance and certain distributions from annuities in nonqualified accounts.

The authors offer some interesting financial planning solutions for young professionals who are decades away from retirement, as well as older clients who are on the cusp of Medicare eligibility.

Rather than maxing out tax-deferred retirement savings, younger clients may want to contribute only enough to capture an employer match and divert other savings to vehicles that will produce tax-free income in retirement, such as a Roth 401(k) if available, a Roth IRA if income-eligible or permanent life insurance that can provide tax-free withdrawals or loans.



Clients in their 50s and early 60s may want to consider deferred annuities held in a nonqualified account that can act as longevity insurance and minimize taxable income in retirement without the restrictions of required minimum distributions.

For those who can afford the tax bill, converting some traditional IRA funds to a Roth IRA account before Medicare eligibility may be wise.

Although Mr. Toffler successfully predicted the emergence of the electronic frontier that we know as the Internet, as well as modern-day realities of cloning, Prozac and YouTube, he didn’t get everything right.

The authors of “What You Don’t Know About Retirement Will Hurt You!” may also turn out to be only partially right. But I think some of their ideas about diversifying the future taxability of retirement income will stand the test of time.


To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


Working in – and through – retirement

Staying on the job has financial, as well as personal, benefits


Jan. 17, 2014, Written by JIM SANDAGER, at desmoinesregister.com

Working in retirement may sound like a drag, but to many, it’s a welcome opportunity to continue earning an income. But you shouldn’t only consider the financial benefits. Having a job in retirement can also add to your overall health, happiness and well-being.

First, though, let’s talk about money. If you take Social Security between 62 and your full retirement age (66 and over for people born through 1954), some of your benefits will be withheld if you earn above a certain amount. If you take Social Security at full retirement age, you can continue to work and get your full Social Security payment.

One of the main benefits of working in retirement is the opportunity to delay taking Social Security until you are past full retirement age, which increases your monthly benefit by 8 percent for every year past 66; put off payments until 70 and your monthly amount may be significantly higher than what you would get at 66.

Working gives you income that’s immune to the vagaries of the market, and it may delay when you start to spend down your savings. That’s important because people are living longer, and therefore have the potential to outlive their savings. One in four of today’s 65 year olds will live past 90, and one in 10 will live past 95, according to the Social Security Administration.

Now, the non-money benefits of working in retirement.

Working provides a daily routine, socialization and purpose to life that offset the boredom that some people feel in retirement. Studies show that those who work throughout these years have fewer major diseases and disabilities. There’s also a dramatic increase in the likelihood that you’ll live longer.

Working through retirement also gets you away from the house. Psychologists are increasingly interested in how living parallel lives with your spouse as you age (rather than being “joined at the hip”) leads to sharper minds, more interesting lives and happier marriages.

Continuing to work lets you ease into retirement, rather than making a psychologically difficult break in your life. As people stay healthier longer, there’s nothing magical about turning 65. Or 66. Or 70. At some point you’ll be too old to continue working, but why not find out for yourself when that is; why not stop working gradually, on your own terms?

You won’t be alone. The number of working Americans over 65 has doubled in the past 15 years; the percentage still working has gone from 12.1 in 1995 to 18.5 in 2012. The media are increasingly filled with stories of people who are working well into traditional retirement years. Yes, for many it’s because they haven’t saved enough to retire, or because the Great Recession wiped out what they had saved. But for millions of others it’s because they want to, because work is an essential part of their lives, and they’re not willing to stop living it.


To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 





11 Ways Your Social Security Benefit Calculation Can Shortchange You

By William Baldwin, Forbes Staff Writer, January 07, 2014 

Social Security is very generous—to some people. It is delivering a handsome return on investment to the generation that is now retired. It gives a bonus to workers who get married more than once. It’s kind to the low-paid.

That means certain other people don’t do so well. Here are some ways that you can wind up with the short end of the stick.

You’re a second earner. Let’s say John worked his whole life and earns a benefit of $2,500 a month. Wife Mary never worked. She gets $1,250 just for being a spouse.

Now let’s say the couple next door put more years into the workforce. Jennifer worked her whole life and gets $2,500. Her husband James worked a fair amount but only enough to earn $1,000 on his own. Instead of getting a benefit based on his own contributions, James collects the spousal benefit of $1,250.

James is getting robbed. How? Instead of getting the sum of his spousal benefit and his own benefit, he gets the higher of the two amounts.

These two couples wind up with the same payout even though the second couple chipped more money in. In effect, all the taxes that James and his employers paid go down the drain.

You have a split career. Harry works from age 26 to 46 in a private sector job, contributing to Social Security. Then from 46 to 66 he works in state government, earning a pension outside the Social Security system.

He ought to be able to collect separately from the two retirement plans. He can’t. His Social Security payout will be docked (by roughly $400 a month) on the theory that since he earned another pension he doesn’t really need Social Security.

Contrast Sam, who works in the identical private sector job from age 26 to 46 and then stays home for the next 20 years. Sam gets a higher Social Security benefit than Harry.

You have a long career. Jane worked for 35 years, at fairly high pay. Susie worked for 45 years, at lower pay. They put the same amount in. Jane gets a higher benefit.

Reason: The formula counts your 35 best years. This is portrayed as a kindness to workers. In fact what it does is transfer money from the Susies of the workforce to the Janes.

You’re single. A spouse collects 50% of a worker’s benefit (unless, of course, the spouse’s own earned benefit is larger). A one-earner couple, that is, gets 150% of the worker’s entitlement. Also, a surviving spouse inherits the full benefit.

Both of these features transfer wealth from people who don’t get married to people who do.

You’ve never divorced. Bob has married and divorced three times, each marriage lasting a decade or more. All three exes can collect the spousal benefit.

Bob’s divorce bonanza is paid for by everyone else.

You’re young. Your grandparents are taking out way more than they put in. You’ll get less than you put in.

Social Security is a Ponzi scheme, one that gives unaffordable payouts to early players using the cash collected from latecomers to the game. Ponzi schemes cannot go on forever. This one will end. Before you’re ready to collect, benefits will be cut.

You’re male. If the system were actuarially fair, men would get higher payouts. So would smokers. They don’t.

You’re well paid. Social Security combines a pension plan with wealth redistribution. If you have a fairly good salary, you will get a low return so that people who are paid less (or who work less) can get a high return.

You work past 70. If you do that, your benefit doesn’t go up, but you have to keep paying Social Security taxes. These contributions are confiscated.

There are a lot of other ways to get shortchanged by this complex system. Laurence Kotlikoff, a Boston University economist and connoisseur of Social Security’s weird rules, has assembled a long list of gotchas that cost unwary applicants thousands of dollars. The expert manning the window at a Social Security office may not warn you about a trap—may, in fact, not even know where it lies.

There are ways to fight back, too. Married workers in good health can usually enhance the lifetime payout on an earnings record by waiting until age 70 to start collecting.

Two-earner couples should consider more-complicated strategies. It may make sense for a retiree to file for benefits and then immediately suspend them, or to start collecting a spousal benefit and then switch to an earned benefit, or to do just the reverse. Kotlikoff’s $40 Maximize My Social Security software is one of many advisory services aimed at helping people work the angles.

That leads us to the last way you can be shortchanged:

You rely on the Social Security Administration to tell you when to start collecting benefits.


To Your Successful Retirement!

Michael Ginsberg, JD, CFP® 


3 Places To Live The American Retirement Dream Overseas

 By Kathleen Peddicord, Live and Invest Overseas, December 4, 2013

Perhaps you like the idea of stretching your retirement dollars as far as possible (who doesn’t?) and reducing your cost of living and of health care, while at the same time enriching and enhancing your quality of life, but you’re not up for learning a new language or putting up with the day-to-day challenges and frustrations of life in the developing world. Fair enough. “Going local,” as it were, in a new life overseas, isn’t for everyone.

That doesn’t have to mean that you have to give up on the idea of enjoying the benefits of retiring to a new country. In a handful of places that have emerged in recent years as top expat havens, it’s possible to enjoy many of the advantages of being retired overseas without having to cross over to what could be called a “local” lifestyle. These are places where the American lifestyle has been exported and where the day-to-day living probably resembles in many ways what you left behind back home.

Here are three top choices for exporting the American Dream with you when you retire overseas, three places where sizable communities of foreign, mostly American, retirees have established themselves and are rapidly expanding. Living in one of these three places, you could enjoy affordable and top-quality health care, an affordable cost of living, and the adventure of starting over somewhere new, but you wouldn’t have to learn to speak Spanish if you didn’t want to and the culture shock would be very controlled.

#1: Boquete, Panama

Some 3,000 foreigners live in this colorful mountain town, and migration continues. The number of foreign residents in Boquete is expected to increase to 10,000 by 2016.

What’s the attraction? Beautiful setting, good climate, straightforward pensionado rules (for all Panama), yes, but, mostly, the draw in Boquete is the established gringo community. This town has been referred to as Panama’s “Gringoland.”

In one private, gated, residential community in this region, amenities include a golf course, stables, and a small central town created specifically for foreign residents. Construction, for both the shared amenities and the individual homes, is to U.S. standards and with U.S.-style finished, fixtures, and fittings.

In Boquete town proper, shops and services catering to the ever-growing foreign retiree population continue to open. In the U.S.-style restaurants serving American-style menus (featuring fried eggs for breakfast and cheeseburgers for lunch), you’ll hear all-English conversation at the tables around you and all-American music on the speakers.

You could start your day with gourmet coffee served by a smiling, friendly clerk accustomed to serving English-speaking customers, and you could play bridge on Thursday nights and go golfing every Sunday morning, all, again, in the company of new, like-minded, and English-speaking friends.

#2: San Pedro, Ambergris Caye, Belize

“Walk down the street on Ambergris Caye,” a friend, Peter, who lives there says, “and you hear the music of the Boomers all around–the Beatles, the Rolling Stones, Janis Joplin…

“These folks, the Baby Boomers, who have been moving onto the island in growing numbers for years,” Peter continues, “had a great time in the 1960s, listening to their music, growing their hair long, and getting stoned all the time. Then they became the most boring people on the planet. They made a lot of money by ignoring everything but hard work.

“Now they’re looking to reclaim their lives. They’re finding their way, in retirement, in bigger and bigger numbers, to places like Ambergris Caye, Belize, where they’re listening to their music again, growing their hair long again, and spending their days stoned again.”

Peter is joking about that last bit, but the point is that Ambergris Caye has what a lot of North American retirees are looking for right now, making it another of the most turn-key and user-friendly places in the world to retire overseas.

For many, the retirement dream is all about the Caribbean. If your retirement fantasies are similarly aquamarine and sandy, take a look at what Ambergris has to offer. The diving and snorkeling, the color and clarity of the water, and the abundance and variety of the sea life here are hard to beat. This is quintessential Caribbean that is also increasingly supported by the comforts of home many retirees appreciate, from a health club to bagel shops, ice cream parlors, and regular wine tastings.

#3: Puerto Vallarta, Mexico

Mexico is a big place with a bad reputation. The reputation isn’t altogether undeserved, as drug cartels do control parts of this country but not all of it, and some of the most appealing regions for both living and investing sit outside the war zones. Mexico offers two long coasts, mountain towns, and colonial cities, plus Mayan ruins, jungle, rain forest, rivers, and lakes. It’s also the most accessible “overseas” haven from the United States. You could drive back and forth if you wanted.

For all these reasons, Mexico is home to the biggest established populations of American retirees in the world, making it a great choice if you seek adventure with the comforts of home. Each of the several spots that expat retirees have targeted in this country offers a different lifestyle. Puerto Vallarta is the place to go for what could be described as luxury coastal living.

Puerto Vallarta is more expensive than other places where you might consider living or retiring overseas, but in Puerto Vallarta that’s not the point. This isn’t developing-world living. This stretch of Mexico’s Pacific coastline has already been developed to a high level. Life here can be not only comfortable but easy and fully appointed. In Puerto Vallarta, you aren’t buying for someday, as you can be in many coastal destinations in Central America. In Puerto Vallarta, you can buy a world-class lifestyle in a region with world-class beaches and ocean views that is supported, right now, by world-class golf courses, marinas, restaurants, and shopping. This is a lifestyle that is available only on a limited basis worldwide, a lifestyle that is truly (not metaphorically) comparable to the best you could enjoy in southern California if you could afford it. In Puerto Vallarta you can afford it even on an average retirement budget.

You could buy a small apartment outside Puerto Vallarta town for less than $100,000, or you could buy big and fancy for $1 million-plus. Whatever you buy, you could rent it out when you’re not using it. The Puerto Vallarta region, including the emerging Riviera Nayarit that runs north from it along the coast, is an active tourist rental market with a track record.


To Your Successful Retirement!

Michael Ginsberg, JD, CFP®