#healthcareplanning

Medicare’s Open Enrollment Period — which runs from October 15 through December 7 — is your annual opportunity to switch your current Medicare health and prescription drug plans to ones that better suit your needs. Just in time for Open Enrollment, 2023 Medicare premiums, deductibles, and other costs have been announced, and surprisingly, some of these costs are lower than they were last year.

What to consider

Start by reviewing any materials your plan has sent you. Look at the coverage offered, the costs, and the network of providers, which may be different than last year. Maybe your health has changed, or you anticipate needing medical care, or new or pricier prescription drugs. If your current plan doesn’t meet your healthcare needs or fit your budget, you can make changes. But if you’re satisfied with what you currently have, you don’t need to do anything. The coverage you have will continue.

During Open Enrollment, you can:

• Switch from Original Medicare to a Medicare Advantage Plan
• Switch from a Medicare Advantage Plan to Original Medicare
• Change from one Medicare Advantage Plan to a different Medicare Advantage Plan
• Change from a Medicare Advantage Plan that offers prescription drug coverage to a Medicare Advantage Plan that doesn’t offer prescription drug coverage
• Switch from a Medicare Advantage Plan that doesn’t offer prescription drug coverage to a Medicare Advantage Plan that does offer prescription drug coverage
• Join a Medicare prescription drug plan (Part D)
• Switch from one Part D plan to another Part D plan
• Drop your Part D coverage altogether

Any changes made during Open Enrollment are effective as of January 1, 2023.

Medicare Part A (Hospital Insurance) costs for 2023

• Part A deductible for inpatient hospitalization: $1,600 per benefit period (up from $1,556 in 2022)
• Part A premium for those who need to buy coverage: up to $506 per month (up from $499 in 2022) — most people don’t pay a premium for Medicare Part A
• Part A coinsurance: $400 per day for days 61 through 90, and $800 per “lifetime reserve day” after day 90, up to a 60-day lifetime maximum (up from $389 and $778 in 2022)
• Part A skilled nursing facility coinsurance: $200 for days 21 through 100 for each benefit period (up from $194.50 in 2022)

Medicare Part B (Medical Insurance) costs for 2023

Most people with Medicare who receive Social Security benefits will pay the standard monthly Part B premium of $164.90 in 2023. This premium is $5.20 lower than it was in 2022 due to lower-than-projected spending for a new drug, Aduhelm, and other Part B items and services.¹

People with higher incomes may pay more than the standard premium. If your modified adjusted gross income (MAGI) as reported on your federal income tax return from two years ago (2021) is above a certain amount, you’ll pay the standard premium amount and an Income-Related Monthly Adjustment Amount (IRMAA), which is an extra charge added to your premium, as shown in the following table.

People with higher incomes may also pay a higher premium for a Medicare Part D prescription drug plan, because an IRMAA will be added to the Part D basic premium based on the same income limits in the table above. Part D premiums vary, but the average basic monthly premium for 2023 is projected to be $31.50 (down from $32.08 in 2022).

People with Medicare Part B must also satisfy an annual deductible before Original Medicare starts to pay. For 2023, this deductible is $226 (down from $233 in 2022).

*This premium applies to a new benefit that extends coverage for immunosuppressive drugs for people who qualify for Medicare coverage due to end-stage renal disease. Prior to 2023, Medicare coverage, including immunosuppressive drug coverage, ended 36 months after a successful kidney transplant. Beginning January 1, 2023, Medicare will offer a new benefit that will help continue to pay for immunosuppressive drugs beyond 36 months for people who don’t have other health coverage. It does not cover other items or services. Rates shown apply to people who file individual or joint tax returns. Premiums for beneficiaries filing as married filing separately are different.

Medicare Part C (Medicare Advantage) costs for 2023

Medicare Part C (Medicare Advantage) costs vary by plan, but the projected average premium for 2023 plans is $18 (down from $19.52 in 2022). You will also have to pay the Medicare Part B premium.

Additional Information

You can view more information on Medicare benefits in the Medicare & You 2023 Handbook and access a Medicare plan finder tool that allows you to compare health and drug coverage options at medicare.gov.

You can also call your State Health Insurance Assistance Program (SHIP) for free, personalized counseling. Visit shiptacenter.org or call the toll-free Medicare number 800-MEDICARE (800-633-4227) to find the phone number for your state.

Check out our recent summer webinar to learn more about Social Security and Medicare.

Sources:

1. The Centers for Medicare & Medicaid Services, 2022

Prepared by Broadridge Advisor Solutions. Edited by BFSG. Copyright 2022.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Henry VanBuskirk, CFP®, Wealth Manager

A goal that many Americans have when approaching retirement is finding that “forever home” to enjoy their golden years in. When a loved one does pass away, they typically want to pass away in their own home. One of the main expenses that occurs during retirement is healthcare and this is typically an expense that increases with age. 

A big culprit of this increasing expense is the need for long-term care coverage that is generally not accounted for in a personal financial plan. Many Americans believe that Medicare can cover this expense, however this is not the case. Statistically, you are likely to need Long-Term Care Insurance at some point in your life. Not accounting for this type of coverage can mean that your “forever home” could turn into a “temporary home”, that could mean you would be spending your “twilight years” in a nursing home. Fortunately, there are ways to help mitigate or eliminate this threat from your financial plan so that you can live out your golden years in your own home.

What can Long-Term Care Insurance cover? Long-Term Care Insurance can help cover qualified medical expenses that would be incurred by a person who is not able to do at least 2 of the 6 activities of daily living (ADLs) which include:

1. Bathing
2. Dressing
3. Grooming
4. Toileting
5. Transferring from bed to chair
6. Feeding oneself

You can imagine that if you aren’t able to do at least 2 of those 6 items, that you would need a healthcare worker or family member to help you with most everything for the remainder of your life. If you have a family member that would be willing to do those tasks for the remainder of your life, then more power to that family member. Even if you have a family member, you could still run the risk of having that family member who is 5’2” and 120 pounds, trying to help someone who is 6’4” and 300 pounds and not being even able do those tasks. If you would rather pay someone to do those tasks, then the cost for staying in your own home is not cheap. In 2030, the expected monthly cost is $7,986 for in-home care for an average American.

Two options that Americans have so that they can stay in their home even when a long-term care need arises are:

1. Have enough money saved up so that this monthly cost wouldn’t be a concern. However, a good majority of people cannot afford an extra monthly expense of $7,986 for years. This would be considered “Self-Insuring”. If you can afford it, great. If not, you’ll have to sell personal assets to meet this need.
2. Buy a long-term care insurance policy to cover some or all the cost that would arise during a long-term care need.
   • If you cannot do at least 2 of the 6 activities of daily living (as confirmed by your physician), then you may be able to receive a tax-free benefit from the policy for a stated number of years.
   • The payments would be received in the form of a reimbursement or an indemnity. A reimbursement policy would only pay out the actual cost of the care, while an indemnity policy would pay a stated maximum daily or monthly benefit.

Many readers would believe that Option 2 sounds good, but one shouldn’t be quick to jump to conclusions. Purchasing long-term care insurance can be expensive, usually costing $8,000 – $12,000 per year for adequate coverage. That cost generally also increases during the life of the policy and there is a chance that you’ll never need long-term care anyway. 

Our team is available to discuss this in further depth if you have any questions and to evaluate if long-term care insurance makes sense for your current situation.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

If you’re a decade or so away from retirement, you’ve probably spent at least some time thinking about this major life change. How will you manage the transition? Will you travel, take up a new sport or hobby, or spend more time with friends and family? Should you consider relocating? Will you continue to work in some capacity? Will changes in your income sources affect your standard of living?

When you begin to ponder all the issues surrounding the transition to retirement, the process can seem downright daunting. However, thinking about a few key points now, while you still have years ahead, can help you focus your efforts and minimize the anxiety that often accompanies the shift.

Reassess your living expenses

A step you will probably take several times between now and retirement — and maybe several more times thereafter — is thinking about how your living expenses could or should change. For example, while commuting and other work-related costs may decrease, other budget items may rise. Health-care costs, in particular, may increase as you progress through retirement.

Try to estimate what your monthly expense budget will look like in the first few years after you stop working. And then continue to reassess this budget as your vision of retirement becomes reality.

According to a recent survey, 43% of retirees said they were “very confident” that they would be able to meet their basic expenses in retirement, while only 32% showed similar levels of confidence in meeting health-care costs.¹ Keeping a close eye on your spending in the years leading up to retirement can help you more accurately anticipate your budget during retirement.

Consider all your income sources

First, figure out how much you stand to receive from Social Security. The amount you receive will depend on your earnings history and other unique factors. You can elect to receive retirement benefits as early as age 62, however, doing so will result in a reduced benefit for life. If you wait until your full retirement age (66 or 67, depending on your birth date) or later (up to age 70), your benefit will be higher. The longer you wait, the larger it will be.²

You can get an estimate of your retirement benefit at the Social Security Administration website, ssa.gov. You can also sign up for a my Social Security account to view your online Social Security statement, which contains a detailed record of your earnings and estimates for retirement, survivor, and disability benefits. Your retirement benefit estimates include amounts at age 62, full retirement age, and age 70. Check your statement carefully and address any errors as soon as possible.

Next, review the accounts you’ve earmarked for retirement income, including any employer benefits. Start with your employer-sponsored plan, and then consider any IRAs and traditional investment accounts you may own. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts as well. If your employer provides a traditional pension plan, contact the plan administrator for an estimate of that monthly benefit amount.

Do you have rental income? Be sure to include that in your calculations. Might you continue to work? Some retirees find that they are able to consult, turn a hobby into an income source, or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts, giving the assets more time to potentially grow.

Some other ways to generate extra cash during retirement include selling gently used goods (such as furniture or designer accessories), pet sitting, and participating in the gig economy (i.e., Uber).

Pay off debt, power up your savings

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off debt and power up your retirement savings before you retire.

Why pay off debt? Entering retirement debt-free — including paying off your mortgage — will put you in a position to modify your monthly expenses in retirement if the need arises. On the other hand, entering retirement with a mortgage, loan, and credit-card balances will put you at the mercy of those monthly payments. You’ll have less of an opportunity to scale back your spending if necessary.

Why power up your savings? In these final few years before retirement, you’re likely to be earning the highest salary of your career. Why not save and invest as much as you can in your employer-sponsored retirement savings plan and/or IRAs? Aim for maximum allowable contributions. And remember, if you’re 50 or older, you can take advantage of catch-up contributions, which enable you to contribute an additional $6,500 to your 401(k) plan and an extra $1,000 to your IRA in 2022.

Manage taxes

As you think about when to tap your various resources for retirement income, remember to consider the tax impact of your strategy. For example, you may want to withdraw money from your taxable accounts first to allow your employer-sponsored plans and IRAs more time to potentially benefit from tax-deferred growth. Keep in mind, however, that generally you are required to begin taking minimum distributions from tax-deferred accounts once you reach age 72, whether or not you actually need the money (Roth IRAs are an exception to this rule).

If you decide to work in retirement while receiving Social Security, understand that income you earn may result in taxable benefits. IRS Publication 915 offers a worksheet to help you determine whether any portion of your Social Security benefit is taxable.

If leaving a financial legacy is a goal, you’ll also want to consider how estate taxes and income taxes for your heirs’ figure into your overall decisions.

Managing retirement income to result in the best possible tax scenario can be extremely complicated. Qualified tax and financial professionals can provide valuable insight and guidance.³

Account for health care

The Employee Benefit Research Institute (EBRI) reported that the average 65-year-old married couple retiring in 2020, with average prescription drug expenses, would need about $270,000 in savings to have a 90% chance of meeting their insurance premiums and out-of-pocket health-care costs in retirement.⁴ This figure illustrates why health care should get special attention as you plan the transition to retirement.

As you age, the portion of your budget consumed by health-related costs (including both medical and dental) will likely increase. Although Original Medicare (Parts A and B) will cover a portion of your costs, you’ll still have deductibles, copayments, and coinsurance. Unless you’re prepared to pay for these costs out of pocket, you may want to purchase a supplemental Medigap insurance policy. Medigap policies are sold by private health insurers and are standardized and regulated by both state and federal law. These plans offer different levels of coverage and may pay many of your out-of-pocket costs.

Another option is Medicare Advantage (also known as Medicare Part C), which is a bundled plan that includes Parts A and B, and usually Part D prescription coverage, and may offer additional benefits Original Medicare doesn’t cover. If you enroll in Medicare Advantage, you cannot also purchase a Medigap policy. For more information, visit medicare.gov.

Also think about what would happen if you or your spouse needed home care, nursing home care, or other forms of long-term assistance, which Medicare and Medigap will not cover. Long-term care costs vary substantially depending on where you live and can be extremely expensive. For this reason, people often consider buying long-term care insurance. Policy premiums may be tax deductible, based on a number of different factors. If you have a family history of debilitating illness such as Alzheimer’s, have substantial assets you’d like to protect, or want to leave assets to heirs, a long-term care policy may be worth considering.⁵

Ease the transition

These are just some of the factors to consider as you prepare to transition into retirement. Breaking the bigger picture into smaller categories and using the years ahead to plan accordingly may help make the process a little easier. We are here to assist you prepare for retirement. Feel free to contact us for a complimentary consultation at financialplanning@bfsg.com.

1. 2021 Retirement Confidence Survey, EBRI

2. Note that if you work while receiving Social Security benefits and are under full retirement age, your benefits may be reduced until you reach full retirement age.

3. Working with a tax or financial professional cannot guarantee financial success.

4. EBRI Issue Brief, May 28, 2020

5. A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the LTC policy. It should be noted that carriers have the discretion to raise their rates and remove their products from the marketplace.

Prepared by Broadridge Advisor Solutions. Edited by BFSG. Copyright 2022.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

Back in 2019, the state of Washington passed the “Long-Term Services and Support Trust Act” to provide long-term care benefits. The benefit would be $100 per day with a lifetime maximum of $36,500 and the benefits can be used for long-term care services including professional care at home or nursing facilities, dementia support, or adaptive medical equipment. The benefits will not start until January 1, 2025.

This act will be paid for through an additional tax the employer will deduct from your payroll for 0.58% of the employee’s wages and there is no cap. For example, an employee making $100,000 will pay $580 annually for this tax.  Independent contractors and self-employed are not required to participate. Currently, there is no option to be excluded from this new tax.

Employers were set to begin the new payroll tax on January 1^st, 2022, but this has been delayed until March 2022. Governor Jay Inslee has temporarily halted the collection of the payroll tax to allow the Legislature to have more time to review and potentially make some changes. There may be potential changes and we will keep you updated as things progress.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

In case you missed the kick-off to BFSG’s Fall Webinar Series, “Ask the Alzheimer’s Expert”, don’t fret because you can watch the OnDemand replay by clicking here.

Dr. Grill, Director of UCI MIND, discusses the causes of Alzheimer’s disease, ways to reduce your risk, and how to prepare for the financial and emotional risks

Be sure to register for Week 2, Estate Planning: Secure Your Legacy, next Tuesday, November 9, 2021, at 10:00 AM PT (1:00 PM ET). You may register by clicking here. 

Visit BFSG University on YouTube to see the replays from our most popular webinars, plus some additional short videos.