Health Care and Long-Term Care Study, a consumer study of U.S. adults ages 50 and up, Nationwide/Harris Poll Survey (November 2016).

Transcription

1 1 Health Care and Long-Term Care Study, a consumer study of U.S. adults ages 50 and up, Nationwide/Harris Poll Survey (November 2016). 1

2 Important things to keep in mind Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution Not insured by any federal government agency May lose value This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation. This material should be regarded as educational information on health care and is not intended to provide specific advice. If you have questions regarding your particular situation, you should contact your legal or tax advisors. This information is general in nature and is not intended to be tax, legal, accounting or other professional advice. The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency. Nationwide Investment Services Corporation (NISC), member FINRA, Columbus, OH. Nationwide Retirement Institute is a division of NISC. Nationwide, the Nationwide N and Eagle, Nationwide is on your side and Nationwide Retirement Institute are service marks of Nationwide Mutual Insurance Company Nationwide NFM-10373AO.18 (01/18) 2

3 The retirement income Challenge 3

4 THE RETIREMENT INCOME CHALLENGE Retirement decision points Retirees need to make a series of important decisions between ages 55 and 70½ AGE 62 Earliest age to begin Social Security benefits (at reduced amount) AGE Full Social Security benefit eligibility AGE 70 Maximum Social Security benefit eligibility AGE 55 If retired and have a 401(k), may withdraw without IRA penalty AGE 59½ * Can withdraw tax-deferred assets without IRA penalty *Age 50 for Public Safety Workers AGE 65 Medicare eligibility AGE 70½ Must take RMDs (Required Minimum Distribution) from IRAs Source: The Retirement Income Reference Book, 2015, LIMRA. 4

5 THE RETIREMENT INCOME CHALLENGE How do I invest for growth? How do I protect my assets? How much income can I take and when? ASSET & PRODUCT ALLOCATION RISK MANAGEMENT INCOME Source: The Retirement Income Reference Book, 2015, LIMRA. 5

6 THE RETIREMENT INCOME CHALLENGE Risk before retirement Market loss Inflation Outliving assets Health care costs Inadequate income for surviving spouse Risk in retirement Source: The Retirement Income Reference Book, 2015, LIMRA. 6

7 THE RETIREMENT INCOME CHALLENGE Percentage of private-sector workers employed by establishments offering health insurance to retirees, % 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Early retirees Medicare eligibles Source: EBRI estimates from various tables at 7

8 THE RETIREMENT INCOME CHALLENGE Consumer estimate of annual health care costs in retirement $26K+: $16K - $25K: $11K - $15K: $6K - $10K: $1K - $5K: Not sure/can t estimate: 5% 5% 3% 11% 16% 60% 76% have underestimated, or don t know their medical costs Source: Nationwide/Harris Poll "Health Care and Long-Term Care Study." Consumer study of 801 adults 50 and older,

9 Understanding Health care 9

10 UNDERSTANDING HEALTH CARE The health care opportunity Managing the cost of health care is one of the most complex issues facing society Will likely be among your greatest expenses in retirement 10

11 UNDERSTANDING HEALTH CARE The impact of health care costs on retirement income Understanding health care specifics 11

12 UNDERSTANDING HEALTH CARE Health care expenses 23% Out-of-pocket prescription drug expenses 32% Premiums for Medicare, Part B & D 45% Medicare cost-sharing provisions Source: Medicare.gov,

13 UNDERSTANDING HEALTH CARE Health care expenses Out-of-pocket health care estimates for a 65-year-old couple can reach $265,000 $349,000 during retirement. Source: "Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $350,000" at age 65 in 2016, assuming 90% chance of having enough savings, EBRI, January 31,

14 UNDERSTANDING HEALTH CARE Health care expenses Medicare covers only about 62% of expenses associated with health care services Source: MedicareSolutions.com, May 23,

15 UNDERSTANDING HEALTH CARE Option 1 Original Medicare Part A and Part B + Secondary insurance GHI, MedSup + Rx coverage Part D or GHI or Option 2 Medicare Advantage (Part C) 1. Hospitalization 2. Medical 3. Rx (MA-PD) 15

16 UNDERSTANDING HEALTH CARE Option 1 Medicare Part A: Hospital Insurance PATIENT COSTS FOR AN IN-HOSPITAL STAY, 2018 Inpatient hospitalization Skilled nursing facilities Home health care Hospice Days 1 60 $1,340 deductible Days $335 per day copay Days $670 per day copay Days 150+ All costs Source: Medicare.gov,

17 UNDERSTANDING HEALTH CARE Option 1 Medicare Part B: Medical Insurance INDIVIDUAL PAYS, 2018 Doctors/providers Preventive benefits Durable medical equipment Outpatient services Monthly premium (based on MAGI) $183 deductible 20% coinsurance on doctors services and outpatient care Source: Medicare.gov,

18 UNDERSTANDING HEALTH CARE Option 1 Medicare Part B: Monthly Premiums IF YOUR YEARLY INCOME IN 2016 WAS: YOU PAY (2018) Filed individual tax return Filed joint tax return $85,000 or less $170,000 or less $134.00* $85,001 $107,000 $170,001 - $214,000 $ $107,001 $133,500 $214,001 - $267,000 $ $133,501 $160,000 $267,001 - $320,000 $ above $160,000 above $320,000 $ *If protected with the hold-harmless provision, it's $109. Source: Medicare.gov,

19 UNDERSTANDING HEALTH CARE Option 1 Medicare Part D: Prescription Drug Coverage Available two ways: Stand-alone Prescription Drug Plans (PDPs) Through Medicare Advantage Plans (MAPDs) ALL people with Medicare can get Part D Open Enrollment October 15 to December 7: Other enrollment times based on circumstance Coverage begins January 1 19

20 UNDERSTANDING HEALTH CARE Option 1 Medicare Part D: Prescription Drug Coverage (2018) You pay Medicare pays 95% Medicare benefit (catastrophic coverage) Beneficiary pays 5% (min. co pay) $3.35 generic or $8.35 brand $5,000 out-of-pocket reached $8,472 in total drug costs The donut hole is large and expensive 100% No Medicare coverage in donut hole Beneficiary pays 100% 35% of the cost for brand name medications 44% of the cost of generic medications 75% Medicare benefit (initial coverage) $3,750 in total drug costs Beneficiary pays 25% or flat co-pay amounts based on formulary $405 Deductible Beneficiary pays 100% or $405 Source: Medicare.gov,

21 UNDERSTANDING HEALTH CARE Option 1 Medigap: Medicare supplemental insurance Pay only after Original Medicare (Parts A & B) Flexibility to see any doctor who accepts Medicare Open Enrollment Six months beginning with Part B effective date at age 65 or older 21

22 UNDERSTANDING HEALTH CARE Cost of Medicare Premiums Monthly Medicare Part A $0 $0 Annual Medicare Part B $134.00* $ Medicare Part D $43.48 $ Medigap Policy C $ $2, Total per person $ $4, Total per couple $ $8, *If protected with the hold-harmless provision, it's $109. This grid shows you the actual cost of premiums based on investor s annual income below $170,000 married filed jointly. This is for illustrative purposes only. 1 Medicare.gov, Kaiser Family Foundation. Medicare Part D: A First Look at Plan Offerings in Medicare.gov., Median cost for Medigap Supplement Policy C in Columbus, Ohio. Ranges from $123-$

23 UNDERSTANDING HEALTH CARE Option 2 Medicare Part C: Medicare Advantage Plans Offered by private companies to replace Original Medicare and secondary insurance Numerous options by county: Managed Care (HMO/PPO) Non-Managed Care (PFFS/MSA) Most plans include Part D benefit (MA-PD) continued > 23

24 UNDERSTANDING HEALTH CARE Option 2 Medicare Part C: Medicare Advantage Plans (continued) Hearing, dental, and vision may be covered Costs may increase for out-of-network doctors Available to those: As an alternative to Parts A & B That live within the plan s service area (county) That do NOT have End Stage Renal Disease Enrollees pay Part B premium and any other applicable costs 24

25 UNDERSTANDING HEALTH CARE Applying for Medicare Enrollment is automatic if clients get Social Security or Railroad Retirement benefits prior to Medicare eligibility All others must apply with Social Security (or Railroad Retirement) during their seven-month Initial Enrollment Period (IEP) Three months before 65th birthday Month of 65th birthday Three months after 65th birthday The sooner, the better. 25

26 UNDERSTANDING HEALTH CARE Leverage these health care planning resources Medicare MEDICARE Eldercare.org State Health Insurance Programs (SHIP) Benefitscheckup.org Social Security Administration

27 Creating a plan to address health care costs 27

28 HELPING CLIENTS CREATE A PLAN Americans underestimate retirement health care costs The majority of pre-retirees have underestimated the cost of health care in retirement Help you eliminate the guesswork with a personalized Health Care Cost Assessment from Nationwide 28

29 START WITH A HEALTH CARE COST ASSESSMENT Determine individual health care costs The Nationwide Personalized Health Care Cost Assessment Powered by calculations from one of the world s leading actuarial firms Provides a personalized estimate of possible annual health care expenses Includes estimates for Medicare, out-of-pocket and long-term care expenses 29

30 CREATING A PLAN TO ADDRESS HEALTH CARE COSTS Personalized Health Care Cost Assessment HEALTH PROFILE LONGEVITY AVERAGE ANNUAL EXPENSES FOR HEALTH CARE IMPACT OF NOT TAKING ACTION 30

31 HEALTH CARE AND LTC COST ASSESSMENT 31

32 HEALTH CARE AND LTC COST ASSESSMENT 32

33 33

34 HEALTH CARE AND LTC COST ASSESSMENT 34

35 HEALTH CARE AND LTC COST ASSESSMENT 35

36 HEALTH CARE AND LTC COST ASSESSMENT 36

37 Summary The retirement income challenge Understanding health care Creating a plan to address health care costs 37

38

39 Important things to keep in mind This material is not a recommendation to buy, sell, hold or rollover any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation. The content of this presentation is provided for informational purposes only and should not be construed as investment, tax, or legal advice or a solicitation to buy or sell any specific securities product. The information provided is based on current laws, which are subject to change at any time, and has not been endorsed by any government agency. Nationwide Investment Services Corporation (NISC), member FINRA. The Nationwide Retirement Institute is a division of NISC. Social Security 360 Analyzer is a service mark of Nationwide Life Insurance Company. Nationwide, the Nationwide N and Eagle, Nationwide is on your side and Nationwide Retirement Institute are service marks of Nationwide Mutual Insurance Company Nationwide NFM-11701AO.11 (01/18) Not a deposit Not FDIC or NCUSIF insured Not guaranteed by the institution Not insured by any federal government agency May lose value 2

40 3

41 Today s agenda Social Security the choice of a lifetime Social Security basics Managing the discussion 4

42 Social Security The choice of a lifetime 5

43 46% of retirees 49% of pre-retirees underestimate their life expectancy by 5 years or more. Source: Society of Actuaries 2015 Risks and Process of Retirement Survey. 6

44 Most file at the earliest possible time New Social Security claimants in a calendar year 1 55% of individuals filed early for reduced benefits 2 33% 32% 22% 9% 4% 1 Source: SS Supplement Table 6.B5, Social Security Administration, 2016 calendar year. 2 FRA = Full retirement age. For this data, FRA is 66. 7

45 Jim and Linda s Options Meet Married Couple Jim & Linda Jim is 64 and Linda is 61 $2,300 Jim s SS benefit at FRA $1,600 Linda s SS benefit at FRA This example is hypothetical and for illustrative purposes only Figures as shown represent future value and assume average life expectancy of 85 for men and 88 for women and 2.5% annual cost-of-living adjustments (COLA). * Represents if Jim files today, and Linda files when she s 62 $227,333 Cumulative benefit lost by filing early Cumulative benefit if both file as soon as possible* Cumulative benefit if both optimize SS benefits $1,340,830 $1,568,163 8

46 Another Option for Jim and Linda Meet Married Couple Jim & Linda Jim is 64 and Linda is 61 $2,300 Jim s SS benefit at FRA $1,600 Linda s SS benefit at FRA This example is hypothetical and for illustrative purposes only Figures as shown represent future value and assume average life expectancy of 85 for men and 88 for women and 2.5% annual cost-of-living adjustments (COLA). * Represents if Jim files today, and Linda files when she s 62 $226,522 Cumulative benefit lost by filing early Cumulative benefit if both file as soon as possible* Cumulative benefit if Jim files at 70 and Linda files at 67 $1,340,830 $1,567,352 9

47 Another Option for A Single Person Meet Jim, a single person in retirement Jim is 61 $2,600 Jim s SS benefit at FRA (66 years and four months) This example is hypothetical and for illustrative purposes only Figures as shown represent future value and assume average life expectancy of 85 for men and 2.5% annual cost-ofliving adjustments (COLA). $113,537 Cumulative benefit lost by filing early $183,075 Cumulative benefit lost by filing early Cumulative benefit if Jim files at 62 Cumulative benefit if Jim files at FRA Cumulative benefit if Jim files at 70 $714,720 $828,257 $897,795 10

48 Comparing options Married Couple Jim files restricted for spousal benefits at 66, then files standard at 70; Linda files standard at 63 years 5 months Cumulative benefits: $1,568,163 Jim files standard at 70; Linda files standard at 67 Cumulative benefits: $1,567,352 <1% less in benefits Jim and Linda both file standard at their FRA (66 for Jim and 66 and 4 months for Linda) Cumulative benefits: $1,406,220 Jim files standard now; Linda files standard at 62 Cumulative benefits: $1,340, % less in benefits 14.5% less in benefits Figures as shown represent future value and assume average life expectancy of 85 for men and 2.5% annual cost-of-living adjustments (COLA). 11

49 Comparing options Single Person Jim files early at 62 Cumulative benefits: $714,720 Jim files at 66 and 4 months (his FRA) Cumulative benefits: $828, % increase in benefits Jim files at 70 Cumulative benefits: $897, % increase in benefits Figures as shown represent future value and assume average life expectancy of 85 for men and 2.5% annual cost-of-living adjustments (COLA). 12

50 Will Social Security be there for you? Based on combined trust fund reserves and current assumptions 6 : Full benefits payable to at least 2034 With no legislative changes, Social Security would pay 77% of benefits afterward Source: 2017 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds 13

51 Proposals to address Social Security solvency Link COLAs to different inflation indexes Increase FRA beyond 67 May increase solvency without significant effect on most Americans Current retirees will see smaller annual benefit increases Expected to impact workers age 45 and younger to allow time to plan for retiring later 14

52 Proposals to address Social Security solvency Increase or eliminate wage cap Increase payroll taxes Raises amount of earned income subject to Social Security taxes The 2018 cap is $128,400 Currently set at 12.4% split evenly between workers and employers 15

53 Average life expectancy and beyond 50% 50% chance of chance of reaching age AGE 65 AGE 65 reaching age % 25% chance of cnce reaching of age reaching age For married couples, there is a 50% chance one spouse will reach age 93 Source: 2015 LIMRA Retirement Income Reference Book.. 16

54 Social Security The basics 17

55 What does Social Security offer? Old Age, Survivors and Disability Insurance (OASDI) Guaranteed lifetime income Survivor benefits Indexed to inflation Preferential tax treatment 18

56 Social Security Act of 1935 Designed to help older Americans living in poverty during the Great Depression Never meant to be sole source of retirement income Ida May Fuller First recipient of a monthly Social Security check (1940) 19

57 Primary Insurance Amount (PIA) Amount received each month if benefits start at full retirement age (FRA) Based on lifetime Social Security earnings adjusted for inflation o Average indexed monthly earnings (AIME) over highest 35 years of earnings o Benefit reflects a percentage of average monthly earnings o Higher earners receive a smaller percentage than low-wage earners o Maximum PIA for 2017 is $2,788 Social Security statements available on mysocialsecurity (Sign up at ssa.gov/myaccount) 20

58 Social Security statement Available at ssa.gov/myaccount o o Create an online profile Paper statements mailed every five years to those between 25-60, and annually to those 60+ if you have not signed up online 21

59 Social Security statement Statements include PIA, estimated benefits, earnings record and general program information 22

60 Full Retirement Age 23

61 Early and delayed filing affects monthly benefit Delaying benefits can increase monthly benefit by 76% Delaying benefits can increase monthly benefit by 32% 75% 80% 86% 93% 100% 108% 116% 124% 132% % of PIA received Starting age of SS benefits 24

62 Early and delayed filing affects monthly benefit Delaying benefits can increase monthly benefit by 77% Delaying benefits can increase monthly benefit by 24% 70% 75% 80% 86% 93% 100% 108% 116% 124% % of PIA received Starting age of SS benefits 25

63 Social Security filing options Prior to FRA and for some after FRA Deemed Filing File for all eligible benefits, benefits can be reduced if filing prior to FRA. At or Beyond Full Retirement Age File Restricted* Allows you to begin spousal, divorce or survivor benefits * Only available to those born on or before Jan 1,

64 Filing rules for different situations Surviving spouses Spouses Divorced spouses Dependent children Disabled individuals 27

65 Spousal filing rules Eligibility Eligible at 62 Married for at least one year Benefits Up to 50% of spouse s PIA One spouse must file for the other to claim benefits 28

66 For surviving spouses Eligibility Eligibility Married for at least 9 months Benefits can be taken as early as age 60 * Currently widowed or remarried after age 60 Benefits Benefits Up to spouse s PIA including delayed retirement credits earned Survivor benefits can be received independent of individual benefits * Filing from 60 and up to FRA will permanently reduce monthly survivor benefits, but not impact the survivor s own benefits 29

67 For divorced spouses Eligibility Married for at least 10 years Currently unmarried Ex-spouse does not have to file beyond two years after divorce Benefits Spousal, then survivor benefits No impact on ex-spouse s benefit Not subject to the family maximum 30

68 For dependent children Eligibility Eligibility Dependent under age 18 Disabled dependents if disability occurred before age 22 Benefits 50% of parent s PIA 75% of deceased s PIA 31

69 For disabled individuals Eligibility Eligibility Qualifying medical condition Recent work test (individual) Duration of work test (individual) Benefits Benefits Individual benefit Spousal benefit Survivor benefit Dependent children benefit 32

70 How working impacts Social Security If under FRA for the full year In the year of FRA (Up to FRA month) At FRA and beyond $1 withheld for every $2 above annual limit ($17,040 or $1,420/month) $1 withheld for every $3 above annual limit ($45,360 or $3,780/month) No limit on earnings Withheld earnings are returned Source: Social Security Administration,

71 For same-sex couples On June 26, 2015, the Supreme Court issued a decision in Obergefell v. Hodges, holding that same-sex couples have a constitutional right to marry in all states Same-sex couples now recognizes same-sex couples marriages in all states, and some non-marital legal relationships More information at socialsecurity.gov/people/same-sexcouples 34

72 For government employees Windfall elimination provision (WEP) Reduces individual benefit to prevent higher benefits on top of pension income Changes formula used to calculate PIA and reductions o As little as 40% of first $895 instead of 90% 1 o Reduction cannot be more than ½ of pension amount o Maximum PIA reduction for WEP is $ Social Security Administration

73 Effect on spousal or survivor s benefit Government Pension Offset (GPO) Reduces a government employee s Social Security spousal or survivor s benefits Benefits are reduced by 2/3 of their government pension If government pension is large enough, spousal or survivor s benefit may be eliminated 36

74 How GPO reduces benefits Spouse 1 Worked in government throughout career Receiving $3,000 monthly pension GPO = $2,000 (2/3 of $3,000) Spouse 2 Worked in private sector Paid FICA taxes PIA: $2,500/month 37

75 Concern: Taxation Taxable retirement income Partially taxable retirement income Tax-free retirement income Pension Income Traditional Retirement accounts (401(k), IRA) Interest and dividend income Social Security Up to 85% taxed Immediate annuity income Cash-value of life insurance Roth IRAs and Roth 401(k)s Interest from municipal bonds Loans from life insurance policies Please note that Nationwide does not provide legal, tax, or accounting advice. You should consult with your accounting or tax professional for guidance regarding your specific financial situation. 38

76 Concern: Taxation Total taxable income AGI + income after Social Security income test Reduced benefits Maximum benefits Target pre-tax income $90,000 $90,000 Social Security benefits $30,690 $54,014 Traditional retirement income $59,310 $35,986 Provisional income $74,655 $62,993 $85,397 $58,130 Delayed filing increases Social Security by 76% Taxable income decreases by 32% This example is hypothetical and for illustrative purposes only 39

77 Managing the Social Security discussion 40

78 Simplifying Social Security decisions Nationwide s Social Security 360 Analyzer tool Identifies optimal filing methods and allows you to adjust parameters to compare different strategies Provides instructions on how to file Helps you integrate Social Security into your comprehensive retirement income plan 41

79 Social Security Assessment This report is provided for informational purposes only and should not be construed as investment, tax, or legal advice or a solicitation to buy or sell any specific securities product. You should work closely with your financial professional to develop a plan that incorporates your investment objectives, goals, risk tolerance and time horizons based on your specific situation. This report relies upon the accuracy of the data you provide and is an estimate of the Social Security benefit you may receive which will differ from the actual benefit amount you receive at the time of application with the Social Security Administration. The information provided is based on current laws which are subject to change at any time. This report has not been reviewed or endorsed by any government agency. 42

80 Social Security Assessment 43

81 Compare filing strategies The Social Security report shows cumulative benefits of an optimization strategy vs. early filing and alternative filing strategies 44

82 Analyze break-even points Illustrates which of the outlined strategies provides the best outcome at any given set of mortality assumptions for SS claimants 45

83 Social Security Strategy Example The expected lifetime family benefit using the strategy example is: $944,523 Note that this illustration is for educational purposes only. Jim 66 years - File a Restricted application for only spousal benefit based on Linda's earnings record. Your approximate spousal benefit would be $820 Linda File a standard application for benefits at age 63 years 5 months. Your approximate monthly benefit would be $1,321 File for own benefit at age 70 years. Your approximate benefit on your own earnings record would be $3,520 46

84 Identify income gaps The report illustrates annual Social Security cash flow for the suggested filing strategy vs. projected retirement income needs. 47

85 Cashflow analysis helps identify income gaps Jim and Linda both maximize their benefits After Jim passes away, Linda begins her survivor benefit. After Jim passes away, Linda begins her survivor benefit.

86 Social Security fact finder Helps gather relevant information to prepare a filing strategy comparison Marital status Expected benefit amount Life expectancy Planned retirement date Desired retirement income Retirement goals, concerns, etc. 49

87 Social Security fact finder 50

88 The choice of a lifetime When and how you file for Social Security is an important decision Learn how to claim benefits for other family members and how to put the filing rules to work Consider your filing decision in the big picture of your overall retirement income plan 51

89 Three steps in Social Security planning Get a good understanding of the basics of Social Security Make an appointment to discuss your Social Security options Complete a Social Security fact finder in advance of the meeting 52