Practical Planning for Social Security and Healthcare in Retirement

Transcription

1 Practical Planning for Social Security and Healthcare in Retirement Presented by: Ted Sarenski James Shambo

2 Helpful Hints Adjust your volume Be sure your computer s sound is turned on as well. Click this blue button. Slide the control to the left or right to fit your needs. Ask your questions Feel free to submit content related questions to the speaker by clicking this red button. Someone is available to assist with your technology and CPE related questions as well. Download your materials Access today s slides and learning materials by clicking this green Resources button at any time during this presentation If you need help accessing these materials send a message through the Q&A application Personal Financial Planning Section #AICApfp 2

3 About the PFP Section & PFS Credential The AICPA Personal Financial Planning (PFP) Section is the premier provider of information, tools, advocacy and guidance for CPAs who specialize in providing estate, tax, retirement, risk management and/or investment planning advice to individuals, families and business owners. (Learn more at aicpa.org/pfp.) The Personal Financial Specialist (PFS) program allows CPAs to gain and demonstrate competence and confidence in providing estate, tax, retirement, risk management and/or investment planning advice to individuals, families and business owners through experience, education, examination, and a resulting credential. (Learn more at aicpa.org/pfs.) Personal Financial Planning Section #AICApfp 3

4 Panelists James Shambo, CPA/PFS Lifetime Planning Concepts, Inc. Ted Sarenski, CPA/PFS Blue Ocean Strategic Capital, LLC Personal Financial Planning Section #AICApfp 4

5 Today s Agenda Social Security Planning Medicare Plans, Coverages and Costs Recurring and Non-recurring health care costs Social Security Divorce to Death and More Elder Care Resources Personal Financial Planning Section #AICApfp 5

6 Social Security Planning Personal Financial Planning Section #AICPApfp 6

7 Social Security decisions Review of the basics Social Security planning Factors that impact decisions Income planning issues Examples and case study Other Issues Personal Financial Planning Section #AICApfp 7

8 Basics: Why does Social Security matter? A 66 year old individual. The individual receives $1,250 per month of Social Security benefits with the benefits increasing each year using a 2% annual COLA. A pool of after-tax savings of $500,000 which is earning 7% annually. The individual spends $3,215 per month and increases the spending annually at a 3.5% inflation rate. Personal Financial Planning Section #AICApfp 8

9 Basics: Why does Social Security matter? $600,000 $500,000 $400,000 $300,000 With SS Without SS $200,000 $100,000 $ Personal Financial Planning Section #AICApfp 9

10 Basics: Social Security Statements or How do they compute that number? First step is to compute your Average Indexed Monthly Earnings (AIME) Multiply your earnings or the Maximum Taxable Amount, whichever is greater, for each year since 1950 by the index amount for that year. Add up the best 35 years indexed earnings Divide by 420 to get your AIME Second step is to compute your Primary Insurance Amount (PIA) Take 90% of the first $767of AIME, plus 32% of the next $3,857 of AIME, plus 15% of AIME in excess of $4,624 This calculation is done for the year you reach age 62, whether you retire or not, and then indexed for inflation from that year. Personal Financial Planning Section #AICApfp 10

11 Basics: What discounts for taking Social Security benefits earlier than FRA? Year of Birth Full Retirement Age Payment at age or earlier 65 80% months 79.2% months 78.3% months 77.5% months 76.7% months 75.8% % months 74.2% months 73.3% months 72.5% months 71.7% months 70.8% 1960 and after 67 70% Personal Financial Planning Section #AICApfp 11

12 Basics: Difference in Monthly Benefit No Time Value or COLA AGE % of PIA Benefit at Max Social Security $1, , , , , , ,344 Personal Financial Planning Section #AICApfp 12

13 Basics: Social Security maximum - $2, % at Age 66 versus 75% at age 62 $60,000 $50,000 $40,000 $30,000 $22,797 $30,396 $20,000 $10,000 $ Personal Financial Planning Section #AICApfp 13

14 Basics: Cumulative Difference From Age 66 to Age 95 $300,000 $250,000 $200,000 $150,000 $100,000 $50,000 $ Personal Financial Planning Section #AICApfp 14

15 Basics: Maximum Claimed at Age 62, 66 or 70 Cumulative Collected from Age 62, 66 or 70 Each to Age 95 with 2% COLA $1,600,000 $1,400,000 $1,288,165 $1,418,120 $1,200,000 $1,139,724 $1,000,000 $800,000 $600,000 $400,000 $200,000 $ Personal Financial Planning Section #AICApfp 15

16 When to begin Social Security benefits Age 62 If you must due to need or health Age 66 (FRA) Optimal time if you have significant other assets or spouse has an equal or better Social Security benefit Age 70 If spouse s own Social Security benefit is equal to or less than ½ of your own and you do not have significant other assets Personal Financial Planning Section #AICApfp 16

17 No wage earner timeline Higher wage earner 62 FRA 70 $2,000 FRA Benefit File and Begin $2,640 Suspend Benefit No Wage Earner Begin $750 Spousal Benefit OR Begin $1,000 Spousal Benefit Personal Financial Planning Section #AICApfp 17

18 Significant lower wage earner timeline Higher wage earner 62 FRA 70 $2,000 FRA Benefit File and Begin $2,640 Suspend Benefit Lower Wage Earner $600 at FRA Begin Reduced Add Spousal for total Own of $450 of $850 OR Begin $1,000 Spousal Benefit Personal Financial Planning Section #AICApfp 18

19 Not significant lower wage earner timeline Higher wage earner 62 FRA 70 $2,000 FRA Benefit File for$700 Begin $2,640 Spousal Benefit Benefit Only Lower Wage Earner $1,400 at FRA Begin Reduced $1,050 Benefit a Personal Financial Planning Section #AICApfp 19

20 Factors that Impact Decisions Health Family history Need Earnings potential from age 62 to FRA to age 70 Marital status Other retirement savings Personal Financial Planning Section #AICApfp 20

21 Income planning issues: Who owes income taxes on Social Security benefits? 50% 85% Single or Head-of-Household taxpayer $25,000 $34,000 Married Filing Joint taxpayer $32,000 $44,000 Married Filing Separate taxpayer has a zero threshold for Taxation of Social Security benefits Personal Financial Planning Section #AICApfp 21

22 Income planning issues: Who owes income taxes on Social Security benefits? Tax Planning Ideas: Start distributions from IRAs before age 70 ½ to reduce IRA, wait to age 70 for Social Security to get 8% per year Convert some Deductible IRAs to Roth IRAs Have fixed income investments inside your IRAs and have equity investments in your after tax accounts Pay Capital Gains tax today on appreciated property before you start collecting Social Security, 2011 and 2012 For long-term non-ira investments consider using tax-deferred annuities Personal Financial Planning Section #AICApfp 22

23 Example Same age spouses File and suspend or just file at FRA 66? Assume higher earning Spouse at maximum PIA of $2,533 Assume lower earning spouse at PIA of $600 Lower earning spouse can collect on his/her own benefit at age 62 but not collect spousal benefit until spouse files for his/her benefit Higher earning spouse files for benefit at age 66 and then immediately suspends which allows lower earning spouse to begin spousal benefits at age 66 Personal Financial Planning Section #AICApfp 23

24 Example Same age spouses File and suspend or just file at FRA 66? $2,500,000 $2,000,000 $1,912,141 $1,794,270 $1,500,000 $1,000,000 $1,092,887 $1,083,566 Start at Age 70 Start at Age 66 $500,000 $500,541 $420,814 $0 Live to Age 75 Live to Age 85 Live to Age 95 Personal Financial Planning Section #AICApfp 24

25 Example Same age spouses Spousal benefit for higher earner at FRA 66 then own at age 70 or just own benefit at FRA 66? What if lower earning spouse s PIA was greater than ½ of higher earning spouse s PIA? Using the maximum PIA before of $2,533 for the higher earning spouse, let s assume lower earning spouse s PIA is $1,500 Have lower earning spouse collect his/her full benefit of $1,500, not suspend, have higher earning spouse collect spousal benefit of $750 from age 66 to 70 and then apply for his/her own enhanced benefit 32% greater at age 70 with no penalty Personal Financial Planning Section #AICApfp 25

26 Example Same age spouses Spousal benefit for higher earner at FRA 66 then own at age 70 or just own benefit at FRA 66? $2,500,000 $2,000,000 $2,118,298 $1,963,333 $1,500,000 $1,222,311 $1,175,896 Start Spousal at Age 66 Own at 70 $1,000,000 $500,000 $487,290$529,923 Start Own at Age 66 $0 Live to Age 75 Live to Age 85 Live to Age 95 Personal Financial Planning Section #AICApfp 26

27 Example of spouses 7 years different in age Higher wage earner is older A $2,299 Benefit at FRA of age 66 Lower wage earner 7 years younger A $1,163 Benefit at FRA of age 66 Should higher wage earner start at 66, file and suspend or just start at age 70? Should lower wage earner collect own benefit at age 62, spousal benefit at age 62, own benefit at age 66, spousal benefit at age 66 or own benefit at age 70? Personal Financial Planning Section #AICApfp 27

28 Example of spouses 7 years different in age $1,667,689 $1,931,827 $1,859,487 $1,759,572 $1,782,099 $1,595,350 $1,485,150 $1,517, Steve starts at age 66 Steve starts at age lives to 102 lives to 75 lives to 85 lives to 95 Personal Financial Planning Section #AICApfp 28

29 Case study Jan 63 in June 2012 and Carl 66 in July 2013 Carl retired in 2008 and receives a company pension Jan retired in June 2012 and has a modest 401(k) plan balance Jan s Social Security benefit is estimated to be $1,204 at age 66 and $$1,589 at age 70 Carl s Social Security benefit is estimated to be $2,104 at age 66 and $2,777 at age 70 Personal Financial Planning Section #AICApfp 29

30 Case study Seven separate combinations to compare Jan start her own now; Carl take Spousal now and change to his own at FRA 66 Jan start her own now; Carl start his own at FRA 66 Jan start her own now; Carl take Spousal now and change to his own at age 70 Jan start her own now; Carl start his own at age 70 Each of them start their own at FRA 66 Jan start her own at FRA 66; Carl start his own at age 70 Each of them start their own at age 70 Run them to age 75/77; 85/87; 95/97 Personal Financial Planning Section #AICApfp 30

31 Case study $2,000,000 $1,800,000 $1,731,770 $1,703,623 $1,744,648 $1,826,226 $1,600,000 $1,587,641 $1,582,692 $1,539,497 $1,400,000 $1,200,000 $1,000,000 $996,792 $992,419 $1,048,292 $1,020,146 $931,531 $1,030,399 $1,048,966 $800,000 $600,000 $400,000 $500,048 $496,160 $473,673 $445,527 $420,397 $429,909 $395,502 $200,000 $0 JNCsp66 JNC66 JNCsp70 JNC70 E66 J66C70 E70 Age 75,77 Age 85,87 Age 95,97 Personal Financial Planning Section #AICApfp 31

32 Survivor benefit A widow or widower is allowed to begin claiming a survivor benefit (assuming their own benefit is lower) at age 60. Should they? Let s look at 3 ways to begin benefits: Survivor benefit at Age 60 - $1,144 Survivor benefit at age 66 - $1,600 Own benefit at age 62 switching to survivor benefit at age 66 Own benefit at FRA - $1,000; own benefit at age 62 - $750 Personal Financial Planning Section #AICApfp 32

33 Survivor benefit Blue Survivor benefit at Age 60 Red Survivor benefit at age 66 Black Own benefit at age 62 Switch to Survivor benefit age Series1 Series2 Series3 Personal Financial Planning Section #AICApfp 33

34 Medicare Plans, Coverages and Costs Personal Financial Planning Section #AICPApfp

35 Where are health care dollars spent? Description Percentage of costs Out of pocket prescription drugs 23% Medicare Parts B & D 32% Other out of pocket costs including co-pays, co-insurance and deductibles 45% Source: Fidelity Benefits Consulting 2014 Study Personal Financial Planning Section #AICApfp 35

36 2015 Cost of health care services Service/Facility National Median Rates Increase over 2014 Five Year Annual Growth Rate Homemaker services $20/Hr. 2.63% 1.61% Home Health Aide Services $20/Hr. 1.27% 1.03% Adult Day Health Care $69/Hr. 5.94% 2.79% Assisted Living Facility $3,600/month 2.86% 2.48% Nursing Home Care Semi Private Room Nursing Home Care Private Room Source: Genworth 2015 Cost of Care Survey $220/day 3.77% 3.53% $250/day 4.17% 3.95% Personal Financial Planning Section #AICApfp 36

37 Average couple s lifetime health care costs in today s dollars Age of Retirement Lifetime estimated costs Age 62 $271,000 Age 65 $220,000 Age 67 $200,000 Hypothetical couple with life expectancies of 82 male and 85 female Estimated costs do not include nursing home care, over the counter medications or most dental services and applies only to retirees with traditional Medicare coverage. Source: Fidelity Benefits Consulting 2014 Study Personal Financial Planning Section #AICApfp 37

38 Medicare Plan Coverages Part A Part B Part D Inpatient Care in Hospitals Medically necessary doctor s services Prescription Drugs Inpatient Care in Skilled Nursing Facility Outpatient Care Hospice Care Durable Medical Equipment Home Health Care Home Health Services Religious non-medical health care institution Many preventative services Personal Financial Planning Section #AICApfp 38

39 2016 Medicare Plan Deductibles and Coinsurance Part A Part B Part D Medigap coverages range by policy type Deductible $1288 for each benefit period * Deductible $166/year Subject to yearly deductible $360/yr. Part A coinsurance and hospital costs Days 1-60 $ 0 coinsurance You pay 20% of approved fees after deductible Has coverage gap between $3,310 and $$4,850 Medicare Part B coinsurance and copays Days $322/day coinsurance for each benefit period Over $4,850 pay coinsurance or copays Part A Hospice Care and Skilled Nursing Facility Care Days 91 and beyond $644/day coinsurance per each day after 90 Part A and B deductibles and Part B excess charges * Inpatient or skilled nursing facility benefit periods begins upon admittance and ends when the patient hasn t received services for 60 days in a row Personal Financial Planning Section #AICApfp 39

40 2016 Per Person Medicare Premium Costs Range of Premiums Low Medium High Part A No Cost if Medicare taxes paid while working $411/month for those not eligible for premium free Part A Part B $121.80/month Add $104.90/mo. Means testing Add $230.80/mo. Means testing Part D $18.40/month Add $31.80/mo. Means testing Add $70.80/mo. Means testing Medigap (Supplemental Medicare) at age 65 Plan L $75 to $141/mo. Plan A - $62 to $254/mo. Plan F - $138 to $275/mo. Personal Financial Planning Section #AICApfp 40

41 Income Related Monthly Adjustment Amount (IRMAA) Lower MAGI limits apply in 2018 (see red $) Single MAGI Married MAGI Part B Premium Part D Premium $85,000 or less $170,000 or less $ Your Plan s premium $85k to $107K $170K to $214K Add $42.00 Add $12.30 $107k to $160K $107K to $133.5K $160K to $214K $133.5K to $160K $214k $160K $214K to $320K $214k to $267K Add $ Add $31.80 $320K to $428K $267K to $320K Add $ Add $51.30 $428K $320K Add $ Add $70.80 Personal Financial Planning Section #AICApfp 41

42 2015 Range of Annual Medicare Premium Costs Per Person Medicare Plans Low Medium High Parts A, B and D $1,446 $3,086 $5,054 Medigap (Supplemental Insurance) Plan L - $900 - $1,700 Plan A $745 - $3,050 Plan F - $1,620 - $3,250 Total Annual Premiums $2,346 to $3,146 $3,831 to $6,136 $6,674 to $8,574 Personal Financial Planning Section #AICApfp 42

43 How premiums are paid First invoice from Medicare covers first 3 months of Part B premium Second invoice from Medicare covers means tested premiums (IRMAA) for first 3 months of Parts B and D Third invoice from Medicare covers monthly cost starting in 4 th month for base and means tested (IRMAA) coverage of Parts B and D Part D and Medigap policy premiums are paid to your selected insurers monthly Personal Financial Planning Section #AICApfp 43

44 Other Medicare considerations Initial enrollment runs for the 7 month period that begins 3 months before you turn 65 and ends 3 months after you turn 65 Late enrollment penalties apply to both Part B and D coverage if enrolled after the initial enrollment unless you have creditable coverage (employer or union coverage). Part B Monthly premiums are increased by 10% for each full 12 month period of late enrollment Part D premiums are increased by 1% for each full uncovered month Personal Financial Planning Section #AICApfp 44

45 Recurring and Non-recurring Retiree Health Care Costs Personal Financial Planning Section #AICPApfp 45

46 Distinguishing between recurring and nonrecurring health care costs Recurring health care costs are remarkably similar for all age groups Rely on client s current recurring costs inflated throughout retirement Non-recurring costs cannot be known in advance and these costs once incurred accelerate with age Long term care coverage acquired by age 55 should be used to partially fund these costs What if scenarios should be run for non-recurring costs at different ages and cost levels. Personal Financial Planning Section #AICApfp 46

47 Annual Individual Recurring Health Care Costs Percentile Costs for two year period from Costs for those who died during the 2 year period Median $1,784 $975 Mean $3,741 $2, th percentile $9,800 $7,801 Includes doctor, dentist and prescription drug costs throughout retirement. Does not include insurance premiums, over the counter medications or non-recurring health costs Source: Employee Benefits Research Institute February 2015 Personal Financial Planning Section #AICApfp 47

48 Annual individual non-recurring health care costs (in red for those who died in the two year period) Percentile Ages 65 to 74 Ages 75 to 84 Over age 84 Median $3,530 $6,517 $11,726 Mean $13,883 $22,465 $31, th percentile $43,501 $63,003 $102,603 Median $6,332 $7,274 $8,001 Mean $15,713 $27,679 $28, th percentile $48,002 $81,754 $77,003 Includes out of pocket overnight hospital and nursing home stays, outpatient surgery, home health care and other special facility costs. Source: Employee Benefits Research Institute February 2015 Personal Financial Planning Section #AICApfp 48

49 More from the EBRI February 2015 Study Usage of recurring costs remain stable throughout retirement Usage of non-recurring costs go up with age Nursing home stays, home health care and overnight hospital stays explode in period prior to death Usage of recurring costs increase with income and non-recurring costs go down with income Women above 85 have significantly more nursing home usage than men Personal Financial Planning Section #AICApfp 49

50 Social Security Divorce to Death and More Personal Financial Planning Section #AICPApfp

51 Other issues: Divorce Married for at least 10 years Been divorced for at least 2 years Ex-spouse signing up for benefits is not a requirement Not re-married before age 60, UNLESS Subsequent marriage ended in divorce Subsequent marriage ended in death (not caused by survivor) Personal Financial Planning Section #AICApfp 51

52 Other issues: Windfall eliminations provision Affects any worker who earned a pension in a job in which they did not pay Social Security taxes and also worked in a job that qualifies them for Social Security benefits. The percentage of the first bend point of the AIME calculation is reduced from 90% to 40% but the Social Security benefit cannot be reduced by more than ½ of such pension received. Modified if the person has 21 to 30 years of substantial employment in the job that qualifies them for Social Security benefits. Personal Financial Planning Section #AICApfp 52

53 Other issues: Government pension offset Affects federal employees hired before 1984 who continued to opt out of the Social Security system. Spousal or widow/widower Social Security benefit is reduced by 2/3 of the government pension being received by the individual. Only the government employee is affected, not the non-government employee spouse. Personal Financial Planning Section #AICApfp 53

54 Repay and reapply Withdraw your Social Security application and repay all of the benefits received in one lump sum, no interest! As of December 8, 2010, only allowed within 1 year of beginning benefits and only once per lifetime. Why? Maybe started Social Security at age 62 and then found your dream job Maybe started at age 66 and then came in to money and want to go back and get 8% per year increase for waiting Survivor can do this for a worker who died! Personal Financial Planning Section #AICApfp 54

55 Other issues: Disability benefits Qualify if you can t work due to a medical condition that is expected to last at least one year or result in death. Compassionate Allowances http// Must meet 2 earnings tests: Recent work test Duration of work test Eligible people can also include: Spouse Children Personal Financial Planning Section #AICApfp 55

56 Other issues: Death benefits Lump sum death benefit - $255 Benefit based on the insured worker s PIA at date of death Family benefits with a family maximum limit Eligible people include: Widow or widower Surviving divorced spouse Unmarried children Dependent parents Personal Financial Planning Section #AICApfp 56

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59 Future of Social Security Simpson-Bowles Commission New Special Minimum Benefit to keep full-career minimum wage workers above the poverty threshold. Create a new bend-point at the 50 th percentile gradually move to a more progressive benefit formula by adding this and reducing upper factors slowly over time by 2050 Index Retirement to Longevity 68 by by 2075 Hardship Exemption for those unable to work past 62 Chained CPI Include newly hired State and Local Workers after 2020 Increase Taxable Maximum to capture 90% of wages by 2050 Allow more flexible benefits collect ½ early the other ½ at a later age Personal Financial Planning Section #AICApfp 59

60 Elder Care Resources Personal Financial Planning Section #AICPApfp 60

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68 Questions? Personal Financial Planning Section #AICPApfp 68

69 AICPA PFP Section Member Resources PFP Section members, inclusive of CPA/PFS credential holders, have access to resources on the latest planning strategies and trends in personal financial planning services so that they can practice competently and profitably. Visit aicpa.org/pfp/resources. Estate Tax Retirement Investment Insurance & Risk Management Practice Management Legislative/ Regulatory Professional Responsibilities Consumer Content Personal Financial Planning Section #AICApfp 69

70 Retirement Planning Guides Free to PFP/PFS members For-sale to non-members (free excerpts available) Visit aicpa.org/pfp/guides Personal Financial Planning Section #AICApfp 70

71 Upcoming PFP Section Events Webcasts December 9 1-2:45pm ET The CPA's Guide to Financial and Estate Planning: The Leading Estate Planning Mistakes Conferences January 18-20, 2016 November 16-17, 2015 AICPA Advanced Personal Financial Planning Conference (cpa2biz.com/pfp) AICPA Sophisticated Tax Planning for Your Wealthy Clients PFP/PFS members are eligible to attend 4 free events with CPE. For a listing of all PFP webcasts, including free events, visit aicpa.org/pfp/upcomingevents. For the full calendar of upcoming PFP Section events, visit aicpa.org/pfp/events and click on CPE & Events. PFP/PFS members can access the archives (no CPE) for free at aicpa.org/pfp/library, including related webcasts on retirement issues, such as Practical Planning for Aging and Elder Issues & Expanding the Framework of Safe Withdrawal Rates. Personal Financial Planning Section #AICApfp 71

72 CPA/PFS News and Events PFS Referral Program Receive 100% credit to apply toward future CPA/PFS dues by referring a CPA to become a PFS or sit for the PFS exam PFS Exam Register now for upcoming exam windows Discounts, sponsorships and volume pricing available Education Opportunities In-depth courses in estate, retirement, tax, investments, insurance, and PFP process In-person and online PFP Boot Camp Self-study PFS exam review course Learn more at aicpa.org/pfp/pfs Personal Financial Planning Section #AICApfp 72

73 A CPA Financial Planner is a trusted advisor who Operates at the highest professional level when delivering PFP services to clients, acting in the clients best interest. Adheres to high standards as required by the Code of Professional Conduct and the Statement on Standards in PFP Services through the application of objectivity, integrity, due care and competence required by CPAs. Is regulated by state boards of accountancy. Integrates advanced planning concepts, including tax and business considerations, with the entire financial plan. Personal Financial Planning Section #AICApfp 73