Retirement Planning Blog

2010 has arrived and you will have higher Medicare Part D deductible and coverage gaps as never before. There are also a few more changes in healthcare that will come into effect from this year. Now once a year, seniors can shop around for new prescription drug coverage. They can move in to a lower cost plan as well. From this  year onwards, each state will have the opportunity to choose from 39 or more prescription drug plans, each having different price tags and coverage options.

It will be for the first time since the launch of the benefit that most of the stand alone drug plans are going to have deductibles. People do focus mostly on the premiums, and the other factors sometimes go unnoticed or attract very little attention. But the current changes in Medicare Part D plans will certainly have effect on the yearly spending for the seniors on prescriptions. According to the results of the research at the Kaiser Family Foundation, Georgetown University and the University of Chicago, from 2010, nearly 61% of the drug plans are going to charge a deductible, comparing to 45% this year (2009). There will also have a coverage gap in almost 80% of the Part D plans, comparing to 75% this year.

So, as a number of changes are coming into effect this year, it is the high time you scrutinize your plan and if needed you may also shift to another. There are some tools available like Centers for Medicare and Medicaid Services tool, which will help you to compare estimated out-of-pocket costs under various Part D plans. So, go through the plans, scrutinize those and choose the right plan that suits you the best. If needed, don’t hesitate to switch over to another plan.

Savings is what we all wish to make in order to build a better future. And when we think about savings, we need to work on our investment plans. Proper investment is what that can give us better returns, this in turn, can make our future better. As per the standard financial-planning advice, people should reserve their three to six months of spending needs in liquid assets, so that they can use those in case of any emergency. Otherwise, they may have to sell their investments at an inconvenient time, which may lead them to incur big financial loss.

It has been found that, most of the people don’t have extra money to pay out when an emergency arises. Leave aside the emergency, even in normal times, it also becomes very tough to fund the spending of next three to six months. It is extremely important to set aside some funds for the future days; it will lead to a happy retirement. The fund will also be able to fulfill your old-age health needs. Let’s explore the paths that make that will lead to better retirement.

Every successful effort starts with better planning. If you want to make your retirement better, you need to start with proper planning. Analyze your earnings, savings and the investment options that you have. According to that, you should set aside some money and invest those in proper places. Your lifestyle should also justify your earnings. It has been seen in many times that people often spend more that what they earn. They often use credit cards or borrow money against the rising equity to make up the extra amount, which lead to lower savings. So, planning is important, but more important is executing the plans.

So, how can you save some money? The good way to do it is by making a household budget. Though a tough job to do, making household budget and executing that successfully can result in good amount of savings. Always try to keep a tab on your spending. If you are a tech-savvy, you can use various spreadsheet programs or other available software to develop a spending profile.

Once you come to know about your spending habit, you can chalk out a plan and find out the possible areas where you can cut down your expenses. These areas may vary in each month. It can be groceries in one month, whereas in the next month, it can be utilities or your car expenses etc.

Loosing your mortgage will surely make you financially more stable. It becomes quite hard to build a successful retirement if we are to make continuous payments for mortgage. If you have any home mortgage, you should try to accelerate the payments and get rid of it.

Finally, it can easily be said that, one can lead a good life only if he/she is healthy. Believe it or not, diet and exercise are wonderful investments for a better retirement. There is no substitute of better health in life. For retirees, health care expenses are one of the biggest unidentified expenses that may come as a big blow in your retirement days. With ever-growing health care cost, it becomes the cheapest way to save those expenses if you take care of your body. Eat healthy, live healthy.

As a medical beneficiary, you may not love to hear the term ‘higher Medicare premium’. For some relief, most of you won’t have to pay higher premiums for Medicare Part B next year, but there are certainly a few ‘not-so-lucky’ groups who may have to face higher Medicare premiums in the coming days. As per the present law, premiums of Part B can’t go up faster than the rate of increment of Social Security annual cost-of-living. And according to the predictions of the Congressional Budget Office, the cost-of-living for Social Security recipients is most unlikely to go up in 2010 and 2011. But it doesn’t ensure rise in health insurance costs for all the Medicare recipients. According to a latest report, about 75% of the Medicare recipients won’t get affected by the premium increase, but the rest 25% will have to pay higher premiums.

Medicaid recipients are those who may have to pay higher premiums in the coming days. The states and the federal government funded Medicaid pays Medicare Part B premiums for those low-income groups who qualify for both the government programs. It will soak up the larger premiums for the 17% of Medicare beneficiaries qualified for Medicaid. It is the state, not the individual that pays the higher cost of Part B premium.

High-income retirees are another group that may face higher premiums in future. Seniors who have a modified adjusted gross income of $85,000 or above (for individuals) and $170,000 (for couples) in the year 2009, are already paying higher premiums.

New enrollees could be the other group which will face higher premiums soon. Those retirees, who are going to sign up for Social Security or Medicare Part B, will have to pay higher premiums in the near future. According to the Medicare Trustees, though the recipients of Medicare Part B are currently paying $96.40 per month, and are expected to pay the same amount next year as well, but the amount will increase to $104.20 per month for a quarter of retirees in 2010. In 2011, the cost would be $120.20 per month.

There are plenty of options available for the beneficiaries to choose the right Medicare Part D prescription drug plan for them. Most of the U.S. states offer its enrollees to choose from more than 40 Medicare Part D prescription drug plans. In some counties, the number may reach up to 70. Seniors have the option and the opportunity to go through all the available plans, analyze those and choose the ones that suit them the best. But according to a new study, it has been found that most Medicare Part D beneficiaries don’t choose the lowest cost drug plan.

According to a research by the Kaiser Family Foundation and the Massachusetts Institute of Technology economist, Jonathan Gruber, only 6% of the seniors opted for the best priced option in the year 2006. By not choosing the lowest cost plan, the beneficiaries had to lose on an average of $520 on their monthly premiums and out-of-pocket expenses if there were any. The report also says that only 10% of them chose one of the 5% of the best priced plans. It could have also saved $400 per month for the beneficiaries. Around 53% of the enrollees chose one of the 25% of plans with the lowest costs.

So, the question arises, why seniors do not often go for the lowest cost plan? According to Gruber, there are several factors that play a major role in influencing the decisions of the seniors to enroll in higher priced plans. Good reputation, strong brand name, recommendations, fewer utilization restrictions and convenient in-network pharmacy etc. may lead them to go for the higher priced plans.

So, next time when you go to choose your Medicare Part D plan, you can analyze and compare various plans available. There is a tool offered by the Centers for Medicare and Medicaid Services, which you can use to compare various plans. You need to enter the drugs that you may require to take in the coming year and the tool would compare the estimated out-of-pocket costs under different plans. And if you find any different plan that would suit you better than your current plan, you can surely shift to that one. For this, you need to attend annual open enrollment period of Medicare which is scheduled to be held between November 15 and December 31.

Though many Americans can be found withdrawing their 401(k) prematurely while still working, it is too dangerous a practice to follow. In fact, it can have terrible effect on retirements. The fees and penalties that you need to pay for early distributions will cut into your retirement account balance. There are several ways your money can leak out of your 401(k). So, learn it well and save your money.

One of the greatest threats of leaking out of cash from your 401(k) is the ‘Cashouts’. Employees are given an option to cash out their 401(k). It was observed that, while changing their jobs, American employees drew almost $74 billion from their retirement accounts. But the danger lies in the fact that, employers hold back 20% of the account balance while paying the amount to the employees in order to pay for federal and state income taxes. Employers also have to pay an early withdrawal penalty of 10%. Moreover, who opt for cashing out entire amount of the account balance, have to experience more damage. It calls for larger reduction.

Emergency or sudden withdrawal is another way your money can leak out of 401(k). In some 401(k) plans, employees can withdraw a part of their retirement stash if they need to pay any emergency bill like health care, educational expenses, purchase and repair of residence etc. The limit of the withdrawal amount depends on the contributions of the employee to the retirement account, excluding the income earned on the savings. This sudden withdrawal will have significant impact on the savings at retirement. According to GAO, young and low-income retirement savers are the most affected by this.

Finally loans are what that may cost you a lot. Employees can take a loan up to 50% of the 401(k) account balance or $50,000, whichever is less, which they have to pay back with interest. If you can’t repay the loan amount, the outstanding balance will be treated as a taxable distribution of income. Moreover, if you are under 59½ years of age, you may need to pay an early withdrawal penalty of 10% of the loan balance.

Just scan a bar code with your phone and call your retirement advisor. Sounds impossible? Well, many say that there shouldn’t be the word ‘impossible’ in your dictionary. Perhaps they are true. Though the statement made at the very beginning may sound impossible, it is quite achievable in reality. According to a new advertisement by the TIAA-CREF, you can take a picture of the bar code (the black and white square) through your smartphone and it will connect you with an investment consultant.

However, this bar code is a bit different from the usual ones that you often see on the packets of various products. This bar code, known as the Quick Response Bar Code, is a digitally stippled square. You take a picture of this QA code through your smartphone and your phone will connect you with your retirement advisor instantly. It’s just magical and quite smart and hassle-free as well. Those days will probably go by soon when you have to do an extensive search for your retirement advisors to help you out.

In order to scan the QA code, you need to download the Quick Response Code Reader first. As you download it, your smartphone will be able to read the QA code and connect you with the retirement advisor. According to the Chief Digital Officer of the TIAA-CREF, Jeff Fleischman, the campaign is aimed to attract the tech-savvy participants to call them, who are mostly between 25 to 34 years of age and are going to start retirement savings. Currently, about 13 percent of 3.6 million participants of the TIAA-CREF fall on this age group.

So, a good initiative has been taken by the TIAA-CREF, which will benefit both, the TIAA-CREF and millions of participants who are going to start their retirement planning. Be smart, pick up your smartphone and use the technology to its fullest to call your retirement advisor.

Do you need to take the minimum distributions from your retirement plans this year? Well, thanks to Worker, Retiree and Employer Recovery Act of 2008 (WRERA), you won’t have to take any distributions this year! Looks amazing? Yes, it is. On December 23 last year, Ex-President of United States Mr. George Bush signed a bill to make the new law into implementation, which also exempts those from taking a distribution who are required to take it over a five year period.

Usually, the retirees have to take the minimum distributions from their retirement accounts and they need to pay income tax on the amount withdrawn. However, for 2009 only, you, as a retiree, are exempted to withdraw from your retirement account. As a result, you won’t have to pay taxes on the withdrawn amount and hence you can save a good amount of money in form of tax savings.

For those who have already withdrawn the amount from their IRA, 401(k) or any other qualified retirement account, there are certainly some provisions made to amend their actions. According to the recent announcement of the Internal Revenue Service, retirees can deposit the money back to their respective retirement accounts until November 30 or 60 days after the withdrawal of money, whichever is later, and avoid income tax on the withdrawal.

However, as a 401(k) or IRA owner, you will require to take distributions in the year 2010. It can be mentioned here that, withdrawal amount is the amount which is calculated by dividing the balance of the retirement account by the life expectancy of the retiree as determined by the IRS. If you fail to withdraw the correct withdrawal amount, you have to pay a penalty of 50 percent and income tax on the withdrawal amount.

As the current year is approaching towards the fag end, many of us would be interested to know how to lower the taxes. Well, there are certainly some steps or procedures that you can follow in order to cut down the amount of your taxes. It just needs a bit of awareness and knowledge, and the results can make you amaze, and why not? You are saving a few bucks from your hard-earned money. Now, let’s see what the procedures are.

Deduct Healthcare Expenses

If you need to spend a good amount of money on your medical bill, you have the option to do this. If you spend more than 7.5 percent of your adjusted gross income on medical bills, you are entitled to deduct the excess amount and save taxes. It includes all the healthcare expenses including medical, dental, and prescription drug expenses as well as health insurance premiums. Moreover, if you have qualified high-deductible health insurance, you can use a Health Savings Account (HSA) to get deductible after-tax contributions up to $3,000 for single coverage and $5,950 for family coverage for the year 2009. For 2010, the amount would be $3,050 and $6,150 respectively.

Utilize Stimulus Tax Breaks

Almost everyone can take the advantage of stimulus package, which offer tax breaks. It will also cut down the amount of your taxes.

Buy Now to Save More

There are certain items that can give you significant tax deductions if purchased in 2009. For example, you can deduct 10% (up to $8,000) of the purchase price of your new house if you buy it on or before December 1, 2009. However, only those with their adjusted gross income under $75,000 are eligible for that. The limit is $150,000 for the married. Similarly, in the event of buying a new car, you can deduct sales and excise taxes up to $49,000, no matter whether you itemize your taxes or not. However, for availing this opportunity, your adjusted gross income must be under $125,000 ($250,000 for married).

Make invest losses if you have to any

You can sell a part of your taxable investments if it seems to be a loss. If your net losses surpass your net gains, you can deduct only $3,000 per year, but can carry forward the extra losses to the next years.

The coming year is going to have no Social Security increase for the retirees. According to an announcement of the Social Security Administration, there won’t be any increase in Social Security cost-of-living for the retirees in 2010. And it is going to be for the first time since the automatic increment of inflation came into effect in 1975 that a particular year won’t see any adjustment in Social Security payments.

Currently, the Social Security payments are linked with the Consumer Price index for the Urban Wage Earners and the Clerical Workers. There has not been any increment in the Consumer Price Index between the third quarter for 2008 and 2009. As per the current law, the existing Social Security beneficiaries are going to receive the same amount as they used to get last year. Unlike this year, last year saw the highest increase in cost-of-living adjustment since 1982, when the recipients received a cost-of-living adjustment of 5.8 percent as the consumer price suddenly rose up due to higher gas price. Social Security plays a major role in maintaining the standard of living for the Americans. One can earn a maximum amount of $106,800 subject to the Social Security tax.

In order to fight against the dormant retirement benefit, President Obama gave his nod to the one-time payment of $250 for the seniors and people with disabilities. As per the proposal, 49 million Social Security recipients, 5 million Supplemental Security Income recipients, 2 million veterans, 1 million public-employee retirees, and 500,000 railroad retirement and disability recipients are going to get checks by mail. Only one time payment will be made per individual. It would cost the government $13 billion.

According to the American Reinvestment and Recovery Act, there is a provision to extend the measure for an additional year. In May 2009, $250 was distributed to every senior as economic recovery payment, which cost around $1.37 billion. In the coming year, it is estimated that more than 50 million people will be benefited from this relief, which in turn, will also be helpful for the economy as a whole. As the values of retirement  homes and accounts are declining day by day, the seniors will be in need of such assistance in the coming days.

Retirement is certainly not the end of ‘working world’, at least in these days! More than 15 percent of the American Seniors with age of 65 and above haven’t bid adieu to their working lives completely. According to a recent report from the American Community Survey (ACS) of the Census Bureau, 62 percent of these working seniors prefer to work part-time. But which is most striking, is the fact that more than one-third (38 percent) of them are still working 35 hours a week or more.

According to Braedyn Woodring and David Howard, researchers of the Census Bureau, many seniors retired from their full-time job but chose to work part-time in order to pursue other work-related interests and also to increase their earnings in their post-retirement days. There are also some seniors who do not retire and continue working full-time. And the reason is quite simple – either they do not want to retire from their work, or have inadequate retirement savings.

If we give a close look on the available data, we can find 52 percent of the seniors with an age of 65 or more work full-time in Columbia district, whereas the percentage comes down to 27 in Wisconsin. The higher percentage of full-time working seniors can also be found in other places in U.S. like Nevada (44 percent), Texas (45 percent) and Puerto Rico (48 percent).

When it comes to post-retirement working, men have a little domination over the women. In 2008, about 42 percent of older men worked for full-time, whereas only 33 percent older women worked for full-time in the same year. It has also been observed that the percentage also vary from state to state. The percentage of full-time working seniors (male) ranges from 60 percent in Washington, D.C. to 31 percent in Wisconsin. Similarly, the percentage for women ranges from 45 percent in Nevada to 21 percent in Vermont. However, analysis is yet to be done as why the percentage varies between states.