Medical Expenses in Retirement
Micah Porter, CFA, CFP®
Quite often, one of the biggest financial concerns clients have as they face retirement are medical expenses. They don’t know what to expect, and articles in the press with blaring headlines about costs running into the hundreds of thousands of dollars certainly don’t help. While those costs may be accurate, they’re typically spread over decades and because *most* healthcare costs are capped, planning for them is no different than planning for any other expense. With that in mind, here are a few suggestions we’ve found helpful when thinking about healthcare before retirement:
If you’re retiring before age 65, consider policies on the exchange – prior to the passage of the Affordable Care Act, health insurance for individuals could exclude pre-exisiting conditions, leaving the policyholder on the hook for any expenses related to the conditions. Group policies were not allowed to exclude pre-existing conditions, and as a result, people in poor health that could otherwise afford to retire often continued to work until they were Medicare eligible.
Now that individual policies are more standardized and pre-existing condition exclusions no longer exist, make sure to see what policies are available on the exchange if you want to retire prior to age 65. Additionally, if you expect your income to drop to a very low level once you retire, you might be eligible for a subsidy to cover a portion of the premium.
Review the Averages – for clients approaching retirement, we are now able to break out healthcare costs separately from other costs. This allows us to use data we have on average healthcare costs based on age, gender and income level. The costs include the Medicare premium, the supplemental coverage premium and out of pocket costs. By breaking out these costs, we can also apply a higher rate of inflation if we think doing so is appropriate (more on that in a bit).
Consider the worst case – whether you are covered by private insurance or by Medicare, make sure you know what your maximum out of pocket expense is. Note that this is different from a deductible – when the deductible is reached, there is often cost sharing between the insurer and the insured. For 2015, the maximum out of pocket for policies purchased on the exchange is $6,600 for an individual and $13,200 for a family. For Medicare, determining the maximum out of pocket expense is a bit more complex and will depend on whether and what type of Medicare supplement plan is purchased.
Know what is not covered – even though pre-existing conditions are no longer an issue in health insurance, there are still health related conditions and needs that are not covered by many health insurance policies. Some of the most commonly needed items and services not covered by Medicare include:
- Long-term care (more on that below)
- Most dental care and dentures
- Hearing aids
- Eye exams for glasses
There is greater variation among private health insurance policy, although the Affordable Care Act mandated that any policies sold on the Exchange would have to cover ten essential health benefits which you’ll find listed here. In any event, if you have private insurance you purchased for yourself or if it was employer provided, be sure to read through the policy to understand precisely what is covered.
Understand How Long Term Care Fits In – long term care, or custodial care, is care that provides assistance with activities of daily living such as bathing, dressing or taking self-administered medication. Such care is not considered medical care since it does not require the constant assistance of medical personnel and it is not covered by Medicare. Long term care insurance will cover some or all of the cost of custodial care, as will Medicaid for those with very low incomes and assets.
As you plan for retirement, medical costs should be part of your plan, but the good news is that there is a good bit of data to help determine just what those costs will be. Furthermore, the rate of inflation for medical costs has slowed in recent years and should that trend persist, it will provide a real boost to retirees.
Estimating healthcare costs in retirement can be daunting, but we’re here to help answer questions and provide a systematic approach to building these costs into your financial plan.
Cybersecurity: Avoiding Phishing and Confirming Withdrawal Requests
Micah Porter, CFA, CFP®
Cybersecurity is an area of constant focus for us since potential threats change often. We update our procedures frequently and work closely with TD Ameritrade to ensure both your information and accounts are secure. We recently received notice from TD Ameritrade that they were aware of phishing attempts using TD Ameritrade’s name, and we wanted to pass information on to you so that you could protect yourself against such attempts.
Phishing involves the creation of an e-mail that appears to come from a financial institution and it typically requests that you “confirm” confidential information. The e-mail will go on to explain that failure to confirm the information will have some sort of negative consequence – disabling online access, closing accounts or the like. In any event, if you receive an e-mail that appears to come from TD Ameritrade, bear in mind that they will never request personal information such as account numbers, passwords or social security. Additionally, make sure not to click any of the links in the e-mail – if you do, please contact us immediately and we will have a security alert placed on your accounts.
TD also maintains an e-mail address to which you can forward any suspicious e-mails, and that address is [email protected]. Finally, if you’d like to learn more about phishing and how to spot e-mails, you can find additional information here.
We also wanted to make you aware of a change we’ve made to to our distribution procedures to further secure your accounts. It has been our policy for some time to verbally confirm any distribution request from a client account to any third party, and we are going to extend that policy to include any new like-titled accounts as well. Thus, if you send in a request for us to transfer funds from your account to a third party or to an account for which we didn’t previously have transfer instructions, we’ll give you a call to confirm. While this will add an extra step in the disbursement process, we believe the extra protection this step affords makes it well worth it.
If you have any questions about the procedural change or about phishing, please let us know. Additionally, if you’re interested in learning about additional steps you can take to protect your financial information, last September’s newsletter – available here – is a good place to start.
Property Taxes: The Downside of the Real Estate Recovery
Micah Porter, CFA, CFP®
Much of the country has seen real esate prices rebound, and Fulton and Dekalb Counties are no exception, particularly among higher end properties. Unless you are planning on selling, though, the gain has no real impact but the property tax based on increased assessments does have an impact. Assessed values can often lag market values for a time, but based on anecdotal evidence from owners in both Fulton and Dekalb counties, the assessors are quickly raising values to catch up with rising markets.
You can challenge an assessment, and although the process differs from county-to-county, the crux of the challenge is to present valuations of homes comparable to your home that support a lower valuation. A successful appeal is one way to lower your property tax bill, and another is to ensure you’ve applied for all exemptions for which you are eligible.
If you are interested in appealing and live in Dekalb county, information on the appeals process is here, and Fulton County’s FAQ is here. If you think your valuation is incorrect but don’t want to go through the red tape yourself, there are firms that will research and appeal on your behalf and typically split any savings from a successful appeal with you.
Finally, if you just want a better understanding of how property tax bills are calculated, this is an excellent article by Hans Utz, the former Deputy COO of the City of Atlanta. Though some of the details are specific to the City of Decatur and Dekalb County, the general principals underlying the calculations are widely applicable.