Q&A: Self insurance brings risk

Dear Liz: A letter writer in your column says that “self insurance,” or going without health insurance, “certainly reinforces healthy lifestyle choices.” My husband made all of those “right” choices for more than 60 years, which was absolutely no protection against being diagnosed with brain cancer. Your penny-pinching correspondent might currently be running marathons or doing daily yoga, but as Clint Eastwood put it: “You’ve gotta ask yourself one question: ‘Do I feel lucky? Well, do ya, punk?’”

Answer: As a nation, we could certainly lower our healthcare costs by choosing healthier lifestyles — exercising, avoiding obesity, not smoking and so on. But accident or illness can strike even the healthiest among us, which is why health insurance is a necessity not just to ensure we can get care but to protect against catastrophic medical bills.

Unfortunately, as human beings we often have the delusion that what’s happened in the recent past will continue indefinitely. If we’ve been lucky with our health, we may think that will always be the case. The reality is that everybody’s luck runs out at some point, and often does so at great expense.

Q&A: Mother-daughter drama and the financial ties that bind

Dear Liz: My mother is turning 92 this month. Due to a dispute, my mother amended her will last year and stated that my inheritance had to be used for a certain purpose.

My brother sent me the amendment and told me he will enforce my mother’s wishes. He also told me that I had to send a letter to him after my mother dies if I do not want anything from her trust. Is this accurate?

I want to put it in writing before my mother dies that I do not want a penny from her trust. I want to be completely estranged from my family and their control. Do I need a lawyer to do this, and do I have to wait until her death to put this in writing?

Answer: Consider showing the email to an experienced estate planning attorney to find out how much actual control your mother will have from beyond the grave. There may be workarounds that you (and your mother) haven’t considered.

If you decide you don’t want the money after her death, you can “disclaim” it in the letter your brother described. While it may seem more satisfying to make the point while your mother is still alive, you cannot force her to disinherit you any more than she can force you to take the money if you don’t want it.

Q&A: Going without health insurance isn’t wise

Dear Liz: You recently wrote about early retirees going abroad for their pre-Medicare years in order to get more affordable healthcare coverage. Why did you not bother to even mention the COBRA option that is often available to workers upon retirement? And by the way, some of us prefer to self-insure in our pre-Medicare years and even opt to not buy Part B coverage once we were eligible. Self-insuring is not for the sick, only the healthy, but there is a place for this never-mentioned option and it certainly reinforces healthy lifestyle choices.

Answer: COBRA was mentioned as an option in the original column, which addressed the retirement concerns of a woman 10 years younger than her husband. COBRA allows employees to continue their healthcare coverage for up to 18 months, so someone who is 63½ could use COBRA to bridge the gap until Medicare.

The coverage isn’t cheap because the retiree will have to pay the full premium without the employer subsidy, plus a 2% administrative fee. Anyone retiring earlier than 63½, including the younger spouse in the original column, still could face years without coverage once COBRA is exhausted.

And going without health insurance isn’t wise. Regardless of how healthy you currently happen to be, you’re one serious accident or illness away from disaster. Self-insuring can make sense for the smaller ongoing expenses of primary care. At a minimum, though, people should have a high-deductible plan that protects them from catastrophically high medical bills.

The decision to forgo Part B of Medicare may be an expensive one, as well. (For those who don’t know, Part A of Medicare is free for beneficiaries and covers hospital visits. Part B covers doctor visits, preventative care and medical equipment, among other expenses, and requires paying a monthly premium. Most people pay $134 a month for Part B coverage, although singles with incomes over $85,000 and married people with incomes over $170,000 pay higher amounts.) A permanent 10% penalty is tacked on to monthly premiums for every 12 months you were eligible for Part B but didn’t sign up.

Q&A: One spouse’s debts might haunt the other after death

Dear Liz: I have a terminal illness and have less than a year to live. My wife and I are in our 80s and don’t own anything: no cars, no homes. My wife has an IRA worth $140,000 that pays us $2,000 a month, and she has a small pension of $1,400 a month. We receive $3,900 from Social Security, for a total monthly income of $7,200.

We have $72,000 in credit card debt that is strangling us. I told my wife that after I’m gone she should simply ignore that debt and advise creditors that I have passed away. Or should we attempt to file bankruptcy now?

Answer: Your return address shows you live in California, which is a community property state. Debts incurred during marriage are generally considered joint debts, so expecting creditors to go away after your death is not realistic.

Your wife’s retirement also could be at risk because California has limited creditor protection for IRAs. Federal law protects IRAs worth up to $1,283,025 in bankruptcy court, but outside bankruptcy, creditor protection depends on state law. In California, only amounts “necessary for support” are protected.

You really need to consult with a bankruptcy attorney to discuss your options. You can get referrals from the National Assn. of Consumer Bankruptcy Attorneys at www.nacba.org.

Q&A: Reverse mortgages have improved but still require caution

Dear Liz: You’ve written about the potential financial flexibility and options for preserving quality of life for seniors by using a reverse mortgage line of credit. I believe there is a great need for much more cautionary advice regarding reverse mortgages.

Someone I know entered into a reverse mortgage and the consequences have been disastrous. She was barely past the minimum age of 62 when she got the loan and took the lump sum option, only to spend it hastily on various purchases and debts.

Having no income other than Social Security, and almost nonexistent savings, she faces many years of figuring out how to pay property taxes and ongoing maintenance costs to avoid foreclosure. So although she has her home, it’s a precarious situation from year to year. She also no longer has an asset that could be used for long-term care or other expenses because the reverse mortgage makes it unlikely the owner will receive any leftover proceeds after paying off the lender.

Answer: You didn’t say when your friend got her reverse mortgage, but the rules for lump-sum payouts have been tightened under the Federal Housing Administration’s Home Equity Conversion Mortgage program.

In the past, borrowers could take 100% of the loan proceeds upfront. Today, only 60% is typically available in the first year. The total amounts that can be borrowed overall have been reduced as well. These changes were meant to shore up the program’s finances, but they also could lead to fewer situations like your friend’s.

That said, people should be extremely careful about encumbering their homes in retirement. Prospective borrowers have to meet with HECM counselors to discuss a reverse mortgage’s financial implications and potential alternatives, but they would be smart to also meet with a fee-only financial planner.

Q&A: Credit freeze may be inconvenient, but it’s effective

Dear Liz: Is freezing one’s credit reports the safest bet even though it’s inconvenient to get it temporarily unfrozen? Plus you have to pay a fee. At my son’s urging, I had my credit reports frozen since the Equifax incident but I find it very inconvenient whenever some financial firms need to look into my credit score.

Answer: Credit freezes remain the best way to prevent new account fraud, which is when criminals open up bogus credit accounts in your name.

It is somewhat inconvenient to have to remember to thaw the freezes when you apply for credit or other services, and you have to keep track of the personal identification numbers (PINs) that allow you to do so.

The good news is that the fees for instituting and thawing freezes will go away as of Sept. 21. The Dodd-Frank reform that Congress passed this spring included a clause requiring credit bureaus to waive those fees.

Q&A: The future is bleak for charitable deductions, early retirees’ healthcare costs

Dear Liz: When I sat down with my accountant in March to do my 2017 taxes, he said next year I will take the standard deduction. Are my contributions to charity still deductible if I take the standard deduction?

Answer: No. Charitable contributions are an itemized deduction. If you don’t itemize your deductions, you won’t get the tax break.

Congress nearly doubled the standard deduction as part of its tax reform. For married couples, the standard deduction is now $24,000, up from $12,700. The state and local tax deduction was capped at $10,000. As a result, the proportion of taxpayers who will itemize their deductions is expected to drop from about 30% to 10% or less.

Q&A: Leaving the U.S. for cheap healthcare

Dear Liz: Your column a few weeks ago suggested a couple consider leaving the country for healthcare benefits until they reach the age to receive Medicare. We are in a similar position, with enough money to retire early but profoundly worried about the future availability of health insurance. Which countries are considered good options for American ex-pats who want good, affordable healthcare?

Answer: Five countries with healthcare comparable to or better than the U.S. are Colombia, Costa Rica, Malaysia, Mexico and Panama, according to International Living, a site for living and investing abroad. These countries have both public and private healthcare systems, with out-of-pocket costs that are a fraction of what they are in the U.S.

In Mexico, for example, many doctors receive at least some of their training in the U.S. and speak English, according to International Living. The public healthcare system typically costs legal residents a few hundred dollars a year, while private services and prescription drugs cost 25% to 50% of their U.S. equivalents.
Some early retirees like their adopted countries enough to stay past age 65, but they should strongly consider signing up for Medicare when they are eligible, even if they can’t immediately use its services. Failure to sign up can lead to permanent penalties that will make Medicare more expensive if and when they do come back to the U.S.

Q&A: Beware of ‘junk’ medical insurance

Dear Liz: In response to your response to the retired couple about healthcare costs. I wish everyone else could be informed about this. Healthcare costs in the individual market before the ACA were anything but affordable. I had to quit my job because my husband got ill in 2000. I was healthy and was paying at first $350 a month. Every couple of years it went up because I entered a new age bracket. I had to drop my coverage when premiums went to $800. And that was for a junk policy. I was hit by a car and I realized what it didn’t cover. I almost went bankrupt, but was able to sue my own car insurance company so that I wouldn’t lose my house. I finally was able to get on Medicare when I turned 65.

Answer: Thank you for mentioning the issue of “junk” policies. Some of the cheaper alternatives to ACA policies offer far less coverage, something buyers may not discover until it’s too late. Any insurance policy worth the name should cover the kinds of catastrophically high expenses that could otherwise wipe out a retirement fund or lead to bankruptcy.

Q&A: High earners need to watch out for Medicare surcharge

Dear Liz: When I retired at age 70, I anticipated receiving the maximum available Social Security benefit payment because I had paid in the maximum tax for my entire career. I did not anticipate the heavy hit my spouse and I would take in monthly income-adjusted Medicare “premiums.” (I say “tax” is a more appropriate description.) We now pay over $500 per month each, or more than $12,000 per year! I know I am blessed to have the income I have in retirement, but that is because we were thrifty and worked hard and saved.

Answer: Many high-income retirees are unaware of “IRMAA,” or Medicare’s income-related monthly adjustment amounts, so they can come as a bit of a shock. These adjustments begin when modified adjusted gross income exceeds $85,000 for singles or $170,000 for couples. At that level, Medicare recipients pay an additional $53.50 for Part B, which covers doctor’s visits, and $13.30 extra for Part D prescription drug coverage, on top of their regular premiums. (Regular premiums for Part B are $134 a month, while premiums for Part D vary by the plan chosen.) The adjustments increase as income rises until they max out at $294.60 for Part B and $74.80 for Part D when modified adjusted gross income exceeds $160,000 for singles or $320,000 for couples.

Medicare Part A, which covers hospital visits, remains free for all Medicare beneficiaries.

That $12,000 a year may feel like a lot, but healthcare is expensive in the U.S. Annual premiums for employer-sponsored family health coverage reached $18,764 last year.