Ask Liz Weston

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Q&A

Q&A: Should I get Medicare supplemental insurance?

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Dear Liz: I’m about to retire and have decided on original Medicare with a Medigap policy rather than Medicare Advantage. Can a Medigap company cancel your medical plan, and can they deny a medical procedure? Are there extra charges for preexisting conditions or other coverage issues?

Answer: Medigap is another name for Medicare supplement insurance. This coverage is provided by private insurers to help pay out-of-pocket costs such as deductibles, co-payments and co-insurance for treatments approved by Medicare.

If you apply for a Medicare supplemental policy during your initial enrollment period, you have something known as “guaranteed issue rights.” The insurer offering the policy can’t deny coverage or charge you extra for preexisting conditions. If Medicare approves a treatment or procedure, the supplemental coverage applies — the insurer can’t independently decide to deny you.

If you miss that initial enrollment period, however, you may be subject to medical underwriting. An insurer can charge you more, impose waiting periods or refuse to issue you a policy.

Your initial enrollment period typically starts when you turn 65 and sign up for Part B, the part of Medicare that covers doctors’ visits. If you delay Part B because you have employer-provided health insurance, then the six-month open enrollment period will start after you sign up for Part B. (You have eight months after your employer coverage ends to enroll in Part B without penalty.)

An insurer can cancel a Medigap policy only if you stop paying your premiums, you provide false information on your application or the insurer becomes insolvent. If you lose your coverage through no fault of your own, you would have guaranteed issue rights to buy a Medigap policy from another insurer.

Q&A: Is it better to have a fee-only financial advisor?

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Dear Liz: As a certified financial planner for the past 31 years who has never run afoul of any regulatory body, I cringe every time I hear you recommend people seek out only fee-only financial planners!

While we certainly do fee-based work where appropriate, sometimes it is simply better for the consumer if their advisor receives a commission not a fee. As an example, assuming all other factors being equal, if a client were to maintain an account for 10 years with a fee-only advisor charging 1% per year, wouldn’t the client pay considerably more in fees than if they placed their portfolio in a commission-based account where the advisor were to receive a one-time 5% fee?

I certainly understand conflicts can arise, but don’t they do so in most aspects in life? And isn’t this really just a matter of ethics? Can’t a fee-only advisor lack ethics just like an advisor who receives commissions?

Answer: The most important differential among advisors is whether they’re fiduciaries and therefore obliged to put their clients’ best interests first. As a certified financial planner, you’re held to a fiduciary standard and must disclose any potential conflicts of interest to your clients.

Most advisors are held to a lower “suitability” standard. That means the advisor can recommend investments that pay higher commissions, even if those investments aren’t the best option for their clients.

Fee-only financial planners typically are fiduciaries and have opted for a compensation arrangement that avoids the conflicts of interest inherent with commission-based recommendations. These planners are paid only by the fees they charge their clients, which can be hourly rates, project fees, retainers or a percentage of assets under management.

Q&A: Does my spouse get half of everything in a divorce?

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Dear Liz: My wife recently asked for a divorce, which was difficult to hear. That said, I want to move forward with my life and part of this is being on sound economic footing. I have been the primary earner in our marriage for most of our 12 years together, even though my wife was capable of working full time. Since we live in California, does she get 50% of everything, including money I had prior to our marriage? And if I originally put in only one-third of the down payment on our house, am I only eligible for one-third of the appreciation, or do I get half?

Answer: Even in community property states such as California, assets acquired before marriage are typically considered separate property. Assets acquired during the marriage, however, are generally split 50/50. If you can trace your down payment back to your separate property, you may be able to get a reimbursement for that amount before the remaining equity is split between you. Your attorney can offer further guidance.

Q&A: The not-so-hidden costs of claiming Social Security at 62

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Dear Liz: I’ll be 62 next year. I planned to start taking my Social Security of about $2,600 a month and just put that check into an investment account until I retire. However, if I’m going to be taxed $1 for every $2 over $23,000 that I make, then my plan needs to change. Maybe I should wait until 67. I make around $180,000 a year and that should continue until I retire. I loved my plan and am really disappointed that I cannot put it into play.

Answer: Sometimes the things we love aren’t good for us. Your plan would have shortchanged you and possibly your spouse.

You wouldn’t actually pay a 50% tax on your Social Security if you applied at age 62. What you would face is the earnings test, which withholds $1 for every $2 you earn over a certain amount, which is $24,480 in 2026. Given your income, your entire benefit would be withheld.

The earnings test would apply until you reached your full retirement age of 67. At that point, any money that was withheld would be added back into your benefit.

What isn’t added back is the additional money you would have received simply by postponing your application. If you wait, your benefit would grow about 30% between age 62 and 67. After 67, delayed retirement credits boost your benefit by 8% each year you delay until age 70, when your benefit maxes out. In addition, your benefit gets cost-of-living increases beginning at age 62, whether or not you’ve applied.

Those are guaranteed returns, by the way. Other investment returns are not. You could make more in the stock market, but you also could make less or lose money.

If you’re married and the higher earner, an early start would also stunt the survivor’s benefit. The effect can be so dramatic on the survivor’s finances that financial planners typically advise the higher earner to wait as long as possible to apply.

Q&A: Beware the Blurred Line Between Fee-Only and Commission-Based Advice

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Dear Liz: I am very overwhelmed with life so I’ll try to stick to where I need your help. My 68-year-old husband has been diagnosed with dementia. I thought we were responsible, having a nice nest egg of over $2 million, a house that is paid off and no debts. However, finding out long-term care costs, I am now terrified that it will all be depleted. Per your advice, I found a fee-only financial planner. I wanted his opinion about long-term care insurance for myself (my husband no longer qualifies). Turns out the planner will be the one to get the policy for me, should I decide to go forward. He’s recommending a hybrid policy with a death benefit, which means if I end up not using the long-term care coverage, the value will go to our children. I’m uncomfortable with the fact that this planner has an obvious stake with this long-term care policy and therefore might be biased with his advice.

Answer: If your advisor has an “obvious stake” in the policy you buy, implying that he will be paid a commission, then by definition he is not a fee-only financial planner. Fee-only financial planners are compensated solely by the fees they charge their clients.

What you may have encountered is a fee-based advisor, who collects fees from clients but also accepts commissions.

You want to be able to trust that the advice you get is in your best interests. That means you need a fiduciary advisor: someone who is obligated to put your interests ahead of their own and who is willing to put that promise in writing. If your advisor isn’t a fiduciary, you can find one who is through one of several organizations that represent true fee-only advisors, such as the National Assn. of Personal Financial Advisors, the Garrett Planning Network, the XY Planning Network or the Alliance of Comprehensive Planners.

The advisor also should be able to refer you to an elder law attorney who can discuss ways to protect your finances from being devastated by long-term care costs, or you can seek referrals directly from the National Academy of Elder Law Attorneys.