July 2, 2018 By

Q&A: Healthcare costs could nix early retirement

Dear Liz: Recently you included a letter from a retired person who was amused by the suggestion that early retirees may have to go abroad to find affordable healthcare. I was horrified by that letter and shared your article with several friends. Something is deeply wrong when a nation offers citizens who have contributed to its success so few options regarding decent medical care. It makes me very sad and angry. Thank you for focusing attention on this issue.

Answer: Currently early retirees do have an option before they’re old enough for Medicare, which is to buy insurance from Affordable Care Act exchanges. The future of that coverage is in doubt, though, which is why many financial planners are warning their clients who had planned on early retirement to continue working, if that guarantees them access to health insurance. Moving abroad is another option for the adventurous, but obviously won’t be a good solution for many.

Filed Under: Health Insurance, Q&A, Retirement
July 2, 2018 By

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.

Filed Under: Health Insurance, Q&A Tagged With: , ,
June 25, 2018 By

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.

Filed Under: Insurance, Medicare, Q&A Tagged With: , , , ,
June 25, 2018 By

Q&A: Wife should get her name on deed

Dear Liz: My daughter, who is a stay-at-home mother of two, recently bought a home with her husband. They have been married seven years. I recently discovered that her name isn’t on the deed to the home. I don’t know why, but it doesn’t sound good to me. What are her potential issues?

Answer: The issues depend on where she lives. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

If your daughter lives in one of those, assets acquired during marriage, including a home, are generally considered community property owned equally by both spouses. Her husband, ideally, should place her on title via a deed to reflect true ownership or place it in a trust to provide for his wife. However, if her husband should die without bequeathing her the property, the home could go to probate proceeding, and the wife would have to provide proof that it was community property to receive all of it, says estate planning attorney Jennifer Sawday of Long Beach.

In other states, different rules apply. Typically assets held in one person’s name are that person’s property. If the husband has a will, he could leave the house to your daughter — or not. Should he die without a will, she could wind up sharing ownership of the house with others, such as children from a previous marriage.

Filed Under: Estate planning, Q&A, Real Estate Tagged With: , , ,
June 25, 2018 By

Q&A: Keeping an eye on your financial planner

Dear Liz: I’m a fee-only financial planner with a quick comment regarding the investor who complained about a financial advisor who ran up a huge capital gains tax bill. I’ll bet that the vast majority of the gains came from selling the person’s initial investments to re-position them according to the advisor’s recommendations. That seems most likely given the gains seemed to be huge (implying the current investments had been in place for a long time) and the client’s balance didn’t seem to grow much at the same time. Of course, that’s not necessarily an excuse — accounts with unrealized capital gains need to be handled very carefully by an advisor. And you are dead-on with the main point of your response: Giving an advisor discretionary trading status is risky. I would add to that the client doesn’t seem to know the advisor’s investment strategy, so that’s another disconnect. I’m glad that fee-only gets a lot of positive comments in the financial press, but you’re correct that you still need to move with caution.

Answer: Advisors are in an unenviable position when they’re trying to fix a portfolio that hasn’t been properly diversified over the years. Big gains build up because the investor doesn’t want to sell and pay capital gains taxes. By refusing to sell some winners occasionally, though, those winners can comprise an ever larger share of the portfolio, making it more and more risky. A concentrated portfolio can fall more in a bad market and gain less in a good one than a portfolio that’s properly diversified.

So the advisor may have been doing what needed to be done, but the fact that the investor didn’t understand what the advisor was doing or why indicates a breakdown in communication, at the very least. No one should give an advisor blanket permission to trade an account without understanding the advisor’s strategy and being willing to monitor how it’s being carried out.

Filed Under: Q&A, Taxes Tagged With: , ,
June 18, 2018 By

Q&A: When a Social Security spousal benefit goof is suspected

Dear Liz: A family member recently lost her spouse. His monthly Social Security check was $1,800 and hers is $750. I have two questions.

First, is my understanding correct that she is able to begin collecting his monthly amount instead of her own?

Second, instead of collecting Social Security based on her earnings history, was she eligible instead to have collected 50% of her husband’s monthly benefit? If so, she was entitled to $150 more than she’s been collecting. If this is accurate, is there any recourse for collecting the additional benefit from Social Security?

Answer: To answer your first question, yes, your relative will now receive a survivor’s benefit equal to what her husband was receiving. She will no longer receive her own benefit.

The answer to your second question is a bit more complicated. Your relative may have started benefits before her own full retirement age, which used to be 65 and is now 66. When people start benefits early, they receive a permanently reduced amount whether they’re receiving their own retirement benefit or a benefit based on a spouse’s earnings. It’s possible that her reduced retirement benefit was more than her reduced spousal benefit.

Another possibility is that she started benefits before her husband. To get spousal benefits, the primary earner typically needs to be receiving his or her own benefit. (There used to be a way around this, called “file and suspend,” that allowed the primary earner to file for benefits and then suspend the application. That no longer exists.)

If your relative started benefits before her husband, she may have been able to get a bump in her check once he applied, assuming her spousal benefit was worth more than her own retirement benefit. That bump in benefits is now automatic, but if she turned 62 before 2016, she would have had to apply to get the increase, says Mary Beth Franklin, a Social Security expert who writes for Investment News.

She wouldn’t be eligible to get all the missed benefits back at this point, but she could get up to six months’ worth.

Filed Under: Q&A, Social Security Tagged With: , ,
June 18, 2018 By

Q&A: Health sharing plans don’t work for everyone

Dear Liz: I read your column about healthcare options for couples planning for retirement today. I’ve recently learned about and signed up for health sharing. The benefits are closely comparable to traditional insurance and less expensive. If you haven’t heard about this, I think it’s worth looking into.

Answer: Christian health sharing plans are an alternative to traditional insurance, but they’re not actually health insurance. Members agree to pay each other’s medical bills, up to certain limits. Members typically must be Christians who attend church regularly and don’t use tobacco, among other restrictions. These plans often don’t cover preventive care such as mammograms or colonoscopies and may not cover mental health care, addiction treatment or other so-called “essential services” that are typically required of health insurance.

The plans can help with some healthcare costs, but the amounts that can be paid out are typically capped. That means that an accident or illness could still bankrupt you. In addition, the plans typically don’t cover preexisting conditions or limit the coverage they offer. Since few people reach their 50s and 60s without a preexisting condition or six, these plans aren’t a viable substitute for many people approaching retirement.

Filed Under: Health Insurance, Q&A Tagged With: , ,
June 18, 2018 By

Q&A: Healthcare costs and retirement

Dear Liz: You usually don’t give me such a laugh, but today’s letter was from someone who’s 41 and her husband is 51. They now have $800,000 saved and want to retire early. You told them they might do better leaving the country since it will be so bad for them with health insurance.

My husband was a teacher in Los Angeles, with no Social Security. We have $60,000 in the bank and together we bring in $3,400 a month. We have Kaiser insurance that totals $2,400 a year for both. We have a house, a car, not so much money, but are happy. He’s 82, I’m 79. What planet do you live on? I guess people who have so much money can’t imagine people like us.

Answer: You’re living on Planet Medicare, so perhaps you can’t imagine what people are facing who don’t have access to guaranteed medical coverage.

Currently, those without employer-provided insurance can buy coverage on Affordable Care Act exchanges, but that option may soon be going away. Congress ended the ACA’s individual mandate, which requires most people to have insurance, so costs are expected to rise sharply.

In addition, the future of so-called “guaranteed issue” is in doubt. The ACA currently requires health insurers to accept people with preexisting conditions and limits how much people can be charged, something known as “community rating.” The U.S. Department of Justice recently announced it would not defend those provisions against a lawsuit filed by several states.

When health insurance is unavailable or unaffordable, it doesn’t matter if you have $1 million or more in savings. A hefty retirement fund can disappear in a few months without coverage.

Filed Under: Health Insurance, Q&A, Retirement Tagged With: , , ,
June 11, 2018 By

Q&A: What to do when a financial advisor doesn’t act in your best interests

Dear Liz: I hired a fee-only financial advisor a year ago. The advisor’s firm also included a CPA who prepared my 2017 tax return.

My tax liability was 100% more than what I paid via my W-2 withholding because the advisor traded constantly, incurring short-term capital gains. He authorized 45 trades in a three-month period. My capital gains for 2017 were more than I have ever earned annually in my 40-plus years of filing returns, yet the overall gain in my account was negligible.

I am 67 and soon to be retired. I do not believe he was acting in my best interests as his client. Is there any action I can take?

Answer: If you’re considering legal action, you’ll need to consult an attorney. If you want to take your beef to a regulatory agency, you can start by contacting the Securities and Exchange Commission and the Financial Industry Regulatory Authority.

Just because an advisor is fee-only does not mean he or she is competent or is a fiduciary (someone who is legally required to put your best interests first). Most advisors are held to a lower standard of “suitability,” which basically means their recommendations can’t be unsuitable, given the client’s situation.

Giving an advisor authority to make trades in your account is risky business. When you don’t know an advisor well, it’s better to start with a non-discretionary account that requires your approval for any trades.

If the advisor earns your trust, you can consider switching to a discretionary account that allows trading — but first you should have an investment plan that makes clear, in writing, what your goals for the account are, what investments are appropriate and how often the advisor expects to make trades.

Most people are best served by passive investment strategies that seek to minimize fees and match various market benchmarks. Attempting to beat the market with frequent trading is usually futile, and costly. That’s especially true in taxable accounts because short-term capital gains are taxed at regular income tax rates, while investments held long term can qualify for lower capital gains rates.

Filed Under: Financial Advisors, Q&A Tagged With: ,
June 11, 2018 By

Q&A: How to find credit scores

Dear Liz: How do you go about checking your credit scores? I’m a recent widow and have no idea how to do these things.

Answer: Checking your credit scores can help you monitor your credit and give you a general idea of how lenders view your creditworthiness. Many banks and credit cards offer free scores to their customers, so that’s the first place you should look.

Otherwise, Discover and Freecreditscore.com, a service of credit bureau Experian, offer free FICO credit scores to anyone. FICO is the leading credit score, although the score you see may not be the same one a lender uses.

There are different versions of the FICO for different industries (credit cards, auto lending, mortgages) and different generations of each formula. Some lenders use the latest version, FICO 9, while most use some version of FICO 8. Mortgage lenders tend to use even older versions.

Also, credit scores change because the information in your credit bureau reports, on which the scores are based, changes constantly. A higher or lower balance on a single credit card can cause your scores to swing significantly.

Another type of score is the VantageScore, a FICO rival that’s used by fewer lenders but commonly offered for free on personal finance sites including Credit Karma, Mint and NerdWallet. CapitalOne also offers free VantageScores to anyone, not just its customers.

It’s best to use the same type of score from the same credit bureau if you want to monitor your credit over time. It’s not very helpful to view a FICO 8 from Experian one month and try to compare it the next month with a FICO Bankcard Score 5 from Equifax or a VantageScore 3 from TransUnion.

The data used in the scores, their formulas and even the scoring ranges may be different. Most credit scores are on a 300-to-850 scale but some industry-specific scores are on a 250-to-900 scale.

Keep in mind that getting a free score means handing over information about yourself, including your Social Security number, and typically means the provider will try to market other products or services to you.

Filed Under: Credit Scoring, Q&A Tagged With: ,