We would love to hear from you. Click on the ‘Contact Us’ link to the right and choose your favorite way to reach-out!

wscdsdc

media/speaking contact

Jamie Johnson

business contact

Victoria Peterson

Contact Us

855.ask.wink

Close [x]
pattern

Industry News

Categories

  • Industry Articles (15,832)
  • Industry Conferences (3)
  • Industry Job Openings (9)
  • Negative Media (135)
  • Positive Media (73)
  • Sheryl's Articles (586)
  • Sheryl's Blogs (166)
  • Wink's Articles (222)
  • Wink's Blogs (208)
  • Wink's Press Releases (92)
  • Blog Archives

  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
  • February 2018
  • January 2018
  • December 2017
  • November 2017
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • May 2017
  • April 2017
  • March 2017
  • February 2017
  • January 2017
  • December 2016
  • November 2016
  • October 2016
  • September 2016
  • August 2016
  • July 2016
  • June 2016
  • May 2016
  • April 2016
  • March 2016
  • February 2016
  • January 2016
  • December 2015
  • November 2015
  • October 2015
  • September 2015
  • August 2015
  • July 2015
  • June 2015
  • May 2015
  • April 2015
  • March 2015
  • February 2015
  • January 2015
  • December 2014
  • November 2014
  • October 2014
  • September 2014
  • August 2014
  • July 2014
  • June 2014
  • May 2014
  • April 2014
  • March 2014
  • February 2014
  • January 2014
  • December 2013
  • November 2013
  • October 2013
  • September 2013
  • August 2013
  • July 2013
  • June 2013
  • May 2013
  • April 2013
  • March 2013
  • February 2013
  • January 2013
  • December 2012
  • November 2012
  • October 2012
  • September 2012
  • August 2012
  • July 2012
  • June 2012
  • May 2012
  • April 2012
  • March 2012
  • February 2012
  • January 2012
  • December 2011
  • November 2011
  • October 2011
  • September 2011
  • August 2011
  • July 2011
  • June 2011
  • May 2011
  • April 2011
  • March 2011
  • February 2011
  • January 2011
  • December 2010
  • November 2010
  • October 2010
  • September 2010
  • August 2010
  • July 2010
  • June 2010
  • May 2010
  • April 2010
  • March 2010
  • February 2010
  • January 2010
  • December 2009
  • November 2009
  • October 2009
  • August 2009
  • June 2009
  • May 2009
  • April 2009
  • March 2009
  • November 2008
  • May 2008
  • February 2008
  • August 2006
  • The First Financial Surprise of Retirement: Your Client’s Net Retirement Paycheck

    March 27, 2015 by Harry Stout

    When we started working, we got one of the biggest surprises of our young financial lives – the difference between our gross and net pay! We were introduced to the world of federal income tax withholding, FICA or Social Security withholding taxes, along with other deductions from our hard-earned pay for health insurance, union dues, and retirement contributions.

    Forty years later, retirees walk into the first financial surprise of their retirement years – the difference between their gross and net retirement paychecks. Their discretionary retirement income is under siege primarily due to mandatory medical spending reducing funds available to sustain their lifestyles. This is an area where our industry can really help people plan and protect themselves. We need to begin to champion our experience and the product solutions we offer.

    The Retirement Income Paycheck

    Instead of payroll deductions they were accustomed to during their working lives, retirees are seeing deductions from their spendable retirement income for income taxes, Medicare premiums, Medicare Supplement insurance premiums and payments for long-term care support services either through insurance payments or out-of-pocket expenses, along with myriad of health-related deductibles and coinsurance amounts. There is no avoiding these medical costs – they are mandatory deductions from gross retirement income.

    Clients need your help to use suitable insurance solutions to create more discretionary retirement income. Most advisors who have focused on helping their clients generate gross amounts of retirement income must now acquire the knowledge to advise clients on these new mandatory deductions.

    As you will see, many retirees may not have contemplated these new mandatory deductions in their retirement income planning.

    The New Retirement Paycheck Deductions

    So, what are these mandatory deductions and how can we as financial professionals help our clients manage them? Let’s take a look.

    Income taxes

    Unfortunately, clients must continue to pay income taxes on their retirement incomes unless they have implemented strategies to reduce their tax payments.  The tax deferred nature of annuity and life insurance products can really help here along with the use of tax-free loan proceeds from life insurance contracts.  Tax-free income from Roth IRAs and municipal bonds can also have a positive impact on reducing tax outlays.

    Medicare Related Deductions

    We are all aware that you become eligible for Medicare when you reach 65, and, in most cases, have to enroll. Medicare has evolved over the years and now has four parts. Some are mandatory for all enrollees; others are optional.

    Medicare Part A: Hospital Insurance

    Part A generally covers the costs of being in a medical facility. When enrolled in Medicare, individuals receive Part A automatically. For most people, there is no cost to receive Part A, except for any deductibles ($1,260 for 2015).  A major surprise for many new retirees is that Medicare does not pay for long-term care support services, as we will discuss later.  There are numerous coverage questions and costs relating to this coverage.

    For example, according to
    www.Medicare.gov if you stay in the hospital for more than 60 days, you have to pay a portion of each day’s expenses. If you’re admitted to the hospital multiple times during the year, you may have to pay that $1,260 deductible each time.  After spending 60 days in the hospital, you must pay $315 per day in out-of-pocket costs; this increases to $630 per day after 90 days. Once coverage runs out, you will have to pay the full cost of the remainder of your hospital stay.

    Medicare Part B: Doctor and Other Costs

    Medicare Part B generally covers the costs related to doctor visits, tests, medical equipment and home healthcare. Individuals are required to enroll in Part B if they don’t have “credible coverage” from another source – an employer or spouse, for example.

    With Part B, a means tested monthly premium is paid. According to
    www.Medicare.gov, most people will pay $104.90 per month for Part B coverage and have a $147 deductible.  Once your clients meet their Part B deductible, they generally pay 20% of the cost of the service.

    However, when planning for these costs – be aware that there is no cap on the 20% out-of-pocket expense. In general, if Medicare covered medical bills for a certain year were $100,000, they would be responsible for $20,000 of those charges, plus charges incurred under the Part A and D umbrellas. There is no lifetime maximum.

    Costs Not Covered by Parts A
    and B 

    The largest and most important item that traditional Medicare doesn’t cover is long-term care. If you are diagnosed with a chronic condition that requires ongoing personal-care assistance, the kind that requires assistance with the activities of daily living, Medicare will cover none of the cost. This includes help with such activities as bathing and dressing.

    According to www.Medicare.gov, at least 70% of people over 65 will need long-term care at some point. You need to have your clients consider the protections offered by long-term care insurance, a combination benefit life insurance product with a chronic illness or long-term care rider or an annuity with a rider that can increase retirement income or withdrawals if a long-term care event occurs.

    These uncovered costs and/or the cost of long-term care insurance or combination life insurance or annuity products create another new mandatory deduction from retirement income that needs to be factored into retirement income planning.

    Medicare Part C: Medicare Advantage Plans

    Also known as Medicare Advantage, Part C is an alternative to traditional Medicare coverage. Coverage normally includes all of Parts A and B, a prescription drug plan (Part D) and possibly other benefits. Private insurance companies administer Part C.  Depending on the plan, your client may or may not need to pay an additional premium for Part C.

    Your clients don’t have to enroll in
    an advantage plan but for many people these plans can be a better deal than paying separately for Parts A, B and D.

    Medicare Part D: Prescription Drugs

    Prescription drug coverage, known as Part D, is also administered by private insurance companies. Part D is required unless your client has a prescription drug plan from another source, including a Medicare Advantage plan. The monthly premium depends on their income. In addition to the premium, your client may pay an additional means tested premium amount each month that ranges from no premium or up to $70.80 per month, for 2015.

    Depending on the plan, your client may have to meet a yearly deductible before the plan begins covering eligible drug costs.

    Medicare plans have a drug coverage gap – a temporary limit on what the drug plan will cover. This is often called the doughnut hole. Each state has insurance options that will close the coverage gap, but these require paying an additional premium.

    Medicare Supplement or Medigap Insurance

    As I described above, people who only have traditional Medicare – Parts A, B, and D – may incur sizable bills for services not covered by Medicare. To close these gaps, most recipients enroll in some form of Medicare Supplemental Insurance Plan (Medigap) or in a Medicare Advantage plan (see Medicare Part C, above).

    Medicare Supplement Insurance coverage is standardized by Medicare, but offered by private insurance companies. More and more insurance professionals can now offer this product to their clients. To offer this coverage, new training and education and licensing may be needed.

    Long-Term Care Coverage 

    To protect your clients against the cost of long-term care support services, there are generally four available options: fully underwritten, stand-alone, long-term care insurance; a combination benefit life insurance or annuity product with applicable riders; personal resources; or Medicaid coverage.  It comes as a surprise to many people that to qualify for Medicaid, they must have nearly no assets and a small amount of life insurance – enough to bury them – with qualification requirements varying by state. Under Medicaid, individuals will generally have little or no say on the location and quality of the long-term care support services they receive.

    The options of purchasing long-term care coverage and/or using assets to purchase a combination benefit life or annuity product that provides a chronic illness or long-term care benefit are industry solutions that we can provide. Getting the training and proper support to understand the product landscape are what financial professionals should seek out. This knowledge will better enable you to work with your clients to plan for these costs.

    The Bottom Line on Your Client’s Net Retirement Paycheck

    The cost of income taxes, Medicare coverages, Medicare supplement insurance, long-term care insurance and the payment of the remaining out-of-pocket medical expenses (including deductibles and coinsurance amounts) are the new mandatory deductions awaiting your retiring clients. You need to help them carefully plan for and, to the extent possible, protect themselves against these expenses. Luckily, the industry has a full set of product solutions to help you in this effort.

    In the brave new world of the net retirement paycheck, the more you learn about these new mandatory deductions, the more valuable your services will be and the more you and your clients will earn.

     The Annual Retirement Paycheck
     

    Income:

    • Social security
    • Pension income, if any
    • 401(k) withdrawals
    • Investment income withdrawals
    • Work income, if still in the workforce
    • Annuity payments
    • Other sources
    • Total Retirement Income (A)

    Mandatory Deductions:

    • Federal and state income taxes
    • Medicare part B and D premiums
    • Medicare Supplement insurance premiums
    • Long-term care insurance premiums or out-of-pocket expenses
    • Medicare deductibles and coinsurance amounts
    • Support for children or grandchildren
      • Total Mandatory Deductions (B)
      • Net Retirement Income (A) – (B)

    Originally Posted at NAFA Annuity Outlook Magazine on March 2015 by Harry Stout.

    Categories: Industry Articles
    currency