Archive for the ‘Social Security’ Category

Disability Insurance Isn’t Sexy!

Friday, May 18th, 2012

 

 

We are constantly bombarded with stats about dwindling Social Security funds; especially as they relate to retirement – but what about disability? Every bit as important, disability funding is more relevant for working people because it is a benefit that may help you now.

 

According to statistics sited in National Underwriter Magazine, the year end Federal Disability Trust Fund balance for 2011 was $154 billion in assets, down 15% from last year. Funded by a 1.51% payroll tax, the total amount generated in 2011 was $109 billion, which was down 19% from 2010.

 

These numbers suggest the fund may be depleted as early as 2016, two years earlier than previously projected. Adequate funding is anything but reliable in the long term.

 

More Hurdles to Consider

 

Funding issues aside, if you avoid insuring your family’s income because you can file for and receive benefits, think again.

 

Social Security Disability Insurance is a dicey issue at best. Only 35% of SSDI applicants are approved for benefits on their initial application and an additional 10% are approved after appeal. Translation: over half of all SSDI applicants are denied coverage.

 

Part of the reason for such a high denial rate is the SSDI definition of disability is often more stringent than that of a commercial insurance company. SSDI defines disability as the inability to perform a job due to a medical condition. Conversely, many commercial insurance contracts define disability as the inability to perform the job for which you have been trained or educated to perform.

 

Think about that a moment…

 

Take for example an electrician that is trained to work on business and/or residential electrical systems. If said electrician has a back injury that renders him incapable of physically demanding work that would be required of an electrician, he would most likely qualify for benefits under a commercial disability. That same electrician will most likely not qualify under SSDI if he would still be able to perform another type of work, such as answering telephones.

 

These defining terms can often be the difference between receiving benefits and not receiving them. Bearing this information in mind, it is scary to think of the ramifications attached to the dismissal of addressing these issues. Why then, do so many of us neglect to protect our family?

 

The Cost of Complacency

 

The lack of appropriate planning usually stems from several things. Exasperation at the thought of having to deal with yet another thing definitely plays into it. All we want to do when we get home from work is tune out and relax, right? The last thing on our minds is contemplating the pros and cons of disability insurance. Cost, like with anything else, plays a big role too. Yet cost, in this case, has to do with your family’s security.

 

The cost of protection may be more than you want to spend on the surface, but the cost of complacency in the event the unthinkable becomes reality, can be devastating. We all think it won’t happen to us, but the statistics tell a completely different story.

 

Here are some eye opening stats related to disability and the workforce:

 

1. A 35 year old has a 50% chance of a disability lasting 90 days or longer before turning 65.

 

2. Most people in the US are better prepared for death than a disability even though chances are 3 to 5 times greater that a disability will occur (based on age).

 

3. About 1 in 7 people between ages 35 and 65 can expect to be disabled for 5 years or longer.

 

4. About 110 million people have NO long term disability insurance.

 

5. Benefits from disability insurance from an employer sponsored plan are usually taxable while benefits from a privately purchased plan are tax free.

 

Take Away

 

What we spend our money on is a direct reflection of how we choose to allocate it. Cost, in reality, is truly not the deciding factor. Who isn’t a master at finding ways to buy things when you’ve got a big hankering for something?

 

Disability insurance isn’t sexy; it’s not something you’ll ever have a ‘hankering’ for, nor is it mandatory, like auto insurance. When it comes to spending money on things we can’t see, touch or feel immediately, our normal inclination is to back burner it.

 

When you move protecting your ability to earn income to the front burner, the good news is, cost is a very flexible thing. Personally tailored planning will provide you with protection conformed to budget.

 

Kurt Rusch CLU, ChFC

Why Work With An Advisor?

Thursday, February 16th, 2012

 

There is nothing worse than a home improvement project gone wrong. You waste a ton of time running back and forth to Menards because you know you can do-it-yourself and end up wasting way more money in the long run more often than not. (Been there, done that, more times than I want to admit.) That’s exactly what I thought of when I read this stat from a recent Franklin Templeton survey:

 

78 percent of 35-44 year olds are concerned about managing their retirement plans to cover expense, yet only 23 percent work with a financial advisor.

 

Findings like these are a red flag in my industry. When I read reports like this I get the same look on my face that our handyman gets when he sees something I tried to do on my own. On second thought, that’s not true because he usually laughs at what I try to do and I’m not smiling right now.

 

66 percent of those who map out retirement strategies with an advisor understand what they will need to withdraw each year in retirement.

 

Now, I’m smiling.

 

No Wealth Requirements

 

Ask 10 different people why they don’t work with a financial advisor directly and you’ll get 10 different answers. Reasons, beliefs and excuses come in all kinds of shapes and sizes:

 

41 percent of those who don’t use an advisor say it is because they think they don’t have enough money to do so.

 

Now, I’m mad. Having enough money is what this is all about. Planning is building, and we all start from different places. There is no level we have to reach before we can seek help.

 

So, why would the surveyed respondents feel this way?

 

There are three reasons I can think of: 1) It’s just one those many (erroneous) assumptions we make about things, 2) They met an advisor who only works with high value accounts – strictly a business prerogative, or 3) A carnival barker told them so. Enough said.

 

No Instruction Manuals

 

Unlike putting in a new sink, planning for retirement, or any other monetary based goal, does not come with an instruction manual. Variables affect money management:

 

65 percent of Americans aged 65 or older said they will have to work between one and 10 more years before being able to retire.

 

The top two retirement concerns cited in the survey, after “running out of money”, were healthcare expense and changes to Social Security that would reduce or delay benefits. Both variables; add to these: societal change, market fluctuation, the cost of living, interest rates, and job opportunities.

 

30% percent of people who don’t use an advisor say it is because they want to do it themselves.

 

If I were to give the number reason why you should work with a financial advisor, it would be because of variables. Professional advisors understand actuarial concerns as well as they do the concerns of their clients. Matching peoples’ personal needs and goals with the right mix of financial instruments is tricky. There is no one size fits all approach; nor should there be.

 

Navigate the variables with the help of a financial advisor and put a smile on your/my face!

 

Kurt Rusch  CLU, ChFC

 

Retirement Planning: New Year, New Rules

Saturday, January 21st, 2012

 

A plethora of legislative change became effective on the first of the year. Some of these changes will affect individuals planning for retirement as well as those already retired.

Here, is the short list:

 

1. Social Security checks will be getting larger. Recipients can expect to see their gross check increase by 3.6% with only small increases in their Medicare Premiums.

 

2. Standard Medicare Part B coverage will increase to $99.90 for 2012. This is an increase of $3.50 per month. For Part B enrollees who signed up in 2010 or 2011 and were charged an initial premium of $110.50 or $115.40, their premiums will decrease to the standard $99.90.

 

High Income recipients will continue to pay a higher portion of their Part B premiums with their rates being anywhere from $40.00 to $219.80 per month higher than the standard rate. (High Income Recipients are defined as: an individual with Adjusted Gross Income over $85,000 or couples with Adjusted Gross Income over $170,000.)

 

3. The Part D donut hole gap is shrinking. The biggest complaint about the Medicare Part D is the fear of hitting the donut hole where coverage is limited severely versus coverage prior to and after the hole.

 

Previously, drugs were discounted by 50% for brand name and 7% for generics while in the donut hole. These percentages are rising to reflect a 50% discount for brand name and 14% for generics in 2012. Eventually the donut hole is scheduled to be phased out.

 

4. Income subject to Social Security Taxes will increase. For 2012, Social Security will be incurred on earned income of up to $110,100, up from $106,800 in 2011. However, at least for January and February, Social Security withholding rates for the employee will continue to be 4.2%.

 

5. 401(k), 403(b) and Federal Government Thrift Plan contribution limits will increase. The 2012 limit will be $17,000, up from $16,500. The catch up provision available for employees 50 and older remains $5500.

 

6. IRA contribution limits will remain the same but the threshold for income to make these deductible contributions will increase. Contributions of up to $5000 or $6000 if aged 50 and older, will be fully deductible if the modified adjusted gross income is under $58,000 for individuals or $92,000 for couples.

 

A phase out occurs between $58,000 and $68,000 for individuals and $92,000 and $112,000 for couples where only a portion of a contribution will be deductible. For individuals without a retirement plan at work, the income limits are set at under $173,000 for full contribution to fully phased out at $183,000.

 

7. Roth IRA income limits will also remain the same with contributions of up to $5000 or $6000 for aged 50 and older. However, these will also see an increase in the income limits that will be able to participate. Individuals with adjusted gross incomes of up to $110,000 will be able to fully contribute to a Roth for 2012.

 

There will also be a phase out of the amount of contributions that can be made until no contribution can be made if income exceeds $125,000. For couples, the thresholds are income under $173,000 and phased out until income reaches $183,000 where a Roth IRA will not be a viable option.

 

8. Qualifying income limits for the Saver’s Credit will increase for 2012. This credit which can amount up to $1000 for individuals and $2000 for couples, will now be available to individual taxpayers with an AGI under $28,750, for Heads of Household with an AGI under $43,125, and for couples with an AGI under $57,500. The credit will apply to contributions to retirement plans whether individual or employer based.

 

This overview may provide changes which could affect your planning for this year and beyond. The uncertainty of anyone’s future, combined with changing laws and financial environments, dictates the need for dedicated and diligent review.

 

Kurt Rusch CLU, ChFC

 

Proactive Retirement Planning

Tuesday, October 18th, 2011

 

I just read an article entitled, “5 Biggest Planning Retirement Mistakes”. The problem with titles like these in general is they are negative, and many times, as misleading as they are disheartening.

 

Proactive retirement planning on the other hand, is a different workhorse (pardon the pun) altogether. It should be ongoing and positive, starting over the course of your working years and cultivated throughout your retirement years. It also involves deliberate consideration beyond the lone act of making regular payments to employee contribution plans.

 

What type of proactive things should you be doing to plan for a life of leisure? Consider these 5 things now (even if you’re still working):

 

1.      VALUATION  

 

Project your current retirement programs forward to see how big of a lump sum you will have when you reach retirement and begin systematic liquidation.  While this may seem a monumental undertaking with market upheavals and historic lows in fixed income options, getting to that number will provide the baseline figure you need to work with.

 

If you tend to be risk averse, project your account balances into the future by using rates of return that could be obtained using less volatile investment choices. The worst case scenario here is that things change and you receive a higher rate of return netting a larger sum of distributable retirement funds.

 

On the other side of the coin, the market tends to be a lot more dependable over long periods of time than generally assumed. Utilizing these returns has not historically been as risky as you may think.  A volatile market is, in reality, a friend to those systematically investing via retirement plans at work and independently because: fixed amounts invested on a regular basis will always purchase more when the markets are at their lows and less when they are at their highs. This system allows you to buy low without ever having to consciously make investment decisions.

 

2.      DISRUPTION   

 

No one can possibly plan for every “what if?” in life, but addressing the types of disruptions to retirement income streams which may occur is essential.

 

Case in point; what would you do if Social Security changed drastically by the time you were counting on receiving it? Currently, with no modifications or adjustments, the Social Security Administration projects that by 2036 the Social Security Trust Fund will only be able to pay 75% of their obligations.  Would you be able to handle this decrease? Or any other type of unplanned reductions? If not, have you considered what you can do to make up possible shortfalls?

 

If you begin making up the gap sooner rather than later, the amount that would need to be set aside on a regular basis would be comparatively small. Conversely, if this gap is left unaddressed, the magnitude of future contributions could be daunting. Remember: Compound interest (really) is the Eighth Wonder of the World.

 

3.      VISUALIZATION 

 

Envision (literally) your retirement and what you (actually) want it to look like. While there are numerous statistics and figures utilized in planning, the best way to assure that you are planning for YOUR retirement is to personalize it.

 

Some people may think this silly but if you’ve never really taken a moment to think about how you’d like to see yourself in this future, you may be surprised what comes to mind. Are you planning on traveling a lot? Are you planning on working? If so, what is the magnitude of your commitment to work? What do you envision your living situation as being?

 

These kinds of questions and many more will affect the dynamics of your retirement plan. For example, if extensive travel is part of your plan, you must put more money aside than someone without these ambitions. On the other hand, if you plan on working, that may decrease the amount that must be set aside to meet expenses in retirement.

 

Housing will also greatly affect your financial situation. Many people “downsize” in retirement. Downsizing can often free up funds that can be invested to subsidize other plans already in place. These are just a few examples to consider.

 

4.      SAFEGUARDING

 

Have you safeguarded your plan for longevity?

 

If a husband and wife have plans in place as a couple in retirement, will they still be okay if one of them was no longer around? Upon passing, a surviving spouse will receive the higher of the two spouses’ Social Security payment. Would you be able to live the retirement lifestyle you envisioned without the aid of dual Social Security payments? Beyond Social Security, pension options must also be reviewed closely.

 

Pensions generally have irrevocable options that must be elected at the time of retirement. A sample of the array of these types of elections would include a single life option for the pensioner. This option would yield the highest monthly payment because it would continue only for the life of the pensioner. There would be no continuation of payment to a surviving spouse if the pensioner predeceased him/her.

 

At the other end of the spectrum, is a spousal option paying the surviving spouse 100% of the pensioner’s payment at the time of the pensioner’s death. This option would yield the lowest monthly payment to the recipient because essentially this pension plan is buying life insurance on the pensioner to be used to continue payments in the event of predeceasing their spouse. Examination of these costs should be made to see if the pensioner would be better off financially to receive the higher single life pension payment in combination with a taking out a private life policy to provide for the surviving spouse. This would also provide the flexibility to drop the policy or change beneficiaries to children in the event of the spouse predeceasing the pensioner.

 

5.      INCAPACITY   

 

Have you addressed the possibility of incapacity? While this is a very distasteful subject to broach, statistics indicate that up to 75% of couples will have at least one spouse needing some sort of long term care within their lifetimes. Given the state of rising healthcare costs, this situation can devastate a retirement plan very, very quickly.

 

Those who elect not to address the subject make a default decision to self-insure. This works out well only if you remain healthy without the need for support services. It is also a risky choice to make for the time period in your life when your options for financially rectifying an error in planning will be drastically limited.

 

Chicago nursing home costs currently run about $200 per day. For those who assume that this will be handled by Medicare, you are mostly incorrect. Medicare only covers follow up treatment after release from a hospital. There is no provision for convalescent care (long term daily living) from Medicare.

 

Coverage for long term care is available through Medicaid but to qualify, your assets must be liquidated and spent down. This radically limits your future choices. Home health care is also not covered by Medicaid. Many of the better nursing facilities may also refuse admittance to people   already on Medicaid. The last thing your loved ones need to face at a time like that is the challenge  of finding a geographically desirable and decent facility to take you in.

 

Valuation, Disruption, Visualization, Safeguarding and Incapacity are all key factors in planning for life after work. Safe, secure and solid navigation of this terrain should be done with the assistance of a licensed professional.

 

Kurt Rusch  CLU, ChFC

Mature Health: Time Sensitive Changes

Friday, September 30th, 2011


This is a MUST READ for Adults 65 & Up, Caregivers, Adult Children and Estate Managers!

 

New Changes to Part D Enrollment Period

 

The Annual Enrollment Period (AED) has changed for Medicare Part D plans. This is a big deal for anyone 65 and older because failure to make changes within this period will result in Part D benefits remaining the same as were elected in 2011. While this may not affect some people, it will be vital to others.

 

Historically, the Part D Annual Enrollment Period ran from November 15th through December 31st each year. However, plan changes with an effective date of January 1, 2012 must be executed within the new AED time frame: October 15th through December 7th.

 

 

EHealthInsurance reports that 65 percent of seniors are not aware of these enrollment date changes. It is imperative to review and revise any and all Part D information within this time frame to assure that current plans are still preferable or amended accordingly.

 

 

 

 

Medicare Advantage Premiums

 

The Department of Health & Human Services announced that enrollees will see their Medicare Advantage premium shrink 4 percent next year. Prescription drug premiums will not change.

 

Drug Deductibles

 

Part D Deductibles will increase by $10 from $310 to $320 in 2012. It is also important to keep in mind that the lists of formulary drugs are constantly changing. There is no safe assumption that  prescriptions will continue to be treated in the same manner from one year to the next.

 

Cost of Living Adjustment

 

The Annual Cost of Living Adjustment (COLA) for Social Security is predicted to rise in 2012 by a few percent; this would be the first increase in three years. If the increase does come through as expected, it may not automatically translate into additional pocket dollars for beneficiaries.

 

The links between changes in Social Security and Medicare each year are complex – that’s putting it mildly. There are numerous factors involved. For example, your annual income and the date when you began Medicare, could ultimately squash much or all of the COLA gains from higher Medicare premiums. (Help Link: 10 Ways to Boost Your Social Security Checks.)

 

The many moving parts within the machinations of Medicare, Supplements, Part D and Social Security, must be reviewed annually. This is not an option, but a necessity to assure consistent and proper coverage. Please feel free to contact me for assistance in maneuvering the healthcare minefield.

 

Kurt Rusch, CLU, ChFC