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Protection, Benefits & Accountability: Smart Planning for Start Ups and Small Business

Monday, August 6th, 2012


Protection, Benefits & Accountability may not be at the forefront of new and small business owners’ minds, but they should be.

 

Often ignored and/or glossed over by startups, these components are an essential part of basic business planning and can make the difference between success growth and failure.

 

You know the old adage: No one plans to fail, they just fail to plan. Use this overview to kick start your protection, benefit and accountability planning:

 

Equity Protection

 

New businesses often start with no consideration for the “What Ifs”.  What if my partner wants/needs to quit the business unexpectedly? What if my partner becomes incapacitated? What if my partner suddenly dies? A lack of planning for unforeseen circumstances such as these can literally ruin a business overnight.

 

In the case of unexpected death, when one partner passes away within a 50/50 ownership agreement, the deceased partner’s heirs would then become entitled to the deceased’s 50% share. Would this be an acceptable arrangement to you as a surviving partner? Typically, this would not be an acceptable arrangement. The last thing a start up business should have to bear is paying out to someone who is not contributing to the business, in this case, heir(s).

 

This is why smart planning also includes Buy Sell Agreements. Buy/Sells are like prenups for business – legal documents which site a buyout price for remaining partner(s) in the event of a departure/disability/death of another partner. They are typically funded by purchasing life and/or disability insurance to cover the predetermined agreed to buyout amounts.

 

►Examine all potential exit reasons thoroughly and be prepared for them.

 

Property and Liability Protection

 

Equally important to insuring buildings, equipment, and product lines, new businesses should make sure they properly protect themselves from lawsuits. People generally embrace adequate property protection but they rarely lend the same credence to liability protection – this goes for individuals too.

 

Unfortunately, in our litigious society, liability protection is something that must not be ignored because situations like these can arise quickly without warning and ultimately have a tremendous impact on your business.

 

A simple example of this type of situation could happen if an employee gets into an accident during working hours. Your company could be found liable – though the accident is no fault of your company – simply because of the employee’s affiliation with your company.

 

Industry statistics provide that businesses will bear the most financial burdens from liability issues versus the costs of property replacement.

 

►Seek the right amount of liability protection needed to fully protect your business.

 

Retirement Planning

 

Most people have heard of the terms: 401(k), IRA, SIMPLE, SEP, and Profit Sharing. For new business start ups, the real question is which one is best for your business?

 

Many plans are specifically designed to appeal to certain demographics. A SIMPLE Plan, for example, is by design targeted to small businesses interested in offering a plan but without the IRS compliance headaches of a 401(k).

 

Depending on the wants and needs of the owners and employees, each plan has a specific list of attributes and drawbacks. It is also tough to think about retirement when you’re just starting a business, but that is exactly when retirement planning should be done.

 

►Engage in retirement planning at the onset of your journey.

 

Health Coverage

 

As a new business owner, you now have health insurance considerations to keep in mind. Some new businesses opt to not provide coverage for the employees. However, highly qualified employees often require this benefit in order to consider working for an employer – do not overlook the possibility.

 

Cash Options – Employers can opt to give a cash stipend to employees in lieu of health insurance to be used as they see fit. While this is often a great option for young and healthy employees, it can prove problematic for a potential employee who may not be able to qualify for individually underwritten plans.

 

Group Health Plans – Starting a group health insurance program is the other alternative: group health plans guarantee coverage for all in the group regardless of underlying health conditions. However, it is equally important to understand that insurers can rate the entire group above the standard cost range depending on the underlying conditions of members within the group. Group coverage also requires a certain percentage of eligible employees participate in order for the group to be issued and operated.

 

If you choose to go the group health plan route, the different types of coverage should then be explored: HMO, PPO, Point of Service, Indemnity. Considerations for, optional dental, long-term disability, short-term disability and long-term care should also be made.

 

►Select a health plan which best serves your company objectives first.

 

Books, Banking, Tax & Law

 

Technology makes accounting, banking and tax transactions easier to record, budget and track today. Knowing what to look out for and ask about on the other hand, can easily remain under the radar.

 

If you opt for using accounting and payroll services, consistent examination of your records is still a necessity. Regardless of who does your books; your business will bear the liability of errors in reporting, depletion of funds, penalties, etc.

 

Choosing an accommodating bank is imperative: Will they process credit cards for you? Provide a line of credit when you need it? Are they fee crazy? Are they the type of bank known for working with new and small businesses?

 

Pending the legal structure and nature of your business, all potential tax liabilities should be examined at the state, local, and federal levels before you open your doors.

 

►Always be aware of how your company records are being booked and tracked.

 

New business owners that can check off these considerations in confidence are heading in the right direction. For those who cannot, do not back burner them – timing can be the difference between success and failure. Seek the professional help you need and build a solid foundation.

 

Additional Reading:

 

Start Up 101 Article Index Inc.com

 

Get a Buy Sell Agreement! Forbes.com

 

5 Tips for Buying Business Insurance Small Business Administration

 

Small Business Healthcare Tax Credit  IRS Newsroom

 

Basic Business Structures Entrepreneur.com

 

Small Business Accounting Library Business Week

 

2012 Business Software Reviews Top Ten Reviews.com

 

Kurt Rusch CLU, ChFC

Questions always welcome!

 

 

 

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Posted in Budgets, Business Liability, Healthcare, Money Management, Pensions, Planning, Protection, Retirement, Small Business, Start Ups, Tax | No Comments »

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

 

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Posted in Consumer Advocacy, Healthcare, Investment, Planning, Protection, Retirement, Savings, Social Security | No Comments »

The Need for Self Reliant Health Care

Tuesday, January 24th, 2012

 

I came across one of the best articles I’ve seen regarding Medicare funds or rather, the dissension thereof. For anyone over the age of 40, the issues at hand matter – a lot.

 

The biggest takeaway I got from the article? It is seemingly apparent relying on Medicare to provide like coverage in perpetuity is not very plausible. While it is difficult/annoying/painful for most of us to think 20 and 30 years beyond today, the potential for future health and financial challenges in our lives dictates otherwise.

 

One of the hardest hitting highlights of the article was an example about disbursements made using an average salary of $43,500 per year. A recently retired couple with that salary would have paid in almost $120,000 in Medicare taxes during their working lives. But according to the Urban Institute the medical benefits this couple would receive will average $357,000. Needless to say, this is not a sustainable model.

 

Another cited concern provided that 1 in 5 doctors restrict the number of Medicare patients they will take on at any given time. This number jumps to 31% for primary care physicians. The AMA reasons this is due to low reimbursement rates and that Medicare is deemed to be an unreliable payer by the medical profession.

 

Compounding these exasperating facts and figures is fictitious recipients. In 2010, it is reported that Medicare Part D paid $3.6 million to deceased beneficiaries. Similarly, 142,000 procedures on 5,000 dead people were paid for between 2004 and 2008 to the tune of $33 million.

 

According to the National Health Care Anti-Fraud Association, “The United States spends over $2.5 trillion on health care every year. Of that amount, NHCAA estimates that tens of billions of dollars are lost to health care fraud.” Mismanagement to say the least is costly and cannot be tolerated in any organization let alone one facing financial crisis.

 

Much is also written about “the gap in coverage” regarding prescription drugs. Yet the biggest gap occurs in long term care costs for home care, assisted living and skilled nursing facilities. Ironically, while our current system reimburses the deceased, it does not provide for the most financially devastating expenses the (still) living can incur.

 

This article is a major eye-opener to the current state of a program many of us are depending upon for health care services in retirement. Reading it should at the very least provoke further consideration for yourself and your family. Check out the entire article at Smart Money.

 

Kurt Rusch  CLU, ChFC

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Posted in Consumer Advocacy, Healthcare, Long Term Care, Medicare, Part D, Planning, Seniors | No Comments »

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

 

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Posted in Consumer Advocacy, Investment, Medicare, Pensions, Retirement, Savings, Seniors, Social Security, TAXES | No Comments »

Health Insurance: Group Vs. Health

Tuesday, January 10th, 2012

 

A client had the opportunity to participate in a group plan through their employer but was somewhat distressed (shocked, actually) at the cost. I asked if they had ever sought out comparative rates in the individual market. Their immediate response was the assumption that group health insurance was less expensive.

 

This was not the first person that I have spoken to that had that impression. In reality, individual and group insurance are two completely different contracts, subject to different rules and are therefore priced differently.

 

Past Trends

Group insurance obtained through an employer is often thought to be the most economical way to obtain health insurance. Unfortunately, this is not always the case.

 

When employers paid for all or most of their employee’s health premiums, group coverage was the way to go in most cases. That was before the explosion of health care costs and economic downturn.

 

Today, while many companies struggle to keep their doors open, the necessity for cost sharing is a must. Employees are being asked to pay a larger share, if not all, of their health insurance premiums.

 

Bearing this in mind, it is beneficial to understand the moving parts and reasons why it may be beneficial to explore the option of obtaining individual insurance rather than group health insurance.

 

Group Pricing

One of the main benefits of obtaining insurance through the group market is that the insurance is guaranteed issue. This means that you can get covered through the plan regardless of any pre-existing health issues. While this is a tremendous positive for someone who has a pre-existing condition, it can be an extra burden for those without:

 

Insurance companies may assess a rating factor that is equally allocated among the participants of a particular group to actuarially account for the acceptance of individuals who may otherwise be excluded from coverage.

 

Translation: If a group is rated up 40% because someone has a preexisting condition, each and every person who obtains their insurance through that group contract will bear a premium increase by that amount. Herein lays one of the reasons why group insurance may not be as economical as one would think.

 

Typically, insurance companies will also have one set rate for single employees, one for employee and spouse and one for families. A 20 year old will therefore be paying the same individual rate as a sixty year old.  Similarly, if you opt for family coverage, your rate is the same whether you have one child covered in the plan or a brood of 10.

 

Individual Pricing

The main drawback on individual contracts is they have to be underwritten. Insurance companies review medical records and coordinate their findings to a list of standard criteria before individual coverage is offered. The upside to the underwriting process is that the cost of claims tends to be lower and therefore can be reflected in lower premiums to younger, healthy people.

 

One of the most attractive benefits of the individual market is the freedom to tailor a plan to suit your personal needs and budget. More affordable premiums can be had by omitting the types of bells and whistles which are sometimes standard to employer paid and subsidized plans.

 

Individual coverage also provides portability. You can take an individual plan forward with you if you leave your current employer by choice, through downsizing, retirement or any other event. Conversely, group insurance will restrict you to 1 year if your company falls under the jurisdiction of Illinois Continuation or 18 months under COBRA.

 

Wrap Up

Common assumptions are often erroneous regarding today’s health insurance costs.

There is no right or wrong choice between individual and group health insurance.

Current trends now dictate the need for thorough examinations of all market options.

 

Kurt Rusch CLU, ChFC

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Posted in COBRA, Consumer Advocacy, Employer Health Plans, Healthcare, Private Insurance | No Comments »

Truth in (Insurance) Advertising

Monday, December 19th, 2011

 

A client, who has their auto, homeowners and umbrella policies through my agency, asked if I still her had her auto insurance because of something she’d received in the mail. I couldn’t imagine what could possibly make her think her coverage had magically migrated to another company and quickly assured her I was still the “agent of record” on her account. Then she produced some paperwork which appeared to be quite contradictory of the fact.

 

If It Looks Real It Must Be Real

 

It became apparent upon examination that she had received a randomly generated quote prepared with a mixture of true and false personal data. The quote was unique in format because it was presented like an actual “dec” sheet – similar to the declaration page(s) you get when you receive auto insurance policies. At first glance, the documentation looked official, which explains why my client thought twice about it and why it raised a big red flag with me.

 

My client’s mailing address, marital status and the first 4 characters of her driver’s license were also included and listed correctly. Her birth date was made up, she was listed as retired, which isn’t true, and there were only zeroes listed for her social security number – definitely a relief there! However, the make/model/year of her car and the VIN number matched up exactly.

 

I asked if she had been shopping the market online or had talked to anyone about lower rates. She assured me “absolutely not” because she never does things like that and she “closes those little boxes that always pop up”. Though I was glad to hear she wasn’t displeased with my service, I became more concerned about the methods used by the solicitous company.

 

Deceptive Advertising

 

Discounts were applied for low mileage, anti-theft, defensive driver, good driver, multi-policy, miles one way to work and senior citizen (not applicable in this particular case, as previously noted). Naturally, the semi-annual premium listed was in the low-ball range.

 

Line items such as “new acct” and “new app” in the billing section of the piece made it clear this was neither binding nor legit documentation to the trained eye. But presented in the fashion it was, it appeared like coverage was already in place. This also spurns the likelihood for people to send in payment under the assumption changes had been made to their existing contract – or at the very least to call the company that sent the quote.

 

Marketing is a necessity for any business, but this type of approach violates the parameters for “truth in advertising” as described by the U.S. Small Business Administration. Further investigation with the Illinois Department of Insurance confirmed my suspicions: the use of unauthorized personal information (such as the VIN#) is a privacy violation.

 

Lesson Learned

 

The haphazard nature in which facts were presented (and misrepresented) for this quoted premium illustrates there is very little chance that actual rates would come out anywhere near those mailed. Combined with the fact that unauthorized use of personal information was used to generate the mailing, it is alarming.

 

Those that sell lists for marketing purposes such as these glean information in ways we have yet to  imagine nor can keep absolute track of in the digital world. This situation serves as a valid reminder how crucial it is to keep a very close eye on the things we receive by postal and digital mail.

 

If you receive a similar type of questionable coverage letter for any type of insurance, complaints can be filed online through the IDOI. No one wants to do business with those that harvest personal information to obtain business underhandedly.

 

Kurt Rusch  CLU, ChFC

 

 

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Healthcare Confidence, Behavior & Reform

Friday, November 11th, 2011

 

 

It has been more than a year – 18 months and 11 days to be exact – since the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act (HCERA) of 2010 were passed. And still, after all this time, recent surveys show Americans are not extremely well versed on the new laws nor satisfied with current healthcare issues. It seems nothing has changed.

 

Amendments to the Acts and future application deadlines can all be attributed to the lack of knowledge regarding health care reform. Moreover, there are numerous concerns which polls are now returning regard confidence, behaviors and reform in the eyes of the American public.

 

Confidence

 

The Employee Benefit Research Institute (EBRI) has been conducting annual health confidence surveys (HCS) on healthcare since 1998. Highlights of this year’s survey provide:

 

1)     Dissatisfaction with the American health care system remains widespread. 56% of respondents rated the system as poor or fair. The percentage of Americans which rated the system as poor, doubled between1998 and 2004.

 

2)     60% of Americans are very satisfied with their own current health insurance coverage; 29% are somewhat satisfied.

 

3)     57% are very confident that their employment-based health coverage will continue to be offered by their or their spouse’s, employer or union. Confidence in this belief was 68% in 2000.

 

4)     Just 18% of people are extremely satisfied with the cost of their health insurance.

 

5)     Only 12% are extremely confident they are able to afford health care without financial hardship.

 

 

Behaviors

 

What human behaviors are impacting healthcare? Last September, the Thomas Reuters-NPR Health Poll released their query of 3,000 Americans on the subject of human behavior and healthcare.

 

Smoking was, of course, the top named impacting behavior, however, by less than a 1% difference, obesity was ranked second. Stress, by less than a 4% difference, was rated third. Taking the fourth and fifth top cited answers were alcohol use at 11.2% and workplace safety at 7.5%.

 

On the subject of cost, 84.8% of those polled believe that people who exercise, eat healthy and don’t smoke should receive a discount on their health insurance premiums. 30% say overweight people should have to pay more for health insurance. 11.3% went as far to say it is acceptable to deny employment based upon obesity.

 

Reform

 

The EBRI survey reports that confidence regarding today’s health care system has neither fallen nor increased as a result of the passage of health reform.

 

62% of Americans are also not familiar with a “key aspect of the law”. The unfamiliarity refers to legislation requiring that each state must set up a health care “exchange” by 2014, where health benefits can be shopped at competitive rates. This mandate is part of the Act’s objective to broaden health insurance coverage. The proposed goal is purposed to create an alternative coverage solution for the remaining minority of the American population without employment-based benefits.

 

Changes to the Act since its March 2010 inception have altered the original passage, which further complicates American awareness. As of today, it is unknown whether any of the current court challenges filed by States, business and other parties regarding the constitutionality of certain mandates within the law will further modify how health care reform unfolds.

 

The EBRI survey also found that health care is not the issue that the majority of Americans consider to be most pressing in America today:

 

32% of those polled say the economy is the most critical issue at hand.

 

14% say the federal budget deficit is.

 

14% cite unemployment as most important.

 

12% believe healthcare is.

 

11% think education is top priority.

 

Thanks for reading,

Kurt Rusch  CLU, ChFC

 

 

 

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Posted in COBRA, Employer Health Plans, Healthcare, Long Term Care, Medicaid, Medicare, Part D, Private Insurance | No Comments »

New Medicaid Laws May Impact Families

Tuesday, November 1st, 2011

 

We just received confirmation from our Elder Care Attorney that the Illinois Medicaid Laws will change January 1, 2012.  Current and future planning needs are now at crucial issue.

 

Why should you care?

 

The current state laws are much more favorable to applicants and their families; the new laws will make it more difficult to receive Medicaid benefits.

 

This is extremely important news for all senior parents and adult children – those with current need and those who have yet to reach that advent.

 

Legislated changes such as these can severely impact assumed expectations. Assisted and higher level care can drain an average middle income estate very quickly; for those without long term care coverage, pre-planning for Medicaid in the event it may be needed should be of paramount consideration.

 

There are many changes to the Medicaid system which will take place in the coming year. These highlights examine the issues of timely application (all assets do not have to be spent down prior to filing a Medicaid application) and asset protection.

 

Applications Filed Prior to January 1, 2012 Will Fall Under Current Medicaid Laws

 

Under the current laws if a nursing home or supportive living resident applies for Medicaid benefits the applicant is required to provide three years for all financial records to verify their assets. This includes all bank, investment, pension and retirement account statements, life insurance policies, and tax returns.

 

Medicaid is particularly concerned with whether the applicant has given anything away during the three year “look back” period, such as a gift to help pay for a grandchild’s college tuition or to a son or daughter in need. The current laws allow any ineligibility created from the gifts to begin tolling immediately when the gift is given. This offers the Medicaid applicant an important advantage in avoiding any penalties which may result from the gift.

 

NOTE: For those who are planning to enter nursing home or supportive living facilities before January 1st,  it is essential to determine if Medicaid application should be filed before the implementation of the changes in Illinois law.

 

Applications Filed After January 1, 2012 Fall Under New Medicaid Laws

 

Applicants will be required to provide five years for all financial records to verify assets. More importantly, gifts will not begin to toll until the applicant is already spent down. This is a significant change between the old and new laws.

 

Under the new law, applicants will likely have to try to recoup any significant gifts that were made within five years of filing a Medicaid application. In the event that the applicant cannot recoup the funds that were given away, then they will have an opportunity to plead for a hardship waiver and hope that the waiver is granted in order to obtain Medicaid benefits. The criterion in which a hardship waiver will be granted is somewhat unclear at this time, but it is anticipated it will be a very difficult process.

 

The current laws allow the spouse (community spouse) of a Medicaid applicant to protect all the assets that the community spouse has held solely in their own name (for three years or more) prior to filing for Medicaid. Current laws also allow applicants and their spouse to divide their joint accounts in half, so that the community spouse can keep half of the joint accounts.

 

Under the new laws, joint accounts will not be permitted to be divided between spouses. The community spouse will be allowed to retain a specified amount of account funds (currently $109,560). This amount is also subject to change from year to year.

 

For many families, it may be extremely advantageous to file a Medicaid application prior to the law change from an asset protection planning standpoint. After January 1st, asset protection will become more difficult to navigate under the new rules.

 

Please consider these options now and do not hesitate to contact me if you are unsure of the timing regarding your family situation at hand.

 

Kurt Rusch CLU, ChFC

 

Many thanks to John Belconis, JD, for his help in sharing this information with us.

 


 

 

 

 

 

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Posted in Daily Living, Healthcare, Income, Investment, Long Term Care, Medicaid, Planning, Protection, Retirement, Seniors | No Comments »

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

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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

 

 

 

 

 

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Posted in Healthcare, Medicare, Part D, Planning, Social Security, Supplement | 1 Comment »

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