Fourth Quarter, a Look Back…

ECB Announces Monthly Rate Decision
Photographer: Hannelore Foerster/Bloomberg

The Federal Reserve pulled the trigger. At the December Federal Open Market Committee meeting, the Fed finally acted, tightening monetary policy by raising the funds rate from 0.25 percent to 0.50 percent. It’s important to remember the Fed doesn’t actually set interest rates. It takes actions designed to influence financial behaviors. The Fed has given rates a push, it remains to be seen whether its efforts will bear fruit.

The European Central Bank (ECB) acted, too. Although, its monetary policy moved in a different direction, offering additional stimulus measures to support European economies. Investors were enthusiastic when the ECB announced its intentions; however, markets were underwhelmed when the economic measures delivered were less stimulative than many had expected.

China’s currency gained status. The International Monetary Fund decided to add the Chinese yuan (a.k.a. the renminbi) to its Special Drawing Rights basket, effective October 1, 2016. After the renminbi is added, the U.S. dollar will comprise 42 percent of the basket, the euro will be 31 percent, the renminbi will be 11 percent, the Japanese yen will be 8 percent, and the British pound will also be 8 percent.

Congress tweaked Social Security. The Bipartisan Budget Act of 2015 (BBA) averted a U.S. default and deferred further discussion of U.S. debt and spending levels until after 2016’s presidential and congressional elections. It also did away with two popular social security claiming strategies. The restricted application strategy was discontinued at the end of 2015, and file and suspend strategies will be unavailable after May 1, 2016.

Medicare premiums go up, but not for everyone. The BBA also limited increases in Medicare premiums. About 14 percent of Medicare beneficiaries will pay higher premiums in 2016. The new premium will be $121.80, up from $104.90 in 2015. Original proposals suggested the premium amount increase to $159.30.

Medicare Part B Premiums Will Rise by 16 Percent in 2016 for Some Seniors

Medicare
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The Centers for Medicare & Medicaid Services has quietly made it official: Medicare Part B premiums for 30% of Medicare recipients will jump next year, but not as high as they would have without the bipartisan budget deal passed late last month. While 70% of Medicare beneficiaries will have their premiums held to the same $104.90 per person a month they paid in 2015, the unlucky 30% will face a 16% increase in their base premium from $104.90 to $121.80 per person per month. And the 5% of beneficiaries who pay a high income surcharge, will pay a 16% increase in that surcharge, along with paying the higher base.

Without the budget deal, both the base and the surcharges for Part B, which covers doctors’ and outpatient services, would have risen by 52%. “By historical standards it (16%) is a very, very large increase,” says Joe Antos, health policy expert at American Enterprise Institute. “It’s not as much as it would have been, but it’s big.”
As for the high income premium payers, they’re “in a permanent state of shock,” Antos observes. Graduated high-income premium surcharges for seniors kick in for singles with a modified adjusted gross income of more than $85,000 and for couples with a MAGI of more than $170,000. (The premiums for 2016 are based on the AGI reported on 2014 tax returns.)

An individual earning more than $85,000, but less than or equal to $107,000, will pay $170.50 a month in 2016, up from $146.90 a month this year. A wealthy senior couple with AGI of $428,000 or more will pay $9,355 a year in Part B Medicare premiums, up from $8,056 in 2015.

The Part B premium debacle is set against the backdrop of falling oil prices, which means that overall inflation has been almost nil, and Social Security recipients will get no cost of living increase for 2016, their first year since 2011 without a boost. A 1987 “hold harmless” provision, designed to keep recipients’ Social Security net checks from shrinking, provides that for ordinary retirees who have Part B premiums deducted from their Social Security checks, the standard premium can’t go up in any year by more than the extra dollars they’re getting as a cost of living adjustment in their Social Security checks. That protects 70% of recipients.

But medical costs, and in particular Medicare’s costs, are increasing. And a different law requires that premiums paid by beneficiaries cover 25% of Part B total costs. The odd result: the increases the 70% of recipients don’t pay are shifted onto the 30% who aren’t protected by the hold harmless provision. That unlucky 30% includes those who are better off, those who don’t have Medicare premiums withheld from their Social Security, and those who didn’t receive Social Security in 2015.

Here’s the table of what you’ll pay per month for 2016, depending on your income, for individuals and for couples filing a joint tax return:

Beneficiaries who file an individual tax return with income: Beneficiaries who file a joint tax return with income:

Income-related monthly adjustment amount

Total monthly premium amount

Less than or equal to $85,000 Less than or equal to $170,000

$0.00

$121.80

Greater than $85,000 and less than or equal to $107,000 Greater than $170,000 and less than or equal to $214,000

48.70

170.50

Greater than $107,000 and less than or equal to $160,000 Greater than $214,000 and less than or equal to $320,000

121.80

243.60

Greater than $160,000 and less than or equal to $214,000 Greater than $320,000 and less than or equal to $428,000

194.90

316.70

Greater than $214,000 Greater than $428,000

268.00

389.80

Note these officially-released numbers are slightly higher than those talked about after the budget deal: $120.70 for the base monthly premiums for those not held harmless. “This is actuarial nitpicking at its finest,” Antos says.The last time we saw hikes like these was in 2011, when premiums for high income folks rose 15%, and Antos warns that we could see them again for 2017. Starting in 2020, the high income premium brackets will be adjusted for inflation, so that promises to keep some out of reach of the income surcharges. But don’t count on it. “We’re going to have several years of Congress looking for money from Medicare,” says Antos. “It’s easy to remove that indexing. It’s always easier to pick on high income people than anybody else.”

Is there a way around these high premiums? Use strategies now that will let you control your adjusted gross income in retirement. The income-related premiums are based on your income two years prior. Planning ahead with Roth conversions can help manage your bracket in retirement. Fidelity’s latest retiree healthcare cost is $245,000 a couple and that’s not including income-related Part B surcharges.

If you have a high deductible health insurance plan now, fund a health savings account and invest it until you need it for medical expenses in retirement (you can use money in a health savings account for Medicare premiums but not for Medigap policies). It’s possible to build a $150,000-plus health savings account. If you’re already getting hit with Medicare income-related premiums, bunching income into one year can help keep premiums down another year.

Written by Ashlea Ebeling of Forbes

(Source: Forbes)

Millions Facing a Hefty Increase in Medicare Premiums in 2016

A Medicare patient shakes hands with his doctor after an appointment in Grants Pass, Oregon.
© Jeff Barnard/AP Photo

Under mounting pressure from seniors and labor groups, congressional leaders and the Obama administration are rushing to find a way to avert a huge Medicare premium increase of 50 percent or more for nearly a third of the 50 million elderly Americans who are reliant on Medicare for their physician care and other health services.

House Speaker John Boehner (R-OH), House Minority Leader Nancy Pelosi (D-CA) and White House officials have been scrambling behind the scenes to spare millions of seniors the expense of huge Medicare Part B premium hikes. While the problem pales in comparison to the larger budget issues, including highway spending and debt ceiling challenges, lawmakers are super sensitive to the concerns of seniors heading into the crucial 2016 election year.

“Congress has a responsibility to act,” Pelosi said in a statement this week. “If we do nothing, millions of American seniors will suffer. Democrats continue to press the Republican leadership to bring a fix to the floor so we can prevent the serious harm this increase will have on states and low-income seniors across the country.”

Some 70 national organizations, including AARP, labor groups and health insurance company trade associations, sent a letter to Republican and Democratic congressional leaders last week urging prompt action to block or mitigate the looming premium increases. “Older adults and people with disabilities cannot shoulder these unprecedented increases,” Joe Baker, president of the Medicare Rights Center, told  The New York Times  .

The pending sharp premium increase, reported in August by The Fiscal Times , was prompted by a strange twist in the law that effectively penalizes wealthier beneficiaries and others any time the Social Security Administration fails to approve an annual cost of living adjustment. This will be only the third time since 1975 that Social Security will not increase the cost of living benefit, simply because the Consumer Price Index used by the government has remained relatively flat.

Medicare Part B and the Social Security trust fund are intertwined, and most seniors on Medicare have their monthly premiums deducted from their Social Security checks. Because the federal law for various reasons “holds harmless” about 70 percent of Medicare recipients from premium increases to cover unexpected rising healthcare costs, the remaining 30 percent of Medicare Part B beneficiaries suffer the consequences by being made to pay higher premiums.

Medicare officials are expected to announce a final decision on 2016 premiums later this month after reviewing federal Bureau of Labor Statistics data on consumer prices. However, many are assuming the premiums will go up.

Short of congressional or Department of Health and Human Services intervention at this point, roughly 15 million seniors, first-time beneficiaries or those currently claiming both Medicare and Medicaid coverage will see their premiums jump from $104.90 per month to $159.30 for individuals, according to  an analysis  by the Center for Retirement Research at Boston College. Higher-income couples would pay multiples of that increase.

The cost to Congress of averting such a premium hike is substantial – ranging from $2.8 billion to $7.5 billion, depending on calculations and budgetary baselines used in the computations. An aide to Boehner said on Tuesday that the speaker – who retires from Congress at the end of the month and is trying to complete a lot of budget business – is insisting that the cost of the bailout be offset by cuts in other programs.

Pelosi had urged Boehner to include the funding in the short-term continuing resolution approved late last month that will keep the government operating through December 11, according to a source. Now she is pressing him for a stand-alone bill to pass this week before the premium increase is likely to take effect. According to an aide, the longer Congress takes to act, the more expensive it becomes.

Pelosi has scheduled a press conference with other Democratic leaders on Wednesday to call on Boehner and House Republicans “to take urgent action to keep Medicare Part B premiums and deductibles affordable for millions of America’s seniors.”

Written by Eric Pianin of The Fiscal Times

(Source: The Fiscal Times)

Where will 78 Million Baby Boomers Retire?

© Jamie Grill/Getty Images
© Jamie Grill/Getty Images

With roughly 78 million baby boomers at or near retirement and average life expectancies climbing, many independent-minded seniors are resisting the pressure to move to often costly retirement communities or assisted living facilities and are instead making plans to stay at home.

“Aging in place” is the new mantra for many older Americans and there has been a surge in community-based programs and activities to help them remain in their homes. Indeed, the rate of homeownership among people 65 and older is a remarkable 78.5 percent, compared with a homeownership rate of 63.5 percent among the general population. And that isn’t likely to change anytime soon.

The challenge for many to both stay relatively healthy and hang onto their homes is formidable. An estimated 80 percent of seniors in the U.S have chronic health conditions that potentially could force them into nursing homes or assisted living without adequate health care support. And while 87 percent of seniors said in an AARP survey that their fondest desire is to remain in their homes and communities, depleted incomes and savings are making that harder and harder for many Americans.

So what to do?

A new report by a task force of the Bipartisan Policy Center released on Thursday is calling for a “more strategic approach” to linking health care and housing policies to help millions of seniors realize their desire to stay put in their homes as long as possible.

The report is highly critical of federal, state and local health care and housing officials operating in isolation from each other and calls for a more collaborative effort.

“By more tightly linking health care and housing policy, the U.S. has the potential to improve the health outcomes for seniors, reduce the costs incurred by the health care system, enable millions of seniors to ‘age in place’ in their own homes, and improve their quality of life,”   Vin Weber, a former Republican House member from Minnesota and co-chair of BPC’s Health and Housing Task Force, said in a statement. “Making these connections is critical as federal government spending on Medicare, Medicaid, and other health programs is projected to grow much faster than the overall economy over the next 25 years.”

The task force stressed the urgency of the government and private sector moving quickly to develop new ideas and programs for helping baby boomers as they reach senior status. By 2030, more than one in every five Americans will be 65 or older, compared to 13.1 percent in 2010 and 9.8 percent in 1970. In short, in a span of just 60 years the percentage of the population over the age of 65 will more than double.

According to recent Congressional Budget Office study, population aging over the next quarter of a century will be responsible for 56 percent of the growth in spending on major federal health programs. Enrollment in Medicare, the costly program providing health care for seniors, is expected to increase by 16 million people annually. That will lead to a total of nearly 81 million beneficiaries by 2070.

Medicare benefit payments totaled $597 billion in 2014, with roughly one fourth going for hospital inpatient services, 12 percent for physician services, and 11 percent for the Part D drug benefit.

With CBO budget projections showing that mounting Medicare and Social Security costs will greatly add to the deficit over the coming decades, task force members argue that a coordinated effort to help keep seniors both healthy and in their homes may be a critical tool for slowing the growth of the deficit.

The challenges are considerable but far from insurmountable.

On the health care front, seniors with chronic conditions like heart disease, kidney problems, respiratory ailments and obesity utilize high volumes of complex health care services – roughly 84 percent of U.S. health care dollars and 99 percent of Medicare spending, according to the report.

As the population of retirees steadily rises and more seniors try to remain in their homes, there will be increased demand for community-based services, such as transportation to and from doctors’ offices, help in doing household chores, exercise classes and counseling to treat the symptoms of social and emotional isolation.

On the housing front, many seniors – facing diminishing income and personal savings — will need financial assistance in making their mortgage and rental payments.Most seniors will be homeowners, though the number of senior renters will increase dramatically, according to the study. However, many of them will struggle to find affordable housing and will need federal rental assistance.

What’s more, the report notes, “Older seniors are carrying larger mortgage balances into their retirement years, potentially impacting their ability to finance retirement and aging-in-place needs.”

The task force, which includes former Department of Housing and Urban Development secretaries Henry Cisneros and Mel Martinez and former Democratic House member Allyson Schwartz from Pennsylvania, is working to identify cost-effective ways to enable seniors to live more independently and safer. They will also seek ways of increasing the supply of affordable housing for seniors.

The good news in the report is that there already are many community-based programs throughout the country that have “successfully integrated” housing and health care for seniors.

Those include:

  • Stewards of Affordable Housing for the Future, a network of 11 nonprofit organizations that support and provide affordable rental housing for 115,000  low-income seniors and families in 49 states, the District of Columbia, Puerto Rico and the U.S. Virgin Islands. The organization has demonstrated how housing providers “can work more effectively with the health care system, including with accountable care organizations and managed care entities,” according to the study.
  • Vermont’s Senior and Services at Home program, which is operated by the housing provider Cathedral Square. The program is touted for having shown how closely linking the operation of housing and supportive services for seniors can slow the rate of growth of Medicare spending.
  • A handful of  housing providers including National Church Residences and Mercy Housing “are proving that housing can be an essential platform for the delivery of health care and other services,” according to the report.
  • Medicaid Home and Community-Based Services waivers also enable low-income seniors to receive assistance in their own homes and communities rather than having to move into more expensive institutional facilities. A few states are also using Medicaid funds to provide housing-related services to help individuals move out of more costly nursing homes and back into their communities.

“These are all positive developments,” the report states. “But with millions of Americans about to enter the senior ranks, the current window of opportunity is small and narrowing. Strengthening the collaborative bonds between health and housing must become an urgent national priority as we prepare for the demographic changes ahead.”

Written by Eric Pianin of The Fiscal Times

(Source: The Fiscal Times)

7 Questions to Ask Yourself Before Deciding to Retire

Few Americans save abundantly for retirement. Whether due to financial issues or a lack of foresight, a lot of people either don’t give much thought to retirement or are unable to save up enough to help them fund their elder years.

In fact, only 13 percent of people who haven’t retired yet say they’ve given a lot of thought to financial planning for retirement, according to the Report on the Economic Well-Being of U.S. Households in 2014 conducted by the Federal Reserve Board. Nearly 40 percent say they have given little to no thought to retirement planning.

Mapping out your retirement takes more than asking yourself, “When should I retire?” Consider these seven questions to help you better plan for financial and personal obstacles in retirement.

1. What kind of lifestyle do I want?

If you’re married, you’ll need to speak with your spouse to make sure your retirement plans are aligned.

© Blend Images/REX If you’re married, you’ll need to speak with your spouse to make sure your retirement plans are aligned.

Before you try to figure out how much money you need to retire, you need to consider what sort of lifestyle you want to have in retirement, said John Sweeney, Executive Vice President of Retirement and Investing Strategies at Fidelity. Do you want to stay in your current home or downsize? Will you want to move to a bigger city or someplace warmer? Maybe you want to travel the world.

No matter how you envision your retirement, you’ll need to plan ahead to fund it. Depending on your goals, you might need to save more than you originally planned. If you’re married, you’ll need to speak with your spouse to make sure your retirement plans are aligned.

2. What will my expenses in retirement be?

When to retire

© Provided by Gobankingrates When to retire

Sweeney said most people can expect to spend about 85 cents in retirement for every dollar spent before retirement. Depending on your health, however, you might need to save more to cover medical expenses. If you have a chronic condition or have mobility issues, over time you might end up needing to spend more money to maintain your quality of living.

To help you project rough estimates of your retirement costs, you can use an online retirement income calculator. With a financial planner, you can get a detailed cash-flow analysis and help managing taxes.

3. Will I have enough savings to cover my expenses?

© Ocean/Corbis

Less than half of all workers say they’ve ever tried to calculate how much money they will need to save to live comfortably in retirement, according to The 2015 Retirement Confidence Survey conducted by the Employee Benefit Research Institute. Scott Bishop, Director of Financial Planning at STA Wealth Advisors in Houston, recommends comparing your current monthly expenses with how much income you’ll have in retirement.

If your retirement savings can’t sustain your mortgage, insurance and other typical costs, you might want to reconsider your current savings plan. You will also want to calculate your Social Security benefit to determine how it will affect your monthly budget. When considering whether you’ll have enough income in retirement, assume you’ll be in retirement for 25 years and have access to four percent of your savings annually.

In retirement, you’ll want to revisit your withdrawal percentage, adjusting for your actual spending, said Bishop. Your retirement portfolio, which should include numerous asset types, should also be structured to outpace inflation. Sweeney recommends you have a mix of stocks — about 55 percent — in your early years of retirement to maintain growth, and fixed income, such as bonds, to guard against market volatility.

4. What impact will taxes have on my retirement income?

© Heide Benser/Corbis

Taxes don’t disappear when you stop working. In fact, your tax bill can take a big bite out of your retirement income.

Up to 85% of your Social Security benefits might be taxable if you have income in addition to your benefits. Withdrawals from tax-deferred retirement accounts, such as traditional IRAs and 401(k)s, are also taxed. So, if you need $5,000 a month to cover expenses in retirement, you might need to withdraw up to $6,000, thanks to taxes, Bishop said.

Higher-income taxpayers will have to pay taxes on profits from the sale of stocks, bonds, mutual funds and other investments not held in a tax-deferred retirement account. States have their own rules for taxing retirement income, so depending on where you live, you could be hit with an above-average tax bill.

The states that impose the highest taxes on retirees include California, Connecticut, New York, Oregon, Rhode Island and Vermont, according to a 2014 analysis of state taxes conducted by Kiplinger, a publisher of business forecasts and personal finance advice. A financial planner can help you figure out how taxes will impact you in retirement and what strategies you can use to minimize your tax bill.

5. Where will I get my health care?

© REX/Blend Images

Chances are your employer won’t continue providing health care coverage for you in retirement. Only 28% of companies with 200 or more employees offer retiree health coverage, according to the 2013 Kaiser/HRET Survey of Employer-Sponsored Health Benefits.

You are eligible for Medicare when you turn 65. You likely won’t need to pay a premium for Medicare Part A, which covers inpatient hospital stays, care at nursing facilities, hospice care and some home health care. If you want extended health benefits, however, you’ll need to pay a monthly premium for Medicare Part B, which covers most doctors’ services and outpatient services. Medicare Part B typically costs around $104.90.

If you retire early, you’ll have to get an insurance policy on your own. Couples who retire at 62 can expect to pay $17,000 a year for health insurance premiums and out-of-pocket costs until they’re eligible for Medicare, according to Fidelity. A retiree can expect to pay an average of $220,000 in medical expenses over the course of their retirement.

You also need to factor in long-term medical care, which could wipe out your retirement savings if you’re not prepared. The median annual cost of care in an assisted living facility is $43,200, and the average cost of a private nursing home room is more than double that, according to the Genworth 2015 Cost of Care Survey. To curb these types of costs, you can look into long-term care insurance.

6. How much debt do I have?

© JLP/Jose L. Pelaez/Corbis

The more debt you carry into retirement, the more retirement income you’ll need to pay off what you owe. When you’re deciding when to retire, you need to figure you how long it will take to pay off your existing debts. You should pay off any high-interest debts that aren’t tax-deductible first, such as credit card debt, said Bishop. If you have good credit, refinance any high-interest debt that’s tax-deductible, such as a mortgage, to get the lowest rate possible.

7. Am I emotionally ready to retire?

Glum businessman working in office

© Jose Luis Pelaez Inc/Getty Images Glum businessman working in office

Ask yourself what you will do once you retire. If you don’t know — and most people don’t — you might have a problem, said Bishop. Few people still have the traditional view of retirement of doing little more than playing shuffleboard all day. In fact, only around 22 percent of people surveyed by the Federal Reserve Board say they plan to stop working entirely in retirement.

You need to figure out before you retire whether you want to continue working in some capacity. If you initially choose not to work in retirement, you might have a harder time becoming employed after being out of the workforce for a while.

Deciding to retire, much less knowing how to map out a retirement plan, takes work and careful thought. Consider meeting with a financial planner to help you determine how to decide when to retire and to create an action plan for retirement. Knowing how and when you will retire will allow you to look forward to retirement.

Written by Cameron Huddleston of GoBankingRates

(Source: GoBankingRates)