• Businesses today are less likely to offer defined benefit (DB) plans.
• Increased focus on planning for longevity.
• Expansion of employer-sponsored financial wellness initiatives.
• Expansion of plan distribution options.
  
  MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1355-1358). College for Financial Planning. Kindle Edition.

With defined contribution plans, risks are borne by plan participants/ employees rather than by plan sponsors/ employers (as with defined benefit plans).

Many of these employees have little or no financial expertise.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1361-1362). College for Financial Planning. Kindle Edition.

1. identifying the service(s) to be provided;
2. disclosing the planner’s compensation arrangement(s);
3. determining the client’s and planner’s responsibilities;
4. establishing the duration of the engagement; and
5. providing any additional information necessary to define and limit the scope.
   
   MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 231-234). College for Financial Planning. Kindle Edition.

1. establish client-planner relationship and define services to be provided
2. gather data including the client’s goals
3. analyze information to determine retirement savings needed to reach retirement goal
4. develop and recommend a retirement savings program
5. implement the program
6. monitor the program
   
   MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1366-1371). College for Financial Planning. Kindle Edition.

1. retirement date of client and spouse
2. residence during retirement
3. employment after retirement
4. changes in lifestyle
   
   MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1374-1377). College for Financial Planning. Kindle Edition.

(1+ROR        )

(---------   -1 )   x 100

(1+ i             )

ROR = Rate of Return

i = Inflation Rate

eg:  i = 3%, ROR=7%

(1.07/1.03 -1)  x100 = 3.8835%

What is important to remember when calculating:

- Retirement Income Payments?

- Retirement Savings?

Retirement income payments are assumed to be made at the beginning of the year,

While savings to build the retirement fund are deposited at the end of the year.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 594-595). College for Financial Planning. Kindle Edition.

The advantage of the serial payment approach is that the initial payments are lower, and then they grow over time along with the client’s potential earning power and income.

This calculation tends to be the most challenging to students initially, since it not only involves three steps, but it also involves deflating the lump sum amount needed at the beginning of retirement, and then using it as a future value in the calculation.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 645-648). College for Financial Planning. Kindle Edition.

Begin mode, 1 P/ YR

50,000 -  pmt

30 - n

[1.07/ 1.04 – 1] x 100 = 2.8846  -  i/ yr

PV = 1,023,500

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1391-1395). College for Financial Planning. Kindle Edition.

First, inflate the $ 35,000 in today’s dollars into retirement year one dollars.

35,000 =  PV

19 = n

3 = i/ yr

FV = 61,373

Now solve for the lump sum amount needed at the beginning of retirement. Make sure you are in the begin mode.

61,373 = pmt

30 = n

[1.065/ 1.03 – 1] x 100 = 3.3981 = i/ yr

PV = 1,182,176

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1400-1406). College for Financial Planning. Kindle Edition.

PROBLEM: The Cornells plan to retire in 15 years, and have determined that they will need an additional $ 70,000 per year in order to enjoy the type of retirement they envision. They want to plan for a 25-year retirement period, expect to achieve a blended rate of return on their investments of 6%, and expect inflation to run at 3.5%. They have asked you to calculate the lump sum amount they will need at the beginning of retirement to fund this shortfall.

a. In order to reach their lump sum objective for the beginning of retirement, what annual level payment would the Cornells need to make?

b. In order to reach their lump sum objective for the beginning of retirement, what “end of first year” serial payment would the Cornells need to make?

First Step: Used for both parts

Begin mode

 - 70,000 = pmt

-  25 = n

-  [1.06/ 1.035 – 1] x 100 = 2.4155 i/ yr

-  PV = 1,333,716

Part A (End Mode):

-  1,333,716 = FV

-  15 = n  

-  6 = i/ yr

-  pmt = 57,300

Serial payment means that you are going to adjust the payment amount each year for inflation. First, deflate the retirement year 1 dollars into today’s dollars. -  1,333,716 = FV

-  15 = n

-  3.5 = i/ yr

-  PV = 796,083

Next, use this deflated value as a future value since you are going to take into account inflation as you increase your payments each year (end mode).

-  796,083 = FV

-  15 = n

-  [1.06/ 1.035 – 1] × 100 = 2.4155 i/ yr

-  pmt = 44,668.42

Finally, take this payment and inflate to come up with the end of first year payment: $ 44,668.42 × 1.035 = $ 46,231.82.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1421-1429). College for Financial Planning. Kindle Edition.

[image]

OASDI = Old Age, Survivor, Disability Insurance

HI = Hospital Insurance

The OASDI tax is applied to income up to the taxable wage base of:

$128,400 (2018)

• federal government workers hired before 1984;
• railroad employees covered under the Railroad Retirement System;
• business owners who receive only distributive (dividend) income for services performed;
• children under age 18 who are employed by a parent in an unincorporated business;
• and state and local government employee groups who are members of a state or local government employer’s retirement system where the state or local government has elected to exclude Social Security coverage for such group.
  
  MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 804-808). College for Financial Planning. Kindle Edition.

The maximum benefit for a worker retiring in 2018 is:

$ 2,788

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Location 815). College for Financial Planning. Kindle Edition.

1.  There are two   eligibility requirements for Social Security retirement benefits. The first applies to the worker’s age.

Simply stated, the worker must attain age 62, at a minimum, to begin receipt of retirement benefits. (Spouses, former spouses, or survivors of a covered worker, or disabled workers may also qualify for benefits. We will discuss these benefits later in this chapter.)

2.  The second requirement applies to the worker’s work history. There are a number of rules regarding the calculation of work history, but in summary, a worker must work and pay into the system for 10 years to become fully insured and eligible for retirement benefits.

You have likely seen reference to the need to obtain 40 work credits in order to be eligible for full Social Security benefits.

In 2018, an individual will earn one credit, or quarter of coverage, for every $1,320 (indexed) earned in a Social Security covered position, up to a maximum of four credits per year. Earnings can come all in one month, or can be spread throughout the year.

Individuals who earn $ 5,280 in 2018 will receive the maximum four credits.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 831-838). College for Financial Planning. Kindle Edition.

Fully insured status is defined as having 10 years of employment covered by Social Security, expressed as “40 quarters of coverage.” One must be fully insured in order to be eligible for retirement benefits.

Spousal retirement benefits and benefits for a widow( er) age 60 or over, and benefits for a dependent parent, are also only payable if the worker was fully insured at death.

A fully insured worker would also be eligible for disability benefits if he has earned at least 20 work credits in the past 10 years.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 843-846). College for Financial Planning. Kindle Edition.

To be currently insured, an individual must have at least six quarters of coverage in the 13-quarter period preceding the event for which eligibility is sought.

Child’s benefits, mother’s or father’s benefits, and the lump sum death benefit are available if a worker is only currently insured at death.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 847-849). College for Financial Planning. Kindle Edition.

“lifetime average earnings,” which Social Security defines:

As the highest 35 years of earnings, as adjusted for inflation.

These years do not need to be consecutive or even recent, they just need to be after 1950.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 859-861). College for Financial Planning. Kindle Edition.

1. Start with the worker's earnings record and then apply an inflation adjustment to each year of earning shown (earning after age 60 are not indexed for inflation)
2. Determine the workers "Lifetime average earnings" - The highest 35 years of earnings as adjusted for inflation (These don't need to be consecutive.  They just need to be after 1950)
3. Take the highest 35 years of inflation adjusted wages and divide by 420 (# of months in 35 years) - This gives you the average monthly earnings or AIME
4. Social Security then applies a formula to the worker's AIME to determine monthly benefit or Primary Insurance Amount (PIA)
5. PIA is adjusted annually for inflation. 
   1. Announced in October
   2. Effective in December
   3. Reflected in January

• Age 50: When disabled survivors can start receiving benefits
• Age 60: When nondisabled survivors can start receiving benefits
• Age 62: Earliest one can start receiving retirement benefits at a reduced rate
• Age 65– 67: Full retirement age, depending on one’s birth year; she receives 100% of her benefits if she files here
• Age 70: Delayed retirement age; she receives the maximum increased benefits for waiting until this time to file
  
  MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 888-891). College for Financial Planning. Kindle Edition.

Earned income is defined as:

• wages and
• net earnings from self-employment;
• investment income,
• pensions,
• capital gains, and
• NOTE:  inheritances are not included in this definition.
  
  MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 896-897). College for Financial Planning. Kindle Edition.

PROBLEM: Assume Deb was age 64 in 2018 and had already begun collecting Social Security benefits. If Deb decided to take a part-time job and earned $20,000 in that year, what would her annual Social Security paymen be reduced by?

• Earnings:  $20,000
• Earning Cap:  $17,040
• Earnings Over:  $2,960
• SS Reduction:  $2,960/2 = $1,480

Location:  899

• Adjusted gross income (excludes Social Security)
• + Nontaxable interest (muni bond interest)
• + ½ of Social Security benefits
• =  Provisional income

Benefits are tax-free if the provisional income is

less than $25,000 (for those filing as single or head of household) or

$32,000 (for those who file a joint return).

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 913-914). College for Financial Planning. Kindle Edition. 

Benefits are tax-free if the provisional income is

less than $25,000 (for those filing as single or head of household) or

$32,000 (for those who file a joint return).

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 913-914). College for Financial Planning. Kindle Edition. 

If the provisional income is between:

$25,000 and $34,000 on a single return or

$32,000– $44,000 on a joint return, for every $1 of income between the lower and upper bases, 50 cents of Social Security benefits become taxable, up to 50% of the total benefit.

Finally, if provisional income exceeds $34,000 for singles or $44,000 for married couples, then for every $1 of income above these thresholds, 85 cents of Social Security benefits becomes taxable, up to a total taxable amount of 85% of benefits.

Regardless of the level of an individual’s provisional income, 15% of their benefit will always be tax-free.

[image]

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 914-919). College for Financial Planning. Kindle Edition. 

PROBLEM:  Fred and Betty have an AGI of $ 27,000. They also have municipal bond interest of $ 1,000, and their Social Security benefit amount is $ 20,000 per year.  How much of their Social Secuity benefits are taxed?

$27,000 AGI + $ 1,000 municipal bond interest + $ 10,000 (one-half of Social Security benefit) = $ 38,000 of provisional income.

Their provisional income is $ 6,000 above the $ 32,000 low end of the threshold range. Up to 50% of benefits are taxable between $ 32,000 and $ 44,000 for married filing jointly; 50% of $ 6,000 is $ 3,000, so $ 3,000 of their benefit amount will be taxable.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 925-927). College for Financial Planning. Kindle Edition. 

$ 60,000 + $ 21,000 (one-half of Social Security benefit) = $ 81,000 provisional income. Their taxable portion of Social Security would be calculated as follows:

- In the $ 32,000– $ 44,000 range, 50% of the benefit amount is taxable; since the range is $ 12,000, 50% of $ 12,000 is $ 6,000.

- They are $ 37,000 above $ 44,000 (top of the 50% threshold range); 85% of $ 37,000 is $ 31,450.

- $6,000 + $31,450 = $ 37,450 potential taxable amount— we must make sure that this amount is no more than 85% of the total benefit amount.

- $42,000 (total Social Security benefit) × .85 = $ 35,700. This is the maximum amount that can be taxable, and it is lower than the $ 37,450 amount we arrived at, so $ 35,700 is the taxable amount for Barney and Wilma.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 931-935). College for Financial Planning. Kindle Edition. 

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 929-931). College for Financial Planning. Kindle Edition. 

A current spouse, married at least one year, is eligible for spousal benefits,

as is a former spouse if the marriage lasted at least 10 years

• Also need to be age 62 to claim benefits
• The Worker spouse must have filed to collect on his own benefits in order for his spouse to receive spousal benefits

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 943-944). College for Financial Planning. Kindle Edition. 

Deemed filing   is a rule that mandates that someone claiming a Social Security benefit must file for all benefits for which she may be eligible.

This means that clients who file for spousal benefits are deemed to have filed for their own benefit too. They won’t get both benefits, but rather will receive the equivalent of the higher of these two benefits. You cannot pick and choose which benefit you would like to receive.

Deemed filing applies regardless of the age at which you file for benefits. In other words, regardless of age, retirees can collect only the larger benefit of their two available benefits, the spousal benefit or their own. They cannot choose and they cannot switch later.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 951-952). College for Financial Planning. Kindle Edition. 

Mindy  is eligible for a $ 600 spousal benefit.

Her benefit will be calculated as follows:

• she will draw the full $500 based on her own record and
• an additional $100 will be added to her payment from Matt’s earnings record.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 957-958). College for Financial Planning. Kindle Edition. 

A widow(er) can apply for a reduced survivor benefit starting at age 60 (age 50 if disabled, or any age if caring for a deceased’s child under age 16 or disabled).

By waiting until full retirement age, however, the widow(er) will receive 100% of the amount their deceased spouse would have received had they lived.

The widow(er) can even remarry after age 60 and continue to receive survivor’s benefits.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 963-966). College for Financial Planning. Kindle Edition. 

The survivor benefit feature of Social Security allows the surviving spouse (if married to the deceased worker for at least nine months) to “step into” to the deceased spouse’s benefit amount, assuming that this is higher than their own benefit.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 967-969). College for Financial Planning. Kindle Edition. 

As long as the client was married for:

- 10 or more years,

-  is currently unmarried, and

-  both spouses are age 62 or older,

the client will qualify for benefits based on the ex-spouse’s record.

If the ex-spouse has not yet filed for benefits, then the client must have been divorced for two years in order to be eligible for a divorced spouse’s benefit.

The divorced spouse’s benefit at FRA equals one-half of the worker’s PIA, and will be reduced if taken prior to FRA, just as it is for married couples.

Such a benefit will end if the client remarries, dies, or becomes entitled to a retirement or disability benefit that equals or exceeds one-half of the worker’s PIA.

Remember, divorced spousal/ survivor benefits do not count toward the family maximum.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 983-984). College for Financial Planning. Kindle Edition.  

To be entitled to a disability benefit, a worker must:

1.  be fully insured at the onset of disability;

2. have worked in Social Security-covered employment for at least 5 of the previous 10 years (20 out of 40 quarters) (This applies to disability that begins after age 31 only.

If disability begins before age 31, the individual must have worked under Social Security for the greater of six quarters or at least one-half of the quarters between age 21 and the age when the disability began.);

4.  be under FRA (after FRA, disability benefits become retirement benefits);

5.  have a physical or mental impairment that (1) has disabled the worker from the performance of any substantial work for 12 months, or (2) is expected to disable the worker for at least 12 months or result in death; and

6. wait for a five-month period before benefits can begin.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1008-1014). College for Financial Planning. Kindle Edition. 

A worker who qualifies for Social Security disability benefits is entitled to a benefit of 100% of PIA, payable until the earliest of the following:

1.  Disability ends: Benefits are terminated in the second month after the end of disability (e.g., disability ceases in August; benefits will be paid for August and September but not for October).

2.  Worker dies: Benefits are terminated in the month prior to the month of the worker’s death (e.g., worker dies in October; no benefit is paid for September).

3.  Worker attains full retirement age: Benefits convert to retirement benefits.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1017-1019). College for Financial Planning. Kindle Edition.

- Most U.S. citizens who are at least 65 years old are eligible to receive Medicare benefits without any medical underwriting.

- Individuals who are also eligible are those on Social Security disability for 24 months, and

- those suffering from end-stage renal disease requiring renal dialysis or a kidney transplant.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1059-1061). College for Financial Planning. Kindle Edition.

- An individual who is receiving Social Security retirement benefits on their own behalf at least three months prior to age 65 is automatically enrolled in Medicare upon attainment of age 65 and need not apply.

- If the individual turned 65 and has not yet begun receipt of Social Security retirement benefits, a separate application is required for Medicare Part A coverage.

- The seven-month enrollment period begins three months prior to age 65, includes birthday month, and the following three months.

- Individuals are automatically enrolled for Part B coverage as they become eligible for Part A.

- Finally, individuals can enroll for Part D coverage as they become eligible for Part A.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1066-1068). College for Financial Planning. Kindle Edition.

If an individual attains age 65 but is still working and is covered under her employer’s group health coverage she has 8 months, following the first month after this group coverage ends, to enroll in Medicare Part A and/ or B.

This period is referred to as the “Special Enrollment Period,” and enrollment during this window requires documentation that she was previously enrolled in an employer-sponsored plan.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1068-1071). College for Financial Planning. Kindle Edition.

Penalties will begin to accrue.

The penalty is equal to 10% of his premium amount for every 12-month period during which he could have signed up but did not.

This is a cumulative penalty. Those who do miss their initial enrollment can enroll during the “general enrollment period,” which runs from January 1 through March 31 each year. Coverage would begin July 1.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1071-1074). College for Financial Planning. Kindle Edition.

the “general enrollment period,” which runs from:

January 1 through March 31 each year.

Coverage would begin July 1.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1073-1074). College for Financial Planning. Kindle Edition.

Coverage under the hospital insurance plan (Medicare Part A) generally includes:

1. Hospital inpatient: up to 90 days per benefit period, with a 60-day lifetime reserve;
2. Post-hospital skilled nursing care: up to 100 days;
3. Post-hospital home health services: unlimited;
4. Hospice care: up to the greater of 210 days (must select hospice benefit) or continued certification by the attending physician; and
5. Blood: amounts in excess of three pints.

The health care must be considered medically necessary, and services must be provided in a Medicare-approved facility.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1082-1088). College for Financial Planning. Kindle Edition.

Inpatient hospital care (including psychiatric hospital care) coverage includes:

1. Costs of a semiprivate room,
2. Meals,
3. Regular nursing services,
4. Operating and recovery room,
5. Intensive care,
6. Inpatient prescription drugs,
7. Laboratory tests,
8. X-rays, and
9. All other medically necessary services and supplies provided in the hospital.
   
   MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1090-1091). College for Financial Planning. Kindle Edition.

To qualify for Medicare’s limited long-term care benefit, the individual must first stay in a hospital for at least three days.

Then, within 30 days, they must enter a Medicare-approved (rehab) nursing home. As long as the care is provided at a skilled nursing level, benefits may be available for up to 100 days.

Skilled nursing care essentially means that daily care is provided by a registered nurse (or licensed practical nurse under the supervision of a registered nurse), and is required by a physician.

Costs for skilled nursing care are:

• Days 1-20: $ 0 for each benefit period;
• Days 21-100: $ 167.50 coinsurance per day of each benefit period; and
• Days 101 +: all costs paid by patient.
  
  MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1105-1109). College for Financial Planning. Kindle Edition.

Costs for skilled nursing care are:

• Days 1-20: $0 for each benefit period;
• Days 21-100: $167.50 coinsurance per day of each benefit period; and
• Days 101 +: all costs paid by patient.

Medicare pays the full approved cost for 100 home health care visits for each benefit period.

However, full-time nursing care, food, blood, and drugs are not provided as HHA services.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1112-1113). College for Financial Planning. Kindle Edition.

Hospice care is a service provided to terminally ill persons with a life expectancy of six months or fewer who elect to forgo traditional medical treatment in favor of limited (hospice) care.

[image]

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1115-1117). College for Financial Planning. Kindle Edition.

Part A also pays for blood as needed by the Medicare recipient after the recipient has paid for the first three pints.

The Medicare beneficiary is responsible for either paying for or replacing the first three pints.

If the Medicare beneficiary elects to have the blood replaced, the Medicare beneficiary can either replace the blood personally or have another person or organization replace the blood.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1123-1126). College for Financial Planning. Kindle Edition.

Medicare Part B, often referred to as “physician’s coverage,” covers:

1. physician and outpatient expenses deemed “medically necessary,” such as durable medical equipment, lab tests, x-rays, mental health, and
2. some home health care.
3. Preventive care is also covered.
   
   MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1128-1130). College for Financial Planning. Kindle Edition.

Part B also requires payment of an annual deductible of $183 in 2018.

After the deductible is paid, Medicare Part B pays 80% of the Medicare-approved charges (50% for outpatient mental care).

The Medicare beneficiary is responsible for paying 20% (50% for outpatient mental care) of the approved charge, or the coinsurance.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1131-1133). College for Financial Planning. Kindle Edition.

This is not usually a good idea. Medicare assesses a penalty for late enrollment.

For every 12 months’ delay in enrolling, there is up to a 10% premium penalty.

Worse, the penalty is cumulative and does not go away.

This means that a delay of five years can add a permanent increase of 50% to the monthly premium for Part B.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1137-1139). College for Financial Planning. Kindle Edition.

There is an exception to the penalty rule for an eligible individual who does not enroll occurs because they (or the spouse) are still working and is covered under a group health insurance plan.

In this case, there is a special enrollment period (SEP) that extends up to 8 months after employment and/ or group health insurance ends.

During this SEP there is no penalty for the delay.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1139-1141). College for Financial Planning. Kindle Edition.

Some benefits listed under Part B coverage are similar to those listed under Part A coverage.

Remember, though, that Part A benefits normally originate from a hospital stay, while Part B benefits do not.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1145-1147). College for Financial Planning. Kindle Edition.

While the Medicare Part B beneficiary generally pays the $ 183 (2018) deductible each calendar year, the following services are not subject to the deductible or coinsurance. Notice that most of the services listed below are considered preventive care:

• home health services not covered under Part A (Medicare Part B pays only 80% of the covered charge for durable medical equipment);
• flu and pneumonia vaccines;
• periodic mammograms, Pap smears, and pelvic examinations;
• and certain clinical diagnostic laboratory tests.
  
  MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1163-1168). College for Financial Planning. Kindle Edition.

Most doctors and providers accept Medicare assignment, meaning that they accept the Medicare-approved amount as full payment for covered services.

Health care providers that do not accept assignment cannot charge the Medicare beneficiary more than 115% of the Medicare-approved charge.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1168-1170). College for Financial Planning. Kindle Edition.

Medicare will pay 80%, or $ 80.

Joe will be responsible for the coinsurance.

Dr. Evans can also charge Joe an additional 15% of the approved charge.

If Dr. Evans does charge the maximum amount, Joe will be responsible for paying $20 + $15 = $ 35.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1173-1175). College for Financial Planning. Kindle Edition.

The so-called “donut hole” refers to a coverage gap in prescription drug coverage under Medicare Part D. Not everyone will enter the coverage gap.

The coverage gap begins after you and your drug plan have spent a certain amount for covered drugs.

In 2018, the individual pays a $ 405 deductible for prescription drugs. The next $ 3,345 is split, with 25% paid by the individual (or $836.25). Medicare, at this point, has paid $2,508.75 and the Medicare recipient has paid $ 1,241.25, for a total drug cost of $3,750. After spending by individual and the plan on covered drugs reaches $ 3,750, the individual is in the “donut hole.”

Once in the donut hole, the individual will be required to pay 100% of costs, spending up to an additional $ 3,758.75. The individual is out of the donut hole when the individual’s total out-of-pocket spending has reached $ 5,000 ($ 405 + $ 836.25 + $ 3,758.75). Once total spending (of the government and the Medicare recipient) has reached $ 7,508.75, Medicare assumes approximately 95% of costs requiring only a 5% copay from the individual. Remember, this cycle begins anew each year.

[image]
MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1190-1193). College for Financial Planning. Kindle Edition.

The costs that are not covered by either Part A or Part B of Medicare are referred to as Medicare gaps, or Medigaps.

The six significant gaps in Medicare coverage are

1. deductibles for Part A ($ 1,340 per incident for inpatient hospital care) and Part B ($ 183 annual deductible);
2. cost of extended hospitalization under Part A ($ 335 per day for 61st through 90th days, $ 670 per day for 91st through 150th days, full cost after 150th day);
3. coinsurance (20%) on doctors’ services and outpatient care under Part B;
4. costs in excess of Medicare-approved charges— Medicare will only pay so much for specific medical services; if the client’s doctor charges more than the Medicare limit, the client may have to pay the difference;
5. costs for drugs not paid for by Part D (deductible, coinsurance, and donut hole); and
6. custodial care nursing home costs— Medicare generally limits payment for long-term care in a nursing home. Following a three-day stay in a hospital, if the individual enters a Medicare-approved skilled nursing facility within 30 days, the first 20 days of care are covered in full, and days 21– 100 are covered after paying a daily deductible. Coverage terminates after day 100.
   
   MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1214-1224). College for Financial Planning. Kindle Edition.

The availability of doctors is the biggest reason why.

People wanting to enroll in Part C must live in an area where such services are provided, and this has been a bit of a problem. As with non-Medicare managed care plans, medical personnel often must be satisfied with accepting lower payments for the services they render.

Also, those payments are not always made quickly or without bureaucratic wrangling.

As a result, it can sometimes be hard to find Medicare HMO doctors. Plus, there seems to be a fair amount of shifting of doctors into and out of the program.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1258-1262). College for Financial Planning. Kindle Edition.

5-year look back.

If he has made a transfer of assets within the past five years, Medicaid will require the individual to contribute to his own care an amount equal to what was transferred. For example, assume a Medicaid applicant transferred $ 100,000 of assets to his children four years ago.

Also assume that the $ 100,000 reduced his assets enough so that he qualified for Medicaid benefits. In this case, the law requires that he pay the first $ 100,000 of care out of his own pocket— before Medicaid would pay any benefits.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1294-1297). College for Financial Planning. Kindle Edition.

Part A of Medicare provides:

1. insurance for inpatient hospital care,
2. post-hospital skilled nursing care and home health care,
3. hospice care for the terminally ill,
4. psychiatric hospital care, and
5. blood.

Most of these benefits are limited. For example, inpatient hospital care will pay for up to 90 days of hospitalization per benefit period, with a 60-day lifetime reserve.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1471-1474). College for Financial Planning. Kindle Edition.

Part B of Medicare provides:

Supplemental medical insurance to help Medicare enrollees pay for physician services and other services not covered under Part A.

For example, after the patient pays the first $ 183 of physician charges and outpatient hospital care, Part B will pay for 80% of subsequent charges. It also pays 100% of home health care costs.

MacKenzie, Kristen. Planning for Retirement & Social Security (Kindle Locations 1476-1478). College for Financial Planning. Kindle Edition.

Most people did not live to retirement age.

Special taxes are collected from workers and used to pay benefits to those workers who are retired.

40

II, III, and IV only

I and II only

$265,340

Calculator input: 84,000 PV; 7 i; 17 n; 0 pmt; solve for FV.

$788,482

$1,353,036

$4,342

$7,318

An unmarried former spouse of a worker is eligible for Social Security benefits based on the worker's Social Security benefits if their marriage lasted at least 10 years and both of the former spouses are at least age 62.

An individual who began receiving Social Security benefits before age 65 will become eligible for Medicare Part A at age 65 at no cost; such individuals are automatically enrolled in both Part A and Part B when they become eligible for Part A.

0%

85%

85%

Assuming that Ralph is fully insured, he will be eligible for Medicare after qualifying for Social Security disability benefits for two years.