Posts Tagged ‘ Tim Barton ’

Social Security payments are important to most American’s retirement plans.  After all,  a worker has contributed a significant portion of their income to Social Security via payroll taxes;  starting at 2.25% in 1950 - steadily increasing to 15.3% 1990 and later.  Because retirement could last 30 years or more a retiree must consider how and when to receive their income benefits.

The average 2012 Social Security monthly retirement benefit is about $1,230.  The maximum possible benefit for someone retiring in 2012 at full retirement age (66) will be $2,513.  The amount of benefit is permanently affected by the age a retiree starts SS income, it is crucial to consider the long term impact of starting benefits prior to reaching  full retirement age.

Social Security retirement benefits can be started as early as 62 but the benefit amount will be less than the full retirement benefit amount.  If benefits are started early the amount will be permanently reduced based on the number of months benefits are received before full retirement age.

Example for a retiree was born in 1955, full retirement age is 66 and 2 months.  If they draw Social Security at age 62 the benefit is reduced by 25.83%.

For those who start SS benefit early and earn more than $15,120 per year they will have their benefits reduced.  However, when they reach full retirement age any month in which benefits were reduced will be removed from the early retirement  deduction calculation, which may raise the benefit paid.

Delaying benefits beyond full retirement age results in an 8% yearly increase.  This annual increase will max out at age 70.

As much as 85% of Social Security benefits may be subject to federal and state income tax.

A surviving spouse’s benefit is based on the deceased spouse’s income amount; a death scenario should be considered when thinking about taking Social Security before full retirement age.

Retirees should be very careful considering any “break even” analysis. There are many variables to consider such as income tax, longevity, survivor’s benefit, etc. Retirees may want to adjust the age when they take retirement income in order to gain maximum lifetime benefit.

Many people take the reduced Social Security benefit before full retirement age.  Each situation is different and starting early may be appropriate, in some cases.  Keep these issues in mind-

• If life is expected to be longer than average the reduced benefit will stay reduced for a long time.  Consider the amount that may be given up over a lifetime.
• If working while drawing Social Security early consider how those earnings will affect Social Security benefits.
• A reduced SS benefit may also reduce the income benefit a spouse receives after the death of their partner.
• If there is a significant difference in spouse ages Social Security benefits are likely to be paid over a greater period of time than when the spouses are closer in age.  In situations like this it is more important to understand how different assumptions will affect a retirement income plan. Variables such as the age benefits start, longevity, and survivor’s benefits can combine to produce substantial differences in total benefits received.

There are 81 different Social Security combinations and strategies a retiree should consider rather than just a  simple “break even” analysis.

If you would like to explore your Social Security benefit options contact Tim Barton, ChFC for an analysis.  List your SS estimated monthly benefit for both spouses and current age in the comment section.

How many ways are there to take Social Security benefits?

Would you believe there are 81 different possibilities?

Most people think of 3:

• Early retirement at age 62
• Full retirement at 66 or later depending on birth date
• Maximum retirement at age 70.

Known as the “break-even” analysis method; retirement planners use stock computer models that add up the monthly Social Security payments for each of the above over a chosen life expectancy.  Then the totals of each of the 3 incomes are  compared.  Whichever is higher becomes the recommended choice.

Did you know if you live to age 83 your total Social Security income is the same no matter which option you pick?   That is if you settle for only one of the 3 options above.

But there are 78 more Social Security income combinations available and almost no one is talking about or using them to maximize their clients retirement income streams.  Until now.

At the end of May a new patent pending Social Security Explorer which is capable of estimating the income potential from all 81 SS combinations will be available in Tim Barton’s office.  This will be a comprehensive income planning service designed to  help retirees and those approaching retirement more fully understand all of their Social Security options.  If someone has already started drawing their  Social Security they may still be able to maximize their benefits.  Many do not realize Social Security benefits can be changed even after the checks begin.

If you would like to explore your Social Security benefit options contact Tim Barton, ChFC for an analysis.  List your SS estimated monthly benefit for both spouses and current age in the comment section.

Government regulations dictate senior’s retirement income plans.  The question; Is this government “retirement plan” the best option?

If they have a traditional IRA, 401(k) and/or any other qualified retirement plan they must take Required Minimum Distributions (RMD) upon reaching age 70- 1/2.  If they do not take RMD as required the penalty is a harsh 50%.  Most seniors follow the RMD plan so it must be the optimal way to receive retirement income… Right?

The new reality is nothing could be further from the truth.  Expected longevity continues to increase well past the I.R.S. life tables used to calculate RMD withdrawals.  This could  set up a dangerous financial situation later in life.

The alternative solution and one most seniors have not considered  is a Life Income Annuity.  Rollovers from IRAs and 401(k)s are easy and there are no taxes due or 10% penalty even if income is started before age 59.

Advantages of Life Income Annuities are significant and perform better than RMD plans:

1. After enduring a decade of sub economic performance, low interest rates,  disappearing pensions and a decreasing Social Security trust fund seniors need protection from steep market swings. Income annuities eliminate market risk by providing a steady monthly pay check.
2. Saves the golden decade of retirement; the 10 years from age 70 – 80.  RMDs are scheduled to be lower during this time and increase later.  The lifetime annuity has on average a 60% higher payout  during the golden decade and guarantees these payments for life with any remaining principal paid to beneficiaries.
3. Prevents the RMD crash.   A typical life income annuity starts payments at age 70 about 60% higher than RMD withdrawals.  It is true RMDs increase with age but assuming a 3% growth rate at their peak they  will provide an income 15% lower than the annuity.  After the RMD’s peak withdrawal years the  annual income begins decreasing until the money runs out.

Lifetime annuities take the RMD drop off  and longevity risk away while offering a higher payout.

For help you may ask questions in the comments

Or contact me privately: Tim Barton Chartered Financial Consultant

At one time, there were only two ways to tap into the value of your home:

Sell your home

BUT… then you would have to move somewhere else.

Borrow against the equity in your home

BUT… then you would have to make monthly loan repayments.

Many people have retired with what they assumed would be a comfortable retirement income into the future, only to find that inflation, rising health care costs and unexpected expenses have worked to make their retirement less secure. These people may have substantial equity in their homes…equity they would like to convert to cash without having to move or assume debt that has to be repaid.

A reverse mortgage, which converts a portion of a home’s equity into cash without requiring that the home be sold or that the equity be repaid currently, may provide the answer.

What Is a Reverse Mortgage?

A reverse mortgage is a loan against the value of your home that does not have to be paid back for as long as you live in the home. Simply put, a reverse mortgage converts some of the equity in your home into income.

The proceeds from a reverse mortgage can be paid to you:
•In a single lump sum;
•As a regularly monthly income; or
•At times and in amounts of your choosing.

While reverse mortgages typically require no repayment while you are living in your home, they must be repaid in full, including interest and any other charges, at the earliest of:
•The death of the last living borrower (meaning that a surviving spouse may continue to live in the home without repaying the reverse mortgage);
•The sale of the home; or
•The last living borrower moves permanently away from the home, such as to an assisted living facility or nursing home.

Think long and hard before moving forward on a reverse mortgage while exploring other options such as an out right sale or finding a less expensive place to live.

Americans in retirement and those soon to be retirees have serious concerns. According to the Reclaiming the Future Study conducted in 2011-2012 by Allianz Life:

Fear # 1 - American Retirement Crisis/Unprepared:

• 92% of Americans believe there is a retirement crisis and fear they are unprepared

When asked “Do you believe there is a retirement crisis in this country?”

• 92% answered absolutely or somewhat.

In the age group 44-54

• 54% said they feel unprepared for retirement.
• 57% of all respondents worry about their nest egg safety and it may not be large enough.
• 47% fear they will not be able to cover basic living expenses.

 Fear #2 – Americans fear outliving money more than they fear death

• Increasing longevity mean more people are spending more years in retirement.  
• 77% of all age groups worry about living too long.  So much so a shocking 61% feared outliving their assets more than they feared death. 

The market meltdown of 2008-2009 caused a profound financial rethinking for Americans. 

• 53% reported their net worth was significantly eroded in a very short period of time.
• 43% had their home values drop
• 41% realized they were not “in control” of their financial futures as they’d thought.

 As a result of this financial turmoil many research participants said they changed their behaviors.

• Cut back on spending
• More interest in financial news and studying the markets

The majority agreed- “That the safety of my money matters more.” 

“Asked to consider the features that would be most important to them if they could build the ideal financial product?”

• 69% of survey respondents said they would prefer a product that was “guaranteed not to lose value”
• Only 31% would choose a product that is not guaranteed with the goal of “providing a high return.”

Annuity-like solutions are gaining relevance and appeal.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

As we move forward into tax season, we wanted to take a moment to remind you of some unique benefits that are available to the brave men and women serving in our Armed Services

Heroes Earned Retirement Opportunities (HERO) Act:

On May 29, 2006 President Bush signed into law the Heroes Earned Retirement Opportunities (HERO) Act. The HERO Act allows members of the Armed Forces serving in a combat zone to include nontaxable combat pay as compensation for purposes of determining traditional IRA or Roth IRA contribution amounts.

Prior to this act, because combat pay is nontaxable and excluded from gross income, a serviceman or servicewoman with only combat pay was unable to make an IRA contribution.

Additional time to make traditional IRA or Roth IRA contributions:

Generally, traditional IRA or Roth IRA contributions are due by the tax filing deadline (April 15, 2013 for the 2012 tax season), not including extensions. However, military members and their spouses may qualify for a deadline extension of up to 180 days after the last day served in a combat zone, hazardous duty area, or certain other deployments, plus the number of days that were left to make the IRA contribution at the time service in the combat zone began. The extension doesn’t just apply to traditional IRA or Roth IRA contributions, but also to filing tax returns, paying taxes, and claiming a tax refund.

Heroes Earnings Assistance and Relief Tax Act (HEART) Act:

On June 17, 2008 President Bush signed into law the Heroes Earnings Assistance and Relief Tax (HEART) Act. One of the major provisions of the HEART Act relates to the ability to roll over Servicemembers’ Group Life Insurance (SGLI) payments to a Roth IRA or a Coverdell ESA.

The Act permits an individual who receives a military death gratuity or SGLI to contribute the funds to a Roth IRA and/or one or more Coverdell education savings accounts. In addition, the contributions would be treated as rollover contributions and not subject to normal income or contribution limits. The contribution must be made within one year from the date the taxpayer receives the military death gratuity or SGLI payment. This provision is generally effective for payments made on accounts of deaths from injuries occurring on or after June 17, 2008.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

Reprinted with permission- Allianz

You’ve probably heard about the problem our country faces with “Social Security, corporate pensions, state pensions, county pensions, municipal pensions…virtually all defined benefit pensions.” The following are abstracts from an industry publication.

OUR COUNTRY’S PENSION CRISIS IN A NUTSHELL – Pension plans that promise a specific benefit in the future are essentially a contract between current and future generations, and those future generations aren’t represented at the bargaining table.

PENSION PLAN PRESS – With IBM freezing its pension plan, a plethora of articles on the dim future of the defined benefit pension plan concept have hit the press. Here is a summation of what you need to know.

Brief history - The corporate pension has been around since the 19th century, but really came into its own in the U.S. in the years just after World War II. The defined benefit plans assumed lifetime jobs with a company, which seemed reasonable at the time, but has long since ceased being the American norm.

Why is it happening? – Companies are trying to become more competitive and adapt to changing times. They must compete with younger companies that never made pension promises or foreign companies where the government provides retirement benefits or there are no benefits at all. IBM is paying about $270 million to make the change but will save $2.5 billion over the next 5 years.

Why now? – Pension crises at steelmakers and airlines have brought the issue to a head, but arcane accounting rules and low, long-term interest rates mean the accounting benefit for freezing a pension is higher than it would be if long-term rates rise.

Who’s most vulnerable? – Salaried employees since companies have to negotiate to cut benefits for workers covered by collective bargaining.

What about earned benefits? – Companies can’t cut pension benefits already earned, but the earned benefits in a defined benefit plan may be a lot less than expected.

Who gets hurt the most? – Workers in their 40s and 50s who have been at the company many years. Benefits build up fastest in an employee’s final years at a company…50% of a person’s pension may be earned in the last five years on the job. Even with bigger 401(k) contributions, these workers may never catch up.

Who isn’t hurt? – Current retirees, younger workers and those who switch jobs frequently.

Freezing versus terminating – Freezing locks the pension in place where it currently stands actuarially and the company is obligated to pay in the future. When employers terminate a pension, they must pay out all of the benefits immediately, either in lump sums or by buying each worker an annuity. Most terminations are due to bankruptcy.

Companies at risk – Those with a large percentage of older, longtime employees; those with employees not covered by a collective-bargaining agreement; those have already cut some retiree benefits in the past.

GOOD RIDDANCE TO DEFINED BENEFITS? – Fortune magazine sees the IBM pension plan freeze as the beginning of the end of traditional pensions in the U. S. and editorializes that “corporate pensions are an unstable, unfair and economically perverse means of paying for retirement.”

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

Last night large sections of Arizona received significant snowfall.  What the heck?  My Arizona clients were expressing at the start of our conversations this morning; some used a slightly stronger version of that expression.  After all, we should feel sympathy for those who pulled up their Wisconsin, Minnesota and North Dakota roots choosing to move to Arizona in order to enjoy their endless sunny days of retirement.

Here is a news video from an Arizona news station.

The definition of “significant snow” differs by region. Arizonians apparently define it as .30 to 1.26 inches.

When many of us are feeling the pangs of spring fever while staring at snow outside our doors measured in feet rather than inches and the wind howling out a sub-zero windchill…

How much sympathy do you feel?

Do you know anyone in Arizona?  What will say to them?

Anyway, try and be polite when you speak with your friends in Arizona.

The following IRI survey comes as no surprise to retirement income planners who witnessed their annuity client’s relief and security while they heard stories of large losses from their friends and associates in the aftermath of 2008’s financial meltdown.   Not only did these clients not lose any money or income; they experienced strong growth as the market indexes slowly recovered.

Insured Retirement Institute survey, by IALC

According to a recent survey by the Insured Retirement Institute (IRI)  of Americans aged 50-66, a majority (53%) of annuity owners are extremely or very confident that they will have adequate income in retirement, compared to less than a third (31%) of non-annuity owners who say the same.

And not only are these consumers more confident, they are also satisfied with their annuity purchases. A recent LIMRA study found that 83% of fixed indexed annuity buyers reported being satisfied with their annuities and five in six would recommend annuities to others.

So what’s driving people to buy fixed annuities, in particular? Certainly the 2008 crash taught consumers that their foundations are not as sturdy as they once thought. So in order to regain a sense of stability they are looking for sources that provide some minimum guaranteed income. In fact, when asked about the intended uses for indexed annuities in another recent LIMRA survey, respondents’ top three responses involved retirement planning, including supplementing Social Security or pension income, accumulating assets for retirement, and receiving guaranteed lifetime income.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

Outliving one’s assets is a major concern for today’s retirees. One common approach to address this concern has been the “4% rule,” which is a generally accepted rule of thumb in financial planning for retirement income. It says to withdraw no more than 4% of an asset in retirement annually, and then increase the withdrawn amount by 3% each year to help offset the effects of inflation. Many believe the 4% rule provides a strong likelihood for retirement assets to last 30 or more years.

One problem with the 4% rule is that it does NOT GUARANTEE you won’t run out of money. In fact, with today’s historic market volatility and longer life expectancies, it’s predicted that up to 18 out of 100 people WILL RUN OUT OF MONEY in retirement using the 4% rule.

What if there was a different strategy that could provide the same amount of retirement income as the 4% rule and might even require fewer assets to do so? Additionally, this strategy would protect your income from market loss and GUARANTEE that income would last throughout your lifetime.

This strategy exists today and can be implemented using a fixed index annuity with a guaranteed lifetime income benefit or a secure lifetime retirement income annuity.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

The sale of real estate including your home or farm could be subject to Medicare taxes. The Affordable Care Act’s increased Medicare taxes are in effect now for tax year 2013. Some workers are wondering why their take home pay has been reduced. Part of the reason is the payroll (SS) tax cut has expired and the Fiscal Cliff fix did not reinstate this tax cut, this affects all wage earners from dollar one.

The other part for higher wage earners may be the ACA mandated Medicare tax increases, these started January 1,2013.

The following graphics explain the 2013 Medicare taxes on earned income, unearned income and how the sale of real estate including your home or farm could trigger this tax.

Once upon a time retirement was simple you could count on money from a pension and Social Security with bit of personal savings.  Not any more.  Pensions have mostly gone away causing you to depend on Social Security and personal savings more than in previous generations.

Personal savings

• 401(k)
• IRA
• Stocks

In the last few years people have found these to be risky and have lost a significant portion of their retirement savings forcing them to postpone retirement and work longer.

Retirement Realities

• Save more you may need to save more than you think because we are living longer than ever before you may live 20 years or more in retirement. So you have to make sure your money lasts as long as you do.
• You may need to retire earlier than you plan due to a job loss or poor health.

Longer retirement means higher living expenses

• More leisure expenses
• Increased medical cost
• Inflation

Active money management is required

• Seek clarity determine how much money you have saved and how much money you’ll need each month
• Access your comfort level.  How worried are you about thought of losing money?  If it keeps you awake consider protecting part of it.
• Think about the cost of living and how increases over time.
• Plan for certainty make sure you will not run out of money no matter how long you live.

To help learn and think about the new retirement realities watch this short educational video.

For help you may ask questions in the comments

Or click here to contact me privately: Tim Barton Chartered Financial Consultant

How and when is a Roth IRA taxed?  This is one of the frequently asked questions of the 2013 tax season.   Many are wondering if the “Fiscal Cliff Tax Fix” had any effect on Roth IRAs.  Here is a  Roth IRA Taxation Chart to help you understand how a Roth IRA is taxed and how it avoids income taxes.

Due to the continuing low interest/yield environment we find yourselves in cutting edge Retirement Income Planners are recommending their clients purchase  a Roth fixed index annuity with one of the new generation lifetime income riders attached.  The idea is to hold the annuity for 5 years or until age 59 1/2 whichever is longer then start the guaranteed tax free lifetime withdrawal.  During the holding period the annuity owner earns a guaranteed income base roll-up rate, typically 5-7%.

By starting the Roth lifetime income payments early in retirement or even before retirement they would likely receive all their Roth funds plus interest in about 15 years and then they would continue receiving “company money” for the rest of their lives.   Some of these plans have cost of living increases built in so the potential for a large sum of tax free income is certainly available.

In many cases it is not wise to leave your Roth Funds – just “sit” there.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

Even those who are retired have concerns about the amount of income taxes they are required to pay. So being it is now “tax” season some tax saving information may be helpful.

Once total or gross income from all sources has been determined, certain adjustments to income are available.  These adjustments amount to a reduction in gross income and generally are granted to achieve tax fairness or in recognition of a desirable social objective. Adjustments to income are available regardless of whether a taxpayer itemizes deductions or takes the standard deduction.

The available adjustments to income include:

One-Half of Self-Employment Tax

Self-employed taxpayers generally deduct one-half of their self-employment tax, as determined on Schedule SE.

Self-Employed Health Insurance Deduction

Self-employed taxpayers can deduct 100 percent of the health insurance premiums (including long-term care insurance premiums) they pay for themselves, their spouses and dependents.

Health Savings Account Deduction

Contributions to a Health Savings Account, up to specified maximums, may be deducted.

IRA Contributions

Eligible individuals can contribute and deduct up to $5,500 to an IRA; $10,000 for an eligible married couple, even if one spouse has no earned income. For workers age 50 and older, the IRA contribution limit is $6,500 for 2013.

Education Savings Account Contributions

Subject to income limitations, up to $2,000 per beneficiary (generally a child under age 18) per year may be contributed to an Education Savings Account and deducted; subject to income limitations.

Student Loan Interest Deduction

Up to $2,500 of the interest paid in 2013 on a loan for qualified higher education expenses may be deducted, subject to income limitations.

Qualified Tuition and Related Expenses Deduction

Up to $4,000 of qualified tuition and related expenses paid in 2013 may be deducted, subject to income limitations.

Educator Expenses

Professional educators can deduct up to $250 spent out-of-pocket for classroom expenses.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

Post “fiscal cliff” tax rates are available on this handy chart to help with your tax planning and preparation.

Update: Roth IRA Enhancement strategy post.

If you would like a copy of this tax chart emailed to you, let me know by confidentially leaving your email here.

The word “retirement” means different things to different people. Regardless of the vision you have for your retirement, it’s an event that can produce much satisfaction when you have a blueprint for what a successful retirement will mean to you.

Without a plan, however, including an assessment of your retirement readiness, retirement can become a period of anxiety, as you worry about whether your finances can sustain you through a potentially long retirement.

For example, let’s take a look at the top five financial risks you’ll face in retirement:

• Outliving Your Assets: The odds are that you’ll live a long time after retiring. That’s the good news… the bad news is that you’ll need sufficient assets to provide retirement income over a potentially long period of time. The alternative is to risk outliving your retirement income.
• Inflation: With inflation, the cost of goods and services increase over a period of time, meaning that you’ll need more retirement income in order to keep pace with inflation.
• Loss of a Spouse: With longer life expectancies and the tendency to marry men older than they are, women can face a dramatic decline in retirement income at a husband’s death.
• Healthcare Expenses: While Medicare covers many healthcare expenses, retirees need to be prepared to pay for Medicare-related premiums, as well as expenses Medicare doesn’t cover. If you’re planning to retire prior to age 65, you’ll need a way to pay for healthcare expenses until you become eligible for Medicare.
• Long-Term Care Expenses: While there are a variety of long-term care services, ranging from care in the home to assisted living facilities to nursing homes, all of them are expensive. If you or a spouse need long-term care, how will you pay for it?

Any assessment of your financial readiness to retire should take these risks into account, together with an evaluation of whether you can afford the type of retirement you want.

My  free “So, You’re Thinking About Retirement?” Life Guide can help you assess your retirement readiness and transition into a successful retirement.

Contact me for your free copy of the “So, You’re Thinking About Retirement?” Life Guide.

Advance Directives are a way to “have your say” about the type of care you receive (or don’t receive) in the event you suffer a catastrophic medical event, such as a stroke or an accident, that leaves you unable to communicate your wishes. Every adult should plan ahead by completing an Advance Directive that specifies his or her personal preferences in regard to acceptable and unacceptable medical treatments.

There are two types of Advance Directives:

Living Will

A Living Will states your preferences regarding the type of medical care you want to receive (or don’t want to receive) if you are incapacitated and cannot communicate. You specify the treatment you want to receive or not receive in different scenarios.

Medical Power of Attorney

Also known as a durable power of attorney for health care or a health care proxy, a Medical Power of Attorney names another person, such as your spouse, daughter or son, to make medical decisions for you if you are no longer able to make medical decisions for yourself, or you are unable to communicate your preferences.

Note that a Medical Power of Attorney is not the same as a Power of Attorney, which gives another person the authority to act on your behalf on matters you specify, such as handling your financial affairs.

Important Points to Remember

• Each state regulates Advance Directives differently. As a result, you may wish to involve an attorney in the preparation of your Advance Directive
• You can modify, update or cancel an Advance Directive at any time, in accordance with state law.
• If you spend a good deal of time in several states, you may want to have an Advance Directive for each state.
• Make sure that the person you name to act for you – your health care proxy – has current copies of your Advance Directive.
• Give a copy of your Advance Directive to your physician and, if appropriate, your long-term care facility.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

It is very likely private health insurance exchanges will be established nationwide this year in order to offer additional health insurance options. The Affordable Care Act (ACA) does not restrict the creation of private health insurance exchanges.  

I recently discussed private health insurance exchange possibilities with some health insurance financial officers and their actuaries.  These are the folks who determine the feasibility of the concept.  

The ACA law requires the creation of government operated health insurance exchanges either by the individual states or by the Federal Government.   The details of exactly how these governmental exchanges will operate are currently being worked out by the U.S. Department of Health & Human Services (HHS) and the 20 states who have agreed to setup their own state run exchanges.  Currently it appears the only insurance companies that will be allowed into the government operated exchanges will be required to provide only the benefits approved by HHS, accept all applicants no matter their health and pay their health care costs immediately.    

Insurance companies participating in the government exchange must pay for all preexisting conditions of those who buy insurance during the designated open enrollment period envisioned to work similar to Medicare supplement insurance’s open enrollment.  This feature is expected to drive up premiums, the cost of coverage.  To make this increased cost affordable an applicant who has income within the designated levels will receive a subsidy to pay for coverage. 

Private insurance exchanges, as insurance companies do now, will seek to insure people in good health.  This practice should keep premiums significantly lower than in the “accept all” government exchanges and an applicant would not need to fill out financial disclosure statements in order to determine their subsidy level or tax credit.   

Private exchanges would still be required to offer “qualified” insurance plans in order that private policyholders would satisfy the mandatory health insurance purchase requirements of ACA.  These “qualified” benefits would be part of the basic required coverage package but additional benefits could be offered in these private plans.  

Currently there are versions of private exchange models being tested with selected employers.  These internal private exchanges allow an employer to preset a health insurance premium they are willing to pay for to provide basic qualified coverage.  The employees then go to the company’s exchange and select the benefits that best satisfy their and their family’s needs. Also, if an employee desires additional benefits they can purchase these at favorable rates. 

Health insurance exchanges are being created and evolving, watch for more developments as the year progresses.

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

Reveled - the government is using outdated longevity models.  This not my headline;

rather a Sunday’s New York Times’ headline  from an article written by Gary King and Samir S. Soneji describing the troubling state of Social Security. 

Many of points they raise are well known.  For example in 2010 Social Security spent $49 Billion more than it took in.  This was the first Social Security ran a deficit and the money was drawn out of the trust funds. Current government projections have the $2.7 Trillion trust funds running out in 2033.  

Most startling is the revelation the government is using outdated longevity forecasting models.  

NYT writes:

 “Remarkably, since Social Security was created in 1935, the government’s forecasting methods have barely changed, even as a revolution in big data and statistics has transformed everything from baseball to retailing.”

I had no idea the government Social Security projections are still base on the 1935 life expectancies! Come on it’s 2013, 78 years later. Perhaps they are all so busy staring at computer screens they have forgotten to look out the window to see the new reality of longer life.

It is no secret, people are living longer and medical science is projecting we may start living even longer.  The largest growing population segment in the U.S. is Americans reaching the age of 100.  Much of the retirement income planning I do addresses this problem and I have frequently written (How Lone Would You Live?) about increased longevity and its potential cost. 

You can read the New York Times article in its entirety here Social Security it’s Worse Than You Think.

What does this mean?  Unless we get a course correction Social Security is going to run out money sooner than currently projected.

 What can you do to protect your retirement?

Make sure you have a good portion of your retirement dollars in properly reserved insurance plans that are designed to guarantee lifetime income no matter how long you live. Also make sure the income has potential to increase in the future to offset inflation or anyother unforeseen income reductions. 

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant

Here is the IRS press release regarding the new Fiscal Cliff withholding tables.

IRS Provides Updated Withholding Guidance for 2013

IR-2013-1, Jan. 3, 2013

WASHINGTON — The Internal Revenue Service today released updated income-tax withholding tables for 2013 reflecting this week’s changes by Congress.

The updated tables, issued today after President Obama signed the changes into law, show the new rates in effect for 2013 and supersede the tables issued on December 31, 2012. The newly revised version of Notice 1036 contains the percentage method income-tax withholding tables and related information that employers need to implement these changes.

In addition, employers should also begin withholding Social Security tax at the rate of 6.2 percent of wages paid following the expiration of the temporary two-percentage-point payroll tax cut in effect for 2011 and 2012. The payroll tax rates were not affected by this week’s legislation.

Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2013, but not later than Feb. 15, 2013. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2013.

Employers and payroll companies will handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

What does all this mean?

For now:

Your take home pay is going be reduced at least by amount of the 2%  increase in Social Security taxes.  Or put another way the Social Security tax “holiday” has expired.

Estate taxes are going up but not as much as previously thought.

The AMT (alternate minimum tax) patch has been made permanent.

I’ll be study the details in the coming weeks and post changes that affect retirement and estate planning.

In the meantime-

For help you may ask questions in the comments

Or contact me privately here: Tim Barton Chartered Financial Consultant