3 questions your financial planner should ask you before retirement

3 questions your financial planner should ask you before retirement

Without proper planning, the ability to live the life you imagine in your golden years is next to impossible. Your financial planner should be able to help. Has he/she ever asked you the three below questions? 

1. Did you know that health coverage is a mandatory expense in retirement?

Due to federal regulations, in order to receive your Social Security benefit, you must enroll in Medicare. If you neglect to do so, you will forfeit all current, future and any past Social Security benefits already received. Thankfully, the mandatory portion of what you must accept is Medicare Part A, which is premium-free for those who qualify. Failure to enroll in Medicare Part B and Part D result in late enrollment penalties.

2. How much is too much income?

Your income is your adjusted gross income plus any tax-exempt interest you may have (e.g. wages, tips, social security benefits, rental Income, most capital gains, dividends and any withdrawal from any qualified tax-deferred retirement account). Unfortunately, your tax-deferred contributions to your company-sponsored 401(k) can work against you when there is either a distribution, or a required minimum distribution (RMD) at age 70 1/2. This “income” plus your Social Security benefit will determine how much total income you have. And, as noted above, if it’s deemed “too much”, your health coverage costs (Medicare Part B and D) will be surcharged.

3. Can you rely on Social Security?

Due to federal regulations, most health coverage costs—all Medicare Part B premiums, any late enrollment fees, and any surcharges due to income—are automatically deducted from any Social Security benefit you may receive. Retirees are finding that due to a lack of planning, their main source of guaranteed income may never increase, and could potentially decrease over time, especially when they need it.

As a Certified Financial Planner®, I want to help give you increased financial flexibility while simultaneously preparing for rising healthcare costs:

  • Consider contributing to either an employer-sponsored Roth 401(k), or an independent Roth IRA. Think you won’t qualify for either? You may if you do some planning! There are no income restrictions in a Roth 401(k), and a backdoor Roth IRA may allow you to get around income limits.
  • Gradually convert some of your tax-deferred assets to a Roth. You’ll pay some taxes up front today, but the potential amount you’ll save in health costs, as well as in your Social Security benefit, could be worth it.
  • If offered, consider enrolling in a High Deductible Health Plan (HDHP) that allows you to contribute to a Health Savings Account (HSA). Think of this as a “health care retirement account”. You can use the funds in your HSA to pay for current medical expenses, or save the money in your account for future needs such as: health insurance or medical expenses if unemployed; medical expenses after retirement (before Medicare); out-of-pocket expenses when covered by Medicare; and long-term care insurance and associated expenses. Additonally, after the age of 65, an HSA can be used for anything you want (not just medical expenses) and will be taxed at ordinary income rates (just like a regular pretax IRA). 
  • Consider using permanent insurance for your life insurance coverage and another source of income in retirement. Specifically, whole life insurance can be used as another retirement planning vehicle in addition to your important life insurance coverage. Cash value, within the policy, could be used for income purposes one day, and is not counted towards Medicare means testing. As always, please contact us with any questions!

As always, please contact us with any questions!

1What’s New for Medicare in 2018? by Dena Bunis, AARP, November 14, 2017

This material has been prepared for informational purposes only and is not intended to be relied on as advice or a recommendation. You should consult your financial advisor directly about your personal situation.


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