It is said that it is harder to get through retirement than it is to get to retirement.
A 2020 study estimated that a 65-year-old couple retiring in 2019 would need $285,000 of savings ($135,000 for men and $150,000 for women) to pay for 20 years of out-of-pocket retirement health care costs1 . Here are a few things to consider about covering health care costs in retirement while protecting assets when possible.
Choices To Cover Health Care Expenses
The Health Insurance Situation
The Patient Protection & Affordable Care Act (also referred to as the Affordable Care Act, PPACA, ACA, or Obamacare) was enacted in March 2010.
According to HealthCare.gov, the law has three primary goals:
1. Make affordable health insurance available to more people. The law provides consumers with subsidies (premium tax credits) and cost-sharing subsidies.
2. Expand the Medicaid program to cover all adults with income below 138% of the federal poverty level. (Not all states have expanded their Medicaid programs.)
3. Support innovative medical care delivery methods designed to lower the costs of health care generally.
Medicare 2021 Costs, plus Medicare v. Medicaid
According to the U.S. Department of Health and Human Services, Medicare, a standardized federal insurance program, provides hospital and medical insurance coverage to people aged 65 and older, those younger than 65 with certain disabilities, and dialysis patients. Monthly premiums in 2021 ranged from $148.50- $504.90 per month, based on income. With Medicaid, states establish and administer their own assistance programs for low-income people of any age. The federal government provides some funding. States determine the type, amount, duration, and scope of services within broad federal guidelines. Federal law requires states to provide certain mandatory benefits and allows states the choice of covering other optional benefits. (For more information, visit Medicaid.gov) Depending on a retiree’s situation, either—or both—Medicare and Medicaid may be used to cover health care costs.
Considerations For Asset-Protection Strategies
Individuals and married couples are permitted to own some property and still qualify for Medicaid. Here are potential strategies based on each unique situation:
1. Use assets to pay off debt and expenses. Use at-risk assets to pay off bills prior to applying for Medicaid assistance.
2. Buy assets not counted by Medicaid. Certain assets are excluded from those that Medicaid considers for benefits qualification: home, car, personal effects. For example, you could buy a more expensive home or improve an existing one or buy a new car.
3. Convert assets to income. Here’s an example of how to do it: Buy an annuity. It’s important to note that most annuities are not appropriate for Medicaid planning, however some conform to Medicaid law requirements, such as a non-assignable, non-transferable option that meets the requirement of Deficit Reduction Act of 2005. Have the benefit check made payable to the community spouse as to not impact eligibility.
4. Gift to loved ones. Give money or assets during your lifetime to those you love.
5. Consider an irrevocable trust. This type of trust is exempt from nursing-home costs, unlike a revocable/living trust. While you can’t receive principal, any interest or dividends are safe from seizure (“Medicaid trust”). One such trust is a Spousal Limited (Lifetime) Access Trust (SLAT).
6. Set up a life estate for your real estate. With this technique, you establish ownership of land (or a home) for the duration of a person’s lifetime. The property can revert to an original owner or pass to an heir, as designated.
7. Have a spouse refuse to care for the one needing health care. Some states permit something called spousal refusal, or more commonly spousal ref. The well/community spouse denies support for the spouse needing care. As a result, spouse who needs care becomes immediately eligible for Medicaid and medical services.
Additional Vehicles For Health Care Costs
Health Savings Accounts (HSAs)
The individual maximum you can contribute to a health savings account (HSA) is $3,600 in 2021, while the family maximum is $7,200.
HSAs are triple tax free:
- Contributions are tax deductible
- Earnings accrue tax free
- Withdrawals are also tax free, with one exception: Once you reach age 65, while you can withdraw for nonqualified expenses without penalty, you are required to pay income tax on that amount. No RMDs are mandated.
Additional Benefits for Veterans and Their Spouses
Aid and Attendance is a benefit paid by Veterans Affairs (VA) to veterans, veteran spouses, or surviving spouses. Aid and Attendance is for applicants who need financial help for in-home care, or to pay for an assisted-living facility or nursing home.
Benefits are paid to veterans (and living or surviving spouses) who:
- Are eligible for a VA pension
- Meet service requirements
- Meet certain disability requirements
- Meet income and asset limitations
For 2021, the benefit amounts are $1,936 per month for a qualifying veteran, $2,295 per month for a veteran and living spouse, and $1,244 per month for a surviving spouse.
Funding Options To Cover Long-Term Care Costs
The three most common considerations to cover long-term care costs are:
- Long-Term Care (LTC) Insurance
- Spend down your assets and then apply for government funding
- Self-insure through savings or investments LTC Insurance options: Traditional LTC policies; Life Insurance with LTC riders; Asset-based annuity plans.
Helping Your Heirs As Well As Yourself
By using one or more of the outlined strategies, you can make health care spending decisions easier for your children or heirs, as well as yourself.
Taking these steps allows your loved ones to focus on your health and well-being without any concern about any potential inheritance or other conflict of interest.
Working With Janney
Depending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.
When you engage in an advisory relationship, you will pay an asset-based fee which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory accounts. For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.
By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences. Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.
1. Health Care Price Check: A Couple Retiring Today Needs $285,000 As Medical Expenses In Retirement Remain Relatively Steady; Fidelity; https://s2.q4cdn.com/997146844/files/doc_news/archive/b6f07a26- 3aa9-4a98-af00-b1b783cfd552.pdf
Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.
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