Health-Care Reform Changes Affecting Seniors

The Patient Protection and Affordable Care Act (ACA), enacted in 2010, contains some provisions that directly affect our nation’s elder population. If you’re a retiree or a senior, you may be concerned about how these reforms may affect your access to health care and insurance benefits. The following is an overview of health-care reform legislation provisions you should be aware of.

Medicare spending cuts

Not surprisingly, the concerns of retirees and seniors generally center on potential cuts in Medicare benefits. At the outset, the new legislation does not affect Medicare’s guaranteed benefits. However, two goals of the new health-care legislation are to slow the increasing cost of Medicare premiums paid by beneficiaries, and to ensure that Medicare will not run out of funds.

To help achieve these goals, cuts in Medicare spending will occur over a ten-year period, beginning in 2011, particularly targeting Medicare Advantage programs–Medicare benefits provided through private insurers but subsidized by the federal government. These cuts are intended to bring the cost of federal subsidies for Medicare Advantage plans in line with costs for comparable benefits for Medicare beneficiaries. If you participate in a Medicare Advantage plan, these cuts could reduce or eliminate some of the extra benefits your plan may offer, such as dental or vision care, and your premiums may increase. But Medicare Advantage plans cannot reduce primary Medicare benefits, nor can they impose deductibles and co-payments that are greater than what is allowed under the traditional Medicare program for comparable benefits.

Benefits added to Medicare

The legislation also improves some traditional Medicare benefits. For example, prior to the new legislation, traditional Medicare paid 80% of the cost for a one-time physical for new enrollees within the first 12 months of enrollment. But beginning in 2011, you will receive free annual wellness exams; preventive care tests such as screenings for high blood pressure, diabetes, and certain forms of cancer; and a personalized prevention assessment and plan to address particular health risk factors you may encounter.

Medicare Part D drug program changes

If you are a Medicare Part D beneficiary, you may be surprised to find that you have to pay for a significant portion of prescription drugs out-of-pocket after reaching a gap in your annual coverage, referred to as the “donut hole.” Aside from

co-pays and deductibles, Medicare generally pays for your medications up to a certain annual dollar limit, after which you have to pay more of the cost for your prescriptions. But the amount you have to pay within the coverage gap decreases each year until 2020, at which time a combination of federal subsidies and a decrease in co-payments reduces your

out-of-pocket costs for medications in the gap to 25%. However, if your modified adjusted gross income as reported on your IRS tax return from 2 years ago is above a certain limit, you may pay a Part D income-related monthly adjustment amount (Part D-IRMAA) in addition to your monthly plan premium. This extra amount is paid directly to Medicare, not to your plan.

If you are a full-benefit dual eligible beneficiary (eligible for both Medicaid and Medicare) receiving institutional care, such as in a nursing home facility, you do not owe any co-payments for Part D-covered prescriptions. However, if you’re dually eligible and receiving long-term care services at home or in a day-care community-based setting, you are subject to Part D drug

co-payments. Beginning in 2012, the new legislation removes this imbalance by eliminating co-payments for individuals receiving services at home or in a community setting.

Also, the time period during which Part D and Medicare Advantage beneficiaries can make changes to their coverage runs from October 15 to December 7. During this period, you can not only join a Part D plan for the first time, but you can switch from one drug plan to another or drop your drug coverage completely.

Coverage for those under age 65

You may be between the ages of 55 and 65 and do not have health insurance provided by your employer, or if covered, find that your cost for insurance is substantial. If you’re in this predicament, the health-care legislation provides you with opportunities for affordable health insurance. The ACA created Health Insurance Marketplaces through which you can purchase affordable health insurance coverage. The Marketplaces serve as a conduit for health insurance providers to offer health plans with different benefits, co-insurance limits, and premium costs. You can then compare the costs of various plans and benefits. If you can’t afford a Marketplace plan, you may be eligible for a government subsidy based on income and family size.

Increased access to home-based care

Often, people with disabilities or illnesses would rather receive care at home instead of at a nursing home. The health-care reform law provides for programs and incentives for greater access to in-home care. The Community First Choice Option is available for states to add to their Medicaid programs. This option provides benefits to Medicaid-eligible individuals for community-based care instead of placement in a nursing home.

Nursing home transparency

The Independence at Home demonstration program, available in 2012, is a test program that provides Medicare beneficiaries with chronic conditions the opportunity to receive primary care services at home. This is intended to reduce costs associated with emergency room visits and hospital readmissions, and generally improve the efficiency of care. While in-home care may be a preference, often a nursing facility is the better or only alternative. In the past, consumers had very little information available in order to compare nursing homes. The health-care legislation addresses the need for more transparency regarding nursing facilities. For example, nursing homes are required to disclose their owners, operators, and financers. The government will also collect and report information about how well a particular nursing home is staffed, including the number of hours of nursing care residents receive, staff turnover rates, and how much facilities spend on wages and benefits.

 

Pay Down Debt or Save for Retirement?

You can use a variety of strategies to pay off debt, many of which can cut not only the amount of time it will take to pay off the debt but also the total interest paid. But like many people, you may be torn between paying off debt and the need to save for retirement. Both are important; both can help give you a more secure future. If you’re not sure you can afford to tackle both at the same time, which should you choose?

There’s no one answer that’s right for everyone, but here are some of the factors you should consider when making your decision.

 Rate of investment return versus interest rate on debt

Probably the most common way to decide whether to pay off debt or to make investments is to consider whether you could earn a higher after-tax rate of return by investing than the after-tax interest rate you pay on the debt. For example, say you have a credit card with a $10,000 balance on which you pay nondeductible interest of 18%. By getting rid of those interest payments, you’re effectively saving 18%. That means your money would generally need to earn an after-tax return greater than 18% to make investing a smarter choice than paying off debt. That’s a pretty tough challenge even for professional investors.

Keep in mind that investment returns are not guaranteed. In general, the higher the rate of return, the greater the risk. If you make investments rather than pay off debt and your investments incur losses, you may still have debts to pay, but you won’t have had the benefit of any gains. By contrast, the savings that comes from eliminating high-interest-rate debt is a sure thing.

An employer’s match may change the equation

If your employer matches a portion of your workplace retirement account contributions, that can make the debt versus savings decision more difficult. Let’s say your company matches 50% of your contributions up to 6% of your salary. That means that you’re receiving a 50% return on that portion of your retirement account contributions.

If surpassing an 18% return from paying off debt is a challenge, getting a 50% return on your money simply through investing is even tougher. The old saying about a bird in the hand being worth two in the bush applies here. Assuming you conform to your plan’s requirements and your company meets its plan obligations, you know in advance what the match will be; very few investments can offer the same degree of certainty. That’s why many financial experts argue that saving at least enough to get any employer match for your contributions may make more sense than focusing on debt.

And don’t forget the tax benefits of contributions to a workplace savings plan. By contributing pretax dollars to your plan account, you’re deferring anywhere from 10% to 39.6% in taxes, depending on your federal tax rate. You’re able to put money that would ordinarily go toward taxes to work immediately.

There’s another good reason to explore ways to address both goals. Time is your best ally when saving for retirement. If you say to yourself, “I’ll wait to start saving until my debts are completely paid off,” you run the risk that you’ll never get to that point, because your good intentions about paying off your debt may falter at some point. Putting off saving also reduces the number of years you have left to save for retirement.

It might also be easier to address both goals if you can cut your interest payments by refinancing that debt. For example, you might be able to consolidate multiple credit card payments by rolling them over to a new credit card or a debt consolidation loan that has a lower interest rate.

Bear in mind that even if you decide to focus on retirement savings, you should make sure that you’re able to make at least the monthly minimum payments owed on your debt. Failure to make those minimum payments can result in penalties and increased interest rates; those will only make your debt situation worse.

Regardless of your choice, perhaps the most important decision you can make is to take action and get started now. The sooner you decide on a plan for both your debt and your need for retirement savings, the sooner you’ll start to make progress toward achieving both goals.

 

5 Questions About Long-Term Care

  1. What is long-term care?

Long-term care refers to the ongoing services and support needed by people who have chronic health conditions or disabilities. There are three levels of long-term care:

  • Skilled care: Generally round-the-clock care that’s given by professional health care providers such as nurses, therapists, or aides under a doctor’s supervision.
  • Intermediate care: Also provided by professional health care providers but on a less frequent basis than skilled care.
  • Custodial care: Personal care that’s often given by family caregivers, nurses’ aides, or home health workers who provide assistance with what are called “activities of daily living” such as bathing, eating, and dressing.

Long-term care is not just provided in nursing homes–in fact, the most common type of long-term care is home-based care. Long-term care services may also be provided in a variety of other settings, such as assisted living facilities and adult day care centers.

 

  1. Why is it important to plan for long-term care?

No one expects to need long-term care, but it’s important to plan for it nonetheless. Here are two important reasons why:

 

The odds of needing long-term care are high:

  • Approximately 70% of people will need long-term care at some point during their lifetimes after reaching age 65*
  • Approximately 8% of people between ages 40 and 50 will have a disability that may require long-term care services*

The cost of long-term care can be expensive:

For many, the cost of long-term care can be expensive, absorbing income and depleting savings. Some of the average costs in the United States for long-term care* include:

  • $6,235 per month, or $74,820 per year for a semi-private room in a nursing home
  • $6,965 per month, or $83,580 per year for a private room in a nursing home
  • $3,293 per month for a one-bedroom unit in an assisted living facility
  • $21 per hour for a home health aide

*U.S. Department of Health and Human Services, December 1, 2015

 

  1. Doesn’t Medicare pay for long-term care?

Many people mistakenly believe that Medicare, the federal health insurance program for older Americans, will pay for long-term care. But Medicare provides only limited coverage for long-term care services such as skilled nursing care or physical therapy. And although Medicare provides some home health care benefits, it doesn’t cover custodial care, the type of care older individuals most often need. Medicaid, which is often confused with Medicare, is the joint federal-state program that two-thirds of nursing home residents currently rely on to pay some of their long-term care expenses. But to qualify for Medicaid, you must have limited income and assets, and although Medicaid generally covers nursing home care, it provides only limited coverage for home health care in certain states.

  1. Can’t I pay for care out of pocket?

The major advantage to using income, savings, investments, and assets (such as your home) to pay for long-term care is that you have the most control over where and how you receive care. But because the cost of long-term care is high, you may have trouble affording extended care if you need it.

 

  1. Should I buy long-term care insurance?

Like other types of insurance, long-term care insurance protects you against a specific financial risk–in this case, the chance that long-term care will cost more than you can afford. In exchange for your premium payments, the insurance company promises to cover part of your future long-term care costs. Long-term care insurance can help you preserve your assets and guarantee that you’ll have access to a range of care options. However, it can be expensive, so before you purchase a policy, make sure you can afford the premiums both now and in the future.

The cost of a long-term care policy depends primarily on your age (in general, the younger you are when you purchase a policy, the lower your premium will be), but it also depends on the benefits you choose.

For more information about long-term care give our office a call today at 775-674-2223.

 

 

Four Common Questions About Social Security

As you near retirement, it’s likely you’ll have many questions about Social Security. Here are a few of the most common questions and answers about Social Security benefits.

Will Social Security be around when you need it?

You’ve probably heard media reports about the worrisome financial condition of Social Security, but how heavily should you weigh this information when deciding when to begin receiving benefits? While it’s very likely that some changes will be made to Social Security (e.g., payroll taxes may increase or benefits may be reduced by a certain percentage), there’s no need to base your decision about when to apply for benefits on this information alone. Although no one knows for certain what will happen, if you’re within a few years of retirement, it’s probable that you’ll receive the benefits you’ve been expecting all along. If you’re still a long way from retirement, it may be wise to consider various scenarios when planning for Social Security income, but keep in mind that there’s been no proposal to eliminate Social Security.

If you’re divorced, can you receive Social Security retirement benefits based on your former spouse’s earnings record?

You may be able to receive benefits based on an ex-spouse’s earnings record if you were married at least 10 years, you’re currently unmarried, and you’re not entitled to a higher benefit based on your own earnings record. You can apply for a reduced spousal benefit as early as age 62 or wait until your full retirement age to receive an unreduced spousal benefit. If you’ve been divorced for more than two years, you can apply as soon as your ex-spouse becomes eligible for benefits, even if he or she hasn’t started receiving them (assuming you’re at least 62). However, if you’ve been divorced for less than two years, you must wait to apply for benefits based on your ex-spouse’s earnings record until he or she starts receiving benefits.

If you delay receiving Social Security benefits, should you still sign up for Medicare at age 65?

Even if you plan on waiting until full retirement age or later to take your Social Security retirement benefits, make sure to sign up for Medicare. If you’re 65 or older and aren’t yet receiving Social Security benefits, you won’t be automatically enrolled in Medicare Parts A and B.

You can sign up for Medicare when you first become eligible during your seven-month Initial Enrollment Period. This period begins three months before the month you turn 65, includes the month you turn 65, and ends three months after the month you turn 65.

The Social Security Administration recommends contacting them to sign up three months before you reach age 65, because signing up early helps you avoid a delay in coverage. For your Medicare coverage to begin during the month you turn 65, you must sign up during the first three months before the month you turn 65 (the day your coverage will start depends on your birthday). If you enroll later, the start date of your coverage will be delayed. If you don’t enroll during your Initial Enrollment Period, you may pay a higher premium for Part B coverage later. Visit the Medicare website, www.medicare.gov to learn more, or call the Social Security Administration at 800-772-1213.

Will a retirement pension affect your Social Security benefit?

If your pension is from a job where you paid Social Security taxes, then it won’t affect your Social Security benefit. However, if your pension is from a job where you did not pay Social Security taxes (such as certain government jobs) two special provisions may apply.

The first provision, called the government pension offset (GPO), may apply if you’re entitled to receive a government pension as well as Social Security spousal retirement or survivor’s benefits based on your spouse’s (or former spouse’s) earnings. Under this provision, your spousal or survivor’s benefit may be reduced by two-thirds of your government pension (some exceptions apply).

The windfall elimination provision (WEP) affects how your Social Security retirement or disability benefit is figured if you receive a pension from work not covered by Social Security. The formula used to figure your benefit is modified, resulting in a lower Social Security benefit.

 

HOW WOMEN CAN BE DIFFERENT THAN MEN, FINANCIALLY SPEAKING

We all know men and women are different in some fundamental ways. But is this true when it comes to financial planning? In a word, yes. In the financial world, women often find themselves in very different circumstances than their male counterparts.

Everyone wants financial security. Yet women often face financial headwinds that can affect their ability to achieve it. The good news is that many women today find themselves in a better position to achieve financial security for themselves and their families.

More women than ever are successful professionals, business owners, entrepreneurs, and knowledgeable investors. Their economic clout is growing, and women’s impact on the traditional workplace is still unfolding positively as women earn college and graduate degrees in record numbers and seek to successfully integrate their work and home lives to provide for their families. So what financial course will you chart?

Some key differences

On the path to financial security, it’s important for women to understand what they might be up against, financially speaking:

 Women have longer life expectancies.

Women live an average of 4.8 years longer than men.1 A longer life expectancy presents several financial challenges for women:

  • This could mean that they will need to stretch their retirement dollars further
  • They may be more likely to need some type of long-term care, and may have to face some of their health-care needs alone
  • If they are married, they are more likely to outlive their husbands, which means they could have ultimate responsibility for disposition of the marital estate

Women generally earn less and have fewer savings.

According to the Bureau of Labor Statistics, within most occupational categories, women who work full-time,
year-round, earn only 83% (on average) of what men earn.2 This wage gap can significantly impact women’s overall savings, Social Security retirement benefits, and pensions.

The dilemma is that while women generally earn less than men, they need those dollars to last longer due to a longer life expectancy. With smaller financial cushions, women are more vulnerable to unexpected economic obstacles, such as a job loss, divorce, or single parenthood. And according to U.S. Census Bureau statistics, women are more likely than men to be living in poverty throughout their lives.3

Women are more likely to take career breaks for caregiving.

Women are much more likely than men to take time out of their careers to raise children and/or care for aging parents.4 Sometimes this is by choice. But by moving in and out of the workforce, women face several potential financial implications:

  • Lost income, employer-provided health insurance, retirement benefits, and other employee benefits
  • Less savings
  • Often a lower Social Security retirement benefit
  • Possibly a tougher time finding a job, or a comparable job (in terms of pay and benefits), when reentering the workforce
  • Increased vulnerability in the event of divorce or death of a spouse

In addition to stepping out of the workforce more frequently to care for others, women are more likely to try to balance work and family by working part-time, which results in less income, and by requesting flexible work schedules, which can impact their career advancement (and thus the bottom line) if an employer unfairly assumes that women’s caregiving responsibilities will come at the expense of dedication to their jobs.

Women are more likely to be living on their own.

Whether through choice, divorce, or death of a spouse, more women are living on their own. This means they’ll need to take sole responsibility for protecting their income and making financial decisions.

 Women sometimes are more conservative investors.

Whether they’re saving for a home, college, retirement, or a trip around the world, women need their money to work hard for them. Sometimes, though, women tend to be more conservative investors than men,5 which means their savings might not be on track to meet their financial goals.

 Women need to protect their assets.

As women continue to earn money, become the main breadwinners for their families, and run their own businesses, it’s vital that they take steps to protect their assets, both personal and business. Without an asset protection plan, a woman’s wealth is vulnerable to taxes, lawsuits, accidents, and other financial risks that are part of everyday life. But women may be too busy handling their day-to-day responsibilities to take the time to implement an appropriate plan.

A financial professional can help

Women are the key to their own financial futures–it’s critical that women educate themselves about finances and be able to make financial decisions. Yet the world of financial planning isn’t always easy or convenient. In many cases, women can benefit greatly from working with a financial professional who can help them understand their options and implement plans designed to help provide women and their families with financially secure lives.

Sources

1 NCHS Data Brief, Number 229, December 2015

2, 4 U.S. Department of Labor, Bureau of Labor Statistics, Women in the Labor Force: A Databook, December 2015

3 U.S. Census Bureau, Current Population Reports, P60-252, 2015

5 U.S. Department of Labor, Women and Retirement Savings Online Publication, dol.gov; accessed January 2016

Inflation Doesn’t Retire When You Do

The need to outpace inflation doesn’t end at retirement; in fact, it becomes even more important. If you’re living on a fixed income, you need to make sure your investing strategy takes inflation into account. Otherwise, you may have less buying power in the later years of your retirement because your income doesn’t stretch as far.

Your savings may need to last longer than you think

Gains in life expectancy have been dramatic. According to the National Center for Health Statistics, people today can expect to live more than 30 years longer than they did a century ago. Individuals who reached age 65 in 1950 could expect to live an average of 14 years more, to age 79; now a 65-year-old might expect to live for roughly an additional 19 years. Assuming inflation continues to increase over that time, the income you’ll need will continue to grow each year. That means you’ll need to think carefully about how to structure your portfolio to provide an appropriate withdrawal rate, especially in the early years of retirement.

Adjusting withdrawals for inflation

Inflation is the reason that the rate at which you take money out of your portfolio is so important. A simple example illustrates the problem. If a $1 million portfolio is invested in an account that yields 5%, it provides $50,000 of annual income. But if annual inflation runs at a 3% rate, then more income–$51,500–would be needed the next year to preserve purchasing power. Since the account provides only $50,000 of income, $1,500 must also be withdrawn from the principal to meet retirement expenses. That principal reduction, in turn, reduces the portfolio’s ability to produce income the following year. In a straight linear model, the principal reductions accelerate, ultimately resulting in a zero portfolio balance after 25 to 27 years, depending on the timing of the withdrawals.

A seminal study on withdrawal rates for tax-deferred retirement accounts (William P. Bengen, “Determining Withdrawal Rates Using Historical Data,” Journal of Financial Planning, October 1994), using balanced portfolios of large-cap equities and bonds, found that a withdrawal rate of a bit over 4% would provide inflation-adjusted income (over historical scenarios) for at least 30 years. More recently, Bengen showed that it is possible to set a higher initial withdrawal rate (closer to 5%) during early active retirement years if withdrawals in later retirement years grow more slowly than inflation.

Invest some money for growth

Some retirees put all their investments into bonds when they retire, only to find that doing so doesn’t account for the impact of inflation. If you’re fairly certain that your planned withdrawal rate will leave you with a comfortable financial cushion and it’s unlikely you’ll spend down your entire nest egg in retirement, congratulations! However, if you want to try to help your income–no matter how large or small–at least keep up with inflation, consider including a growth component in your portfolio.

For more information call our office today for a complimentary consultation at 775-674-2223

 

Common Financial Wisdom: Theory vs. Practice

In the financial world, there are a lot of rules about what you should be doing. In theory, they sound reasonable. But in practice, it may not be easy, or even possible, to follow them. Let’s look at some common financial rules of thumb and why it can be hard to implement them.

Build an emergency fund worth three to six months of living expenses

Wisdom: Set aside at least three to six months of living expenses in an emergency savings account so your overall financial health doesn’t take a hit when unexpected need arises.

Problem: While you’re trying to save, other needs — both emergencies and non-emergencies — come up that prevent you from adding to your emergency fund and even cause you to dip into it, resulting in an even greater shortfall. Getting back on track might require many month or years of dedicated contributions, leading you to decrease or possibly stop your contributions to other important goals such as college, retirement, or a down payment on a house.

One Solution: Don’t put your overall financial life completely on hold trying to hit the high end of the three to six months target. By all means create an emergency fund, but if after a year or two f diligent saving you’ve amasses only two or three months of reserves, consider that a good base and contribute to your long-term financial health instead, adding small amounts to your emergency fund when possible. Of course, it depends on your own situation. For example, if you’re a business owner in a volatile industry, you may need as much as a year’s worth of savings to carry you through uncertain times.

Start saving for retirement in your 20s

Wisdom: Start saving for retirement when you’re young because time is one of the best advantages when it comes to amassing a nest egg. This is the result of compounding, which is when your retirement contributions earn investment returns, and then those returns produce earnings themselves. Over time, the process can snowball.

Problem: How many 20-somethings have the financial wherewithal to save earnestly for retirement? Student debt is at record levels, and young adults typically need to budget for rent, food, transportation, monthly utilities, and cell phone bills, all while trying to contribute to an emergency fund and a down payment fund.

One solution: Track your monthly income and expenses on a regular basis to see where your money is going. Establish a budget and try to live within your means, or better yet below your means. Then focus on putting money aside in your workplace retirement plan. Start by contributing a small percentage of your pay, say 3%, to get into the retirement savings habit. Once you’ve adjusted to a lower take-home amount in your paycheck (you may not even notice the difference!), consider upping your contribution little by little, such as once a year or whenever you get a raise.

Start saving for college as soon as your child is born

Wisdom: Benjamin Franklin famously said there is nothing certain in life except death and taxes. To this, parents might add college costs that increase every year without fail, no matter what the overall economy is doing. As a result, new parents are often advised to start saving for college right away.

Problem: New parents often face many other financial burdens that come with having a baby; for example, increased medical expenses, baby-related costs, day-care costs, and a reduction in household income as a result of one parent possibly cutting back on work or leaving the workforce altogether.

One solution: Open a savings account and set up automatic monthly contributions in a small, manageable amount–for example, $25 or $50 per month–and add to it when you can. When grandparents and extended family ask what they can give your child for birthdays and holidays, you’ll have a suggestion.

Subtract your age from 100 to determine your stock percentage

Wisdom: Subtract your age from 100 to determine the percentage of your portfolio that should be in stocks. For example, a 45-year-old would have 55% of his or her portfolio in stocks, with the remainder in bonds and cash.

Problem: A one-size-fits-all rule may not be appropriate for everyone. On the one hand, today’s longer life expectancies make a case for holding even more stocks in your portfolio for their growth potential, and subtracting your age from, say, 120. On the other hand, considering the risks associated with stocks, some investors may not feel comfortable subtracting their age even from 80 to determine the percentage of stocks.

One solution: Focus on your own tolerance for risk while also being mindful of inflation. Consider looking at the historical performance of different asset classes. Can you sleep at night with the investments you’ve chosen? Your own peace of mind trumps any financial rule.

If you would like more information regarding your personal risk tolerance,  calls us at 775-674-2223 to schedule your complimentary consultation today!

Four Lessons Grandparents and Grandchildren Can Learn Together

If you’re a grandparent, maintaining a strong connection with your grandchildren is important, but that may become harder over the years as they leave for college or become busier building their careers and families. While they’re just starting out financially, you have a lifetime of experience. Although you’re at opposite ends of the spectrum, you have more in common than you think. Focusing on what you can learn together and what you can teach each other about financial matters may help you see that you’re not that different after all.

1. Saving toward a financial goal

When your grandchildren were young, you may have encouraged them to save by giving them spare change for their piggy banks or slipping a check into their birthday cards. Now that they’re older, they may have trouble saving for the future when they’re focused on paying bills.

They may want and need advice, but may not be comfortable asking for it. You’re in a good position to share what experience has taught you about balancing priorities, which may include saving for short-term goals such as a home down payment and long-term goals such as retirement. You’ll also learn something about what’s important to them in the process.

You may even be willing and able to give money to your grandchildren to help them target their goals. While you can generally give up to $14,000 per person per year without being subject to gift tax rules, you may want to explore the idea of offering matching funds instead of making an outright gift. For example, for every dollar your grandchild is able to save toward a specific goal, you match it, up to whatever limit you decide to set. But avoid giving too much. No matter how generous you want to be, you should prioritize your own retirement.

2. Weathering market ups and downs

Your grandchildren are just starting out as investors, while you have likely been in the market for many years and lived through more than one challenging economic climate. When you’re constantly barraged by market news, it’s easy to become too focused on short-term results; however, the longer-term picture is also important. As the market goes up, novice investors may become overly enthusiastic, but when the market goes down they may become overly discouraged, which can lead to poor decisions about buying and selling. Sharing your perspective on the historical performance of the market and your own portfolio may help them learn to avoid making decisions based on emotion. Focusing on fundamentals such as asset allocation, diversification, and tolerance for risk can remind you both of the wisdom of having a plan in place to help you weather stormy market conditions.

Note:  Asset allocation and diversification do not guarantee a profit or protect against investment loss. Past performance is no guarantee of future results.

3. Using technology wisely

Some people avoid the newest technology because they think the learning curve will be steep. That’s where your grandchildren can help. With their intuitive understanding of technology, they can introduce you to the latest and greatest financial apps and opportunities, including those that may help you manage your financial accounts online, pay your bills, track investments, and stay in touch with professionals.

Unfortunately, as the use of technology has grown, so have scams that target individuals young and old. Your grandchildren might know a lot about using technology, but you have the experience to know that even financially savvy individuals are vulnerable. Consider making a pact with your grandchildren that if you are asked for financial information over the phone, via email, or online (including account or Social Security numbers); asked to invest in something that promises fast profits; or contacted by a person or business asking for money, you will discuss it with each other and with a trusted professional before taking action.

4. Giving back

Another thing you and your grandchildren might have in common is that you want to make the world a better place.

Perhaps you are even passionate about the same special causes. If you live in the same area, you might be able to volunteer together in your community, using your time and talents to improve the lives of others. But if not, there are plenty of ways you can give back together. For example, you might donate to a favorite charity, or even find the time to take a “volunteer vacation.” Traveling together can be an enjoyable way for you and your grandchildren to bond while you meet other people across the country or globe who share your enthusiasm. Many vacations don’t require experience, just a willingness to help–and learn–something you and your grandchildren can do together.

Give Your Retirement Plan an Annual Checkup

At Nevada Senior Advisors, we recommend that you review your retirement savings plan annually and when major life changes occur. If you haven’t already revisited your plan, the beginning of a new year may be the ideal time to do so.

Re-examine your risk tolerance

This past year saw moments that would try even the most resilient investor’s resolve. When you hear media reports about stock market volatility, is your immediate reaction to consider selling some of the stock investments in your plan? If that’s the case, you might begin your annual review by re-examining your risk tolerance.

Risk tolerance refers to how well you can ride out fluctuations in the value of your investments while pursuing your long-term goals. An assessment of your risk tolerance considers, among other factors, your investment time horizon, your accumulation goal, and assets you may have outside of your plan account. Your retirement plan’s educational materials likely include tools to help you evaluate your risk tolerance, typically worksheets that ask a series of questions. After answering the questions, you will likely be assigned a risk tolerance ranking from conservative to aggressive. In addition, suggested asset allocations are often provided for consideration.

Have you experienced any life changes?

Since your last retirement plan review, did you get married or divorced, buy or sell a house, have a baby, or send a child to college? Perhaps you or your spouse changed jobs, received a promotion, or left the workforce entirely. Has someone in your family experienced a change in health? Or maybe you inherited a sum of money that has had a material impact on your net worth. Any of these situations can affect both your current and future financial situation.

In addition, if your marital situation has changed, you may want to review the beneficiary designations in your plan account to make sure they reflect your  current wishes. With many employer-sponsored plans, your spouse is automatically your plan beneficiary unless he or she waives that right in writing.

Re-assess your retirement income needs

After you evaluate your risk tolerance and consider any life changes, you may want to take another look at the future. Have your dreams for retirement changed at all? And if so, will those changes affect how much money you will need to live on? Maybe you’ve reconsidered plans to relocate or travel extensively, or now plan to start a business or work part-time during retirement.

All of these factors can affect your retirement income needs, which in turn affects how much you need to save and how you invest today.

Is your asset allocation still on track?

Once you have assessed your current situation related to your risk tolerance, life changes, and retirement income needs, a good next step is to revisit the asset allocation in your plan. Is your investment mix still appropriate? Should you aim for a higher or lower percentage of aggressive investments, such as stocks? Or maybe your original target is still on track but your portfolio calls for a little rebalancing.

There are two ways to rebalance your retirement plan portfolio. The quickest way is to sell investments in which you are over weighted and invest the proceeds in underweighted assets until you hit your target. For example, if your target allocation is 75% stocks, 20% bonds, and 5% cash but your current allocation is 80% stocks, 15% bonds, and 5% cash, then you’d likely sell some stock investments and invest the proceeds in bonds. Another way to rebalance is to direct new investments into the underweighted assets until the target is achieved. In the example above, you would direct new money into bond investments until you reach your 75/20/5 target allocation.

Nearing Retirement? Time to Get Focused.

If you’re within 10 years of retirement, you’ve probably spent some time thinking about this major life change. The transition to retirement can seem a bit daunting, even overwhelming. If you find yourself wondering where to begin, the following points may help you focus.

Reassess your living expenses

A step you will probably take several times between now and retirement–and maybe several more times thereafter–is thinking about how your living expenses could or should change. For example, while commuting and dry cleaning costs may decrease, other budget items such as travel and health care may rise. Try to estimate what your monthly expense budget will look like in the first few years after you stop working. And then continue to reassess this budget as your vision of retirement becomes reality.

Consider all your income sources

Next, review all your possible sources of income. Chances are you have an employer-sponsored retirement plan and maybe an IRA or two. Try to estimate how much they could provide on a monthly basis. If you are married, be sure to include your spouse’s retirement accounts as well. If your employer provides a traditional pension plan, contact the plan administrator for an estimate of your monthly benefit amount.

Do you have rental income? Be sure to include that in your calculations. Is there a chance you may continue working in some capacity? Often retirees find that they are able to consult, turn a hobby into an income source, or work part-time. Such income can provide a valuable cushion that helps retirees postpone tapping their investment accounts, giving them more time to potentially grow.

Finally, don’t forget Social Security. You can get an estimate of your retirement benefit at the Social Security Administration’s website, ssa.gov. You can also sign up for a my Social Security account to view your online Social Security Statement, which contains a detailed record of your earnings and estimates of retirement, survivor, and disability benefits.

Manage taxes

As you think about your income strategy, also consider ways to help minimize taxes in retirement. Would it be better to tap taxable or tax-deferred accounts first? Would part-time work result in taxable Social Security benefits? What about state and local taxes? A qualified tax professional can help you develop an appropriate strategy.

Pay off debt, power up your savings

Once you have an idea of what your possible expenses and income look like, it’s time to bring your attention back to the here and now. Draw up a plan to pay off debt and power up your retirement savings before you retire.

  • Why pay off debt? Entering retirement debt-free–including paying off your mortgage–will put you in a position to modify your monthly expenses in retirement if the need arises. On the other hand, entering retirement with mortgage, loan, and credit card balances will put you at the mercy of those monthly payments. You’ll have less of an opportunity to scale back your spending if necessary.
  • Why power up your savings? In these final few years before retirement, you’re likely to be earning the highest salary of your career. Why not save and invest as much as you can in your employer-sponsored retirement savings plan and/or your IRAs? Aim for the maximum allowable contributions.

And remember, if you’re 50 or older, you can take advantage of catch-up contributions, which allow you to contribute an additional $6,000 to your employer-sponsored plan and an extra $1,000 to your IRA in 2016.

Account for health care

Finally, health care should get special attention as you plan the transition to retirement. As you age, the portion of your budget consumed by health-related costs will likely increase. Although Medicare will cover a portion of your medical costs, you’ll still have deductibles, copayments, and coinsurance. Unless you’re prepared to pay for these costs out of pocket, you may want to purchase a supplemental insurance policy.

In 2015, the Employee Benefit Research Institute reported that the average 65-year-old married couple would need $213,000 in savings to have at least a 75% chance of meeting their insurance premiums and out-of-pocket health care costs in retirement. And that doesn’t include the cost of long-term care, which Medicare does not cover and can vary substantially depending on where you live. For this reason, you might consider a long-term care insurance policy.

These are just some of the factors to consider as you prepare for retirement. Breaking the bigger picture into smaller categories may help the process seem a little less daunting- we can help!

Request your complimentary consultation by calling us at 775-674-2223 to schedule your appointment today!