2015 Medicare Changes, Premiums and Deductibles

Have you been wondering about next year's Medicare changes and what you will be paying in basic premiums in 2015?  According to articles by Kiplinger and MarketWatch, here is the information you will want to know.

2015 Medicare Premiums and Deductibles

The good news is that almost everyone's Medicare Part B premiums, which are deducted from the Social Security benefits of the majority of recipients, will remain unchanged at $104.90 a month.

For those who rely on basic Medicare alone, they will find that, in addition to no change in your basic Medicare premiums, your total deductibles will change very little, as well. For example, the Part B deductible will remain the unchanged at $147.

If you are admitted to a hospital under Medicare Part A, your deductible will increase $44 over the 2014 rates.  This means the deductible will rise to $1,260 in 2015 for the first 60 days you are in a hospital.

If you go into a skilled nursing facility, you will now pay $157.50 a day, but only for days 21 through 100.   For the first 20 days, you will continue to pay nothing.

On average, stand-alone Part D (drug) premiums are rising only by about $1 a month, to $32, according to Kiplingers.  However, this can vary quite a bit, depending on your Part D plan.  When the Kaiser Family Foundation did a nationwide analysis, they found that the average stand-alone Part D plan will actually rise to nearly $39, up from about $37.27.  My husband's Blue Shield Part D drug plan is $74.50 a month. You need to check with your provider to see what your actual premium will be.

Premiums for High Income Earners

If you have an adjusted gross income of $85,000 for an individual or $170,000 for a married couple filing jointly, you will have to pay an additional surcharge on your Medicare premiums.  Depending on your income, the surcharge can range from $42 to $230.  The highest rate is only for those single individuals who earn over $214,000 or married couples who earn over $428,000 ... which pertains only to a tiny percentage of retirees.  With the basic rate and the surcharge added together, the wealthiest people will pay $335.70 a month per person for their basic Medicare premiums.

Filling in the Gaps

Most people are not satisfied with the medical coverage provided under basic Medicare alone, since it can leave patients with large medical bills.  The majority of retirees usually either choose to use a Medicare Advantage plan or a Medigap Supplemental Insurance plan.  In every state, there are a variety of Medicare Advantage plans and Medigap Supplemental Insurance plans available.  There are many factors you need to consider in choosing a plan ... from which ones your favorite doctors will accept, to the drug coverage they provide and the premium you can afford.

Approximately 320,000 people who are in Medicare Advantage plans across the United States will have to change plans at the end of 2014.  A few companies have discontinued plans and others have launched new plans.  Nationwide there will be 1,945 Medicare Advantage plans available.  Even those people who do not have a plan that is being discontinued may want to do some comparison shopping before deciding whether or not they are better off staying with the plan they have.  The open enrollment period is from October 15 through December 7, 2014, so you can make changes starting today.

Many hospitals and senior centers will hold seminars during the next few weeks to help you choose the policy that is right for you.  Even if you already have a policy you like, it can still be worthwhile to attend the seminars to see if there is an even better program available or one at a more affordable price.  If you have not received any announcements in the mail, you may want to call your local hospital or insurance provider to see if there are any informational meetings being held in your area.

In addition, you can compare policies at this website:  eHealthMedicare.com.

The more information you have, the more likely you are to be satisfied with your Medicare plan.

Add-ons You May Wish to Include

Most policies offer you the option of also buying a dental and/or vision plan.  I highly recommend that retirees get these additional benefits, which can cost an extra $20 to $60 a month.

Source of 2015 Rate Change Information:

http://www.kiplinger.com/article/retirement/T039-C001-S003-what-you-ll-pay-for-medicare-in-2015.html

http://www.marketwatch.com/story/some-retirees-face-big-medicare-changes-in-2015-2014-10-13

Use the tabs at the top of this page to find links to hundreds of other retirement articles.

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What Is Your Retirement Number?

Have you figured out your retirement number, yet?  Until recently, I had never heard of the extremely helpful retirement planning book called "The Number: What Do You Need For The Rest of Your Life and What Will It Cost?"

This is one of the more fascinating retirement planning books I have read.  To make it even better, the author includes a touch of humor in the way he discusses this very serious topic.  It was even mentioned in a recent segment on "Good Morning America."

What I appreciate most about this book is that it gives you simple, easy-to-follow guidance in coming up with a reasonable estimate of the amount of money you need to save and the amount of income you should have in order to enjoy the type of retirement that will be comfortable for you.  This is not an average of what most people need; it is a way of estimating the very specific needs of you and your spouse.

What Numbers Do Retirees Need to Know?

Retirement Income:  Have you come up with an estimate of how much income you will have when you retire?  How much will you need?  This author estimates that most people will need about 85% of their final working income.  In other words, if your last year's salary was $75,000, then you will need about $64,000 a year to retire with a lifestyle that is similar to the one you enjoyed during your working years.  Of course, if you make dramatic changes, your actual expenses could be higher or lower than that.  How are you going to reach that $64,000?  Half of it or more could come from Social Security.  The rest will need to come from a pension, a retirement job or investment income.

Retirement Savings:  This book suggests that people should have put aside eight times their last year's income.  If you are earning that same $75,000, that means you should have saved $600,000.  Again, this may change from person to person depending on other sources of retirement income you may have and your planned lifestyle after retirement.  Some of this retirement savings may be what you have put aside in an IRA or 401(k).  Some of it could come from the equity in your home or other property if you sell it and move someplace less expensive.

Withdrawal Rate:  While there was a time that people estimated they could withdraw 7% a year from their savings, this is considered far too aggressive today.  Instead, most people should limit their withdrawals to about 3% to 5% if they want the money to last the rest of their lives.  It is best to withdraw less in the early years and more in the later years when you may not have the ability to work part-time or do other things to supplement your income.  If you have managed to accumulate the $600,000 mentioned above, at 3% this would come to about $18,000 in income a year.  At 5%, this would amount to about $30,000.  If your goal is to reach the $64,000 in retirement income that you would need to replace a $75,000 salary, and you and your spouse together have at least $34,000 in Social Security benefits, then this gives you "your number."

This book is not only informative, but humorous and will help many Baby Boomers, as well as younger adults, put more thought into how they are going to achieve their number ... and what they will do if that number seems impossible to achieve.  Don't worry.  This book will not leave you feeling as though there is no way for you to reach a "number" that will work for you.

If you would like to pick up a copy of this book, here's a quick link to help you find it on Amazon:

"The Number:  What Do You Need For The Rest of Your Life, and What Will It Cost?"

If you want to read about other approaches to retirement planning, use the tabs at the top of this page to find links to hundreds of articles about money issues, family relationships after retirement, health concerns, and where to retire, both in the United States and other countries.

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How to Manage Your Retirement Funds Yourself

Recently, this blog has covered the issue of converting your retirement savings into retirement income.  I have discussed rolling over your 401(k) into an IRA, choosing a good investment adviser and how to select an annuity for retirement income.

However, what if you do not want to hire an investment adviser, buy an annuity, or let someone else manage your money?  What are the do-it-yourself options for selecting the best investments and funds?

Use a Discount Broker

Discount brokers like Schwab and TD Ameritrade have large menus of products that are geared towards people who feel confidant in their ability to choose their own investments.  Both of them have NTF (no-transaction-fee) funds from which you can choose.  However, this does not mean that there are no hidden costs involved with the selection of these funds.  For example, Vanguard and Dodge & Cox will not pay the necessary fees that would make their funds available to consumers for free.  Since these two companies operate some of the best-performing funds, you could lose out on potential future performance if you opt for a less successful fund simply because you do not want to pay an up-front fee.  Consequently, while you can get NTF funds at the discount brokers, you also need to decide if you would be better off paying a fee in order to put your money into a fund that has a better performance record.  Make sure you take the time to do your research.

Purchase an ETF

A few month's ago, I wrote a blog post about Warren Buffet's advice for retirees.  It was based on a speech he gave at one of the annual meetings for Berkshire-Hathaway.  In his speech, Warren Buffet recommended that most retirees would do best at handling their investment savings if they simply purchased ETFs (Exchange Traded Funds) in a variety of industries over a ten year period.  In this way investors would take advantage of dollar cost averaging and they would also be diversified over a number of different industries.

In a recent Money Magazine article titled "The One Retirement Move You Must Get Right," the authors also suggested that do-it-yourself investors should consider purchasing ETF's.  It's a good investment strategy that doesn't require you to pick individual stocks and cross your fingers that you have chosen winners.  So, both Warren Buffet and Money Magazine concur ... go with ETF's.

Set Up an Automatic Monthly Investment Account

Another approach to handling your own investments is to set up an automatic monthly investment account.  Some discount brokers offer their clients the opportunity to invest monthly in funds for free or for just a few dollars a month.  It is a great way to invest and spread the expense out over a long period of time.

Pay a Fee to Get the Fund You Want

Another option is to select the highest performing fund that interests you and pay the fees, which can range from $17 at Scottrade, $50 at Ameritrade or $76 at Schwab.  These fees can be well worth it to you if you are going to get a higher rate of return or save on annual expenses.

As I mentioned before, you will have to do the research to see which investment options are the most affordable and practical for you, while offering you the best rate of return.  Ask the different brokerage firms to send you information on all the funds and ETF's that you are considering.  Read all the information thoroughly.  Once you feel confident, form a plan and move forward with your choices in an organized, consistent manner.

You may also want to read these recent articles:

Should You Rollover Your 401(k) into an IRA?
How to Choose a Good Investment Adviser
How to Choose an Annuity for Retirement Income

Source:

"The One Retirement Move You Must Get Right," Money Magazine, July 2014, page 44

If you are planning to retire soon, use the tabs at the top of this page.  They contain links to hundreds of articles about where to retire, financial planning, medical issues, and family relationships.

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How to Choose an Annuity for Retirement Income

How can you guarantee that you will not run out of your retirement savings before you die?  One idea that is recommended by many financial advisers is to put a portion of your savings into an annuity.  Doing this can insure that you will always have at least some reliable income in addition to your Social Security benefits.  While not everyone will want an annuity because their assets are permanently tied up, others appreciate the secure income flow that annuities can create with a higher return than you would receive from bank interest.

In a "Money" magazine article, "The One Retirement Move You Must Get Right," the author discusses how to transition from saving for retirement to receiving a lifetime income from your savings.  As part of this article, the author demonstrates how you can lock-in a lifetime income with an annuity.  While they do not recommend doing this with all the proceeds of your 401(k) or IRA, they do see it as one part of a well-designed investment plan.  Which type of annuity is right for you ... a variable annuity or an immediate annuity?

Variable Annuities

Investment advisers who work for insurance companies are likely to advise you to purchase a variable annuity.  These investment products combine an income with the potential for your investments to continue to grow.  Approximately 75% of the annuities that are sold in the United States are variable annuities, primarily because the potential for asset growth sounds so appealing.

The downside of variable annuities is that the guaranteed income is lower and you may pay an extra 2% or more (6% vs. 4%) in up-front commissions as well as management fees of 2% or more per year of assets under management.  If you still decide that this is the best type of annuity for you, try to find one that only charges 1.5% a year for the assets under management.  If you pay 2.5% or more, you are unlikely to have enough asset appreciation to make the lower earnings worthwhile.

Fixed or Immediate Annuities

"Money" magazine suggests that most people will do better with a simple fixed or immediate annuity.  With this type of annuity, you pay a lump sum up front and receive a guaranteed lifetime income.   One advantage is that the commissions are usually 4% or less, compared with 6% for a variable annuity.  In addition, you do not pay the 2% annual management fee.  You can compare the commissions and estimated earnings for various fixed annuities at a website called immediate-annuities.com.

Rather than relying on the potential of appreciation in a variable annuity, with a fixed annuity you can put a portion of your retirement savings into the annuity and then invest the remainder of your savings in a low-cost mutual fund or exchange traded fund.  Research has shown that people tend to do better with this combination than they do when they put everything into a variable annuity.

Whichever type of annuity you choose, you will not want to rely solely on annuities for all of your retirement planning.  The more diverse your portfolio and the types of retirement tools you are using, the fewer problems you will have during a stock market decline, such as the one that began in 2007.

You may also want to read these other posts that were based on the Money magazine article:

Should You Rollover Your 401(k) Into an IRA?
How to Choose a Good Investment Adviser

Source:

"The One Retirement Move You Must Get Right," Money Magazine, July 2014, page 44.

If you are planning your retirement, you may want to use the tabs at the top of this page.  They contain links to hundreds of articles about financial planning, where to retire, medical issues and family relationships.

You are reading from the blog:  http://www.baby-boomer-retirement.com

Photo credit:  www.morguefile.com