Welcome to The Shaw Atlas, the monthly newsletter from Shaw & Associates, CPAs & Financial Advisors. We look forward to keeping you abreast of ever-changing tax codes, providing you with money saving accounting tips and illustrating proactive strategies to help you achieve the financial life you envision.
Last month Shaw & Associates participated in the Elder Care Network of Northern Colorado’s Senior Law Day. Based on the interactions that we encountered at the event we thought that it would be appropriate to showcase seniors and the people that love and care for them.
“For all they have achieved throughout life and for all they continue to accomplish, we owe older citizens our thanks and a heartfelt salute.” – President Ronald Reagan
- Since January 2011 every day more than 10,000 people reach the age of 65. This generation will continue to grow at this rate every single day until the year 2030.
- 74% of all baby boomers’ income comes from work earnings, 11.3% is retirement income, 10.4% is social security income and 6.9% comes from food stamps.
- About 85% of baby boomers expect to continue working after full-time retirement.
- The U.S. government reports that the ever-increasing spending on programs such as Social Security and Medicare plus the spiraling interest costs on the U.S. national debt will absorb approximately 92 cents of every single dollar of federal revenue by the year 2019.
- According to Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern’s Kellogg School of Management the 50 states are facing a $3.2 trillion deficit for pension funds. They have only set aside $1.94 trillion for the $5.17 trillion they owe for pension obligations.
According to the Investor Protection Trust, a fifth of Americans older than 65 have been victims of a financial scam. The BBB lists the five most common scams as:
- Sweepstakes and Lottery Scams
- Medicare Scams
- Bereavement Scams
- Deceptive Professional
- Investment and Work at Home Opportunities
Make sure to visit the BBB website for tips on how to avoid falling for these frauds.
Congratulations to the winners of our “Like us on Facebook” campaign, Stacey Joseph and Scott Hapner. Thank you to all who have “liked” us and we hope to continue to bring you valuable information.
Are you having trouble sleeping because you are worried about your finances? Are you starting to know all of the late night infomercials? Do you find yourself watching David Letterman, not because you want to but because it is the best thing on at that time? Here are some of the top concerns keeping seniors and retirees awake at night.
1) Outliving their money. Let’s face it, because of the continual advancements in public health, nutrition and medicine people are living longer. Seniors and retirees today are leading healthier and more active lifestyles. According to the Life Expectancy Report from the Congressional Research Service, “life expectancy at birth for the total population has reached an all-time American high level, 77.5 years, up from 49.2 years at the turn of the 20th century.” While it is great that we are able to enjoy a much longer life, it is also creating challenges in how to make our finances last longer. If you throw in the downturn of the economy with the recent market volatility, current low yields and the fact that people are not saving enough in their working years, it magnifies the impact of a potential financial shortfall in retirement.
2) Rising Healthcare costs. The current Medicare system is being stressed. Average annual medical costs have risen 7.25% from 2000 to 2010, according to the study by Centers for Medicare & Medicaid Services, and are anticipated to continue increasing. Also, as 78 million Baby Boomers start retiring and accessing the healthcare system, it will further increase demand. Then there is the unfortunate reality that as you age you naturally need more care so you will be using the system more often.
3) Recent Market Volatility. The ups and downs of the markets over the last couple of years have caused some considerable anxiety among retirees. People have seen their 401K and IRA values drop almost in half, and then hopefully bounce back if they were able to hang in there. If you have a long-term perspective, market volatility may not be of too much concern. Unfortunately many retirees are in need of taking income and withdrawals sooner than expected during these downturns and are depleting their resources quicker. This sequence of returns, both positive and negative, during the early years of their retirement, can have a major impact on whether or not their retirement funds will last.
4) Low Yield Environment. Do you want to play it safe? Well, it is going to cost you. In this low rate environment it is very difficult to find conservative investments paying reasonable yields. Just check savings rates at your local bank. Most people are happy if they are getting anything higher than ZERO. This doesn’t bode well for the conservative investor trying to live off of their interest earnings. Not to mention the erosion of their future purchasing power since they are losing the battle to inflation’s historic 2% to 3% average annual increase over time.
Are you worried? While this may sound like doom and gloom, it doesn’t have to be. The key here is having a financial plan that provides a roadmap during retirement. Acknowledging that you have these concerns is the first step and will hopefully cause you to take action. Meet with an advisor and develop a plan tailored to your specific needs and identify options to help mitigate your risks. There are solutions but it does take proper planning and action.
The key to planning now versus waiting is that it gives you more time to implement steps to help mitigate these risks. The longer you wait the more difficult it becomes because time is working against you. There are solutions that help protect against longevity risk. There are investment solutions designed to minimize market volatility. Identifying that healthcare costs may increase might allow you to plan and anticipate some of those additional costs ahead of time. Discussing options over low yields may identify another alternative that is in line with your goals and objectives.
Talk with your advisor. If you don’t have one or would like a second opinion, give us a call and we would be happy to do a free initial consultation.
Many people believe that once they reach age 65, Medicare will cover all of their medical costs. For those that realize that this is not true, they may still not realize the magnitude of what Medicare may or may not cover. I will attempt to demonstrate, using a simple story, why it is important that you have sources of funds available to pay for medical costs not covered by Medicare. This can be done from personal funds, or by using Medicare supplemental policies. Even if you are not currently eligible for Medicare, chances are a family member or someone you know is currently dealing with these issues.
Helen’s Story (From CPA Insider, July 2012 Issue)
Helen, an 80-year-old widow, suffered a series of heart attacks while at home. Her daughter, visiting at the time, called 911. An ambulance took Helen to the hospital. The Medicare-approved charge for the ambulance was $172. Because Helen had not met the 2012 $140 Part B annual deductible, she will owe $140 plus 20% of $32 ($172 – $140) or $6.40 for a total of $146.40.
Once admitted to the hospital, Helen owed the Part A hospital stay deductible for 2012 of $1,156 per benefit period. The benefit period began the day Helen was admitted to the hospital (or skilled nursing facility) and would end when she hadn’t returned to the hospital (or skilled nursing facility) for 60 days in a row. The total Medicare-approved cost of the stay at the hospital was $8,879. Medicare would pay $7,723 ($8,879 minus the deductible per benefit stay of $1,156).
During Helen’s stay in the hospital, her physician charged $4,825. Physician charges are paid under Medicare Part B, even though incurred while in the hospital. Helen would have paid 20% of the cost or $965.
After Helen was released from the hospital, she was placed in a skilled nursing facility for rehabilitation. Because Helen’s stay in the nursing facility followed a medically necessary inpatient hospital stay of at least three days and was ordered by her doctor, Medicare paid the full cost of the stay for up to 20 days for each benefit period. But Helen would have paid a co-insurance amount of $144.50 per day (in 2012) for days 21 through 100. Helen remained in the nursing facility for 36 days. Because of the length of her stay in the nursing facility, she owed $2,312 (16 days x $144.50).
Based on her doctor’s order, Helen rented a wheelchair. A wheelchair is considered Durable Medical Equipment (DME) paid for under Medicare Part B. Helen paid 20% of the rental cost.
Helen’s total out-of-pocket costs were now almost $5,000.
This story could go on and on. For instance, once released from the nursing facility, Helen may need long-term custodial care (not medical care), which Medicare does not cover. The important point is that there are many things that Medicare does not cover. Proper planning can help mitigate these issues. There are Medicare supplemental policies (Medigap policies) that can fill in many of the gaps that Medicare does not cover. There are also long-term care insurance policies that can cover custodial care.
Due to these complexities it is important that you consult with a financial advisor, preferably one with elder care experience. We would be happy to assist you with any questions you may have in this area. Please contact our office to arrange a free consultation.
We would like to congratulate Brad Hamilton and his pet store, Tailwaggers, which was just recently voted Greeley’s #1 Favorite Pet Store and #1 in Best and Friendliest Service in the Greeley Tribune’s 2011 Hot Picks Awards. Brad and Tailwagger’s are clients of Shaw & Associates and we feel fortunate to be able to partner with growing and successful companies such as Tailwaggers.
To read about Tailwaggers’ success click here
If you would like to showcase your business’s achievements in our newsletter please contact Cassy at Cassy@kevinshawcpa.com
Being featured in our awards section does not indicate that the client endorses our services.