By Managing Partner, Mitch Adel
We’re told that we live in a time of low inflation, but seniors continue to see costs rise. Whether its additional taxes or growing health care expenses, retirees are squeezed from all directions. But, even with these challenges there are steps every senior can take to reduce their expenses and their exposure to many of these encroaching costs.The most important step is to create a plan, then revise it as the circumstances change and new challenges emerge. This type of plan—often legal as well as financial—is not something we can “set and forget.”
Let’s look at three areas where costs are rising, but where smart seniors can take control.
Choose Wisely: Medical expenses and long-term care
The most difficult costs to forecast—and some of the most difficult for seniors to manage—come from health care and long-term care. Even with Medicare coverage and some positive affordable care act changes, out-of-pocket costs are rising and means-testing is taking a bigger bite out of the budgets of higher-income seniors.
As provisions of the Affordable Care Act roll out over the next few years, the system will continue to shift, so seniors should watch their costs and their insurance choices closely to make sure they are keeping up with the changes. Recent ACA revisions also mean that seniors may be able to restart an existing plan that was slated to be canceled. Seniors also have access to new Medicare plans under the law that are worth a look as they may increase prescription drug coverage for some seniors.
In addition to medical costs, the average senior will require three years of long-term care in their lifetime, and these costs (which can range from $40,000 to more than $70,000 per year) are cove-red by Medicaid only after a “spend down” of available assets. The past year has seen a drastic shift in the long-term care insurance market, with policies become much more expensive if they are offered at all. More and more, families are turning to estate planning solutions to problems to avoid losing assets such as houses and farms to cover these costs.
New taxes, new challenges, some relief
There are a number of new taxes coming into effect in 2014 that will have an impact for many Ohio seniors with high incomes:
- 3.8 percent surtax on net investment income
- 0.9 percent Medicare tax on earned income
While both of these new taxes will affect higher-income families ($250,000 for couples and $200,000 for individuals), they will combine to add on to the extra burdens of the ACA and means-testing for Medicare.
That said, the modest inflation we’ve had in 2013 (after several years of very low or nonexistent inflation) will amount to modest savings for most taxpayers in 2014, as federal income tax brackets and a multitude of other provisions adjust automatically to keep pace with inflation. This relief will make an impact, but seniors will also be paying more for many basic items because of the inflation, so it can’t be counted on as true savings.
You don’t have to do it alone
With any of these financial challenges, the best advice is always to plan ahead and take advantage of the many financial and legal experts that can help you along the way. Navigating the maze of retirement and estate planning has never been more complicated, so it’s critical to find the advice and support your family needs to make the best possible choices.