My Comments: Having access to medical care is a big deal. Having access to medical care that you can afford is a big deal. And it becomes a bigger deal when you are no longer employed and attempting to live the rest of your life with some degree of financial freedom.
By Glenn Ruffenach July 15, 2016
Question: My wife and I are trying to set up a budget for retirement, and we’re wrestling, in particular, with health-care expenses. How can we estimate what our medical bills will look like in the future?
An important — and vexing — question. For instance, a healthy person will have fewer and/or smaller medical bills in later life, right? Well…maybe not. As a recent study, “An Apple a Day: The Impact of Health Conditions on the Required Savings” noted, “Excellent health, ironically, can actually raise an individual’s lifetime health spending needs because of the likelihood that healthy 65-year-olds will live much longer.”
A good starting point (and a study worth reading in full) is the “2015 Retirement Health Care Costs Data Report” from HealthView Services Inc., a provider of health-care planning tools in Danvers, Mass. According to HealthView, a healthy 65-year-old couple can expect to pay, on average, $266,589 for insurance premiums and $128,365 for related expenses (dental, vision, copays and out-of-pocket bills) over their lifetime.
Another good resource—one with an emphasis on prescription-drug costs—is “Amount of Savings Needed for Health Expenses for People Eligible for Medicare” from the Employee Benefit Research Institute in Washington. The study estimates that a couple, where both spouses have median drug expenses, would need $259,000 to have a 90% chance of having enough money to cover health-care bills in retirement.
Note: Neither report accounts for possible long-term-care expenses. For that piece of the puzzle, check out Genworth Financial’s GNW, +2.72% 2016 “Cost of Care Survey.”
I am due to begin required withdrawals from my retirement savings. What are the advantages and disadvantages of an annual lump-sum withdrawal as opposed to a monthly payout?
In most cases, a required minimum distribution, or RMD, in the form of a single annual payout causes fewer problems — if you have a good amount of self-discipline.
Yes, monthly withdrawals act like a regular paycheck. But, to take a worst-case scenario, if you die midyear, your family must withdraw the remaining RMD, says Carolyn McClanahan, founder of Life Planning Partners Inc. in Jacksonville, Fla. Figuring out how much has already been withdrawn and how much remains to be withdrawn can (at times) be a hassle.
With a single lump sum, you can deposit the funds in a savings account and then arrange for monthly transfers to your checking account, creating (in effect) a regular paycheck. And if you wait until November or December to take an RMD — when you have a clear picture of all your income for that year — you can calculate your tax withholding on the withdrawal more accurately.
The one cautionary note about a single annual withdrawal: willpower, or the lack thereof. “Some people spend it all at once if they take it as a lump sum,” McClanahan says.
I have a question about paying my grandchildren’s tuition. I understand that if I pay the institution directly there is no tax consequence for my grandchild or me. Does this apply only to tuition or does it include room and board?
The answer: just tuition. But you have some flexibility here.
To start, the “tax consequence,” in this case, is the federal gift tax. You can give as much as $14,000 in cash or other assets to as many people as you wish each year, and those gifts won’t count against your (the giver’s) lifetime exemption. (In all, you can give away $5.45 million before gift taxes kick in.) If you exceed the $14,000 ceiling in a given year, you have to file a gift-tax return. That said, there are exceptions to these rules.
Under section 2503(e)(2) of the Tax Code, “any amount paid on behalf of an individual as tuition to an educational organization” is exempt from gift taxes. Note the wording: “tuition.” Period. There’s no mention of associated costs, like books, room and board, etc.
This shouldn’t stop you, however, from paying the grandchild’s tuition — and then either gifting him $14,000 to pay room and board, or paying room and board up to $14,000 directly, says Barry Kaplan, chief investment officer at Cambridge Wealth Counsel in Atlanta. And if both grandparents are alive, each can gift $14,000, for a total of $28,000.
My husband started taking Social Security at his full retirement age, but continued to work. He is now 75 and still working full time. Over the past 10 years, his benefit has gradually increased because of cost-of-living adjustments and his continuing contributions (via his paychecks) to Social Security. I am nearing full retirement age and am trying to figure out how much I would receive as a spousal benefit. I know that — at my full retirement age — I can qualify for half of my husband’s benefit. But do I get half of what he started receiving 10 years ago, or half of what he is receiving now, including the adjustments to his benefit?
Your spousal benefit would be based on your husband’s current payout, including the cost-of-living adjustments and any increases tied to his continued wages. To get a better idea of how much the spousal benefit will be, says Darren Lutz, a public affairs specialist with the Social Security Administration, your husband can create a “my Social Security” account at socialsecurity.gov/myaccount to see what his full benefit is, before deductions for Medicare premiums, etc. Then you can visit the agency’s retirement planner for spouses to learn more about potential benefits.
Glenn Ruffenach is a former reporter and editor for The Wall Street Journal, and co-author of “The Wall Street Journal Complete Retirement Guidebook.” Email your questions and comments to firstname.lastname@example.org.