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Social Security, Medicare Retirement Planning Guide
- 1. Social Security, Medicare, and Your Retirement " LPL Tracking #1-375914 Securities through LPL Financial, Member FINRA/SIPC
- 2. In this SlideShow, we will discuss: • The changing face of retirement • Social Security: structure, issues, and proposals • Medicare: structure, issues, and proposals • Medigap insurance and Medicare HMOs • Retirement planning strategies • Preparing for retirement
- 3. The Changing Face of Retirement • Planning for retirement is more important than ever • Retirement in the future will cost significantly more • Help is available — but plan now • Social Security and Medicare should be two primary retirement concerns
- 4. Social Security • Covers retirement, disability, family and survivor benefit programs. • Designed to supplement private savings and retirement plans. • Accounts for 35% of the income of all people 65 and older, according to the Social Security Administration. 1 Source: Social Security Administration, Fast Facts & Figures About Social Security, 2014.
- 5. How Does Social Security Work? • Mandatory funding • Tax proceeds are held in special trust funds • Full retirement benefits depend on your age — reduced benefits available at age 62 • Your benefit amount depends on your earnings history
- 6. Current Social Security Issues • Retiring baby boom generation • People are living longer. • Fewer workers paying into the system. • Tax and other noninterest income was not enough to cover program costs starting in 2010, and the 2014 Trustees Report projects that this pattern will continue for at least 75 years.* • By 2033, Social Security may not be able to meet all of its obligations.* *Source: Social Security Administration, Fast Facts & Figures About Social Security, 2014.
- 7. Proposals for Improving Social Security • Raising the retirement age • Cutting benefits for wealthier seniors • Trimming cost-of-living increases • Investing Trust Fund dollars in the stock market • Diverting payroll taxes to private accounts for workers
- 8. Medicare Options Part A (Hospital Insurance) • Pays for most basic hospital care and follow-up and some outpatient services • No premium Part B (Medical Insurance) • Helps pay most outpatient treatment • Monthly premium deducted from Social Security 2 Source: The Henry J. Kaiser Family Foundation, Medicare at a Glance, September 2, 2014.
- 9. Medicare Options • Original Medicare Plan • Medicare Advantage, or Medicare Part C • Medicare Part D, prescription drug plan • Call 1-800-633-4227 or log on to www.medicare.gov 2Source: The Henry J. Kaiser Family Foundation, Medicare at a Glance, September 2, 2014. 3Source: Medicare.gov, “Medicare 2015 costs at a glance.”
- 10. Medicare & the Affordable Care Act • Enhanced benefits • Spending reductions • Delivery system reforms • Premium increases for higher-income beneficiaries • Payroll tax on earnings for higher-income people • Visit Medicare.gov to learn more.
- 11. Health Savings Accounts • For consumers under age 65 who are enrolled in high deductible medical plans • Tax-deductible contributions • Annual contribution limit in 2015 of $3,350 for individuals and $6,650 for families • Distributions for qualified medical expenses are tax free • Variety of investment options *Source: Internal Revenue Service.
- 12. Medigap Insurance • Tries to cover the gaps in Medicare coverage • Consider services, amount of benefits, and monthly cost • Call 1-800-633-4227 for additional information
- 13. Preparing for Retirement: Your Financial Well-Being • More retirement planning choices — and responsibility • Retirement — one of your financial priorities
- 14. Retirement Savings Vehicles • Traditional 401(k) plans: before-tax contributions and tax-deferred growth • Roth 401(k) plans: after-tax contributions and tax-free distributions • Contribute up to $18,000 in 2015, with an additional $6,000 in catch-up contributions for those age 50 and older • Many employers match 401(k) contributions • Try to contribute the maximum
- 15. Retirement Savings Vehicles • IRAs — Maximum contribution of $5,500 per individual in 2015 • Tax-deferred growth, taxes due upon withdrawal • Roth IRA contributions are not tax deductible, but earnings can be withdrawn tax free provided you’re age 59½ and have held the account for 5 years • Consider a financial advisor
- 16. Plan Today The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Securities through LPL Financial, Member FINRA/SIPC Contact me today to discuss how I can help you plan for your future: 855-698-2215 Thank you!
Editor's Notes
- Good morning/afternoon and welcome to Social Security, Medicare, and Your Retirement. I’m here to help you understand how the Social Security and Medicare programs work, discuss the important issues both programs are facing, and outline some effective strategies for supplementing these two important retirement benefits. Let’s start with a quick survey to get an idea of your perception of Social Security and Medicare. How many of you are worried that Social Security and Medicare benefits will be reduced — or even eliminated — by the time you retire? [show of hands] You’re not alone. Both programs have been in the news, and most of that news has been unfavorable. Reports of potential insolvency, tax hikes, private accounts, and increased eligibility ages have generated controversy — and confusion.
- We’ll begin today’s seminar with a quick look at the changing face of retirement. From there, we’ll review the structure of both Social Security and Medicare — how these programs work, the issues they currently face, and proposals for improvement. We’ll review other important options, such as Medigap insurance and Medicare HMOs. Finally, we’ll review some effective strategies for meeting your financial and medical needs during retirement without having to rely solely on Social Security and Medicare.
- For many older Americans, the final years are not always as golden as they’d imagined. Limited incomes and rapidly rising health care costs can potentially put a damper on dreams of leisure and comfort. Therefore, planning for your retirement is more important than ever. We cannot rely solely on Social Security and Medicare to provide us with the financial and medical means necessary to live comfortably throughout retirement. It’s a safe bet that retirement in the future will cost more — significantly more — than it does today. Let’s face it, costs for everything from health care to college to housing are rising. On a positive note, people are living longer, healthier lives. Consider these facts when planning for retirement. Fortunately, there is help available for supplementing limited incomes and covering medical care in your later years, but you need to take some initiative to find it. It also helps if you have the foresight to do some early planning. The areas you should be most concerned with are Social Security, Medicare, and retirement planning. Let’s start with Social Security, the biggest — and most controversial — government program for retirees.
- Social Security is the general term that describes a number of related programs: retirement, disability, and dependent and survivor benefits. These programs provide limited financial assistance to workers and their families when their normal flow of income shrinks because of retirement, disability, or death. According to the Social Security Administration’s most current data, 63.2 million Americans now receive $855 billion in Social Security benefits.1 This group includes elderly retirees and their families, disabled workers and their families, and survivors of deceased workers. Contrary to what many think, Social Security was not designed to meet all the financial needs that arise from a person’s old age, disability, or death. It was — and is — intended to serve as a supplement to private savings and privately funded retirement plans. Social Security accounts for about 35% of the income of Americans over the age of 65, according to the Social Security Administration. 1Source: Social Security Administration, Fast Facts & Figures About Social Security, 2014.
- Social Security is funded through mandatory contributions by us and by our employers. Employee contributions are recorded in the “Social Security taxes” box on pay stubs. The taxes are held by special trust funds established exclusively to pay Social Security — and Medicare — benefits and administrative expenses. Trust fund assets not needed to meet current costs are invested in special-issue U.S. government securities. You may begin to receive retirement benefits as early as age 62; however, if you choose to take benefits earlier than your full retirement age, you will have to take reduced benefits for the duration of your retirement. So what is your normal retirement age? Workers born in 1937 and earlier can receive full benefits at age 65. Those born from 1938 to 1942 can receive full benefits somewhere between 65 and 66, depending on the exact year of birth. Workers born from 1943 to 1954 are eligible for full benefits at age 66, and those born between 1955 and 1960 are eligible between the ages of 66 and 67. Workers born after 1960 must be 67 years old. People who delay retirement beyond their normal retirement age receive a special increase in their benefits when they do retire. The exact amount of your benefit will depend on your earnings history. To get a more realistic estimate of your Social Security benefit, log on to the Social Security Administration’s website at ssa.gov and complete the online retirement benefits estimator. Handout 2 in your materials explains how to request a personalized benefits estimate at any time during the year.
- Why might our Social Security system be in trouble? First, understand that current workers’ taxes are used to fund current benefit payments. In other words, your taxes are not set aside for you to tap later. Then consider that the retirement of the baby boom generation will mean more retirees receiving benefits and fewer workers paying into the system. In addition, people are living longer, which means that this large number of people will be receiving Social Security retiree benefits for a longer period of time than in years past. In 1950 there were about 16 workers paying Social Security taxes for every beneficiary. Today that number is just under three, and by 2032, it is projected to drop to two workers per retiree.1 In short, the pool of money that funds the system is shrinking. The Social Security Administration projects that the current annual surplus of the trust fund that pays retiree benefits has begun to decline, and that growing annual deficits are expected to deplete the Social Security surplus by 2033.1 1Source: Social Security Administration, Fast Facts & Figures About Social Security, 2014.
- Because of the size and controversial nature of Social Security, there is no shortage of proposals for “fixing” the system. Among the options being discussed: Raising the retirement age to 70 Cutting benefits for wealthier seniors Trimming cost-of-living adjustments Investing the Social Security trust funds in the stock market Diverting a portion of payroll taxes from retiree benefits to private accounts. The proposals that call for either investing the Social Security trust funds in the stock market or allowing people to invest some or all of their contributions in the various securities markets have generated the most controversy. Proponents say that investing Social Security assets in the stock market would greatly enhance the program’s returns — thereby increasing its reserves and longevity. Despite the market crisis of 2008-2009, stocks historically have performed better than any other type of investment, although past performance cannot guarantee future results. Others say that the inherent market risk would rob some retirees of the very security that Social Security was created to provide. In recent years, there has been a lot of discussion in the media and on Capitol Hill about investing at least some of the funds in the stock market, although no decisions have been made. Expect to hear a lot about these proposals in the months and years to come. Now let’s move on to the other major retiree program, Medicare.
- Medicare is a federal government program that helps older and some disabled Americans obtain and pay for medical care. Administered by the U.S. Department of Health and Human Services, Medicare is the nation’s largest health insurance program, which currently covers more than 54 million Americans.2 The program is divided into four components: Part A, Part B, Part C, and Part D. Part A is called hospital insurance and covers most of the costs of a stay in the hospital, as well as some follow-up costs after time in the hospital. Part A pays some other outpatient medical services, including some home health care. It covers none of the cost of prescription drugs. Under most circumstances, you do not have to pay a premium for Part A. Part B is medical insurance. This optional coverage is intended to help pay doctor’s bills for treatment in or out of the hospital. It also covers many other medical expenses you incur when you are not in the hospital, such as the costs of necessary medical equipment and tests. If you elect Part B, a monthly premium is automatically deducted from your Social Security check. For more information about Medicare Part A and Part B, see Handout 1. 2Source: The Henry J. Kaiser Family Foundation, Medicare at a Glance, September 2, 2014.
- You have two options for Medicare coverage: the Original Medicare Plan and Medicare Advantage, sometimes referred to as Medicare, Part C, a managed care plan.2 Each of these programs has pros and cons. With the Original Medicare Plan, you pay your Part B monthly premium and then pay for additional services as you use them. In 2015, the “standard” monthly premium is $104.90.3 Additionally, the 2015 Medicare Part B deductible is $147.3 Medicare Advantage, an optional program available through private insurance companies, provides HMO-type coverage. Enacted as part of the 2003 Medicare act, Medicare Advantage is expected ultimately to increase payment to plan providers and enhance the range of benefits available. Medicare Part D is the voluntary, subsidized outpatient prescription drug benefit, with additional subsidies for beneficiaries with low incomes and modest assets. The Part D benefit is offered through private plans that contract with Medicare, both stand-alone prescription drug plans (PDPs) and Medicare Advantage prescription drug plans (MA-PDs) 2 To determine which program is right for your needs, call 1-800-MEDICARE (633-4227) or log on to medicare.gov. 2Source: The Henry J. Kaiser Family Foundation, Medicare at a Glance, September 2, 2014. 3Source: Medicare.gov, “Medicare 2015 costs at a glance.”
- You may be wondering how the Affordable Care Act has affected Medicare?2 The law includes a number of provisions that affect Medicare, including: Enhanced benefits (free prevention services and phasing out the Part D coverage gap), Spending reductions affecting plans and providers, Delivery system reforms, Premium increases for higher-income beneficiaries, and A payroll tax on earnings for higher-income people. In addition, the law authorizes a new Independent Payment Advisory Board tasked with constraining the growth in Medicare spending over time. To learn more about how Medicare is affected by the Affordable Care Act, visit the Medicare website at Medicare.gov. 2Source: The Henry J. Kaiser Family Foundation, Medicare at a Glance, September 2, 2014.
- A key enhancement to the system was the creation of tax-free health savings accounts for anyone under age 65 who is enrolled in a high-deductible medical plan — defined as one with a deductible in 2015 of at least $1,300 for individuals and $2,600 for families. These amounts are indexed for inflation.5 Maximum contributions to an HSA for 2015 are $3,350 for individuals and $6,650 for families. In addition, there is a $1,000 catch-up contribution for individuals between the ages of 55 and 64, which is unchanged from 2014.5 Much like an IRA, the health savings accounts allow account holders to select a variety of investments to suit their time horizon and risk tolerance. Also, the account balance can be maintained from one year to the next. Distributions for qualified medical costs are tax free but nonqualified withdrawals are taxed as income and may be subject to a 10% additional tax. 5Source: Internal Revenue Service.
- If you choose the Original Medicare Plan, you might also be interested in securing Medicare Supplement Insurance, or “Medigap” insurance. The term Medigap comes from the notion that these insurance policies will cover the gaps in Medicare payments. Medigap doesn’t fill in all the gaps — but it helps. Before you buy a Medigap insurance policy, consider not only the services covered but also the amount of benefits and the monthly cost of the policy. Also pay attention to how much premiums may rise in years to come. You might also want to compare Medigap with Medicare Advantage. For more information on Medigap insurance, call 1-800-MEDICARE (633-4227).
- Up to this point, we’ve spent most of our time learning why you shouldn’t rely on Social Security and Medicare to cover your needs during retirement. With that firmly established, let’s now talk about what you can do to help ensure a comfortable retirement. Fortunately, you have more choices than previous generations, which we’ll discuss in a moment. With these choices, however, comes responsibility. It’s up to you to determine whether you should contribute to a retirement plan, how much to save, and what investment options to choose. Regardless of your age, investing for retirement should be among your top financial priorities. However, one of the greatest challenges for most people is realizing the need for a retirement investing program. According to some financial experts, you’ll need 70% or more of your final working year’s salary each year during retirement.
- Since Social Security was never meant to be the sole means of support in retirement, you have other options for retirement savings. Fortunately, there are several tax-advantaged investment options for retirement savings, such as 401(k) plans and IRAs. There are two types of 401(k)s: traditional and Roth plans. Traditional plans offer several tax benefits. Since contributions are taken out of your paycheck before income taxes are assessed, you pay taxes on a lower amount now. What’s more, earnings on your traditional 401(k) account can potentially grow and compound without losing some of that growth to taxes each year. Roth plans feature after-tax contributions, but qualified distributions are tax free. Roth 401(k)s are available at the discretion of your employer. Ask your benefits administrator if your company offers this retirement savings option. In addition, many employers match a portion of your contributions, which may potentially be the easiest money you’ll ever receive. Think about it: If your employer matches a portion of your 401(k) contributions at a rate of 50 cents on the dollar, that’s an automatic 50% return on part of your money before it’s even invested. If your employer offers a 401(k) or similar plan, take advantage of it. Also, try to contribute the maximum. Remember that early withdrawals prior to age 59½ may be subject to an additional 10%tax.
- Another important way to save for retirement is through a traditional IRA or a Roth IRA. These accounts offer significant tax benefits. With a traditional IRA, your investment is potentially tax deductible depending on your income level and participation in an employer-sponsored retirement plan. And, like traditional 401(k) plans, earnings can grow and compound tax deferred. A Roth IRA doesn’t allow for deductible contributions; however, any earnings grow tax deferred. The big payoff may come in retirement, when you can tap those earnings without paying federal income taxes provided you’re age 59½ and have held the account for 5 years. Like 401(k) plans, most early withdrawals from IRAs are subject to an additional 10% tax. Because of the complexities involved with these retirement savings vehicles, you might want to consider using the services of a qualified financial advisor to help you with your investment decisions.
- Today we’ve covered the current state of Social Security and Medicare — perhaps the two most important issues to every future and current retiree. We also reviewed the importance of planning for retirement and taking advantage of the investment options available to ensure a comfortable retirement. The next step is yours. Perhaps you’ll need to make an appointment with a financial professional to sort out the wide range of choices available to you. You may also want to contact the Social Security Administration to obtain your estimated benefit. Consult your handouts for information on how to do that. Whatever your situation, keep the following in mind: Don’t expect Social Security and Medicare to cover all of your retirement costs Stay up-to-date with Social Security and Medicare benefits Plan wisely One last point to consider: You could spend more than a third of your lifetime in retirement. Planning for your retirement so you don’t have to rely solely on the uncertain futures of Social Security and Medicare is time well spent. Thank you for attending this session. I’ll be here for a few minutes to answer any questions you may have.