2^nd Hour Topics

Happy Father's Day.

Rajiv and Jerry talk about June being the time for weddings.  That’s true of course even for older couples but those extra decades of life and living create legal and financial opportunities for the couple and their families.  There is a white paper available about Second Marriages.

Russ:  Assume that you have two daughters in their 40s and you are in your 80s and you leave them an IRA.  Are the distributions spread over a period of time and are they taxable?  Rajiv:  Yes, they are taxable.  The good news is that IRAs are spread over something called your life expectancy so they will have a longer period of time than say you would.  If you leave an IRA to multiple children and one is in their 60s and one is in their 40s, the IRA will be spread out over the life expectancy of the oldest child.  If you don’t want that result, you may have to name each child as a separate beneficiary of a third of the IRA and then each child’s share will be distributed according to the individual’s life expectancy.  You might consider moving the money out of the IRA and into a Roth IRA.  You can do it over a period of time.  The distributions of the Roth will be tax-free.

Preferred partner:  How to get from offer to close.

Julian in Renton:  My wife came here from the Philippines and she’s looking for employment.  She’s worried about filling Social Security information into online access.  Rajiv:  I have to agree with your wife.  I would be leery and avoid giving the information out prior to the initial screening.

Saving for retirement-how much is enough?  For the typical person, there are a couple rules of thumb.  Rajiv advises making a plan but to make a plan, you probably need to talk to a financial planner.

Susan:  I’m looking to re-do an old will and looking at using a trust.  I’d like to transfer my property to nieces and nephews who will be heirs.  Is that a quick claim deed?  Rajiv:  Yes, you can do a quick claim but you don’t want to make it look like a sale.  You can gift it.  What if your nieces or nephews go through a divorce?  Go see a good elder law attorney.

Roxanne:  My dad is 83 years old and he still works part-time and still is having Social Security taken out of his check.  Rajiv:  Anyone at any age, when they are getting any income, is paying into the system.

Jean in University Place:  How best to set up a beneficiary through a special needs trust?  Rajiv:  If you have a will, amend the will to leave assets via the trust through the will.

1^st Hour Topics

Happy Father's Day.

Lee in Edmonds: My dad rarely disciplined me but once he told me go to your room and stay there until you grow up.  My mom is 95 and she gifted money to my sister and me.  What proof does the government need about the gifting.  Rajiv:  It’s nice to have a cancelled check or bank statement as evidence.  If it has been more than two years, the burden shifts to the government to prove that the gift has been made for Medicaid.

Dr. Rob Emerick:  About two years ago, Dr. Emerick opened up a boutique concierge practice.  He charges a monthly fee for all-inclusive services.  Many times people do not really need to see a doctor for every visit.  They just want to talk to a doctor.  To find out more about Dr. Emerick, visit his website at http://www.choicecardiovascular.com/about-doctor-emerick.

Laura in Tacoma:  I’m a nurse practitioner and I’m wondering if the patients have insurance?  Dr. Emerick:  Most concierge physicians do a hybrid practice.  The clients have insurance (usually high deductible) plus they pay a monthly fee.

Preferred Partner tip of the week about the value of doing a pre-inspection of a home when you are selling a home.

Rajiv Nagaich and Jerry Berg talk about a story on the website about married men claiming Social Security too early.  About a third of the population over 65 are widows and most of them are relying on Social Security.

There are two requirements for collecting Social Security retirement benefits:  you must meet both a minimum work requirement and a minimum age requirement.

To meet the age requirement you need to be at least 62 years old.  To meet the minimum work requirements you need 10 years of paying into the system (through work) to be eligible.  When Social Security determines whether or not you have met the work requirements, it looks first at how many work credits you have earned.  The maximum number of credits you can earn per year is four credits.  Each credit represents $1,130 (in 2012) in earnings.  To be eligible for Social Security retirement benefits you must have worked 40 credits (or 10 years) if you were born in 1929 or later.

But say you worked internationally (this does not include military personnel as they have paid into Social Security during their time abroad) for part of that time.  If you’ve split your career between working in the United States and working internationally, you may not have built up enough credits to be able to access benefits in either country.  However, the United States and many foreign systems have an agreement called the Totalization Agreement.  Since the late 70s and beginning with Italy, the agreement combines work experiences from other countries, coordinating the U.S. program with comparable programs in other countries and making it possible for an individual who has accumulated a combined number of work credits to totalize their benefit from each country and therefore secure benefits.  The purpose of the agreement is to avoid double taxation of income with respect to Social Security taxes and takes into account whether a U.S. citizen or an alien is subject to Social Security taxes or Medicare taxes.  The agreement also helps fill gaps in benefit protection for workers with divided work histories.  For example if a U.S. citizen worked 6 years in Germany and 10 years in the United States, his or her combined coverage would be 16 years; the U.S. benefit would be 10/16 of the benefit and the German benefit would be 6/16 of the benefit.

If you have enough credits under the U.S. Social Security system, Social Security will not look at your credits in another country.  It is therefore possible for an individual to claim Social Security benefits under two countries.

The United States currently has 24 Totalization Agreements with other countries including: Australia, Canada, South Korea, England and many others.  It is possible to find a complete list of countries on the agreement by going here.

The agreement allows workers to be exempt from coverage under one country or another rather than requiring them to be covered under both systems (and thus paying into both systems).  Many foreign nationals choose this route as the U.S. Social Security Tax structure tends to be lower than those of other countries.  The one exception involves workers who are temporarily transferred.  These individuals are treated differently as they continue to be covered under the U.S. program and are exempt from coverage under the host country’s system.  This is true of all countries in the agreement except for Italy.

If you have any question about whether or not you meet Social Security’s requirements under the Totalization agreement, check with your foreign consulate or Social Security.

Some people believe that June was named for Juno, the Roman goddess of marriage.  Here are some other facts:

• Traditionally bridesmaids dressed similarly to the bride to confuse rival suitors, evil spirits and robbers.
• The word wife is taken from the Proto-Indo-European root weip, which has a root meaning shame.
• The word husband is taken from old Norse, husbondi or “master of the house.”
• Some scholars trace the word bride to the Proto-Indo-European root bru meaning to cook, brew, make broth.
• Employees in a happy marriage tend to increase the bottom line.  Conversely, employees in unhappy marriages impact the bottom line negatively.

(I just want to point out how absolutely apparent it is that men used to control the world.)

As people age the ratio of women to men gets progressively larger so that most men end life married while most women end life widowed.  Still if you are considering taking the plunge for the second (or more) time, recognize that older couples hoping to tie the knot tend to have a lot more assets (and a lot more family) tied up in the arrangement.  We have a new white paper that talks about some of the considerations that should go into this major decision.

There are more than 70 million fathers in the United States and about 2 million of them are single fathers.

I picked up this piece of advice the other day: For special days, never buy a woman something that can be plugged in and for a man, buy anything that can be plugged in.

Although widowhood in developed countries is nowhere near the deplorable conditions experienced by widows in developing countries, the standard of living for widows continues to leave them vulnerable to economic forces.  Regardless of country of origin, poverty rates rise with the duration of widowhood.^[5]  In the United States, the poverty rate for elderly widows has persistently been three to four times higher than for their married counterparts.  The last 20 years have brought many changes to the work force; however, the husband remains the primary breadwinner making those women, who worked outside the home either very little or not at all, dependent upon their spouse’s lifetime earnings record.

One study found that widows experienced a 40 percent decline in Social Security benefits, a 60 percent decline in pension benefits and a 16 percent decline in bequeathable wealth while only experiencing a 20 percent reduction in costs.^[6]  As a result, those whose incomes may have been just over the poverty line prior to their spouse’s death may fall below it.

While it may seem morbid, husbands and wives should prepare for the wife’s eventual widowhood to help avoid future financial calamities.  One way to do this is to delay taking Social Security until at least full retirement age (FRA).  According to the Social Security Administration, 70 percent of Social Security beneficiaries apply for benefits before they reach their FRA.  Widows bear the brunt of the resulting loss of income when husbands claim their Social Security benefits early.^[7]  On the whole, Social Security benefits drop by one-third when one spouse dies (they can fall by as much as 50 percent but a decline of one-third is typical)^[8].  But those benefits play such an important role in the finances of the surviving spouse that for 46 percent of non-married beneficiaries, Social Security made up 90 percent or more of their income.^[9]  Today, although the old-age poverty rate is less than one-third of what it was in the middle of the 20^th Century, widowhood remains a vulnerable risk factor for transitioning into poverty.^[10]  A 1939 amendment to the Social Security Act gave benefits to widows (65 and older) of retired and deceased workers but it wasn’t until the mid-60s and early 70s that survivor benefits were made available to survivors of either sex at age 60.

Let’s look at how an early claiming impacts the Social Security benefits of a married couple.

David Jeffrey’s is 62.  His wife Susan is also 62.  Susan has never worked outside of the home.  David and Susan’s FRA is 66.  If David starts collecting benefits at age 62, he’ll receive only 75% of his full payment of $2,225 or $1668.75.  If Susan waits until she’s 66, she’ll receive half of David’s benefit or $834.38 per month (if she opts to start at 62, she’ll only receive 35% of his payment).  If, on the other hand, David had waited until his FRA, David would receive $2,225 a month and Susan at half David’s benefit would receive $1112.50 a month.  Those are their permanent benefits.  Now suppose that David had waited until age 70 before claiming.  If David had delayed claiming, his payment would include a permanent raise.  Instead of claiming $2,225 a month, David would receive $2,937 a month.  Susan’s benefits will therefore be $1468.50 (note: Susan will never make more than half of David’s benefits under the Spousal benefits since she has no work record of her own.)

Now suppose that David started collecting Social Security at age 62 but at age 66, David dies.

When David opted to begin collecting Social Security at age 62, he was in effect opting to reduce Susan’s widow payment.  Susan will receive a payment reduced to 82.5 percent or whichever is greater (in this case, Susan will receive 82.5 percent).  Her widow’s benefit will therefore be $1835.63.  (Note:  This looks like a raise since Susan would have been collecting only $834.38 if David were still alive however; Susan’s income has actually decreased from a couple’s benefit of $2503.13 to a widow’s benefit of $1835.63, a reduction of $667.50 or a slightly more than 25 percent reduction in household income from Social Security.)  If instead, David had waited until FRA or had died before ever receiving Social Security benefits, Susan would have received $2,225 a month (100% of the full payment amount).  Say that David made it to age 70 before he died AND he hadn’t begun collecting yet, Susan would be eligible for $2,937 per month.  Survivors who receive their benefits no earlier than their FRA, will receive a benefit no greater than whatever the benefit would have been or was paid to the deceased worker.^[11] 

According to the Social Security Administration, “women in households that are least prepared financially for widowhood are at the greatest risk of a husband’s death because of a strong relationship between mortality and wealth.”^[12]  Advanced age often does not allow for widows to financially adjust by traditional methods such as returning to work or by cutting costs.  However, existing Social Security provisions provide options to substantially improve the economic well-being of claimants through delayed claiming.  Delaying claiming of Social Security benefits past early eligibility dates significantly boosts retirement benefits and security for widows.  Ignoring those options and making a decision to collect early benefits has long term implications for the surviving spouse and jeopardizes that spouse’s future financial health even in the case of women who have some accumulated wealth.

Ciampi joins a growing number of doctors that either have already or plan to switch to direct pay only practices.  Nearly seven percent of doctors say they are exploring changing to some form of direct pay care in the next three years and 50 percent plan to take steps to reduce patient access to their services, according to a survey by the Physicians Foundation.

For older adults, the result is often that they find it difficult to find a physician.  Yet according to this article direct pay doctors may help patients receive higher-quality care.  Many direct pay physicians such as Ciampi offer models of care that have previously disappeared such as house calls or other patient-centered care.

As of 2012, approximately 12,629 Washingtonians used direct pay physicians.  Washington state led the nation on direct pay practices (one article called Washington state a “hotbed” of direct pay physicians) thanks in part to a 2007 Washington state law which encouraged direct pay services as “a means of encouraging innovative arrangements between patients and providers and to help provide all citizens with a medical home.”

If you choose to go with a direct pay practice, understand what your rights are under the law and do some investigation on what will be covered by your physician.  Here’s the Washington State Office of the Insurance Commissioner website to help get you started with understanding how direct pay services work and your rights under Washington state law.

1^st Hour Topics

Rajiv is at Boulevard Park in Burien

Money alone doesn’t guarantee a good quality of life.  Brooke Astor, Mickey Rooney, Huegette Clark and many others have faced a retirement in which their children and others took advantage of them.  The journey of aging requires investing time, energy and money to be successful.

Phil from Tacoma:  I am self-employed and I am 65.  Because of the economy I was forced to apply for Social Security but three of my best years, Social Security is not accepting.  We estimated taxes.  Social Security said that the extension made invalidate.  Rajiv:  I don’t have an answer and will need to look into it.  For the rest of the listeners this is an example of why people need to pay attention to what Social Security is claiming as your income for the 35 year period they use to determine your benefits.

Tip of the week:  Katina Toscas-Atz with Keller Williams Realty talks about “How to get from offer accepted to actual close of escrow.”

Mike:  I have a friend whose father is going in the hospital with something serious and they are wondering if they will end up spending their life time savings due to this health issue.  Rajiv:  That is something that we deal with on a daily basis.  If there is a married couple they can generally protect their assets even at this point.

Nancy Whitehare at Boulevard Park: Rajiv asked what made her decide to move in to a retirement community.  Nancy answered that she likes that it is privately owned and the owners know you.  It’s nice to be around people around your own age that do what you do.

Mike in Tacoma: Mike is going blind and feels that he needs to go to a nursing home.  Rajiv:  Start by looking at other options.  A nursing home is not the only option.  You want to make this last move the right move.  Look at your budget.  Talk to your family.  Visit some of these places.

2^nd Hour Topics

Rajiv is at Boulevard Park in Burien

Rajiv talks about what white papers are and why you might find it useful to purchase one.

Susan:  I called about transferring property to younger members of my family.  I’m confused about trust situation.  Rajiv:  There are many types of trusts.  They allow someone else to put your assets aside as long as you are living.  Trusts then protect your assets from creditors.

Ron in Issaquah:  My wife and I set up a domestic llc.  Are Safe Harbor Trusts better than what I have?  Rajiv:  What traditional planning does not take into account is that you may need to access Medicaid, Medicare or VA benefits.

Lois:  I started an llc for a rental property I have.  Should I add my sons or should I leave it to them in a will?  Rajiv:  It depends.  If the goal is to make inheritance easier, it won’t necessarily achieve that goal.  If you add your children to the llc now then you have to share decision making.  Go see a good elder law attorney.  There are other issues that you have to worry about.

Tip of the week:  Kevin Scott-How to evaluate your current or next home for appropriateness.  We’ve created an exclusive checklist to check the factors for gracefully aging in place.

George:  I’m looking at a retirement community and I am looking for some advice on things to consider when looking at a retirement community.  Rajiv:  I would say when. When are you going to look at it?  The majority of us will wait until we no longer have any choice.  Which one is a better?  There are a lot of options available.

Sharon in Snohomish: If I want to stay at home and I have a Safe Harbor Trust, will Medicaid pay for my home health?  Rajiv:  The state will send a Social Worker to assess your care needs.  Generally, the allowed amount is not nearly enough you will need care paid for by Medicaid and then have family pick up the slack.