Can I Avoid IRMAA Surcharges on Medicare Part B and Part D?

Contributed by: Nick Defenthaler, CFP®, RICP®

In 2023, Medicare Part B premiums for 95% of Americans will be $164.90/mo. However, the other 5% will have to face what’s known as the Income Related Monthly Adjustment Amount or IRMAA and pay higher Part B and D premiums. Each year, the chart below is updated, and in most cases, premiums increase gradually with inflation, as do the income parameters associated with each premium tier.

Source: Medicare.gov

Receiving communication that you’re subject to IRMAA and facing higher Medicare premiums is never a pleasant notification. With proper planning, however, there are strategies to potentially avoid IRMAA both now and in the future.

But first, let’s do a quick refresher on the basics

Medicare bases your premium on your latest tax return filed with the IRS. For example, when your 2023 Part B and D premiums were determined (likely occurred in October/November 2022), Medicare used your 2021 tax return to track income. If you are married and your Modified Adjusted Gross Income (MAGI) was over $194,000 in 2021 ($97,000 for single filers), you’re paying more for Part B and D premiums aka subject to IRMAA. Unlike how our tax brackets function, Medicare income thresholds are a true cliff. You could be $1 over the $194,000 threshold and that’s all it takes to increase your premiums for the year! As mentioned previously, your Part B and D premiums are based off of your Modified Adjusted Gross Income or MAGI. The calculation for MAGI is slightly different and unique from the typical Adjusted Gross Income (AGI) calculation as MAGI includes certain income “add back” items such as tax-free municipal bond interest. Simply put, while muni bond interest might function as tax-free income on your return, it does get factored into the equation when determining whether or not you’re subject to IRMAA.

Navigating IRMAA with Roth IRA conversion and portfolio income 

Given our historically low tax environment, Roth IRA conversions are as popular as ever. Current tax rates are set to expire in 2026, but this could occur sooner, depending on our political landscape. When a Roth conversion occurs, a client moves money from their Traditional IRA to a Roth IRA for future tax-free growth. When the funds are converted to the Roth, a taxable event occurs, and the funds converted are considered taxable in the year the conversion takes place. Because Roth IRA conversions add to your income for the year, it’s common for the conversion to be the root cause of an IRMAA if proper planning does not occur. What makes this even trickier is the two-year lookback period. So, for clients considering Roth conversions, the magic age to begin being cognizant of the Medicare income thresholds is not at age 65 when Medicare begins, but rather age 63 because it’s that year’s tax return that will ultimately determine your Medicare premiums at age 65! 

Now that there are no “do-overs” with Roth conversions (Roth conversion re-characterizations went away in 2018), our preference in most cases is to do Roth conversions in November or December for clients who are age 63 and older. By that time, we will have a clear picture of total income for the year. I can’t tell you how often we’ve seen situations where clients confidently believe their income will be a certain amount but ends up being much higher due to an unexpected income event.

Another way to navigate IRMAA is by being cognizant of income from after-tax investment/brokerage accounts. Things like capital gains, dividends, interest, etc., all factor into the MAGI calculation previously mentioned. Being intentional with the asset location of accounts can potentially help save thousands in Medicare premiums.

Ways to reduce income to potentially lower part B and D premiums

Qualified Charitable Distribution (QCD) 

• If you’re over 70 ½ and subject to Required Minimum Distributions (RMD), gifting funds from your IRA directly to a charity prevents income from hitting your tax return. This reduction in income could help shield you from IRMAA. 

Contributing to a tax-deductible retirement account such as a 401k, 403b, IRA, SEP-IRA, etc.

• Depositing funds into one of these retirement accounts reduces MAGI and could help prevent IRMAA.

Deferring income into another year 

• Whether it means drawing income from an after-tax investment account for cash flow needs or holding off on selling a stock that would create a capital gain towards year-end, being strategic with the timing of income generation could prove to be wise when navigating IRMAA. 

Accelerating business expenses to reduce income 

• Small business owners who could be facing higher Medicare premiums might consider accelerating expenses in certain years, which in turn drives taxable income lower if they’re flirting with IRMAA. 

Putting IRMAA into perspective 

Higher Medicare premiums are essentially a form of additional tax, which can help us put things into perspective. For example, if a couple decides to do aggressive Roth IRA conversions to maximize the 22% tax bracket and MAGI ends up being $200,000, their federal tax bill will be approximately $30,000. This translates into an effective/average tax rate of 15% ($30,000 / $200,000). However, if you factor in the IRMAA, it will end up being about $1,700 total for the couple between the higher Part B and D premiums. This additional "tax" ends up only pushing the effective tax rate to 15.85% - less than a 1% increase! I highlight this not to trivialize a $1,700 additional cost for the year, as this is real money we're talking about here. That said, I do feel it's appropriate to zoom out a bit and maintain perspective on the big picture. If we forgo savvy planning opportunities to save a bit on Medicare premiums, we could end up costing ourselves much more down the line. However, not taking IRMAA into consideration is also a miss in our opinion. Like anything in investment and financial planning, a balanced approach is prudent when navigating IRMAA – there is never a "one size fits all" solution. 

Fighting back on IRMAA

If you've received notification that your Medicare Part B and D premiums are increasing due to IRMAA, there could be ways to reverse the decision. The most common situation is when a recent retiree starts Medicare and, in the latest tax return on file with the IRS, shows a much higher income level. Retirement is one example of what Medicare would consider a "life-changing event," in which case form SSA-44 can be completed, submitted with supporting documentation, and could lead to lower premiums. Other "life-changing events" would include:

• Marriage

• Divorce

• Death of a spouse 

• Work stoppage

• Work reduction

• Loss of income producing property 

• Loss of pension income 

• Employer settlement payment 

Medicare would not consider higher income in one given year due to a Roth IRA conversion or realizing a large capital gain a life-changing event that would warrant a reduction in premium. This highlights the importance of planning accordingly with these items.

If you disagree with Medicare's decision in determining your premiums, you have the ability to have a right to appeal by filing a "request for reconsideration" using form SSA-561-U2.

Conclusion

As you can see, the topic of IRMAA is enough to make anyone's head spin. To learn more, visit the Social Security Administration's website dedicated to this topic. Prudent planning around your Medicare premiums is just one example of much of the work we do for clients that extends well beyond managing investments that we believe add real value over time. 

If you or someone you care about is struggling with how to put all of these pieces together to achieve a favorable outcome, we are here to help. Our team of CERTIFIED FINANCIAL PLANNER™ professionals offers a complimentary "second opinion meeting" to address your most pressing financial questions and concerns. In many cases, by the end of this 30-45 minute discussion, it will make sense to continue the conversation of possibly working together. Other times, it will not, but our team can assure you that you will hang up the phone walking away with questions answered and a plan moving forward. We look forward to the conversation!

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) I the U.S. which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP®, RICP® and not necessarily those of Raymond James.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Can I Avoid IRMAA Surcharges on Medicare Part B and Part D?

Contributed by: Nick Defenthaler, CFP®, RICP®

In 2023, Medicare Part B premiums for 95% of Americans will be $164.90/mo. However, the other 5% will have to face what’s known as the Income Related Monthly Adjustment Amount or IRMAA and pay higher Part B and D premiums. Each year, the chart below is updated, and in most cases, premiums increase gradually with inflation, as do the income parameters associated with each premium tier.

Source: Medicare.gov

Receiving communication that you’re subject to IRMAA and facing higher Medicare premiums is never a pleasant notification. With proper planning, however, there are strategies to potentially avoid IRMAA both now and in the future.

But first, let’s do a quick refresher on the basics

Medicare bases your premium on your latest tax return filed with the IRS. For example, when your 2023 Part B and D premiums were determined (likely occurred in October/November 2022), Medicare used your 2021 tax return to track income. If you are married and your Modified Adjusted Gross Income (MAGI) was over $194,000 in 2021 ($97,000 for single filers), you’re paying more for Part B and D premiums aka subject to IRMAA. Unlike how our tax brackets function, Medicare income thresholds are a true cliff. You could be $1 over the $194,000 threshold and that’s all it takes to increase your premiums for the year! As mentioned previously, your Part B and D premiums are based off of your Modified Adjusted Gross Income or MAGI. The calculation for MAGI is slightly different and unique from the typical Adjusted Gross Income (AGI) calculation as MAGI includes certain income “add back” items such as tax-free municipal bond interest. Simply put, while muni bond interest might function as tax-free income on your return, it does get factored into the equation when determining whether or not you’re subject to IRMAA.

Navigating IRMAA with Roth IRA conversion and portfolio income 

Given our historically low tax environment, Roth IRA conversions are as popular as ever. Current tax rates are set to expire in 2026, but this could occur sooner, depending on our political landscape. When a Roth conversion occurs, a client moves money from their Traditional IRA to a Roth IRA for future tax-free growth. When the funds are converted to the Roth, a taxable event occurs, and the funds converted are considered taxable in the year the conversion takes place. Because Roth IRA conversions add to your income for the year, it’s common for the conversion to be the root cause of an IRMAA if proper planning does not occur. What makes this even trickier is the two-year lookback period. So, for clients considering Roth conversions, the magic age to begin being cognizant of the Medicare income thresholds is not at age 65 when Medicare begins, but rather age 63 because it’s that year’s tax return that will ultimately determine your Medicare premiums at age 65! 

Now that there are no “do-overs” with Roth conversions (Roth conversion re-characterizations went away in 2018), our preference in most cases is to do Roth conversions in November or December for clients who are age 63 and older. By that time, we will have a clear picture of total income for the year. I can’t tell you how often we’ve seen situations where clients confidently believe their income will be a certain amount but ends up being much higher due to an unexpected income event.

Another way to navigate IRMAA is by being cognizant of income from after-tax investment/brokerage accounts. Things like capital gains, dividends, interest, etc., all factor into the MAGI calculation previously mentioned. Being intentional with the asset location of accounts can potentially help save thousands in Medicare premiums.

Ways to reduce income to potentially lower part B and D premiums

Qualified Charitable Distribution (QCD) 

• If you’re over 70 ½ and subject to Required Minimum Distributions (RMD), gifting funds from your IRA directly to a charity prevents income from hitting your tax return. This reduction in income could help shield you from IRMAA. 

Contributing to a tax-deductible retirement account such as a 401k, 403b, IRA, SEP-IRA, etc.

• Depositing funds into one of these retirement accounts reduces MAGI and could help prevent IRMAA.

Deferring income into another year 

• Whether it means drawing income from an after-tax investment account for cash flow needs or holding off on selling a stock that would create a capital gain towards year-end, being strategic with the timing of income generation could prove to be wise when navigating IRMAA. 

Accelerating business expenses to reduce income 

• Small business owners who could be facing higher Medicare premiums might consider accelerating expenses in certain years, which in turn drives taxable income lower if they’re flirting with IRMAA. 

Putting IRMAA into perspective 

Higher Medicare premiums are essentially a form of additional tax, which can help us put things into perspective. For example, if a couple decides to do aggressive Roth IRA conversions to maximize the 22% tax bracket and MAGI ends up being $200,000, their federal tax bill will be approximately $30,000. This translates into an effective/average tax rate of 15% ($30,000 / $200,000). However, if you factor in the IRMAA, it will end up being about $1,700 total for the couple between the higher Part B and D premiums. This additional "tax" ends up only pushing the effective tax rate to 15.85% - less than a 1% increase! I highlight this not to trivialize a $1,700 additional cost for the year, as this is real money we're talking about here. That said, I do feel it's appropriate to zoom out a bit and maintain perspective on the big picture. If we forgo savvy planning opportunities to save a bit on Medicare premiums, we could end up costing ourselves much more down the line. However, not taking IRMAA into consideration is also a miss in our opinion. Like anything in investment and financial planning, a balanced approach is prudent when navigating IRMAA – there is never a "one size fits all" solution. 

Fighting back on IRMAA

If you've received notification that your Medicare Part B and D premiums are increasing due to IRMAA, there could be ways to reverse the decision. The most common situation is when a recent retiree starts Medicare and, in the latest tax return on file with the IRS, shows a much higher income level. Retirement is one example of what Medicare would consider a "life-changing event," in which case form SSA-44 can be completed, submitted with supporting documentation, and could lead to lower premiums. Other "life-changing events" would include:

• Marriage

• Divorce

• Death of a spouse 

• Work stoppage

• Work reduction

• Loss of income producing property 

• Loss of pension income 

• Employer settlement payment 

Medicare would not consider higher income in one given year due to a Roth IRA conversion or realizing a large capital gain a life-changing event that would warrant a reduction in premium. This highlights the importance of planning accordingly with these items.

If you disagree with Medicare's decision in determining your premiums, you have the ability to have a right to appeal by filing a "request for reconsideration" using form SSA-561-U2.

Conclusion

As you can see, the topic of IRMAA is enough to make anyone's head spin. To learn more, visit the Social Security Administration's website dedicated to this topic. Prudent planning around your Medicare premiums is just one example of much of the work we do for clients that extends well beyond managing investments that we believe add real value over time. 

If you or someone you care about is struggling with how to put all of these pieces together to achieve a favorable outcome, we are here to help. Our team of CERTIFIED FINANCIAL PLANNER™ professionals offers a complimentary "second opinion meeting" to address your most pressing financial questions and concerns. In many cases, by the end of this 30-45 minute discussion, it will make sense to continue the conversation of possibly working together. Other times, it will not, but our team can assure you that you will hang up the phone walking away with questions answered and a plan moving forward. We look forward to the conversation!

Nick Defenthaler, CFP®, RICP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® Nick specializes in tax-efficient retirement income and distribution planning for clients and serves as a trusted source for local and national media publications, including WXYZ, PBS, CNBC, MSN Money, Financial Planning Magazine and OnWallStreet.com.

Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) I the U.S. which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Nick Defenthaler, CFP®, RICP® and not necessarily those of Raymond James.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Planning for Medicare

Contributed by: Center for Financial Planning, Inc.®

Here it is again…time for changing leaves, cooler weather, and open enrollment for Medicare. Medicare coverage is an important decision, and we suggest reviewing your coverages on an annual basis.

Sign up today for our upcoming seminar on Monday, October 2nd hosted by Sandy Adams, CFP® of Center for Financial Planning, Inc., and presented by Cynthia Brown of Powers Financial Benefits, LLC, an independent agent, that provides details on Medicare, open enrollment, and what is important for 2023. And feel free to check out the replay from last year’s presentation below!

Raymond James is not affiliated with and does not endorse Cynthia Brown or Powers Financial Benefits, LLC. Center for Financial Planning, Inc.® is an Independent Registered Investment Advisor. Investment advisory services are offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC.

Family Experiences Can Trigger Planning for Long Term Caregivers

Contributed by: Sandra Adams, CFP®

My grandmother died recently. She was 96 (almost 97) years old. The leading cause of death listed on her death certificate was Alzheimer’s disease. The last years of her life were not what I would call the best of “quality” – she had not been able to get out of bed to walk for several years, and while she did recognize her children until the end of her life, she would forget they had been there to see her within minutes. She outlived all of her siblings and most of my grandfather’s siblings (and my grandfather by almost three decades) and had been saying she was “ready to go” for quite some time.

Most of us familiar with Alzheimer’s and related dementias know that there are many types, and it is often hard to diagnose, especially if there are other health concerns. For many, it is more a result of older age than genetics; for those where early onset can be an issue, the symptoms can be masked by stress or other mental health issues, and the dementia can go untreated for years. Alzheimer’s and dementia causes and treatments are making some real progress but remain more of a mystery than they should for the more than 5.5 million Americans living with the disease.

While we are still being told that only a small fraction of those developing the disease are those that are not inherited (1 in 100 according to the Alzheimer’s Association), witnessing my grandmother spend her last several years in a nursing home floor of a hospital prompted me to make sure I had my Long Term Care plans covered.

When my grandparents were my age, Long Term Care insurance was unavailable. And because of that, my grandmother ended up spending down the assets my grandfather worked so hard for during his working life and living out her last years in a hospital nursing home on the memory care floor. She was fortunate to have ended up where she did — she was so well taken care of in a small town hospital. Some people don’t have it so well.

I want to make sure to have more control if this happens to me — and want to make sure that I can afford for care to be provided for me (rather than to have my kids have to do it), so I recently took steps to make sure I have a long term care policy in place that suits my needs. I am taking care of this now to have a plan in place for later.

As I tell clients all of the time, many of us don’t feel it is important to take action until we have had a personal experience with something. For me, watching my grandmother experience Alzheimer’s and Alzheimer’s care for the last several years has prompted me to put a Long Term Care plan into place for myself. If you have had a personal experience prompting you into action and would like our help, please do not hesitate to reach out — we are always happy to help!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Any opinions are those of Sandra D. Adams, CFP® and not necessarily those of Raymond James.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services. As with most financial decisions, there are expenses associated with the purchase of Long Term Care insurance and policies are subject to exclusions and limitations. Guarantees are based on the claims paying ability of the insurance company.

Term vs. Permanent Life Insurance

Contributed by: Kelsey Arvai, CFP®, MBA

Life insurance serves a crucial purpose for your family and heirs, as it ensures your beneficiaries will be cared for in the event of death or another tragic event. Finding the right life insurance can seem intimidating. However, the good news is that life insurance starts with two options, term (temporary) or permanent, each with unique benefits and features. 

Term Insurance:

Term life insurance provides affordable coverage that lasts for a period of time and is typically the least expensive insurance you can buy. Most policies are designed for premiums to remain at a level rate for a set number of years, but some premiums may increase annually. If the policyholder passes away when the policy is in force, the death benefit is paid to the beneficiaries of the policyholder, typically in a tax-free lump sum.

Length of Coverage – Common term lengths include an annual renewable term, 10-year-level premium term, 15-year-level-premium term, 20-year-level premium term, and 30-year-level-premium term.

Taxability - Death benefit is tax-free with very few exceptions (business planning and transfer for value rules are pretty much the only exceptions). 

Premiums – Based on a person’s age, health, and life expectancy. 

Cash Value - Term insurance doesn’t build equity, meaning there is no cash value accumulation. Premium pays for the cost of insurance and nothing more.

Option to convert – It may be possible to turn your term life into permanent life insurance without additional evidence of insurability, depending on the insurance company. This is usually only available for a specified amount of time. 

When to consider term life insurance policy?

Term life insurance is ideal for people who would like the maximum amount of life insurance for the lowest cost. Term helps to protect your spouse, your home, and your children. Other common reasons to purchase term life insurance are income replacement, mortgage or debt protection, college funding, funding a buy-sell agreement, and key person protection for a business.

Permanent Insurance:

Permanent life insurance often doesn’t have an expiration date; as long as premiums are paid, most permanent life insurance policies will remain in force as long as the policyholder is alive. Permanent life insurance is more expensive because this policy type typically offers coverage and a cash value.

Universal Life Insurance:

“Permanent Death Benefit” product; underwritten so that the death benefit will be in force until age 90, 95, or 100. The age depends on what product you choose at the onset; many products will have the age the policy will lapse in the product title.

Premiums – Flexible premium payments that may or may not guarantee death benefit and may or may not build a cash value. It’s ideal to slightly over-fund premiums in the early years of the policy to accumulate cash value to help pay the cost of insurance later.

Cash Value – The rate of return on your cash value and any investment options vary depending on the type of Universal Life Policy you buy (guaranteed, indexed, variable, etc.).

Death Benefit Types – Option A or “Level Death Benefit,” meaning when the insured dies, is when the beneficiaries don’t get the cash value and the death benefit; they just get the death benefit. Option B or “Accumulating” cash value, depends on the policy and insurer. When the insured dies, the beneficiaries receive the cash value PLUS the death benefit. 

Other forms of universal life insurance exist; variable universal life forgoes the guaranteed crediting rate that the carrier provides, and instead, the policyholder assumes the risk on their own shoulders. This is done by allocating excess premiums to sub-accounts; in order to come out ahead, the policyholder would need to consistently outperform the crediting rate provided by the insurance carrier. These policies allow you to invest your cash value across a choice of stocks, bonds, and money market funds. 

Whole Life Insurance:

Whole Life offers coverage for the rest of your life and includes a cash value component that lets you tap into it while alive. This is typically the most expensive form of life insurance due to the cash accumulation and having to front-load the insurance cost. Given that many people do not need insurance for their entire lives, it’s crucial to consider if whole life insurance is a good fit for you. 

Death Benefit – Guaranteed Death Benefit with guaranteed premiums and cash values. Underwritten to provide a permanent death benefit and accumulate cash value. Unlike Universal Life Insurance, this policy will be in force regardless of whether the insured dies at 80 or 120.

Premiums – Level premiums guarantee a death benefit when the insured dies. You’ll pay a fixed amount monthly, quarterly, semi-annually, or annually. Single premium, you’ll pay the entire policy cost upfront. Depending on the policy and carrier, you may pay limited or modified premiums. 

Taxability - If a policyholder surrenders a contract for the cash value, they will pay ordinary income tax on the gains above their cost basis. Cost basis is defined as premiums paid minus loans or withdrawals.

There are many flexible options for the dividend or crediting rate. The most common option is to use the dividend to purchase “paid-up additions” to increase the death benefit or cash value over time without medical underwriting or increasing the premium payment. Some policies are non-participating, meaning that you won’t receive any dividends.

When to consider a permanent life insurance policy?

Permanent life policies are an expensive way to buy coverage. Depending on your goals, a different type of life insurance might better fit you. Permanent life insurance might be purchased for the following reasons: legacy planning for family or charity, estate tax planning, asset diversification, retirement income planning, and executive compensation. 

When deciding what’s right for you, it’s important to have your plan tailored to fit your and your family’s individual needs, making it crucial to consult with your financial advisor.

Kelsey Arvai, CFP®, MBA is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

Any opinions are those of Kelsey Arvai, MBA, CFP® and not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.

These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased. There are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Investors should carefully consider the investment objectives, risks, charges, and expenses of variable universal life sub-accounts before investing. The prospectus and summary prospectus contains this and other information about the sub-accounts. The prospectus and summary prospectus is available from your financial advisor and should be read carefully before investing.

Widowed Too Soon

Contributed by: Sandra Adams, CFP®

When we hear the term widow or widower, we picture someone older – someone deep into their retirement years. The reality is, according to the U.S. Census Bureau, the average age of a widow or widower in the U.S. is currently 59-years-old. In my recent experience with clients, I have seen the statistics become reality. Clients becoming widowed well before their retirement years has, unfortunately, become increasingly common. The issues involved with this major, and often unexpected, life transition are not simple and are hard to go through alone.

If you are one that is left behind, there are several action steps that should be taken to get back on your feet and feel financially confident. In most cases, this is the woman (according to the U.S. Census Bureau, 32% of women over age 65 are widowed compared to 11% of men). There is no timetable for when these steps should be taken – everyone grieves in their own time and everyone is ready in their own time to move on and make sound financial decisions at different times. No one should be pushed into making financial decisions for their new normal until they are ready.

The first step is identifying sources of income. For young widows or widowers, you may still be working, but may have lost a source of income when your spouse passed away. Looking at where income might come from now and into the future is important. For young widows, life insurance is likely the source of the replacement for lost income. If you are closer to retirement, you may also have Veteran’s benefits, employer pension benefits, savings plans, home equity, income from investments, and Social Security.

The second step is to get your financial plan organized. Get all of your documents and statements put together and review your estate documents (update them, if needed). A big part of this is to update your expenses and budget. This may take some time, as your life without your spouse may not look exactly the same as it did with him/her. Determining what your new normal looks like and what it will cost may take some time to figure out. And it won’t be half the cost (even if you don’t have children), but it won’t be 100% or more either – it will likely be somewhere in between. Figuring out how much it costs you to live goes a long way toward knowing what you will need and how you will make it all work going forward. Your financial planner can be a huge help in this area.

The third step is to evaluate your insurances (health and long-term care). These costs can be significant as you get older, and it is important to make sure you have good coverage. For younger widows, those that are still working may have health insurance from their employer. If not, it is important to make sure you work with an agent to get counseling on the best coverage for you through the exchange until you are eligible for Medicare at age 65. And for long-term care, if you haven’t already worked with a financial planner to plan coverage and are now widowed – now is the time. Single folks are even more likely to need long-term care insurance than those with a partner.

The fourth step is to work on planning your future retirement income. Many widows don’t think enough about planning for their own financial future. What kinds of things should you be talking to your adviser about?

• Income needs going into retirement

• The things you would like to do in retirement/their retirement goals (travel/hobbies, etc.)

• What financial resources you have now (assets, income sources, etc.)

• Risk tolerance

• Charitable goals, family gifting goals, etc.

You can work with the adviser to design a tax-efficient retirement income plan to meet your goals with appropriate tools based on tax considerations and risk tolerances, etc.

And the fifth step is to evaluate housing options. We often tell new widows not to make big decisions, like changing homes, within the first year or two. However, many decide that they want or need to move because the house they are in is too big or they just need to make a move. Housing is roughly 40 – 45% of the average household budget – decisions need to be made with care.

For all widows, going it alone can be difficult with a lot of decisions and time spent alone. For many, it is going through the process of redesigning retirement all over again, now alone, when it was meant to be with your long-time partner. And learning to live a new normal and planning the next phase of life that looks entirely different than the one you had planned. With the help of a professional financial adviser, the financial side of things can be easier – the living part just takes time.

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Raymond James and its advisers do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. Any opinions are those of Sandra D. Adams and not necessarily those of Raymond James.

Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc., is not a registered broker/dealer and is independent of Raymond James Financial Services.

The information contained in this blog has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

How Doing Your Retirement Planning Can Put You in the Driver’s Seat

Contributed by: Sandra Adams, CFP®

I have had some fascinating conversations in meetings with prospective clients over the last several months. Most of these clients have never previously worked with a financial planner, choosing the DIY (“Do It Yourself”) route until now. And for most, now that they are within a few years of retirement, knowing if they truly have the assets and income resources to be able to retire and support themselves throughout their life expectancies is something they do not want to leave to chance.

Going through the in-depth retirement planning process with the assistance of a financial planning professional can help answer the many questions that so many clients have trouble answering on their own or can only guess without accurate analysis. Things like:

• When should I take Social Security (or when should each of us take Social Security if we are a married couple)?;

• When is the best time to draw pensions and/or should I take the lifetime income benefit (if I choose this option, do I take a straight life payout vs. a payout with a spousal benefit if I am married) vs. the lump sum payout from my pension benefit?;

• If I have an annuity(ies), should I use them for income during retirement, and when?;

• What accounts do I draw from, and when do I draw from them to pay the least amount of taxes during retirement?

• How will I pay for Long Term Care if I do not have Long Term Care insurance?

• And most importantly, will I be able to financially support the lifestyle I desire for as long as I may live without running out of money?

Many potential clients I have met recently have come in assuming they will need to work until they are at least 70 (the age of their maximum Social Security age). While they may value their work, in many cases, it has seemed apparent that there was a fair amount of stress involved with the work they are doing. Knowing whether the client could retire earlier than 70 and giving them the CHOICE about when they could retire would undoubtedly put them in the driver’s seat. Knowledge is power!

Doing your retirement planning earlier than later allows you to make the choices you want to make when you want to make them. Knowing where you stand financially, now and into the future, allows you to decide what you want to do and when you want to do it — you are the driver, and you choose the route to your retirement destination!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Opinions expressed in the attached article are those of Sandra D. Adams, CFP® and are not necessarily those of Raymond James. Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Center for Financial Planning, Inc.® Center for Financial Planning, Inc.® is not a registered broker/dealer and is independent of Raymond James Financial Services.

What is Retirees’ Biggest Fear?

Contributed by: Sandra Adams, CFP®

I recently attended a conference on aging where the presenter discussed the biggest fears of clients approaching and entering retirement. The question was posed to the audience, “What do you think the biggest fear of clients entering retirement is according to recent research?” As I thought about the possible answers given my interactions with clients, so many possibilities came to mind. The fear of running out of money, a detrimental stock market causing the loss of significant assets, or the loss of a spouse without being able to fulfill retirement goals. Then the speaker said very bluntly, “Alzheimer’s disease.” Wow!

It makes a lot of sense. The most current Alzheimer’s Association Facts and Figures report that 1 in 3 seniors pass away from Alzheimer’s or other dementia (more than breast cancer and prostate cancer combined). More than 6 million Americans are currently living with Alzheimer’s disease; that number has increased 145% over the last decade and 16% during the COVID-19 pandemic. In 2021, the cost to the nation of Alzheimer’s and other dementias was over $355 billion (that number is projected to be $1.1 trillion by 2050 if no cure is found).

Even more impactful to our clients and families, over 11 million Americans provide unpaid care for people with Alzheimer’s or other dementia; this includes an estimated 15.3 billion hours valued at nearly $257 billion. It’s no surprise that retirees’ biggest fear is Alzheimer’s, whether it’s getting the disease or becoming a caregiver to a spouse who gets the disease and having retirement derailed by an illness that currently has no cure.

Thinking about this from a financial planning and retirement planning perspective, there are likely two significant and very different issues. First and foremost is FOMO, or the Fear Of Missing Out. Alzheimer’s and related dementias most certainly steal many opportunities from clients’ to live out their ideal retirement; to enjoy the happy, HEALTHY next phase of life they always planned for. The fear of missing out on that if an Alzheimer’s dementia were received for one or both of a spousal couple is real, especially if that diagnosis comes early in retirement.

Second, and most significant, is the financial impact of an Alzheimer’s diagnosis on the overall retirement plan. In 2019, the Alzheimer’s Association reported that the average lifetime cost for caring for a person with dementia was $357,297. For most clients without a Long Term Care plan or Long Term Care insurance, these costs could certainly be detrimental to their overall retirement plan.

Planning in advance of a diagnosis is always recommended. So, what are some specific action items that might be recommended?

• Consider Long Term Care before retirement (the longer you wait, the more expensive solutions can be, and the more likely you can become uninsurable).

• Seek the advice of a team consisting of a financial advisor, estate planning/elder law attorney, and a qualified tax professional to formulate the best possible future long-term care funding strategy. This is often the best defense against the attack of a disease that can significantly impact your plan in the future.

• Plan to have a family discussion about your long-term care plan to ensure your family is aware of your wishes and their potential roles in your plan. Have a facilitator guide the meeting if you feel that might make the meeting run smoother. 

“Thinking will not overcome fear, but action will.” W. Clement Stone

Planning ahead and preparing is your best defense against your fears. If you have not yet started planning for your aging future or your potential long-term care needs in retirement, there is no time like the present. Reach out to your financial advisor to develop a team of professionals and start planning today!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Raymond James is not affiliated with Sandra D. Adams, CFP®. The cost and availability of Long Term Care insurance depend on factors such as age, health, and the type and amount of insurance purchased. These policies have exclusions and/or limitations. As with most financial decisions, there are expenses associated with the purchase of Long Term Care insurance. Guarantees are based on the claims paying ability of the insurance company.

Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Center for Financial Planning, Inc. Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.

Providing the Best for Your Pets

Contributed by: Kelsey Arvai, MBA

**Register for our upcoming volunteer event at The Ferndale Cat Café HERE!

Did you know that May is National Pet Month? This month celebrates the joy that pets bring into our lives. In honor of our pets, The Center will spend the month of May promoting the benefits of pet ownership and supporting local non-profits who offer shelter and pet adoption services.

There are many health benefits of owning a pet. According to the Center for Disease Control (CDC), pets can help manage loneliness and depression through companionship and decrease blood pressure, cholesterol levels, and triglyceride levels through regular walking and playing. If you have a pet already, you probably have already experienced some of these benefits. However, if you are in the market to adopt a new pet, it is crucial to do your research prior and consider the following question: Do I have the capacity in my life to give this pet the proper home it deserves? To name a few factors to consider before increasing your family in size, think about how much exercise the pet will need, the type of food it eats, the habitat it will need to thrive, the pet’s size, cost, and life expectancy. 

There are also some financial planning aspects to consider, such as pet insurance and estate planning for your pets. Pet insurance can help cover the cost of medical care for your animals. Typical policies can cost around $50 per month for dogs and $28 per month for cats. Premiums will vary depending on your pet’s age, breed, cost of services where you live, and the policy you choose. Pet insurance is not suitable for everyone, but it is important to obtain it before your pet has an expensive diagnosis and you are potentially looking at $5,000 or more in medical bills.

Planning for your animals can be a challenge that is often overlooked. It is estimated that more than 500,000 loved pets are euthanized annually because their pet parent passed away or became disabled. It is possible to craft a plan to protect your pets using your will or by establishing a trust. When planning for your pet, it is important to first determine if your pet has a unique circumstance (i.e., health issue) and who you would like your pet caregiver to be if you can no longer take care of it.

Once you have confirmed that your choice is willing, you will want to determine a few things. This can include where you want your pet to live, what financial resources you will provide to ensure your pet is adequately cared for, and who you want to be responsible for administering your assets left behind to care for your pet. Using these elements to create a plan will ensure your pets are properly cared for when you cannot do so yourself.

Each week, The Center will be hosting trivia on our Facebook to spotlight local non-profits dedicated to finding loving, forever homes for animals. Be sure to follow us for a chance to win a $50 gift card for your pet!

Kelsey Arvai, MBA is an Associate Financial Planner at Center for Financial Planning, Inc.® She facilitates back office functions for clients.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Kelsey Arvai, MBA and not necessarily those of Raymond James.

Five Important Financial Questions to Ask Yourself Going into 2022

Contributed by: Sandra Adams, CFP®

Once again, a new year is upon us. Rather than start the year with financial New Year’s Resolutions that we are doubtful to keep, why not simply start by asking ourselves some important financial questions, answering them honestly, and taking some action steps in response? Here are the five questions we recommend asking to get your year started on the right foot:

1. What are the top financial goals you want to accomplish in 2022 (and do they align with what you value most)? 

Prioritizing what you want to accomplish and ensuring it is in line with what you value most is the first key to financial success. Once you have set your goals, you can put into motion just how to get there.

2. How can I accomplish my financial goals and save more? 

Most likely, many of your financial goals involve having money saved to meet them. Whether it be a large family vacation, paying off a mortgage, or making a certain amount of progress towards a significant life goal like retirement, most goals involve accumulating money. The beginning of the year is an excellent time to determine your financial budget and set aside funds for these goals. Make sure to keep in mind the new retirement plan contribution limits for 2022 and budget savings outside of retirement accounts for short-term goals and debt payoffs.

3. Does my investment strategy match my goals?  

The beginning of the year is always a good time to review your Investment Policy Statement. In return, you can determine if your investment strategy is still in line with your short and long-term financial goals and make sure that you are not taking too much or too little of a risk for the goals you have in mind for YOUR specific plan.

4. Am I financially protecting my loved ones? 

It makes sense to continually review your plan to ensure that your goal is solid from a risk perspective. Each year, you should review all of your insurance protections, including life insurance, disability insurance, liability insurance (home and auto), and possible long-term care insurance, to ensure that your family is fully protected.

5. Am I being financially safe/smart around potential financial credit and fraud risks? 

With electronic and internet transactions posing threats to our financial safety, it is important to be aware of precautions to take when transacting business electronically, having credit and fraud monitoring services in place, and proactively monitoring your credit report regularly. If you don’t have a credit and/or fraud monitoring service, you should likely have something in place (ask your advisor for recommended services).

Asking these quick questions and taking the action steps to answer them will get you on the right footing to a successful 2022. For assistance with any of these items, reach out to your financial advisor — we are always willing to help!

Sandra Adams, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® and holds a CeFT™ designation. She specializes in Elder Care Financial Planning and serves as a trusted source for national publications, including The Wall Street Journal, Research Magazine, and Journal of Financial Planning.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Sandra D. Adams, CFP® and not necessarily those of Raymond James.