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.

How To Manage Your Finances After A Divorce

Contributed by: Kali Hassinger, CFP®, CDFA®

Divorce isn’t easy.  Determining a settlement, attending court hearings, and dealing with competing attorneys can weigh heavily on all parties involved. In addition to the emotional impact, divorce is logistically complicated.  Paperwork needs to be filed, processed, submitted, and resubmitted.  Assets need to be split, income needs to be protected, and more paperwork needs to be submitted!  With all of these pieces in motion, it can be difficult to truly understand how your financial position will be impacted.  Now, more than ever, you need to be sure that your finances are on the right track.  Although every circumstance is unique, there are few steps that are helpful in most (if not all) situations.

Assess your current financial situation

Following a divorce, you’ll need to get a handle on your budget. You may be responsible for paying expenses that you were once able to share with your former spouse.  What are your current monthly expenses and income?  Regarding expenses, you’ll want to focus on dividing them into two categories: fixed and discretionary.  Fixed expenses include things like housing, food, transportation, taxes, debt payments, and insurance.  Discretionary expenses include things like entertainment and vacations.

Reevaluate your financial goals

Now that your divorce is finalized, you have the opportunity to reflect on your needs and wants separate from anyone else.  If kids are involved, of course their needs will be considered, but now is a time to reprioritize and focus on your needs, too.  Make a list of things you would like to achieve, and allow yourself to think both short and long-term.  Is saving enough to build a cash cushion important to you?  Is retirement savings a focus?  Are you interested in going back to school?  Is investing your settlement funds in a way that reflects your values important to you?

Review your insurance needs

Typically, insurance coverage for one or both spouses is negotiated as part of a divorce settlement, however, there is often still a need to make future adjustments to coverage.  When it comes to health insurance, having adequate coverage is a priority.  You’ll also want to make sure that your disability or life insurance matches your current needs.  Property insurance should also be updated to reflect any property ownership changes resulting from divorce.

Review your beneficiary designations & estate plan

After a divorce, you’ll want to change the beneficiary designations on any life insurance policies, retirement accounts, and bank or credit union accounts. This is also a good time to update or establish your estate plan.

Consider tax implications

Post-divorce your tax filing status will change.  Filing status is determined as of the last day of the year.  So even if your divorce is finalized on December 31st, for tax purposes, you would be considered divorced for that entire year. Be sure to update your payroll withholding as soon as possible.

You may also have new sources of income, deductions, and tax credits could be affected. 

Stay on top of your settlement action items

Splitting assets is no small task, and it is often time consuming.  The sooner you have accounts in your name only, the sooner you will feel a sense of organization and control.  Diligently following up on QDROs, transfers, and rollovers is important to make sure nothing is missed and the process is moving forward as quickly and efficiently as possible.  Working with a financial professional during this process can help to ensure that accounts are moved, invested, and utilized to best fit your needs.

When your current financial picture is clear, it becomes easier to envision your financial future.  Similarly, having a team of financial professionals on your side can create a feeling of security and support, even as you embrace your new found independence.

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

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This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax issues, these matters should be discussed with the appropriate professional.

The Benefits Of Working With An ‘Ensemble Practice’

Contributed by: Josh Bitel, CFP®

Financial planning practices come in all shapes and sizes, but perhaps the two most common arrangements are solo practices and ensemble practices. Solo practices are normally led by a single advisor who calls the shots, while ensemble practices are team-oriented firms, all working toward a common goal. The Center identifies with the latter.

An ensemble practice is structured with multiple advisors under the same roof. This allows for constant sharing of ideas, best practices, strategies, and even sharing of resources. The Center has a 2 hour meeting every Monday for just this purpose. Our planners at The Center, all with unique expertise, get together to eat lunch and share client cases, tough questions, interesting reading pieces, and maybe a few jokes here and there. This is all possible because we are all working collaboratively toward a shared vision, as outlined in the Vision 2030 document our entire team had a hand in creating.

The Center, as with many ensemble practices, leverages the power of teams. We have team members who are specialists in such areas as insurance, divorce planning, tax planning, retirement planning, and many more. So if an advisor is met with a tough client case involving long-term care, for example, he or she can seek out help from a team member with expertise in this area instantly.

An often overlooked advantage for clients choosing to work with an ensemble practice such as The Center is the foundation for internal succession planning. It is often said that as an advisor ages, so do their clients. This begs the questions who will take care of me when my advisor retires? And from the advisors end, who will take care of my legacy once I’ve moved on? With a practice like ours, there is an internal succession plan in place for many years before a planner decides to retire. Often, clients are transitioned to an advisor who has been working under the tutelage of the retiring advisor.

As with anything, you must weigh the pros and cons of working with an advisor under their practice’s arrangement. In the end, it is all about finding the right person to help you reach your goals and feel comfortable along the way. At The Center, we have found that working in a team-based environment toward a shared vision helps us serve our clients the best way we can.

Helping You Set Your Financial Goals For The New Year!

Contributed by: Kali Hassinger, CFP®, CDFA®

New beginnings provide the opportunity to reflect.  What choices or experiences got you to where you are today, and where do you want to go from here?  Whether you’re motivated by the New Year or adjusting your course due to circumstances outside of your control, goals provide the opportunity to set your intentions and determine an action plan.

Budgeting, saving, retirement, paying off debt, and investing are all common, and often reoccurring, resolutions and goals. Why reoccurring?  Because, as is human nature, it is too easy to set a goal but lose focus along the way.  That is why it’s so important to set sustainable goals and find a way to remain accountable.

Working with an outside party, like a financial planner, can help you define these attainable goals and, most importantly, keep you accountable.  When we make commitments to ourselves and share them with others, we are more likely to follow through.

When goals are written down and incorporated in a holistic financial plan, it becomes easier to track progress and remain committed throughout the year.  The financial planning process, when executed correctly, integrates and coordinates your resources (assets and income) with your goals and objectives. As you go through this process, you will feel more organized, focused, and motivated. Your financial plan should incorporate the following (when applicable):

• Goal identification and clarification (you’re here now!)

• Developing your Net Worth Statement

• Preparing cash flow estimates

• Comprehensive investment management and ongoing monitoring of investments

• Financial independence and retirement income analysis

• Analysis of income tax returns and strategies designed to help decrease tax liability

• Review of risk management areas such as life insurance, disability, long term care, and property & casualty insurance

• College funding goals for children or grandchildren

• Estate and charitable giving strategies

As you reach one goal, new ones can emerge, and working with a financial planner can help you navigate life’s many financial stages. When you’re setting and working toward your objectives, don’t hesitate to reach out and share them with your trusted financial planner!  If you aren’t working with anyone yet, it’s never too late to start!  

Kali Hassinger, CFP®, CDFA®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She has more than a decade of financial planning and insurance industry experience.

What Are The Hidden Costs Of Buying A Home?

Contributed by: Robert Ingram, CFP®

Today’s historically low-interest rates can mean a more affordable mortgage payment. However, when buying a home within your budget, it’s important to consider the costs beyond the mortgage.

Let’s begin with the costs to purchase a home.

Even while carrying a mortgage, you will need to make a down payment. While there are low down payment loans, try to put down at least 20% of the purchase price. Otherwise, your loan may have a higher interest rate and you could face additional monthly costs such as mortgage insurance.

You will have closing costs, which can include things such as loan origination fees for processing and underwriting the mortgage, appraisal costs, inspection fee, title insurance, pre-paid property taxes, and first year’s homeowner’s insurance. Generally, you should expect to pay between 3-5% of the mortgage amount.

Now, you will have ongoing costs to live in your home.

Annual property taxes average about 1% of the home value nationwide, but the tax rates can vary widely depending on the city or town. Keep property taxes top of mind when you are looking at different communities.

Homeowner’s insurance is another annual cost that not only depends on the value of the home and the contents within it you are covering, but also on the state and local community. This cost generally ranges between $500-1,500 per year, sometimes more.

If your home is a condominium or a single family home, you should expect annual or monthly homeowner’s association fees that cover the care of common areas, the grounds, clubhouses, or pools. Depending on the number of amenities and of course the location, average fees range from $200-400 per month.

While you may be used to paying some utilities as a renter, the size of your new home could significantly increase your utility rates. Going from an 800 square-foot apartment to a 2,500 square-foot house could double or triple the costs to heat it, cool it, and to keep the lights on. Add your local area water and sewer fees and your utilities could easily reach $500 per month or more.

Going from renting to homeownership also means having to maintain the new home (both inside and out). Things can be regular ongoing maintenance like lawn care and landscaping, or larger projects like painting, roof repair, furnace, and appliance replacement. Consider the tools and equipment you would need to buy or the services you would hire to do the work.

Finally, there is another hidden cost that can put a dent in your budget, filling up the house.  A home with more rooms can mean more spaces that “need” furniture and other decorative touches. The costs of furnishings can be several thousands of dollars to tens of thousands of dollars. Without proper planning, it can be all too easy to rack up those credit card bills and have a mountain of debt as you move into your new home.

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

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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 Bob Ingram, and not necessarily those of Raymond James. Raymond James Financial Services, Inc. does not provide advice on mortgages. Raymond James and its financial advisors do not solicit or offer residential mortgage products and are unable to accept any residential mortgage loan applications or to offer or negotiate terms of any such loan. You will be referred to a qualified professional for your residential mortgage lending needs.

3 Types Of Practical Disability Coverage You Should Know

Contributed by: Josh Bitel, CFP®

According to the Social Security Administration, studies have shown that just over 25% of today’s 20 year-olds will become disabled at some point before reaching age 67. Wow! This is a pretty staggering statistic – these odds are far greater than a premature death, which is what life insurance is typically purchased to protect against. However, often when we discuss disability insurance with clients, we find that it’s an area of confusion. Many aren’t even sure if they have coverage or they may believe that Social Security will kick in and be enough. For most of us, especially if you’re in the early stages of the “accumulation mode” of your career, your earnings power is most likely your largest asset both now and into the foreseeable future. A disability can wreak havoc on this “asset” which is essentially why disability insurance is purchased. Let’s look at the basic types of coverage:

1. Short-Term Vs. Long-Term Disability

Long-term disability typically has what’s known as an “elimination period” of how many days must pass before benefits begin. This is often called the “time deductible” of the policy which in many cases is 90-120 days. Benefits can payout up until age 65, however, most policies have a stated period of time where benefits would be payable. To help bridge this gap of coverage, a short-term disability policy can come in handy because benefits will usually begin within a week or two of disability and continue for up to one year, although benefits typically last between three to six months. Short-term disability policies can be a great tool to preserve your emergency cash fund, typically at a somewhat reasonable cost. 

2. Group Coverage

As with life insurance, many employers offer a form of disability insurance to their employees as part of their benefits package. Sometimes the employer will pay for the premium in full and other times the employee will have the option to pay for premiums (fully or partially). You may be asking yourself, “Why would an employee want to pay for the group coverage instead of having the employer foot the bill?” Great question, with very important ramifications! If the employer pays your premiums in full, the entire amount of your benefit if needed (typically between 50% and 60% of your pay up to certain limits) would be taxable. If you as the employee were paying for the premiums in full and you needed the coverage, benefits paid out would NOT be taxable. If you were only paying a portion of the total premium, say 20%, only 20% of the benefits paid would be non-taxable to you as the employee. The tax treatment of benefits will have a large impact on the net amount of benefit that hits your bank account so it’s important to understand who’s paying for what if you have access to a group disability policy at work.

3. Individual Coverage

As the name implies, individual coverage is purchased by you through an insurance company – the policy is not offered through your employer. A major benefit of purchasing an individual policy is that the coverage is portable, meaning you can take it with you if you change jobs because it’s not tied to your company’s benefits package (most group policies are non-portable). Another advantage (or disadvantage depending on how you look at it), is that you are paying for the coverage in full so if benefits are needed, they will not be taxable to you. With an individual policy, you have control over selecting the definition of disability that your policy uses (any occupation, own occupation, etc.) and you’d also have the option to add any additional features to the policy, usually at an additional cost.

In this blog, we’ve merely scratched the surface on disability coverage. As I mentioned, it is often one of the most overlooked parts of a client’s financial plan and coverage types, despite its high probability and significant risk of long-term financial loss. At a minimum, check with your employer to see if group coverage is offered (both long-term and short-term) and consult with your financial planner on whether or not it is sufficient or if additional coverage would be recommended. 

Josh Bitel, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® He conducts financial planning analysis for clients and has a special interest in retirement income analysis.

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The foregoing information 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. Any opinions are those of the author and not necessarily those of Raymond James.

Can I Afford To Buy A Second Home In Retirement?

Contributed by: Robert Ingram, CFP®

It’s a dream for many Americans as they envision retirement, having a second home as a vacation getaway, a seasonal escape, or a primary residence someday.  Even with the relatively mild winter we’ve just experienced in Michigan, it’s easy to appreciate the idea of living away during the cold months or enjoying a summer home up North.  But before you can live the dream, do your due diligence and crunch the numbers.

Retirement income expenses include the daily cost of living and the things you want to enjoy.  Making a large purchase, such as buying a second home, will take a significant chunk of your savings.  If you’ve underestimated the cost, it will wreak havoc on your retirement income.  

So, how realistic is your second home retirement plan? Factor in our suggestions below.

Purchasing costs

If you plan to buy the home using a mortgage, you will of course have a monthly payment.  While the continued low interest rates may help with the home’s affordability, this payment does add to the expenses that your retirement income sources will support.  Calculate your withdrawal rate (the percentage of savings needed to be withdrawn each year) and determine if it’s sustainable over your retirement years.

Now, if you’re able to purchase the property without a mortgage, yes, you would avoid paying interest and you would have no monthly payment.  On the other hand, using a portion of your retirement savings to purchase the home could mean that you have fewer assets reserved for other retirement spending needs.  Consider the impact it may have on the sustainability of your retirement income and whether purchasing or financing the property is more advantageous.

Don’t forget about property taxes. They’re ongoing expenses that you must factor into your budget. They vary widely depending on the state and local community.  Consider any difference in tax rates; non-homestead property is taxed higher than homestead property.

Additional costs

Unfortunately, we know that the cost of owning a home doesn’t end with the purchase. This is certainly true with a second home as well.  Depending on the property type, location, and climate/environment there may be additional costs that you aren’t used to with your current home.  It’s vital that your plan supports these costs as well.  Some examples include:

• Insurance: You’ll pay annual premiums for homeowner’s insurance on two properties.  Plus, homes with higher risk (e.g. hurricane prone southern states) often require additional flood or wind damage insurance.  In some cases, this nearly doubles the cost of the new policy.

• Condo/Association Fees:  Buying a condominium or a standalone house in a community with a neighborhood association will likely mean additional monthly fees.  Homeowners associations may also impose special assessments during the time you own the property for maintenance projects, community amenities, etc.  Understanding the previous history of assessments and the need for future projects can help you better prepare for those potential costs.

• Maintenance on two properties:  Now you have two homes to maintain.  If your second property is far away or you won’t visit often, you may need to hire people locally to provide the maintenance services for you.

• Home security:  Especially for a home that is unoccupied for long periods of time, you want to protect it from vandalism, trespassing, and burglary.  That could mean investing in security systems or working with local service providers to routinely check-in on the property.   

• Heating and cooling year-round: Unlike cottages or houses up North that you can close down and winterize, vacation homes in warm climates may require you to run the air conditioning when you’re not there.  Issues like mold and mildew can be a problem when temperatures and humidity are too high, which is another reason you may need to hire local services to make sure everything is working properly.

• Insect/pest control:  Your second home may be in a region with insects or other critters that require more regular/aggressive pest control.  Add this to your list of monthly or annual maintenance expenses.

What if I plan to rent out my second home?

• Renting out your second home could be an excellent way to generate additional income to offset the costs of ownership.  However, you could face lifestyle compromises. Here are some considerations:

•  Local rules on renting:  It’s critical to understand any local government ordinances or homeowners association restrictions on using your property as a rental.  In some cases, short-term rentals are not allowed or there are limits on the total number of rentals.

• Property management:  The farther the distance between your rental and primary properties, the greater chance you’ll need to hire a property manager to provide on-site service for your vacation guests or long-term tenants.  Property managers can advertise, book renters, and manage financial transactions.  The cost to outsource these services is typically between 10-35% of the rental cost.

•  Additional insurance coverage:  Tenants may not be covered by your insurance.  Homeowners insurance often covers incidents only when the property is owner-occupied.  You may need to add a form of landlord insurance, depending on factors such as the frequency and amount of days you will have the property rented.  Review your policy to be sure.

• Extra maintenance and repair:  You may face repairs and/or need to replace furniture.  Studies suggest that the cost to maintain a vacation rental is 1.5-2% of the property value each year.

The decision to buy a second home involves a combination of both lifestyle and financial considerations. Build a sound plan by balancing your priorities.  Consult with your financial planner as you work through these important life goals, and if we can be a resource for you, please reach out to us! 

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.

Reducing Your Medicare Premium Surcharges

Contributed by: Robert Ingram, CFP®

For many clients with incomes above a certain level, Medicare premiums may be higher for Part B and Part D. As a Medicare recipient’s income exceeds specific thresholds, they may pay adjusted amounts in addition to the baseline Part B and/or Part D premiums.

Now, what if you have been paying these Medicare surcharges, but you experience a drop in your income? Can you also get your Medicare surcharge reduced? The answer is, possibly yes.

If you experience a change to your income because of certain life events, you can request that the Social Security Administration (SSA) review your situation and use your more recent income to determine what premium adjustment (if any) should apply. Examples of these life-changing events include:

• Work stoppage or work reduction

• Death of a spouse

• Marriage

• Loss of pension income

• Divorce or Annulment

• Loss of income-producing property

You might be asking yourself, “Why do I have to request this? Aren’t Medicare premiums automatically adjusted according to my income?”. A big reason for making the change request when you experience a qualifying change in income has to do with how and when the SSA measures your income.

Income-Related Monthly Adjustment Amount (IRMAA)

To determine whether your income makes you subject to an Income-Related Monthly Adjustment Amount (IRMAA) to the regular Medicare Part B or Part D premiums for the current year, the SSA looks at the income you reported to the IRS for the previous two years. This means that your Modified Adjusted Gross Income (Adjusted Gross Income with tax-exempt income added back) reported for 2017 determines your Medicare premiums for 2019. 

For individuals paying Part B premiums, for example, the standard premium in 2019 is $135.50 per month. However, the following table illustrates what you would pay in 2019 for Part B depending on your 2017 income.

For a couple who filed a joint return with income above $170,000 and up to $214,000 in 2017, each spouse paying for Medicare Part B may pay an additional $54.10 per month above the standard premium (a total of $189.60 monthly) in 2019. A couple with income that falls between $320,000 and $750,000 (or an individual filing single with income between $160,000 and $500,000) in 2017 could each pay an additional $297.90 above the standard premium, for a total of $433.40 per month in 2019.

If an individual (or couple) experienced a drop in income for 2019, it might normally take until 2021 for the Medicare premiums to reflect any reduction based on the 2019 income. Let’s say the couple who had reported income between $320,000 and $750,000 retires in 2019 and sees their income drop to an expected $165,000. The expected income falling within the $170,000 threshold could mean a difference of $297.90 per month (each!) in Medicare Part B premiums (from $433.40 to $135.50).

If a qualifying life event caused the drop in expected income, then filing a request with the SSA could mean a more immediate change in Medicare premiums, rather than waiting for the savings until 2021.

How do you request the premium surcharge reduction? 

If you think you have experienced a reduction in income due to one or more of the qualifying events, make your request to the Social Security Administration by submitting the Medicare Income-Related Monthly Adjustment Amount –Life-Changing Event form (form SSA-44).

Along with this form, you will also provide supporting documentation for your Modified Adjusted Gross Income and your life-changing event (see form SSA-44 instructions). Examples of supporting documentation may include items such as:

• Federal income tax return

• Signed statements from employers, pay stubs

• Certified documents for transfers of a business

• Marriage certificate

• Certified death certificates

• Letter or statement from pension administrator explaining a reduction/termination

For other disagreements with an IRMAA determination, you have the right to appeal. You can file an appeal online (socialsecurity.gov/disability/appeal) and select “Request Non-Medical Reconsideration”, file a Request for Reconsideration form, or contact your local Social Security office.

If you disagree with an IRMAA determination because your reported Modified Adjusted Gross Income is incorrect, you need to address the correction first with the IRS.

Because these Medicare surcharges are determined each year, you have opportunities to do more proactive income and tax planning leading up to and after Medicare enrollment. Employing different strategies that help control your Adjusted Gross Income could also help control potential Medicare premiums in future years. If you have questions about your particular situation, feel free to reach out to us!

• Want more information about Medicare? Check out The Center’s Medicare FAQ

• Looking for financial strategies and tax tips for year-end? Check out this webinar.

Robert Ingram, CFP®, is a CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® With more than 15 years of industry experience, he is a trusted source for local media outlets and frequent contributor to The Center’s “Money Centered” blog.