Practical ways to qualify for an Obamacare subsidy

For any “early” retirees between the ages of 55-64, one of the biggest burdens on cash flow will probably be medical expenses. More specifically health insurance premiums. Although enrolling for Obamacare won’t make you healthier per se, if you structure your income correctly, there are ways to qualify for significant subsidies to help ease the burden of your monthly health insurance premiums.

The Threshold to Qualify

In order to qualify for a subsidy, your modified adjusted gross income (MAGI) must be between 100-400% of the federal poverty level. For 2014 those levels were $15,739-$62,920 for a family of 2, and $23,850- $95,400 for a family of 4. The lower you are in these thresholds, the higher the subsidy amount will be. Also, the older you are, the higher the subsidy will be. For example a 62-year-old couple with a MAGI of $50,000 will be eligible for a larger subsidy then a 55-year-old couple with the same MAGI.

You might be thinking your income is too high and this article doesn’t pertain to you. Not so fast.  There are ways to structure your retirement income so that you will fall well within these thresholds. Here’s an example:

Let’s take a 62-year-old married couple (family of 2) with these assets:

                                                $1,500,000 of IRA money,

                                                $250,000 in checking & savings

                                                $250,000 in a taxable brokerage account

Their annual income need is $100,000 gross (before-tax). Their taxable portfolio kicks off $12,500 of interest and dividends and the husband has a $30,000 pension. Both must be reported as income on your taxes. So far, we have $42,500 of taxable income, and the threshold before you are completely ineligible for a subsidy for a family of 2 is $62,920.  That means we have $20,420 left of taxable income left to recognize before they are completely phased out.

How to Plan for a Subsidy

As mentioned previously, the couple’s annual income need is $100,000 and they have $42,500 of taxable income (so far) to go towards satisfying that need. This means they still need $57,500 to fulfill their need for the year.  This is where the planning comes into place.  By taking $57,500 from their savings account, their need for the year would be met, and they wouldn’t need to report any more taxable income as a result of this withdrawal from checking & savings (because taxes were already paid on these dollars). Also, by having a MAGI of $42,500 they would qualify for a significant Obamacare subsidy … probably $6,000-$10,000 based on the Henry J. Kaiser Family Foundation’s Obamacare calculator I used here.

Things that will affect your taxable income (and possibly disqualify you):

• Social Security:  if you decide to collect early at age 62, up to 85% of your benefit could be taxable and could push you out of the thresholds for a subsidy.

• Taxable dividends & interest:  Dividends and interest are good, but you should try to estimate what they will be for the year to make sure they won’t push you out of the parameters for a subsidy.

• Capital Gains:  You bought shares of Apple when it was at $5 and decided to sell it all in 2014. Great you made a lot of money!  But you can probably forget about an Obamacare subsidy because that gain is going to push your MAGI up too high.

• Part Time Work: Obviously earned income is going to be reported on your tax return, and have an impact on your eligibility.  Also, if your employer offers “affordable” health care to you, you don’t qualify for a subsidy.

Please keep in mind that this planning must be done very carefully, and you should almost certainly work with a professional to make sure it is done properly.  The thresholds are a “cliff” so if you go one dollar over, you will need to pay back the subsidy in its entirety. Don’t let this deter you or your family from considering a similar strategy!  We have helped many clients navigate through similar situations and would love to be a resource if you have questions or would like us to look at your personal scenario. 

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Material is provided for informational purposes only and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. You should discuss any tax or legal matters with the appropriate professional. This is a hypothetical example for illustration purposes only. Actual results will vary. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. C14-041066

Slightly Off-Center: Where did you go to school?

 There’s a lot you know about our team at The Center … but we’ve dug up answers to some questions you might have never thought to ask.

Birmingham (elementary and secondary); University of Michigan for Bachelors and Masters degrees –Dan Boyce

Stockbridge High & Eastern Michigan University – Go Hurons! –Gerri Harmer

University of Michigan –Jaclyn Jackson

Indiana University –Jennifer Hackmann

Davison High School and Baker College for BBA –Jennie Bauder

Grand Valley State and Eastern Michigan University –Matt Trujillo

EMU - I very much enjoyed college life. It was so freeing and an amazing adventure of finding myself - waking up to all the world could offer. –Matt Chope

Clarkston High School, Oakland University undergrad and Walsh College MBA -Laurie Renchik

High school in Kansas at Shawnee Mission Northwest. University of Michigan –Melissa Joy

Mt. Clemens High, Macomb Community College, and Central Michigan University –Nancy Sechrist

I went to high school in Livonia where I was born and raised and earned my Bachelor’s degree in Finance at Eastern Michigan University.  I also completed the necessary coursework for the Certified Financial Planner or CFP® exam through the College for Financial Planning that is based out of Denver, CO –Nick Defenthaler

Eastern MI University for undergraduate and graduate (Go Huron’s, I mean Eagles!) –Sandy Adams

Dearborn Edsel Ford High School,  Albion College and Detroit College of Law before it became Michigan State University Law School. –Tim Wyman

Grand Valley State University – go Lakers –Melissa Parkins

Tastebuds the True Winners at our Guac Off!

Our stomachs were rumbling as we prepared to dip our chips at The Center’s 1st ever Guac Off! The competition sprouted out of a friendly conversation in our Center Café and four team members took the challenge of creating an award-winning guacamole. Sandy Adams, Angela Palacios, Melissa Parkins, and Matt Trujillo all started with a simple avocado and mixed and mashed up top-secret recipes.

Each contender lined up a bowl on the café counter and the rest of the office eagerly piled up on chips. The lucky judges included the rest of The Center team members willing to dip a chip!  Everyone enjoyed scraping the bowls clean of the glorious green! Judge Gerri Harmer said the tasty competition was, “The best job I’ve ever had.”

Our victor, Angie Palacios said her recipe was inspired by a weekend getaway to Sante Fe, New Mexico.  “It was there I finally learned how to make great guacamole when we ordered it tableside at a restaurant,” Angela remembers.  “While I do add lots of different vegetables and spices, it all has to start with a few perfectly ripened avocados!”

I just make it by taste so I don’t have any measurements. I think that day I had to work with:

Ingredients:

8 ripe avocados (the kind that are very small and come in bags of 4 taste the best – a tip I picked up from Marilynn Levin)

Juice of 2 limes

½ bunch of cilantro chopped

2 or 3 roma tomatoes chopped

¼ cup of chopped onion (I’m guessing I had red but can’t remember)

1 package of “Great Guacamole” mix

Salt to taste if needed

Mix ingredients together in a bowl and cover with saran wrap pressed down to touch the guacamole and let it rest for 30-60 minutes

Don’t Make a Costly Mistake

 If you knew that meeting with a financial planner regularly might help you find opportunities and avoid costly mistakes, would you do it? While that might sound like another financial planner’s pitch to get you in for your annual meeting, it’s not. And I have the story to prove it.

Uncovering additional income

I recently sat down with a same sex couple for a routine financial Annual Review. The federal government has found same sex marriage to be legal for filing a joint tax return and for drawing Social Security marriage benefits. These clients are in their late 50s and are both retired. One was a high-income earner throughout her career. The other fell 10 quarters short of the 40 quarters you are required to pay into FICA taxes in order to receive Social Security benefits.

Going back to work for 10 more quarters just didn’t seem worth it to my client since it only meant $2,000-$3,000 a year in benefits. But what she wasn’t thinking about was that, if she did work 10 more quarters, she would be legally entitled to spousal benefits. Her partner had maxed out the Social Security benefit after paying into the system for many decades. We did some quick math:

So, does working for 10 more quarters to become eligible for half of your spouse’s Social Security amount seem worth it? The answer was easy for them. And they realized, without sitting down for an Annual Review, they could have missed the boat entirely.

Your Own Annual Review

This is a very unique circumstance and your situation may not be similar. But there is no denying that Social Security is complex and it makes sense to pay attention to the rules for qualification and how the strategies apply in different circumstances. Could you do it alone? Think of it like going to the dentist. You might not know you have a cavity … that could turn into an abscess that threatens your life … unless you get a regular cleaning. So stay on top of your financial health, just like you do your dental health. Visit your financial planner regularly, discuss issues, and communicate. You might just uncover unforeseen benefits and it will hopefully be less painful than a trip to the dentist!

Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.

The material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. The example provided is hypothetical in nature and is to be used for illustrative purposes only. C14-038027

Slightly Off-Center: What is your secret weapon?

 There’s a lot you know about our team at The Center … but we’ve dug up answers to some questions you might have never thought to ask.

Creativity –Jaclyn Jackson

Sense of humor –Matt Trujillo

Eating breakfast – sounds lame but I’m a completely different person if I take the 5 – 10 minutes to at least eat something in the morning –Nick Defenthaler

Reconsidering Reverse Mortgages

I always thought of reverse mortgages as a last resort for retirees who had spent down their retirement savings and needed more income in retirement.  The reason why I felt this way, and perhaps why a lot of people had learned to dislike these products, was because of the high fees and interest embedded in the product.  However, with recent changes to various mortgage programs, it may be worth taking a closer look.

Last resort or income stream?

Let’s begin by first looking at how these products used to work and why they typically weren’t advisable except as a last resort.  For a lot of retirees, one of their largest assets is the equity in their houses.  Unfortunately, other than providing shelter, a house doesn’t have a lot of financial benefit.  You might still carry a mortgage in retirement; you pay property taxes, home owners insurance, utility bills, and the occasional home repair.  All of these are money out of your pocket, but when is the last time your house paid you?  Enter the reverse mortgage….a potential way to create an income stream (or lump sum) which can turn the house into a more meaningful asset rather than a money pit.  Everything sound good so far?  Not so fast! The problem is that, in the case of a married couple, the bank used to come knocking at the first death and demand repayment of the income stream plus interest that had been accruing the whole time.  Can’t afford to pay that back all at once? No problem…the bank will just sell the house from under you, take their money back, and give the survivor the remainder (if any) so they can go and try to find a new place to live.  All of a sudden this program doesn’t sound so good.

Reverse mortgages get a make-over

This idea of the survivor losing their house was the primary reason why I rarely recommended clients consider these products in a serious manner. However, in 2013 there were major revisions to how a lot of these products were structured. The fees still seem to be fairly high, but no longer is the bank able to sell the property out from under the survivor.  Now the repayment of the loan isn’t due until both people have died.  With these new changes, it may be worth taking a look at tapping into your home’s equity, knowing that you and your spouse won’t have to leave your house unless you want to.  Work with your financial professional to understand more fully if this type of product might make sense for your specific situation.

Matthew Trujillo, CFP®, is a Certified Financial Planner™ at Center for Financial Planning, Inc. Matt currently assists Center planners and clients, and is a contributor to Money Centered.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. This is not a solicitation or recommendation for a reverse mortgage strategy. Any opinions are those of Center for Financial Planning, Inc. and not necessarily those of RJFS or Raymond James. There are significant costs associated with Reverse Mortgages, such as: up-front mortgage premium, annual premium, origination fee, closing costs, monthly services charge, and appraisal fees. There are significant risk associated with Reverse Mortgages. Generally, the homeowner is still obligated to pay taxes, insurance, and maintenance and if the borrower moves, the loan becomes due, and the total amount due may be larger than anticipated or planned for. Medicaid may also be affected. C14-040266

Reinventing Michigan Retirement

 At a conference tailored to Michigan residents age 50 and up, Sandy Adams, CFP® and Laurie Renchik, CFP® volunteered their professional retirement planning expertise. Sandy and Laurie were part of the team of volunteers at the Reinventing MI Retirement conference hosted by the Michigan Department of Insurance and Financial Services.

The event was held at the Michigan State University Management Education Center in Troy. It was one of nine conferences put on across the state to help Michigan residents learn more about how to potentially achieve financial security in your later years.

Sandy and Laurie provided attendees with one-on-one financial check-ups.  Governor Rick Snyder made an appearance and delivered a message about living well and aging well. The Reinventing MI Retirement initiative is funded by contributions and grants from the Michigan Securities Investor Education and Training Fund.

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Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed web sites or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site’s users and/or members. C14-038753

SRI: Investing in your Ideals & Values

Socially responsible investing (SRI) is a rapidly expanding option in the investment arena.  This includes Environment, Social and Governance (ESG) criteria in the stock and bond selection process.  This approach to investing looks beyond simple financial return, allowing individuals and institutions to express their personal values and ideals with their investments.

Millennials more interested in ESG strategies

We are starting to see generational differences in investing as younger high net worth investors are more interested in expressing their values through investing.   For example, in a survey conducted by U.S. Trust Insights, 63% of Millennials (individuals born between 1980 and 2000) are interested in owning socially responsible strategies versus just 35% of the total number of responders.  These investors believe that they also don’t have to give up returns in order to do so as 60% believe it is possible to achieve market rates of returns while investing in ESG strategies.

Source: U.S. Trust Insights on Wealth and Worth Annual Survey

The Center Expands ESG Recommendations

Based on increasing demand from our clients, our investment committee and research department have expanded our recommended list to include companies that offer these types of investment strategies.  Having applied our same rigorous due diligence process to these selections, we feel we have an excellent combination of managers in a variety of asset classes that will allow our clients to express their ideals in the way they invest their assets (see our recent blog on this).  If you are looking for ways to express your values through your investments don’t hesitate to contact us!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well as investment updates at The Center.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Material is provided for informational purposes only and does not constitute a recommendation. C14-040265

"The Other Talk"—Expressing Your Plans for Aging

 Remember that all-important rite of passage? Having "the talk" with your kids about the birds and the bees? You thought for weeks...maybe months...about the words you would choose, how you would answer the challenging questions and handle the emotions involved. Now might be the time to experience another rite of passage, and have “the other talk" with your children about your plans for your life as you age.

A Helpful Conversation Starter

Holidays are a time when families gather together from near and far; a rare time when parents and siblings are gathered together to catch up on developments of the past year. Before your holiday gathering, take the time to think about how you might bring up the topic of your life as you get older, and how your family can help to support you. A book recently released by the AARP, titled "The Other Talk: A Guide to Talking with Your Adult Children About the Rest of Your Life," might help you to prepare you for this conversation. When you have “the other talk” you’ll want to communicate your current situation, as well as express your wishes for your future living situation and care.

Steps to Prepare for the Talk

In addition to reading the book, here are a few action steps to take to prepare for "the other talk":

Get your records in order: Click hereto use our Personal Financial Record Keeping Document to document things like your insurance policies, your investment accounts, your estate planning documents, the professionals your work with, etc. In addition, gather information about your doctors, medical conditions and medications.

Prepare the paperwork: Gather copies of your current estate planning documents, and consider providing copies to your children.

Cover the bases: Use our Future Care Checklist to determine what topics you might need to discuss and plan for that your haven't already thought of.

If you feel that it might be easier or more productive to hold a family meeting with a facilitator, contact your financial planner to schedule this meeting. Having "the other talk," whether on your own at holiday time or facilitated by your financial planner, will help you address the important issues about your aging in advance of a crisis, allowing you the time and the space to enjoy your life and your family.

Sandra Adams, CFP® is a Partner and Financial Planner at Center for Financial Planning, Inc. Sandy specializes in Elder Care Financial Planning and is a frequent speaker on related topics. In 2012-2014 Sandy has been named to the Five Star Wealth Managers list in Detroit Hour magazine. In addition to her frequent contributions to Money Centered, she is regularly quoted in national media publications such as The Wall Street Journal, Research Magazine and Journal of Financial Planning.

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Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served. C14-040146

Memorable Marriage of Art & Music

Imagine creating visual art while soaking up a classical music concert performed just for you. That was the concept behind the Detroit Chamber Winds & Strings (DCWS) 2014 Rendering Beethoven Concert which explored art, music, and abstract expressionism.

The Center proudly sponsored the first-of-its-kind performance, held at the College for Creative Studies. DCWS musicians performed Beethoven’s Serenade Op. 25 for Flute and Strings. The music served as inspiration for visual arts students and faculty who created abstract works of art before a captivated audience. The exploration of the connection between the visual arts and music was a memorable and thought-provoking experience for all in attendance.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed web sited or their respective sponsors. Raymond James is not responsible for the content of any web site or the collection or use of information regarding any web site's users and/or members. C14-038752