Guide to Start Planning for Healthcare in Retirement

Plan for the worst and hope for the best. That’s what a friend of mine used to tell me she always did. That’s how she ran her life. I’m a planner – I plan just about everything. But I do not plan for the worst and I always hope for the best. However, when it comes to feeling good about what our future holds as far as health care and retirement looks like, this would be a time to plan for the worst and hope for the best.

Health care is and will continue to be one of the biggest expenses in retirement. Yet many people nearing retirement don’t understand the risks these costs pose to their financial plan – and aren’t preparing for them. According to the 4th Annual Nationwide Retirement Institute survey, America’s workers are “terrified” of health care costs in retirement, but few are doing anything about their concerns.

Here’s just a few statistics and things to ponder:

Remember when everyone used to work at the same… department store, firm or manufacturing company for 35+ years. Back then, you were promised a pension and allowed to also keep your health care plan after leaving their employ – even for the whole family! Back in 1997, this was true for 1 of 4 in and in 2011 this number was down to 10% employer coverage.

Today, 26% of the American people don’t know what the annual health care costs in retirement will cost after stepping away from employment. The blazing question is: Did you or are you budgeting enough for this healthcare expense?

If you haven’t yet thought about it, and in order to plan for this, you’ll need to know what portion of your income or savings you’ll need for Medigap or medicare supplement premiums, Medicare Part B Premiums, Medicare Part D Premiums (Rx) and Out-of-Pocket Drug expenses.

Just released is the new Part B Deductible that all Medicare participants have to come out-of-pocket with. It went from $166 to $183.

To help you plan:

  • Have a very good idea of what income you’ll have in the 65+ years of your life. Typically, that would be pensions, IRA’s or other retirement accounts and Social Security.
  • Write out a budget. Know what your set-in-stone living expenses will be. Will you have an auto or home payment? What will groceries cost, special events/occasions such as birthdays, utilities. Be ver conservative here and allow for inflation.
  • Get a very good picture of what your out-of-pocket healthcare expenses look like. This should start with a conversation with your financial advisor.

Tips To Know Your Tax Liability

Every year many tax payers have no idea whether they will owe taxes or not. Often, some tax payers feel that they may owe, but have no idea how much or why? Understanding how to determine your tax liability will not only help you make better decisions about the way you treat income, but it will go a long way to ease the stress that is often experienced when it’s time to file your tax return.

Obviously, the first variable in the tax formula is gross income. This is the aggregate of all earned and unearned income from various sources throughout the year. Income is either earned or unearned. Earned income is cash or in-kind benefits people receive in exchange for work or service, including employment and self-employment. Unearned income is cash or in-kind benefits that people receive without being required to perform work or service. Depending on the type of income you receive, as well as other variables your tax outcome could vary.

Next, certain deductions are subtracted from gross income. These deductions are referred to as above the line deductions, and are used to arrive at adjusted gross income or AGI. The name comes from their paperwork placement. They are found on page one of Form 1040, just above the line where adjusted gross income is tabulated. They include contributions to traditional IRA, alimony, moving expenses, and many others. For a complete list of “above the line” deductions please see 17.

After you arrive at AGI, there’s another round of deductions known as personal and dependency exemptions. The personal exemption amount in 2016 is $4,050.00 dollars. The IRS allows every resident tax payer to deduct this amount from personal income. Dependency exemptions are personal exemptions allowed for tax payers who have qualified dependents. For example, if a tax payer filed married filing jointly, and they have 2 children; the number of personal exemptions would be 4. Please see IRC section 152 for additional information.

There two types of additional deductions. One is called standard deduction, or tax payers may itemize deductions. Generally, a comparison is done to derive at which deduction type is most advantageous. The standard deduction is a pre-determined amount based on filing status. The standard deductions for year ending December 31, 2016 is the following:

Single – $6,300.00
Married Filing Jointly – $12,600.00 Married Filing Separate – $6,300.00
Head of Household – $9,300.00
Qualifying Surviving Spouse – $12,600.00

At this point, both personal exemptions and either standard or itemized deductions are subtracted from AGI to arrive at taxable income. To determine your tax rate, examine applicable tax tables at

Please be mindful of additional deductions (credits, prepayments toward tax, overpayments or credits from previous years, and tax withheld by an employer or previously made estimated tax payments) that are subtracted from your tax liability to determine net tax payable.