Beware of IRS gifts!

For most of us, the big concern is when the IRS sends one of their nasty little notes saying we owe more money because we made a mistake on our 1040.

But what should you do if Geithner's posse rides up to your door bearing gifts?

A recent article in Bloomberg Businessweek lays out a real life horror story with a lesson of what not to do.

Best wishes,

George

The price to caregivers

As part of your retirement plan, are you hoping friends or relatives will take care of you if your health changes? After all when you were a kid one of your grandparents may have lived with you and your folks.

First, though, consider what a recent study revealed.

The MetLife Study of Caregiving Costs to Working Caregivers found that:

• Women who quit working to care for a loved one lost an average of $324,044 in wages and Social Security benefits.

• For men it was $283,716.

• Adult children who work and care for parents are more prone to health issues of their own.

Could your loved ones afford to make those kinds of sacrifices? With Social Security on shaky ground, the likelihood of our children’s benefits getting sliced is high. And putting away money for the future is already a huge challenge for many people.

So before you count on the kids for your later years, you might want to look into other alternatives.

Click here to read the complete study.

Best wishes,

George

P.S. Looking for other ideas on how to plan for your long-term care? Then be sure to read an excerpt from A Boomer’s Guide to Long-term Care.

Could Costa Rica be in your future?

On page 26 in A Boomer’s Guide to Long-term Care, I wrote:

“And although it might sound extreme, going out of the country could be another idea … Costa Rica, for instance, has a first class medical system. Many of its medical personnel are North American or European trained.”

This has prompted many e-mails from readers asking about the cost of living in Costa Rica. Unfortunately, the answer depends upon so many factors that books have been written on the subject.

However, a recent issue of WeLoveCostaRica.com had an article “Comparing Costa Rica Real Estate Prices and Global Property Prices.”

It gives a good idea of what you can buy there for a fraction of what it might cost in popular U.S. retirement communities.

Plus you’ll find some useful figures on taxes and insurance.

If you’d like to read the complete article, you’ll have to register at WeLoveCostaRica.com. But it’s free. And you won’t get bombarded with e-mails trying to sell you stuff.

Give it a look. You just never know. Retirement in Costa Rica just might be in your future!

Best wishes,

George

Medicare … now that’s a different story

The other day, I wrote that the Social Security shortfall was no reason to panic.

But Medicare … that’s a different story.

Medicare is the government’s program that will pay a big chunk of your medical expenses after you turn 65. Medicare’s trust fund is mainly financed by payroll taxes. Beneficiary premiums make up less than 2%.

The problem: As more people retire and sign up for Medicare, more workers are needed to kick in payroll taxes. Then when you mix in longer life expectancies and soaring medical costs, you have a tsunami of red ink that can’t be stopped.
You can read the Summary of the 2011 Annual Reports. But I think the chart below tells the story.

As you can see the Medicare trust fund (HI) will be broke by 2024. That’s 5 years earlier than was shown in last year's report!

This assumes an almost 30 percent reduction in Medicare payment rates for physician services by 2012 as required under current law.

I know a few doctors. And if I want to push their hot buttons, I just have to bring up Medicare. Delayed payments … retroactive reductions … these guys can go on for hours. And to think they’re going to sit on their hands while Washington cuts their income is plain fantasy.

They’ll lobby hard to squash any further reductions, which could mean the trust fund could go bust earlier than expected.

Or … they’ll stop accepting Medicare patients, which could mean you would have to find another doctor or pay out of pocket.

Either way, you lose.

So what can you do?

Obviously getting in shape and maintaining good health will help. Also check with your employer’s health insurance plan. Some will let you continue after age 65 as long as you work fulltime and pay a higher premium.

Look into supplemental Medicare plans, too. If the government starts cutting benefits or making benefits harder to get, these plans could become more important in making sure you get the best medical care possible.

And don’t forget to put together a strategy for long-term care. Medicare doesn’t pay much now. Further cuts are almost sure to include shifting more of the burden to you.

Best wishes,

George

Social Security shortfall no reason to panic

In case you hadn’t heard, Social Security just announced that it expects to have a $46 billion deficit this year … down slightly from the $49 billion shortfall in 2010. And the trust fund is expected to be depleted by 2036, a year earlier than previously thought. Such a forecast is of course disturbing, especially when you consider that the Federal deficit will be deep in the red as far as the eye can see. And right after the Trustees’ Report came out I heard a headline-grabber say that all Boomers should start taking benefits as soon as they turn 62, before the government runs completely out of money! Such general statements are irresponsible. First of all, when to take the benefit is a big decision that should be based on many factors, including current income, current expenses, your health and survivor needs. And taking the benefits before you really need them could cost you big time down the road. In fact, your benefit increases by approximately 7 percent each year you delay taking it from age 62 to 66 and by 8 percent a year until age 70. That could be a better return than you’re getting on your investments. And second, government is not going to cut Boomers’ benefits. They’ll do what ever is necessary to keep the checks flowing. I wouldn’t be surprised, though, to see those of us with higher incomes paying tax on more of our Social Security benefits. So before you let the media send you into a tizzy that causes you to make rash emotional decisions, do your homework. The Social Security web site has a bunch of useful tools to help you out. But if you’re still confused, by all means meet with a financial advisor for a second opinion. Best wishes, George

Long-term care insurance not immune from rate increases

Long-term care expenses are one of the greatest risks you’ll face in retirement. And unless you are rich enough to write a fat check each month, insurance is one of the best ways to reduce that risk. One problem, though, is that policyholders have recently been shocked by double-digit premium hikes from big companies, including John Hancock and Genworth. Now many Boomers are asking … Why in the Heck Are Premiums Going Up? I’ll give you two reasons: Ultra-low interest rates Low rates make it almost impossible for insurance companies to earn a decent return on their investment portfolios that help fund policy payouts. And less money in the payout kitty hurts their bottom line. Policyholders staying put Companies assume a certain percentage of policyholders will drop the coverage before they actually use any of the benefits. But consumers are getting wise ... They’ve come to realize that once purchased, it makes sense to hold on to a policy. In fact, according to LIMRA, the industry research and consulting group, just 3.8 percent of policyholders allowed their coverage to lapse between 2005 and 2007, and the rate was just 1.5 percent on policies at least six years old. That lapse rate is much lower than for other types of insurance, and it was much lower than the industry had expected. Since revenue from lapsed policies falls straight to companies’ bottom lines, profits have gotten squeezed. What You Should Do Keep the policy If your long-term care insurance company sends you notice of a rate hike, do not drop the policy, especially if you’ve had it for several years. Even with a rate increase it’s most likely less than you’d pay for a new policy from another company. That’s because you’re older now and possibly not in as good as health as you were in when you bought your current policy. What’s more, you might not qualify for a new policy. Reduce the benefits Review your policy’s coverage. For example, if your policy will pay for an unlimited time of benefits, consider cutting that back to 3 or 4 years of coverage. There are other ways to slice premiums, too, including a life/long-term care insurance combination, a reverse mortgage and immediate annuities. To learn about these, and many more, check out the updated and expanded edition of A Boomer’s Guide to Long-term Care. Best wishes, George