A Basic Overview of CCRCs

One of the decisions we all need to make in retirement is how do we want to be cared for in our later ages when we may need some assistance. I think for most people, they immediately think of long-term care insurance, which may help to offset the cost of skilled nursing care needs, but doesn’t address where or how care will be provided. An option that covers the where and how of care, and is becoming more popular today, is the Continuing Care Retirement Community or CCRC.

What is a CCRC?

Doctor hand touching LONG TERM CARE sign on virtual screenSimply put, a CCRC provides a combination of independent living, assisted living, skilled nursing care and memory care all on one campus. In the independent living stage, one would live in an apartment, condo, townhome or casita on campus, but would have the option of transitioning to one of the higher levels of care if/when the need arises. Assisted living is for those residents that need help with activities of daily living, including the management of medications, bathing, dressing and personal care, but do not require intensive medical or nursing care. Skilled nursing care is often Medicare-certified and provided 24 hours a day, seven days a week by licensed nurses. Memory care is provided for those with Alzheimer’s disease or other forms of dementia. The ability to transition from independent living through the various levels of care up to memory care within one campus is often called “aging in place.” I view the CCRC option as a combination of lifestyle choice and insurance for your long-term care.

Moving to a CCRC is a proactive choice as one needs to make the decision when they are healthy and able to live independently. If you wait to make a decision after you have had a significant health issue, there is a high probability that you could be declined admittance. Since a CCRC is taking on a lot of potential risk by absorbing the cost of your long-term care needs for life, they tend to be fairly scrutinizing on the types of residents they admit. They typically do a thorough review of your personal health history and your overall financial situation prior to approving your entrance to the campus.

Potential Benefits of a CCRC  

1)    Provides maintenance free living – many times all interior and exterior maintenance of the property you are living in is covered. This typically includes housekeeping and possibly laundry services.

2)    Dining program – often at least one meal per day is provided in a dining setting providing the opportunity to socialize with other residents.

3)    Transportation – may be provided for physician visits, shopping and outside entertainment.

4)    Wellness programs – on site gyms, often pools, outdoor recreation and many times a variety of fitness classes.

5)    Social interaction – activities and programs to encourage social interaction.

6)    Golf or other amenities – some of the higher end CCRCs may be affiliated with a golf course.

7)    Future health care – the knowledge that no matter the level of care needed, it is provided in the same place with staff you are familiar with.

8)    Tax advantages – typically a percentage of your initial entrance fee and your regular monthly service fee can be deducted as a medical expense.

9)    Estate planning/potential refund of the entrance fee – depending on the contract chosen, you may have an option to receive a percentage of the initial entrance fee returned to your estate/heirs.

Contract Types and Fees

When you join a CCRC it is a permanent long-term financial decision. You need to sign a contract along with possibly providing a substantial entrance fee. Some of the higher end CCRCs rival many luxury resorts and their fees are reflected in the type of property and amenities they provide. CCRC entrance fees can range from $30,000 to $1,000,000. In addition, there is a monthly fee typically ranging from $1,000 to $6,000.

Most people use some or all of the equity in their home to pay for their entrance fee. Below are the three most common types of contracts. The contract you choose will define all terms of care to be provided, services to be provided, the entrance fee, monthly cost, inflation rate, any other costs you may have to pay in the future, cancellation or refund options, any insurance requirements, and a description of the CCRC’s responsibility should a resident become unable to pay fees. Some CCRCs have a Benevolent Fund, which helps to cover the cost of care if a resident is no longer able to.

Type A or Life Care – this is the most expensive option, requires a large entrance fee and monthly fee, but also provides an unlimited lifetime of care with minimal risk to cost increases other than an annual inflation adjustment to the monthly fee. The monthly fee usually varies by apartment size. Refundability of the entrance fee to your estate varies by CCRC and can range from 0% to 90%.

Type B or Modified – this contract offers a set of services to be provided for a set length of time. After expiration, services can be provided but for higher monthly fees. The initial entrance fee and ongoing monthly fees are typically lower compared to type A contracts. Similar to type A contracts, refundability of the entrance fee to your estate varies by CCRC and can range from 0% to 90%.

Type C or Fee for Service – the initial enrollment fee may be low or zero, but assisted living and skilled nursing care are paid for at market rates. The monthly fee is usually determined by apartment size. Beyond the monthly fee, you essentially pay as you go and are charged extra when care is needed. Although initially this can be the least expensive contract, it can be quite costly if a resident eventually has extensive health care needs.

How to Find the Right CCRC

There are over 2,000 CCRCs nationwide, and no two are alike. The best way to evaluate a CCRC is to visit it in person, arrange a tour and meet the staff throughout the campus. If you find a particular CCRC that you are serious about, I would consider spending a few days living on campus to get a feel for daily life there. I would ask to interview a few of the residents and consider exploring all levels of the care provided from independent living to the highest level of memory care. I would also make sure to dine on campus and get a feel for the meal accommodations. This will also give you an opportunity to interact with any residents in a casual setting.

It’s a Big Decision

There is no overstating what a big decision moving to a CCRC is. You have to do your homework, ask a lot of questions and also thoroughly review the financials of any CCRC you are considering. You may find one that has the curb appeal, culture, health care offerings and amenities to fit your lifestyle, but you also need to make sure it is financially sound and has a high probability of being around for the remainder of your life.

CARF International provides accrediting to some CCRC communities. They have an incredibly rigorous examination process. It is not required that a CCRC be accredited, but it can provide some peace of mind if a CCRC you are considering is on the CARF accreditation list.

You should also consider reviewing the financial decision with your CPA and financial advisor. Your financial advisor can determine if the entrance fee and monthly fees are within your long-term budget and reasonable in comparison with your financial resources.

Since you are signing a continuing care contract, I would also have your attorney review the legal fine points of the contract as this is a lifetime financial commitment.

Other Resources to Consider

I lightly touched on the broad aspects of a CCRC in this article. If you are serious about a particular CCRC for your long-term care and lifestyle, I would also suggest visiting the resources below as they provide a lot of helpful information that could be valuable in your decision making process.

AARP – they have a great checklist of questions to ask when considering a CCRC. They provide a thorough list of topics to review such as: general community questions, the grounds and facility location, initial impression of staff and community, staff review, resident review, housing and meal program, medical services, personal services, social life and recreation, and overall financial considerations. Here is a link to their list of questions.

CARF International – they provide accreditation to CCRCs and have an excellent consumer guide to understanding CCRC finances. Here is a link to a pdf of their guide – CCRC Consumer Guide to Financial Performance-June 2016.


Don’t just quit – Retire to something

As a continuation of the Fee-Only Financial Advisor blog sharing group, this month’s post comes to us from Lauren Zangardi Haynes, a Financial Advisor in Richmond, Virginia. She shares her thoughts on how a fee only financial planner can help you with planning for retirement.

Making the leap from a full-time career to retirement can be scary! What if your retirement dreams don’t pan out? Did you know your financial planner is there to help you do more than simply “crunch the numbers?” The core function of a financial planner is to help you achieve your goals. By helping clients align their finances with their values and desires, Fee-Only Financial Planners turn dreams into reality every day.

In this post we will go over three ways financial planners help turn their clients retirement dreams into reality! First, start by clarifying your retirement dream so you are retiring “to something” and not just “from something.” Next, get down in the weeds and figure out the specific steps you need to complete to turn your retirement plans into reality. Finally, get a partner, friend or, dare I say it? A Fee-Only Financial Planner on board to help you stay focused on your goal.

Clarification of goals

Now, you might be thinking – I don’t need help clarifying my goals. I know what my goal is – it’s to retire! (Start a business, write a book, stay home with the kids, etc.)

Don’t get me wrong, that’s a great place to start, but if you’re working with a real financial planner that won’t be where the conversation ends. There is a lot that goes into creating a happy retirement. While you may have started with one big goal (to retire) you might find yourself with a number of smaller goals that will help ensure your retirement success.

Some examples of these smaller goals may include funding an emergency savings account, creating a spending plan you can live with, and perhaps most importantly – mapping out your daily life without the rhythm of work.

Many people don’t fully realize the extent to which their life is wrapped up in work. Work not only takes up the majority of your time but it also provides you with stimulation, companionship (including that co-worker you don’t like) and a sense of purpose. In fact, while you may not love your job, your boss…or your co-workers, they all feed into your sense of self and create structure for your day.

Yes, you may find yourself missing work – at least a little bit.

Seriously, check out the link above if you don’t believe me. You can clarify this dream and turn it into an actionable roadmap for your future. A real financial planner can help you retire “to something” and not simply “from something!”


Once you have clarified your retirement dreams, it’s time to get specific. I think it’s easiest to describe why specificity is important by using an example. Quick quiz: which goal sounds like it’s more likely to happen?

I want to buy a house on the water.June 2017 - Haynes 2


I want to buy a condo in Rocky Mount, VA.

But don’t stop there; you need to be specific on the steps you need to take to get to that big dream. Using our vacation home example some smaller step goals could include:

1. Identify the cost of a vacation home.

2. Figure out much you need to save each month to save up for a down payment (or the entire cost depending on your aversion    to   debt).

3. Set up an automatic monthly transfer from your checking account to an earmarked savings account especially set up for this goal.

A lot of banks and credit unions allow you to “name” your account. Take advantage of this! If you have a special savings account set up for your dream name “Mexican Villa” or “Roman Holiday.” You get the idea.


Get an accountability partner to help you stay on track. If you have someone who shares this dream with you that can help keep you motivated. As Jeff Haden at CBS News points out, we are way more likely to “let ourselves down” than we are to disappoint our teammates, which is why swimmers frequently set their best times during relay races. So find a partner to share your goal with. Maybe it’s your spouse who also dreams of that river house. Or maybe it’s a close friend who wants to spend a month renting a flat in Paris with you.

It’s good to have someone to keep you on track when you feel like cutting out early. Roping in a friend isn’t the only way to stay on track. Feel free to get creative. Vanessa Van Edwards at HuffPost suggests other ways of staying on track such as changing your passwords to reference your goal.

So what does this all mean?

If you only take one thing from this article I hope you will find the courage to get real with yourself about creating the best version of your life. Name that goal, get specific and work with a fiduciary adviser who can help you retire to something!

About the Author

Fee Only CFP® Financial Planner in Richmond and Williamsburg, VA Lauren Zangardi Haynes, of Evolution Advisers, provides investment management and financial planning as a fiduciary. She also writes about money for families with kids at home at Words on Wealth.



What Is Retirement Planning?

One of the most rewarding aspects of my job is helping my clients plan for and transition to a successful retirement. I work with clients from a wide range of personal and professional backgrounds, such as: corporate executives, real estate agents, widows and widowers, teachers, engineers, CEOs, professors, policemen, divorcees, TV directors, business owners, therapists, doctors, executive administrators, lawyers, nurses and retirees (or as some would like to be known, “semi-professional golfers”). They each have a unique set of dreams, personal goals and financial situations. As diverse as my client base is and regardless of their age, they all share one common characteristic: they would like to be able to retire with confidence and continue living the lifestyle they are accustomed to.

Retirement planning.For some clients the transition can be very smooth and for others it can be a challenge. For a vast majority of my clients, their portfolio was accumulated over decades. They accomplished this by living beneath their means and continuing to save and invest over a long period of time. As the wealth accumulated over many decades, my clients gained confidence and financial security. Now at retirement, some clients struggle with the idea of having to start drawing down from their portfolio after a lifetime of building it up. In addition, some clients have concerns about not only drawing down from their accumulated wealth, but also how to coordinate it with their other retirement income they may be entitled to such as Social Security, pensions and deferred compensation. Whether you are still working or retired, we can add value and peace of mind through our Retirement Planning process. Let me walk you through many of the areas that fall under the umbrella of what I would call “Retirement Planning.”

Retirement Projections for Pre and Post Retirement Planning

Whether you are planning to retire one day in the future, or are already in retirement, one way to analyze your financial situation is to take a deep dive into the details via a Retirement Projection. To initiate this process, we will sit down together and I will ask you to provide me with more details around your short-term and long-term financial goals. This will include putting some numbers together as to what your financial needs are now and how they may look in retirement. Some of the issues we will discuss and questions I will ask you are:

  • What are your annual expenses?
  • How much do you expect to pay for healthcare prior to retirement and in retirement?
  • How often do you buy a car and how much do you typically spend?
  • Do you expect to travel? If so, how often and what amount do you typically spend on vacation?
  • If you have minor children, are you saving for college, how much, and what type of university do you expect them to attend?
  • If you are still working, how much are you saving in tax deferred retirement options such as a 401(k)s, 403(b)s, Roth IRAs and IRAs and how much are you saving in your taxable accounts?
  • If you own a home, what types of extraordinary expenses do you foresee in the future such as a new roof, new A/C units, new windows, remodeling updates, or any other general ongoing home maintenance?
  • Do you have an interest in charitable gifting now or while in retirement?
  • Do you have adult children or grandchildren that you financially assist?

What types of income sources do you expect in retirement such as:

  • social security benefits
  • pension income
  • deferred compensation
  • real estate rental income
  • alimony
  • annuity income
  • working part-time in retirement
  • any potential inheritance
  • stock option proceeds, such as from RSUs or Non-Qualified Stock Options

Once I have all of the above data I will put together a detailed projection of your expected income, expenses and growth or drawdown of your investment portfolio from now through every year until your age 95 or 100. This detailed annual projection provides a great trend analysis of what the future may hold for you. Although there are a lot of detailed numbers within the projection, I am most interested in the long-term trend. Is your portfolio growing over decades, going sideways or depleting? If it is depleting quickly, what can we do to make a change in the long-term trend?

If we see a shortfall in the long run trend, there are usually 4 variables we can work with:

  1. You possibly work longer, or consider working part-time in retirement.
  2. You save more if still working.
  3. You spend less in pre-retirement or retirement. From a behavioral standpoint, the greatest impact you personally have over your retirement success is control over your spending.
  4. The last option, and one in which I do not usually recommend is that you invest more aggressively. I typically don’t recommend this as most of my clients can’t handle the excess risk that shows up during a bear market from having a more aggressive portfolio. Working longer, working part-time in retirement, saving more and spending less all have much greater impact compared to investing more aggressively.

4% Rule

For my clients that are in retirement and are in the “spend down” phase of their portfolio, you have probably heard me discuss the 4% rule. The 4% rule is a reference to a number of studies done over the years that have attempted to analyze and answer the question “what amount of your total portfolio can you withdraw consistently each year for the remainder of your life during all phases of bull and bear markets without depleting your portfolio?” Most of the studies have concluded that the maximum comfortable withdrawal rate is no more than 4%.   Keep in mind this is the amount derived only from your portfolio. This does not include social security, pension income, real estate rental income, deferred compensation, alimony, annuities, or any other form of additional retirement income that you are entitled to. Here is what a 4% withdrawal rate looks like based on a handful of different sample sized portfolios:

Portfolio Size 4% Annual Withdrawal 4% Monthly Withdrawal
$250,000 $10,000 $886
$500,000 $20,000 $1,667
$1,000,000 $40,000 $3,334
$2,000,000 $80,000 $6,667
$5,000,000 $200,000 $16,667


You can put your retirement at risk if you have income needs from your portfolio well above 4%. I know some of you are saying that 4% seems low and you are asking why you can’t spend more if your long-term target rate of return is expected to be greater than 4%. That’s a great question. The reason is, this is also the maximum rate of withdrawal that will provide you with a high probability of being able to safely weather all bear markets and allow for a lifetime of withdrawals to age 95. It is easy to survive on a 4% or greater withdrawal rate when markets are stable or moving up. Where this always catches up with clients that spend too much is during significant stock market downturns.

Let me provide you with an example. We typically experience a bear market every 5 to 7 years and it is not uncommon for the stock market to lose 40% during a bear market. A globally diversified portfolio will probably temporarily lose ½ of that, or 20% in a decent downturn. So let’s assume you had $1,000,000 heading into a bear market, you suffer a downturn of 20%, and you now have $800,000. Prior to the bear market you followed my advice and maintained a 4% withdrawal rate or $40,000 per year. The bear market has caused your withdrawal rate to now increase to 5% instead of 4% ($40,000 withdrawal divided by your new lower portfolio amount of $800,000). History has shown that your portfolio will usually recover from such a temporary loss.

Now let’s assume a more extreme spending example. Let’s say your withdrawal rate is 6% today, or $60,000 on a $1,000,000 portfolio. If you temporarily lose 20% due to a bear market, your withdrawal rate now increased to 7.5% ($60,000 divided by $800,000). It is difficult for your portfolio to rebound back to where it started as it now has to grow much higher than your annual 7.5% need from the portfolio. This will likely lead to a permanent loss of capital as each successive downturn in the market will cause your withdrawal rate to continue increasing due to your portfolio’s inability to fully rebound.

Coordinating Income from Your Portfolio in Retirement

During your working years, you became accustomed to receiving a paycheck every week, two weeks or month. My job is to help you “recreate” your paycheck in retirement so that we make the most efficient use of your portfolio and other income sources to match your ongoing lifestyle expenses. It is common that in retirement we set up a similar paycheck distribution system for you as that is what you are likely used to. Monthly seems to be the most common option as most of us pay bills on a monthly interval.   For some clients, however, we also consider quarterly or annual distributions. It really just depends as to what works best for your situation.

Through our retirement planning process I will be able to determine how much you will need to draw down each month from your portfolio and coordinate that with any other retirement income sources you may have.

Net Worth and Tax Returns

Two key components of the retirement planning process are my annual calculation of your net worth and my ability to reference your annual tax return. Your net worth is the combination of all of your assets (not just your portfolio) less any debt or liabilities. A successful retirement is not just the management of your portfolio relative to your income needs, but it is also the management of your overall asset and liability picture. Generally we want to see your total assets increase and total debt decrease over time. If debt is heading in the opposite direction and continues to increase, it may be a sign we need to take a closer look at your annual expenses.

At the end of the 1st quarter of each year I send a mailing out to you along with your first quarter portfolio statements. Enclosed in the mailing is a rough draft of your net worth statement with areas highlighted in yellow for you to update and return to me. In addition, to the net worth update request, I also ask for a copy of your latest tax return. I purposefully send this request out at the end of the first quarter as it coincides with when your tax return is likely being completed. Please note that I am not a CPA and the purpose of my tax return request is not to double check the work of your accountant. However, your tax return does provide me with a general overview of your income tax exposure and marginal income tax rate, which helps me greatly when planning for any annual tax loss harvesting from your portfolio, determining what type of investments will be purchased ongoing in any taxable or non-retirement accounts and what your tax picture may look like throughout your working years and/or in retirement.

Whether you utilize a CPA or Turbo Tax, you will likely be able to send me a pdf of your tax return. Your CPA can email me a pdf copy directly or provide it to me in some other electronic fashion as long as you provide him/her with permission to do so. Another option is to mail me a hard copy with the return envelope provided in your 1st quarter mailing.

Social Security and Medicare Planning

There has been a lot of talk recently in the media about when is the best time to start Social Security. You can start as early as age 62 or delay it until as late as age 70. One of the benefits of delaying Social Security is that you will receive an 8% increase annually for every year you delay it. Delaying Social Security can be a good longevity insurance plan if you have concerns about outliving your portfolio. However, that needs to be balanced with the fact that you may be putting more drawdown pressure on your portfolio in the earlier years of retirement by delaying Social Security to a later age. Like many things in life, your decision about when to start Social Security will likely depend on your particular financial circumstances, as there is not a one size fits all answer. If you have any questions about this issue, let me know and we can look at this in more detail in our retirement planning process.

Approximately 90 days prior to turning 65 you will be eligible to enroll in Medicare. There are numerous health plan options related to your Medicare choices. Everyone has a unique health situation and the choices can be overwhelming. I have a health insurance contact who is a true expert with all of the various Medicare health plan choices. I have referred a number of my clients to him to help them with choosing the best Medicare health plan relative to their particular health situation. If you need help with making this choice, or you need to determine if there is another plan that may be a better fit for you, let me know and I can provide you his contact info.


As you can see from above, retirement planning is an ongoing process that starts with your personal financial goals and encompasses a wide range of financial issues from your portfolio, to your retirement income options including Social Security, net worth, tax situation and healthcare/Medicare options. Please contact me if you would like to discuss your retirement planning goals further. Together we can put in place a strategy that will allow you to maintain confidence and peace of mind throughout your retirement years.

Ways We Can Use Money To Create Greater Happiness

As a continuation of the Fee-Only Financial Advisor blog sharing group, this month’s post comes to us from Lauren Zangardi Haynes, a Financial Advisor in Richmond, Virginia.  She shares her thoughts on ways to utilize money to create greater happiness in your life.

woman in the fieldMoney can’t buy happiness – or can it? While the phrase “money can’t buy happiness” is pithy (and in some respects true), it’s not 100% accurate.   In fact, there are some specific ways we can use money to actually increase our happiness! Is money going to make you happy? Not exactly. Once a family reaches about $70k in annual income, making more money starts to affect their level of happiness less and less. By the time a family hits $200k in income the effect of additional money is virtually 0. Yet there are some specific and easy ways we can use money to increase our happiness. Today we will go through 3 specific ways to use the money you already have to increase your happiness!

Tip #1 Buy Experiences, Not More Stuff

I don’t know about you, but no matter how much stuff I donate (especially kid-related stuff) I still seem to be surrounded by things that need to be picked up, cleaned, and put away. Personally, that’s not how I want to spend my time. I want to spend my time doing something fun with my family: hiking along the James River in Richmond, VA; wandering through Colonial Williamsburg in search of lambs; or going out to eat in one of Richmond’s great restaurants.

Studies have shown that spending money on experiences increases happiness more than buying things. When we choose to experience life, we get something to anticipate as well as memories to look back on. When we are with our family and friends we rarely share that story about the time we went to (insert favorite store) and bought a new decorative bowl. No, the stories we tell are about the time we went on a nature walk and the baby ate a random leaf while riding in his stroller. And then puked it up on the car ride back home. See?! That was an experience I got for free.

I get it, going out with kids to a museum or Busch Gardens is not exactly relaxing. Yet, if we can step back for a moment and accept imperfect behavior, such as the occasional meltdown, then we can begin to experience the excitement and wonder of the moment as our children do. Whether the joy you experience is spending time with your kids or telling gross stories later, it’s very likely giving you more happiness for your buck than that soon to be dated purse/jersey or Lego set.

Tip #2 Prepay Travel

While we are on the topic of experiences vs. stuff, let’s talk about another way to use money to increase your happiness: pre-pay your travel. Many Americans take annual vacations (even if you stay-cation, this idea still applies). By pre-paying for your vacation (paying for hotel and travel beforehand, saving up for spending and food, etc.), studies show you will enjoy your trip more compared to charging everything while on the trip.

Why? Well, prepaying for your trip reduces some of the stress involved in travel, which allows you to enjoy it more. You get to daydream about the trip before you go, enjoy the trip while you are travelling (instead of worrying about every little expense…or pretending not to worry about every little expense) and then when the trip is over you don’t have a large credit card bill to pay off. Instead of being left with credit card debt, you are left with happy memories.

Tip #3 Pay Off Debt

Many Americans carry debt, but did you know that paying it off can actually increase your happiness? It’s true – carrying debt adds a measurable amount of stress to our lives, and paying it off can lead to a genuine boost in happiness.

You may be wondering how to get started paying down debt. Start with smaller debts and use the snowball method. The sense of accomplishment we get from paying off a small debt can propel us forward. Once your first debt is paid off you can take what you were putting towards your smallest debt and put it towards your second smallest debt.

Now, technically you would save more money on interest if you prioritized which debts to pay down starting with the highest interest rate debt and then applied all of that money to your next most expensive debt. Yet this doesn’t provide quite the same psychological boost of getting the “win” of paying down a debt completely. Be sure to set up good spending habits while you are paying down debt. Some people put their credit cards in a block of ice – they are there for an emergency but it takes some effort to access them. Other people find budgeting success by using only cash for their spending needs. (8 Easy Ways to Stay on Budget)

The easiest way to use these ideas: automate

What’s great about these ideas is that they are simple to accomplish if you automate them. Automate your savings, automate your debt repayment. This makes accomplishing our goals easier because we don’t have to convince ourselves every month that saving or paying extra on debt is the best idea. Let me know what you think and the ideas you have to use money to increase happiness!

About the author

Lauren Zangardi Haynes, CFP(R), CIMA is a Fee Only financial planner and blogger in Richmond, VA. She writes about personal finance for families at www.wordsonwealth.com. You can read more about her background here.

Overview of Medicare Enrollment

Medicare enrollment form written on a paper.One important area of planning for a successful retirement is to have adequate health care coverage. Health care costs have been escalating at over twice the rate of inflation for a number of years. For those wanting to retire prior to age 65, health care is typically one of the largest “bridge” expenses to cover until Medicare eligibility.

For most people, their health insurance is provided through their employer. Or, if self-employed, they likely own a private health insurance policy. But once you reach age 65, you have the opportunity to transition to the federal government’s Medicare health care system. This article will provide a quick overview of some of the options available, answer some frequently asked questions and provide some resources to help you navigate the system.

Medicare consists of four main parts:

Part A – is hospital insurance and provides coverage for inpatient hospital services, care received in skilled nursing facilities, hospice care and some home health care. There is no premium cost for this coverage. However, there are co-pays, deductibles and co-insurance when seeking medical care.

Part B – is medical insurance and provides coverage for outpatient care such as doctors’ visits, laboratory and imaging tests, medical supplies and preventative services. There is a monthly premium which is automatically deducted from your monthly Social Security check. If you are not receiving Social Security benefits, your premium will be billed to you once a quarter. In 2016 the base premium is $121.80/month. You may pay a larger premium if your annual income is higher. You can learn more about your potential premium costs by reading the article I wrote titled “How Much Will I Pay For Medicare Premiums?” Your Part B coverage generally covers 80% of your covered care expenses after a deductible has been met.

Part C – is Medicare Advantage Plans, which are Medicare approved private insurer plans that typically provide medical coverage for Part A, Part B and often include prescription drug coverage. Many of these plans provide extra coverage and may lower out of pocket costs.

Part D – is prescription drug coverage. This particular coverage is optional and has a monthly premium that varies depending on the plan you choose. Similar to Part B coverage, those with higher levels of income may pay higher premiums. The link to my article above provides a chart of premium surcharges for Parts B and D based on income level.

What is Medigap insurance?

In addition to the options mentioned above, there are approximately 12 different private insurance plans which vary by state. These extra coverage plans are often referred to as Medicare supplemental insurance or Medigap. These policies are designed to fill in the coverage gaps found in Original Medicare Parts A and B. A large percentage of those receiving Medicare are also enrolled in one of these policies.

When to apply

If you are already receiving Social Security benefits prior to turning age 65, you will automatically be enrolled in Medicare Parts A and B. If you are not receiving Social Security benefits, then you have a seven month window to apply. You can apply 3 months prior to turning age 65, the month you turn 65, and up to 3 months after you turn 65. Your Medicare benefits will generally begin approximately one month after you enroll.

How to apply

You can enroll in Medicare Part A and Part B in the following ways:

• Online at www.SocialSecurity.gov.
• By calling Social Security at 1-800-772-1212, Mon to Fri from 7am to 7pm.
• In person at your local Social Security office. It is recommended that you call first for an appointment.

How do I determine if I should choose a coverage plan for Part C, Part D or a Medigap policy?

Because each person has a unique healthy history with specific health coverage needs, you may want to consult with a local resource to help you compare and contrast your options. Every state offers a free health benefits counseling service for Medicare beneficiaries. You can click on this link and search by your state for the local SHIP office (State Health Insurance Assistance Program). This is a valuable service available to answer all of your Medicare questions. You can also seek a private, independent health insurance broker that specializes in Medicare plans.

What if I don’t enroll on time? Is there a penalty?

If you don’t sign up for Medicare Part B (medical insurance) when you are first eligible at age 65, there is a 10% penalty for every 12 months you are not enrolled on time. The current base premium for part B is $121.80. Thus you would pay an extra 10% every month for this premium going forward. If you didn’t sign up for 2 years you would pay 20% extra every month for as long as you are enrolled in Part B.

What if I didn’t enroll in Medicare because I had health coverage provided by an employer?

Medicare does provide an exception if you are covered under group health care via an employer. You need to provide a “letter of credible coverage” from your employer when you sign up and they will usually waive the penalty.

Additional resources for your Medicare questions.

Besides the SHIP link above, or an independent health insurance broker, another option is to call Medicare directly at 1-800-Medicare or 1-800-633-4227. If you prefer searching for your answer online, you can go directly to www.Medicare.gov.

IRA Required Minimum Distributions (RMDs)

The IRS incentivizes investors to make tax deductible contributions to a number of different tax-deferred accounts such as an IRA, 401(k), SEP IRA, SIMPLE IRA or 403(b). For many investors this is their primary way of saving for retirement. The IRS allows the tax deduction on initial contribution and the continuous tax-free compounding of growth until distributions are taken or required. Any withdrawals in retirement are taxed as ordinary income for federal and state taxes if applicable. If you initiate a withdrawal prior to age 59 ½, not only will you pay taxes on the distribution, but you will also have to a pay a 10% early withdrawal penalty.

When do I have to start Required Minimum Distributions (RMDs)?

Once you reach age 70 ½, the IRS requires that you begin taking a mandatory distribution on a yearly basis from your tax deferred account. You didn’t think the IRS would let you keep deferring taxes forever did you? If it’s the first year of distribution, you can take the withdrawal by April 1st of the following year after you turn 70 ½, but you would have to take two distributions in this second year. Most investors take the distribution in the initial year so they do not have as large of a taxable distribution by waiting until the second year to start taking RMDs.

How do I determine the amount of my RMD?

The IRS has a life expectancy table which I have reproduced below. (Note, this is one of three types of life expectancy tables. The other two tables relate to inherited IRAs and if you have a spouse more than 10 years younger than you. For illustration purposes, the table below will apply to most investor’s financial situations. However, you should consult your CPA and fee-only financial planner to help you with the RMD calculation). The amount of your RMD is based on dividing your previous year’s 12/31 account balance by the “Divisor” in the table related to your age. For example, let’s assume you are turning 70 ½ in 2016. You would take your IRA or other tax-deferred account balance as of 12/31 of the prior year, 2015 in this case. Let’s assume it was $100,000. You then divide this by the “Divisor” factor of 27.4, which equals an RMD of $3,649.64.

Age Divisor % Withdrawal Age Divisor % Withdrawal
70 27.4 3.6% 86 14.1 7.1%
71 26.5 3.8% 87 13.4 7.5%
72 25.6 3.9% 88 12.7 7.9%
73 24.7 4.0% 89 12.0 8.3%
74 23.8 4.2% 90 11.4 8.8%
75 22.9 4.4% 91 10.8 9.3%
76 22.0 4.5% 92 10.2 9.8%
77 21.2 4.7% 93 9.6 10.4%
78 20.3 4.9% 94 9.1 11.0%
79 19.5 5.1% 95 8.6 11.6%
80 18.7 5.3% 96 8.1 12.3%
81 17.9 5.6% 97 7.6 13.2%
82 17.1 5.8% 98 7.1 14.1%
83 16.3 6.1% 99 6.7 14.9%
84 15.5 6.5% 100 6.3 15.9%

Source: IRS Publication 590

For fun I added a third column which converts the “Divisor” into a “% Withdrawal” to better show the impact of the RMD increasing over time. At age 70 ½, the “Divisor” requires a relatively small distribution, equivalent to approximately 3.6% of the tax deferred account balance. But as you see above, the “Divisor” goes up each year of age thereby increasing the withdrawal rate as a percentage each successive year. By age 80, the “Divisor” is 18.7, equating to a withdrawal rate of 5.3%, and at age 90, the “Divisor” is 11.4, equating to a withdrawal rate of 8.8%. The withdrawal rate continues to increase with age as the IRS wants to make sure it is receiving tax dollars in exchange for all those years of tax deferral!

Should I take the distribution all at once?

You have options for the withdrawal. It can be taken in a lump sum or over a period of time within the year of each RMD. If the required amount is relatively large, you could pro-rate the distribution and withdraw funds monthly over the course of a year. Since most people pay their bills monthly, this may help to provide a consistent income stream on a month-to-month basis and allows the funds to remain invested in your IRA/tax deferred account and potentially grow for as long as possible.

What if I have more than one IRA or tax deferred account?

Typically each separate account will require an RMD. There are situations where you can take one distribution from one IRA to cover for multiple IRAs and meet the RMD requirement for all of your IRAs. However, you should consult with a fee-only financial advisor and/or your CPA to make sure you are taking the appropriate RMD if you have multiple tax deferred accounts.

What if I forget to take my RMD withdrawal?

The IRS imposes a 50% penalty on any RMDs not taken. This is the stiffest of any IRS penalties. This penalty is in addition to any ordinary income taxes you will owe on the distribution. Most investment custodians do a good job reminding their investors of the annual RMD. However, if you do happen to miss an RMD, you will want to consult your CPA as special forms need to be filled out and submitted to the IRS when catching up on any missed RMDs.

What if my income needs in retirement are greater than the RMD?

You can always withdraw more than what is required by the RMD. A higher withdrawal amount will generate more ordinary income taxes. If you have taxable assets, you may be able to take a portion of withdrawal from this source to complement the RMD as taxable assets are typically taxed at more favorable capital gains rates versus ordinary income tax rates.

Every investor has a unique tax situation. Your comprehensive financial planner can coordinate and recommend the best combination of withdrawal amounts between your tax-deferred and taxable accounts, in addition to coordinating this with your Social Security benefits, pensions, deferred compensation, rental income, or any other sources of income you may have in retirement. Your fee-only certified financial planner can also ensure you are on track for a successful retirement.

Using Your IRA as Part of Your Wealth Transfer Legacy

I’d like to thank Michael J. Garry, CFP®, JD/MBA for today’s post about Using Your IRA as Part of Your Wealth Transfer Legacy. Michael is a Certified Financial Planner practitioner (CFP®) and financial advisor in Newtown, PA. His firm, Yardley Wealth Management, LLC, performs comprehensive financial planning and in-house investment management.  I highly recommend if you’re in that area you reach out to Michael for further financial tips and help!

One way of extending the life of your wealth through generations is by implementing a stretch IRA strategy. By designating the beneficiaries with the longest life expectancy the IRS will have lower imposed required minimum distributions for the inherited IRA. The asset base that is left is larger which will help it grow more quickly.

Factors to Consider

It is important to take into account important factors before making this type of decision:

  • If you need to withdraw more than the RMD amount, review how much the projected remainder of your IRA will be in the future.
  • If you are married, and wish to implement this strategy, but list your spouse as the primary beneficiary and then, those in later generations as secondary beneficiaries.

When making the choice to implement this strategy, you name one or more individuals with the longest life expectancy as beneficiaries. Ideally, you would take only the required minimum distributions during your lifetime. This will leave the largest remainder possible to grow tax-deferred while you’re still alive.

Distribution Options for Beneficiaries

Depending on whether your beneficiaries are spousal or non-spousal and whether or not you had begun taking RMDs, beneficiaries will have several options for distribution from their inherited IRA.

They may include:

  • Taking a lump sum.
  • Transferring the account balance to an inherited IRA with a five-year time limit to start distributions.
  • Transferring the account balance to an inherited IRA that will distribute assets according to the beneficiary’s life expectancy.

Spousal beneficiaries have the additional option of requesting a spousal transfer, which allows them to roll over the account balance into an IRA in his or her own name.

The Benefit of a Roth IRA

Roth IRA contributions are not tax-deductible, your investments grow tax-free, earnings can be withdrawn income-tax-free if you’re at least 59½ and have had the Roth at least five years, and there are no RMDs at age 70½.

Spouses essentially are able to treat the Roth IRA as if they were the original owner because they not only do not have to pay taxes on it, but they are not required to take distributions either.

Change is possible

As with any estate-planning technique, your plans may evolve over time. All IRAs give you the flexibility to begin taking penalty-free distributions as early as age 59½. In addition, you can change the beneficiary at any time should your beneficiary’s needs change.

If your ultimate goal is preserving wealth for future generations, a stretch IRA strategy will generally allow you to grow your assets for a longer period of time and allow them to continue to grow after you pass.


401(k) Options When You Leave Your Employer


Regardless if you are retiring or moving to a new employer, once you leave your current job you will need to decide what to do with your 401(k). You have a handful of choices. I have outlined the benefits and disadvantages of each option below. Your personal circumstances may favor one option over the other. I highly recommend you discuss your options with your fee only financial advisor whenever you transition employment so he/she can help you determine which pathway provides the best choice for your unique financial situation.

1) If you have a balance of $5,000 or greater you can likely leave it in your current plan as most 401(k)’s provide a deferral option.

a) This is the easiest decision and likely no action is required on your part. Although, I am always amazed how many investors choose this default option when there are better choices as described below.

a) Every 401(k) plan has its own unique set of investment options. Your current plan may have a limited choice of investment options such as being overly U.S. centric. We live in a global economy and I believe portfolios should provide a decent amount of international options on both the stock and bond side of investment choices.
b) Many 401(k)’s have incredibly high internal expenses. It is not uncommon to see mutual fund choices with expense ratios north of 1.5%. It is very important to keep an eye on your overall investment expense exposure. The more you can lower your investment expenses, the higher probability you can keep returns compounding for your long-term financial benefit.

Be aware that if your balance is less than $5,000, you will want to take action on one of the below choices as your employer may have the option to automatically cash your 401(k) account out or transfer you to an IRA. Cashing your 401(k) account out can have large tax consequences as outlined later in this article.

2) Rollover your balance to your new employer’s 401(k) plan.

a) This is a good way to consolidate financial assets, especially if you have more than one 401(k) from past employment. I always favor consolidation and simplification where possible.
b) This could be a great choice if you have an excellent set of diversified investment options that are low cost.

a) It is not uncommon for your benefits department at work to occasionally choose a new custodian or a new set of investment options in your 401(k) every few years. You have less control in this situation as you are forced to invest in whatever options are provided. What may look great today could easily change unexpectedly.
b) Your new 401(k) may have poor investment choices, and/or investment options with high expenses.

Most 401(k) rollovers are initiated from the 401(k) you are leaving. Your human resources department or benefits office may require that you fill out a termination/rollover packet of paperwork. Some 401(k) custodians may take direction over the phone. Collectively you and your fee-only financial planner can determine what is the next step to move forward and he/she can help with completing any necessary paperwork.

3) Rollover your 401(k) to an IRA

a) This is typically my favored option. Once you set up an IRA you have the whole investment universe of options to invest in. This could be mutual funds, ETFs or stocks. It is easy to build a well-diversified portfolio when you have such a wide array of investment options to choose from.
b) You have control over your money. You can always move your IRA to another investment custodian if you prefer a change of investment options.
c) You will have control over investment expenses. There are a number of low cost investment options available via no-load mutual funds and ETFs at a number of investment custodians.

a) If you are still working, you may end up with one extra investment account in a separate IRA. This is a minor disadvantage. The benefits of investment selection and cost control provided with rolling your 401(k) to an IRA easily outweigh the disadvantage.

4) Cash out your 401(k)

a) None, other than liquidity if you are in a situation desperate for cash.

a) This is typically the worst decision you can make as any balance withdrawn is a taxable withdrawal. Your 401(k) custodian is required to withhold 20% in federal taxes, but your tax exposure could be higher depending on your marginal tax bracket.
b) You will owe state income taxes on the withdrawal if you live in a state that taxes income.
c) If you are under age 59 ½ you would also be subject to a 10% early withdrawal penalty.
d) If you have an outstanding 401(k) loan balance, the loan would also become a taxable event and be subject to the taxes and penalties described above.
e) You will miss out on any future tax-deferred compounded growth by cashing out your 401(k) today.

There are a couple of other scenarios to be aware of before deciding on one of the above choices:

1) What if you have a loan balance against your 401(k)?
a. You typically have 60 days to pay back a 401(k) loan after leaving employment. After 60 days, your loan balance will likely be considered a taxable distribution and you will be subject to taxes and possibly a 10% early withdrawal penalty if you are under 59 ½ years old.

2) What if you have greatly appreciated employer stock in your 401(k)?
a. You may have a tax preference option called Net Unrealized Appreciation or NUA which allows you to transfer the stock out of the 401(k) and pay ordinary income taxes on the cost basis and capital gains taxes on the gains.  You will want to review this option in detail with your financial advisor and CPA prior to making any decisions.

In closing, I highly recommend you notify your financial advisor of any employment changes which could impact your 401(k) options.  Once he/she is aware of your options, they can help you determine what the best course of action is for your personal financial situation.  Your financial planner can also join in a conference call with your benefits department and/or 401(k) custodian to make sure you both understand all of your options and what steps are required to move forward.

How Much Will I Pay For Medicare Premiums?

Medicare Concept

How Much Will You Pay For Medicare?

Note – some investors well below age 65 may not read this assuming it does not apply to them or Medicare is too far away. However, I think this is valuable information to understand because the federal government’s shift towards “means testing” will likely grow as a larger portion of the national budget transitions toward entitlement spending for Medicare, Medicaid, Affordable Care and Social Security in the years to come.

Many of those aged 65 or greater with higher incomes are sometimes surprised at the amount they have to pay for Medicare medical insurance (Part B) and their Medicare prescription drug coverage (Part D). Unbeknownst to some, Medicare started means testing in 2007 to determine your Part B premium. In 2011, they also began means testing for Part D.

Means testing is another way of saying they are assessing your annual income and those with higher incomes will pay higher premiums.

Medicare uses a cost sharing formula with the intent that a tax payer will pay approximately 25% of their Medicare premium and the government pays the other 75%. The share cost for those impacted by means testing ends up rising from 25% to 35%, 50%, 65% and potentially 80% if their income meets the highest income threshold, as outlined later in this article.

How do they assess my income?

The income reported is taken directly from your 1040 tax return filed with the IRS. They use a Modified Adjusted Gross Income (MAGI) number, which is essentially your Adjusted Gross Income (AGI), line 37 of your 1040 and add line 8b (any tax-exempt income). Note, these are gross income numbers. Unlike on your tax return, they are not reduced by personal exemptions or deductions.

How often do they review my income?

This is reviewed annually. Typically there is a two-year time lag. For example, I am writing this in 2016, but Medicare likely reviewed your 2014 income (reported on your 2015 tax return to the IRS) to determine your 2016 premiums.

What could impact my income for the purposes of determining my Medicare premium?

There are a number of potential situations or events that could increase or decrease your income from year to year, thus impacting your Medicare premium:

  1. If you retire near age 65 with high earned income, your initial premiums may be initially higher until the 2 year time lag of tax returns shows a lower income in retirement.
  2. A large Roth IRA conversion could increase income.
  3. If you experienced a large amount of capital gains via stock sales or a property sale, you may have a higher MAGI.
  4. If you sold stock options near, or in, retirement that could drive up your income.
  5. If you take large IRA distributions in retirement, or beginning at age 70 ½ when IRA distributions are mandatory.
  6. If you receive large deferred compensation distributions in retirement.
  7. If you receive a sizeable annual pension distribution.

Do they inflation adjust the income thresholds?

The Affordable Care Act of 2011 eliminated inflation adjustments from 2011 to 2019. Thus the income threshold brackets will remain the same for a period of time longer. The end result being more and more Medicare recipients will potentially be forced to pay higher premiums as their income slowly increases via inflation and they are pushed into the higher Medicare income threshold brackets.

What are the additional Medicare Part B and D charges by income threshold?

Individual MAGI

Married Joint MAGI Part B Monthly Premium Part D Prescription Drug Monthly Premium

Total (B + D) Over Base Premiums Monthly


<$170,000 2016 standard premium = $121.80 Your plan premium

Up to $107,000

Up to $214,000 Standard premium+ $48.70 Your plan premium+ $12.70 +$61.40

Up to $160,000

Up to $320,000 Standard premium+ $121.80 Your plan premium+ $32.80


Up to $214,000

Up to $428,000 Standard premium+ $194.90 Your plan premium+ $52.80


>$214,000 >$428,000 Standard premium+ $268 Your plan premium+ $72.90


How do I pay for these additional monthly charges above base premiums?

The additional monthly charges will be deducted from your monthly Social Security check. If you are not yet receiving Social Security benefits, you will receive a separate bill for these charges each month.

What if I experience a life event that causes my income to go down?

Social Security will on a case by case basis consider reducing the monthly amount you pay over the base premium for certain life events, such as:

  1. You were married, divorced or widowed.
  2. You or your spouse stopped working or reduced your work hours.
  3. You or your spouse lost income producing property due to disaster or other event.
  4. You or your spouse had an employer’s pension plan impacted by termination, reorganization or cessation.

How do I confirm how much of a premium I will have to pay?

The Social Security Administration will automatically send you a letter notifying you of any additional amounts above base premium(s) you may be charged for Part B and Part D, with an explanation of their determination.

What if I disagree with Social Security’s decision about my monthly extra charges?

You have the right to appeal any of Social Security’s decisions by doing so in writing and filing a “Request for Reconsideration” (Form SSA-561-U2). You can find the appeal form online at www.socialsecurity.gov/online, request a copy through your local Social Security office, or call them directly at 1-800-772-1313.


5 Common 401k Problems Investors Make

401k - Steve Reh - August 2016

Are You Making The Most Of Your 401k Options?

This article was written by a special guest author and colleague, Stephen Reh.  Stephen Reh CFA, MBA, CFP® is the founder of Reh Weath Advisors LLC and https://investwithsteve.com/, a fee only financial advisor in Southern California. Stephen is a member of the National Association of Personal Financial Advisors like David J. Fernandez, CFP® and specializes in financial planning and investment advice.

First, I wanted to thank David J. Fernandez, CFP®, your Fee Only Advisor in Scottsdale, for giving me the opportunity to discuss common things I see when looking at investor’s 401k accounts. Similar to David, I help individuals and families with retirement and financial planning needs. One of the areas we commonly see is 401k retirement accounts. Below are some common issues, we run into.

Turning Down Free Money

You would be surprised how many employees say, “no thank you Mr. Employer, I don’t want your free money.” If your employer offers to match your contributions and you elect not to contribute, you literally are giving away free money. Even with 401k’s that have inferior investment menus or high costs, the benefit of the company match will almost always outweigh any negatives the plan might have.

Solution – At least contribute enough money to maximize your employer match. We can help you craft a plan that maximizes your employer match and how it fits into your overall investment plan.

Naïve Diversification / Kitchen Sink / Just Pick Everything

A participant is sometimes knowledgeable enough to know they want diversification and they don’t want all their eggs in one basket. What do they do? They pick everything on their 401k menu. The problem arises in that the person really doesn’t know how much risk they are taking or what they are invested in. If there were a lot of high yield bond funds on the menu, a participant may have way too much risk with high yield bonds. You can also have times where the plan has significantly more stock choices than bonds choices which may result in a portfolio that is not appropriate for the investor.

Solution – Do your research and develop an investment plant that includes sound asset allocation and diversification.   Need help creating that plan, contact a fee only advisor and they can help save you time and build an appropriate model for you.

Picking the Winners and Selling the Losers

This one sounds good on the surface but what this means is that you are likely late on buying the funds that have done well and late selling the funds that have done poorly. You also run the risk of having a very concentrated position at the wrong time. If you invested in the top funds in the late 1990s, you likely were overexposed to technology. Prior to the financial crash, if you picked the top funds, you were likely overexposed to commodities and financials.

Solution – Do your research and develop an investment plant that includes sound asset allocation and diversification.   Need help creating that plan, contact a fee only advisor and they can help save you time and build an appropriate model for you.

Assuming that Target Date Fund Matches Your Risk Tolerance

The Target Date funds start out aggressive and will get more conservative over time. However, there is absolutely nothing that matches a participant with the risk level they are comfortable with. The match is entirely dependent on either your age or the age you want to retire. If you are conservative and young, your target date fund is likely too aggressive for you and you might panic in a downturn. If you are older and have a high tolerance for risk, you might be disappointed that your target date fund did not perform better. Another common issue I see is a young investor picking a target date fund with a slightly “older” age. The problem here is most of the funds are fairly aggressive until you near retirement.   So by picking what you thought was a conservative portfolio, it did not make a difference until decades later.

Solution: Build a portfolio that matches your risk. A fee only advisor like David can help build a portfolio that matches your needs and risk.

Forgetting to Rebalance / Ignoring Your Plan

Some people have not rebalanced for years. By not rebalancing,   the portfolio might no longer be diversified and you could be taking excess risk or potentially not enough.

Solution: Check your plan at least annually to verify if it meets your needs. Not sure it meets your needs? Contact a fee only financial advisor such as David to help keep your 401k on track.

David and I help investors every day to build portfolios that will meet their needs and goals. If you would like help making sure your investment plan is on track to meet your needs at a risk level that’s appropriate, give David a call.