Open for business

Baby-boomers with retirement within their grasp were the biggest losers in the Great Recession.

Whether you had an Individual Retirement Account or a 401(k), chances are you saw anywhere from one-fifth to one-half of your investment savings wiped out.

In a world when even during good times people tend to largely underestimate the costs of retirement, this loss of retirement support has been devastating to most individuals who were expecting to use it in the near future. Few alternatives exist that do not involve staying on at your place of work for another decade.

One, however, may sound promising to anyone with a little bit of energy left: start a business.

Starting a Business in Retirement is not Impossible

While the options are greatly limited within the subset of small business start-up profit serving as a retirement fund, it’s certainly not impossible for early-stage retirees to make a decent living from a chosen venture in conjunction with Social Security, Medicare, and the small level of savings maintained. Something as simple as woodworking and selling such quality furniture at flea markets is enough to provide the extra cushion needed on top of entitlements. Indeed, such a venture could very well be part of a pre-existing hobby you were planning on expanding upon retirement.

Or your retirement start-up may be more adventurous and outgoing, depending on how much energy and free time you wish to devote to it. For instance seasoned travelers may find it advantageous to their budget to start a part-time travel agency. Couples can conjointly manage and operate a franchise such as a deli-style fast food chain or coffee house. If the pep is there alongside a need for extra income – while the desire to stick around your job for another six year is not – such middle-of-the-road options serve as sufficient compromises.

Think Outside the Box

But do not hesitate to put your professional expertise to good use outside of your former place of business. A retiring member of a law firm may choose to start a home-based private practice in her senior years. A former computer programmer with a respectable reputation may choose to become a consultant. Remaining relevant is key to accessing such post-retirement opportunities, but for anyone finishing off a long-lasting career, there’s no better time to remain familiar with your field than immediately after retirement.

Depending on your desired standard of retirement living, there’s sure to be one or even several opportunities for establishing a late-life start-up that can serve to take care of your needs. It’s probably not your ideal retirement, but neither was sitting around doing nothing on top of a big bank account. While work should not be welcome in retirement, staying active is essential, so why not make some money in the process?

What happens with pension after company bankruptcy?

If you work for a company that has a pension, should you be worried?

What protections do you have?

Will all the money you have been paying into your retirement just be gone?

Recently, American Airlines filed for Chapter 11 bankruptcy leaving many wondering “What happens to their pension?“.

Whether you’re an employee of theirs or any other company that offers a pension, here’s what you need to know.

Insurance On Your Pension Plan

Fortunately, it is not as bad as most people think…maybe.  There are safeguards in the United States to prevent you from losing your pension plan. 

In the United States every defined-benefit retirement plan is insured, at least to a point.  Most will receive all or at least most of their company pension even if your company goes bankrupt.  However, in some cases,  it may not be every penny you expected.

Also be sure to check out my article on, “Should I Roll My Pension Into an IRA” for some options on your pension plan.

What Happens When a Company Goes Bankrupt?

When a company goes bankrupt they have two choices.  They can reorganize and try to stay in business by reducing costs and attracting new investors, or they can liquidate.  The pension plan is usually terminated in reorganization and always terminated in liquidation.  So, then what happens?  A federal insurance agency called the Pension Benefit Guaranty Corporation (pbgc.gov), takes over the pension payments. Here’s some information on the PBCG taken from their site:

The PBGC is a federal corporation created under the Employee Retirement Income Security Act of 1974. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 29,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns.

Only employees with the largest pensions actually take a hit.  The Pension Benefit Guaranty Corporation maximum annual payment, which rises with inflation, is $54,000 this year for workers who retire at age 65.  As with any insurer, the PBGC has some restrictions.  For example, it prorates recent pension increases.

However, in all, 84 percent of retirees get their full pension even after bankruptcy.

A Few Rare Cases Under Reorganization

In a few rare cases of a company bankruptcy reorganization, the employer maintains the its pension plan.  That normally only happens for one of three reasons.

1. The benefit is low
2. Employee turnover is high
3. The pension plan is new

Avoiding Bankruptcy is Better For The Company

In most cases, however, it is always better for the company to avoid bankruptcy altogether.  In December of last year, Congress gave some help in this direction by relaxing the 2006 Pension Protection Act’s strict rules governing pension funding.  As counter intuitive as it may seem, this is one move that endangered workers should embrace.

As a result of this move, according to Dallas Salisbury, president of the non-partisan Employee Benefit Research Institute, ” Given the economic downturn, employees are better off than if the company was forced to make a large pension contribution”.  “It’s better to stay in business than make a pension contribution”.

American Airlines Pension

In American Airline’s case they are filing for Chapter 11 bankruptcy protection.  In this case the PBGC may need to step in and assist with their pension obligations.

The Pension Benefit Guaranty Corp., created to protect private retirement benefits, may be unable to cover the loss because Congress has limited the size of pensions it can pay, Director Josh Gotbaum said today in a statement.

“Unfortunately, when the agency assumed airline plans in the past, many people’s pensions were cut, in some cases dramatically,” Gotbaum said in the statement. The PBGC will encourage American to “fix its financial problems” and keep its pensions intact, he said.

In the meantime, AMR employees seem to be protected.   But a quick look at the numbers doesn’t seem to reassuring.

Recent numbers show that they have about $8.3 billion in assets to cover the $18.5 billion in pension liabilities.  If AMR has no choice and has to terminate the plan, that would leave the PBGC on the hook for a cool $17 billion.

Chump change for the PBGC, right?  Don’t be so sure……

Strength of the Pension Benefit Guaranty Corporation

Just like the FDIC, the financial strength of the PBGC hardly ever gets questioned.   Unfortunately, these are unique times and it seems that no entity is out of harms way.  Lowering interest rates and rising corporate defaults has led to a $33.5 billion deficit in the first quarter of 2009 for the PBGC.  This is the largest deficit for the 35 year old agency which is an increase from the $11 billion deficit ending fiscal year 2008.  Acting director Vince Snowbarger says,

“The PBGC has sufficient funds to meet its benefit obligations for many years because benefits are paid monthly over the lifetimes of beneficiaries, not as lump sums. Nevertheless, over the long term, the deficit must be addressed.”

The Deficit Continues

For 2011, the PBGC just encountered it’s largest deficit while insuring 1 out of every 7 Americans.

The Pension Benefit Guaranty Corp. was quoted as saying it ran a $26 billion imbalance for the budget year that ended Sept. 30.

Their pension obligations rose by $4.5 billion as they currently insure over 44 million Americans.

Does it make you nervous?  It would me.

How Does This Affect You?

If your company files for bankruptcy or you fear that it will, I would contact the PBGC and talk to them directly.  Be sure to visit their website frequently and check for updates.  You are basically in their hands and you have limited choices.

If you have the option, consider rolling your pension into an IRA to get it out of your company’s hands.  I’ve had many clients do this so that they never had to worry about this.  Be sure to consult a financial planner and/or tax advisor before implementing this step.

Many services for the Social Security are available online. You can download forms and browse FAQs relating specifically to your social security application and concerns. Sometimes the technology doesn’t replace the need for personal attention and assistance. Often when dealing with your Social Security issues it is easier to speak with a representative face to face who can explain the process and your options if you are not able to file for benefits online.

Regional Maps

Many websites offer tools and maps to assist you in your search for the nearest Social Security office. Visit ssa.gov/regions/ for a color-coded map of the specific regions: Atlanta, Boston, Chicago, Dallas, Denver, Kansas City, New York, Philadelphia, San Francisco and Seattle. When you locate your region will be taken to their individual websites. The website for your region offers detailed information and resources and will link you to your local Social Security office.

Satellite Offices

When you are searching for a local office you may discover, depending on your residence, the local office isn’t local to you. Many citizens live miles away from the local office. The Social Security Administration offers mobile solutions for people affected by the mileage distance.

To accommodate citizens the Social Security office created satellite locations. These locations offer the benefits and assistance of a Social Security Office. Employees guide citizens through forms and applications. They provide you with a checklist of information needed for your next visit. The next time they are in your town you will be able to complete your transaction if it can not be completed with your initial visit.

Social Security Field Office

As a citizen you also have access to Social Security locations worldwide. The Social Security Administration has created an International website to assist citizens outside of the United States with their Social Security transactions. Many of the Social Security forms are available at http://www.socialsecurity.gov/foreign/.

If you live in Canada, British Virgin Islands or Samoa you can visit an Social Security Field Office (FO). Links are provided to the Social Security Field Office contacts by selecting the country you are in.

American Embassy and Consulates

American embassies and consulates offer personnel trained specifically for your social security needs. They are capable of helping with a number of social security services, which includes application assistance when applying for benefits. A list of countries offering assistance can be located at: http://www.socialsecurity.gov/foreign/foreign.htm. Services are offered from Albania to Zimbabwe.

The website lists the contact information for the Federal Benefits department at the US Embassies. The website offers links for citizens to locate the address, phone number, fax number and e-mail addresses for the Federal Benefits Departments.

If the country you are currently residing in doesn’t appear on the list of embassies and consulates offering SSA specialists, an additional list is available to enhance your search.

http://www.usembassy.gov/ offers a complete list of US embassy and consulates in hundreds of countries. Citizens are encouraged to contact them for assistance.

photo credit: transmediale

One of the biggest financial challenges we all face is how to accumulate enough money to last as long as we’ll need it during retirement. Once we pull the trigger and say goodbye to the working world, that doesn’t mean we can start spending like there’s no tomorrow. Moving from the accumulation phase into the spending phase of a retirement plan sounds really fun, but it has to be managed carefully so you don’t outlive your nest egg.

How Much Should You Spend in Retirement?

So, how do you know how much to withdraw from your portfolio each year during retirement so you don’t drain your finances? It’s a complex question because the answer depends on whether you have a guaranteed pension, how much you want to leave to your heirs, your health, the future state of the economy, and the performance of the financial markets.

If your idea of a perfect retirement is to have exactly zero dollars on the day you die, or to leave your care to family members once your financial assets run out, then you can spend more in the early years of your retirement. But if you want a sustainable income that allows you to leave an inheritance to your family, then you’ll want to create a spending strategy to accomplish those goals.

What’s the 4% Withdrawal Rule?

But what spending strategy is the right one to use? There’s a famous study by W.P. Bengen (1994) in which he determined that the optimal withdrawal rate for retirees is approximately 4%. He determined that this inflation-adjusted spending rate is sustainable for 30 years if a retiree’s portfolio has a 50/50 mix of stocks and bonds. In other words, if you have a nest egg with this asset allocation worth one million dollars, you should withdraw no more than $40,000 each year.

But what if your retirement is shorter or longer than 30 years or you don’t have a portfolio with 50% equities and 50% bonds? You’d probably spend differently if you knew you only had 10 years to live or that the value of your stocks would skyrocket, right?

Optimal Retirement Spending by Longevity

In order to consider some different variables, I want to highlight a study by Moshe A. Milevsky and Huaxiong Huang from the American Association of Individual Investors (membership required). They published their study results in a recent article called Retirement Spending on Planet Vulcan: Longevity Risk and Withdrawal Rates.

The study looked at optimal spending during retirement that focused less on market risk and more on the uncertainty of your life span, which is called longevity risk. They took investment risk completely out of the picture by assuming that your retirement portfolio is made up of risk-free bonds only, such as Treasury Inflation-Protected Securities (TIPS). Granted, all of this takes place on a fictitious place called Planet Vulcan—but the point of the study was to consider optimal withdrawal rates when market risk is absent.

What Milevsky and Huang found is that when retirees don’t have investment risk to worry about, the only question they ponder when it comes to spending down their retirement nest egg is how long will I live? Though none of us knows the answer to that question, theoretically we could spend a varying amount of retirement money according to survival probabilities for our sex, age, and health, instead of withdrawing a constant percentage for life.

The study examined the real yields of TIPS over the last decade and assumed a return of 2.5%. When they assumed that a retiree had no pension to fall back on and didn’t want to leave any money to heirs, here’s what they found:

These withdrawal rates are higher than the 4% Bengen rule in the beginning of retirement, but they drop as time passes. Spending might contract naturally like this as a retiree ages, unless you have increasing costs such as medical expenses.

Creating a Retirement Spending Strategy

Whether you want to withdraw a constant 4% from your retirement portfolio or a rate that fluctuates each year, remember is that your financial circumstances can change quickly and unexpectedly. The financial markets can return less income than you expect or your health could require you to pay more out-of-pocket. If you don’t have long-term care insurance, a pension, or you expect to receive little from Social Security, it’s better to be safe than sorry and adopt a conservative withdrawal plan.

To learn more about planning for retirement pick up a copy of my award-winning book, Money Girl’s Smart Moves to Grow Rich. It’s available at your favorite book retailer as a paperback or e-book. I’m giving away 2 book chapters that you can download for free at SmartMovesToGrowRich.com.

Transcription below….

What’s going on everybody?  Jeff Rose, goodfinancialcents.com coming back at you.  Today I’m doing something a little bit different.  Not so much a financial tip, today’s is actually more of a financial rant.  There are a lot of things in our industry that I get really worked up and the following is a prime example.

I had a client that had left her job.  She had taken a new position and she had left her Simple IRA at her old employer.  Simple IRA is kind of like a baby 401K for small business owners.  My rant or the thing that just got me so worked up was that the owners of the company had taken out this simple IRA with an insurance company.  Instead of having traditional mutual funds, they had an annuity product.  A lot of people have their own feelings on annuities.  I don’t really want to go down that path, but here is one instance where I absolutely despise annuities, especially in retirement accounts.

The Unknown

She had been gone for almost three months, and she wanted to roll over her simple IRA to her own IRA.  We called the insurance company and wanted to find out if there were any surrender charges because I just had this feeling of there being a surrender charge.  Sure enough, lo and behold there was.

She had to pay a 6% surrender to roll her money out of her old retirement account into her own IRA.

It’s her money.  It’s the money that she put aside, but to get access to it to roll it over she had to pay a surrender because it was in this annuity product.  To make it worse she had six years before she could roll all her money penalty free.  That burns me to no end.

That’s a Dirty Word

That is why -I’m going to use it, the hate word- I hate annuities inside retirement plans.  I think it’s just ridiculous that somebody has to pay a surrender to get access to their own money.  Now it’s something that she couldn’t avoid because that was her retirement account and she was doing the right thing by saving for retirement.  Unfortunately, she found a better position and left.  Now to get access to that money she has to pay a very sizeable, lump sum, surrender charge to get that money.

The insurance company did come back with her being able to do a 10% free withdrawal for that money, so we still have to do 10% each year.  We can do it, and we still haven’t decided what were going to do, but nonetheless that just burns me.

Just be conscious of that.  I’m not saying don’t utilize it because it is still a retirement savings tool for you.  If you have no other options out there, I guess it’s better than saving for nothing.  But still it’s my rant.  I do not like annuity products inside retirement plans, especially those that require a surrender to get access to your funds.

This is Jeff Rose, Good Financial Cents with a good financial rant.  Be sure to check us at the blog, and if you’ve not checked us out on Facebook yet, please check out our Facebook fan page.  Give us the big thumbs up.  We’ll see you around.  Take care.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.


This week I received a question from Sally P. She says:

I’m 32 years old, self-employed, and earn about $400,000 per year. I’ve saved $100,000 to buy a home but want to wait until I’ve saved a total of $200,000 to put down on a condo. The money is sitting in a savings account for now. I don’t have a retirement account and am wondering if I should fund one in addition to putting money aside for a condo. If so, how much should I invest and what type of account is best?

When Should You Start Saving for Retirement?

First off, Sally gets a big pat on the back for earning so much at a young age. But then I’m going to slap her on the wrist for not setting up and funding a retirement account by now! You should begin investing for your future as soon as you start earning income from your first job.

Sally’s doing a good job saving, but she could benefit from implementing some structure into her financial life. Here are five financial goals that you should accomplish in the following order, no matter if you earn $40,000 or $400,000 per year:

Financial Goal #1: Create an Emergency Fund

The following excerpt is from chapter 2 of my award-winning book, Money Girl’s Smart Moves to Grow Rich:

… having an emergency fund should definitely be one of your first financial goals.  You could get into real trouble without one. None of us knows what the future holds when it comes to our income, our economy, or our health. It’s vital that we hope for the best, but plan for the worst. If you lost a portion or all of your income, you still have living expenses to pay. Unemployment benefits can help you survive a layoff, but that income is only temporary and isn’t likely to cover all your expenses.

How much money you should set aside in an emergency fund varies depending on your personal situation. But I recommend that you keep at least three to six months’ worth of living expenses in a safe place, like an FDIC-insured savings or money market deposit account. Your emergency money should never be invested, because that exposes it to some amount of risk, nor should it be co-mingled with other accounts. And never, ever dip into your cash reserves for anything other than a dire emergency.

Financial Goal #2: Get Adequate Insurance

An important part of being prepared for the unknown is being adequately insured. Many people get into financial trouble in the first place because they don’t have enough of the right kinds of insurance. As your net worth grows, you have more assets and income to protect from unexpected events. Without enough insurance,—such as health, disability, life, auto, homeowners, renters, and long term care—a catastrophic event could wipe out everything you’ve worked so hard to earn.

Financial Goal #3: Pay Down High-Interest Debt

Once you have an emergency fund in place and have adequate insurance, your next financial priority should be to pay down any high interest debt, like credit cards and payday loans. If you have excess cash above and beyond your emergency fund, use it to pay off expensive debt so you save the interest expense.

However, you should not pay off a debt early if it has a relatively low interest rate or comes with a tax deduction, like a mortgage, home equity line of credit, or student loan. Instead, you should use your money to earn a higher rate of return so you accumulate wealth for your future.

Financial Goal #4: Invest for Retirement

The next step is to start saving for retirement as aggressively as possible. A good rule of thumb is to invest at least 10% of your gross income in a retirement account, such as a workplace plan, an Individual Retirement Arrangement (IRA), or an account for the self-employed. If you can afford it, invest 15% or more. Increase the percentage you contribute every year until it hurts! When you’re sitting on a massive retirement nest egg down the road, you’ll be glad you did.

Financial Goal #5: Save for Other Goals

After you set up a retirement account and are making contributions on a consistent basis, then you can use your extra money to save for other goals like buying a home, funding a child’s education, or taking a vacation.

How to Save for Retirement If You’re Self-Employed

For 2011, Sally can only save $5,000 in a traditional IRA—but she can also put away much more in a retirement account for the self-employed. Use the IRS Retirement Plans Comparison Table to learn more about different types of retirement accounts that are available for businesses and self-employed individuals, such as a SEP-IRA, SIMPLE IRA, and 401(k).

More and more retirees today are looking to stay employed part time at the very least during their early retirement years. Additionally, an increasing number of retirees are reentering the work force full time for one reason or another.

In today’s economic climate, many retirees are finding it difficult to maintain their previous lifestyle without working at least part time during retirement.

Additionally, with people living longer the need to keep funds coming in has also increased. If you are contemplating working during your retirement you may want to consider the following tips.

If You Have Not Yet Retired, Consider Staying With Your Current Job Part Time

More and more people today as they reach retirement age are staying on in their current positions on a part time basis. This may be a great option for you and one you will want to consider.

Find out what your company’s policy is and take the time to sit down with your boss or human resource department to determine what your options might be. Many companies will offer a nice package and some will even allow you to keep your current level of benefits.

Tips For The Job Search

If you have already retired and are hoping to secure a job you will need to go on a job search. More than likely this is something you have not done in a number of years. Here is a look at what you will need to do.

Consider Becoming A Consultant

A great way to bring in income during retirement is to become a consultant in your area of expertise. This allows you to be your own boss and take on business on a case by case basis, still leaving you time to enjoy your retirement, travel, etc.

Consider Temporary Jobs

Another great option for retirees are temporary jobs. When you take on a temporary job you are filling in for other professionals. These job placements can last anywhere from a few days to a few weeks to a few months and can even in some situations turn into a full time position. Taking on temporary positions can be especially great for those who love to travel and those retires who live in two different locations during the year.

photo credit: Joint Base Lewis McChord

Have you ever wondered exactly when you’ll be able to retire? The answer to that question is no different than the answer to many questions in personal finance—it depends. There’s no right or wrong amount that you must have in your 401(k) or IRA. Nor is there a strict rule that says you have to stop working at age 65.

When Should You Retire?

I’ll offer a theoretical answer to when you should retire. If “retirement” means entering a phase of life where you stop earning income, then you can retire as soon as you have enough passive income ideas or assets to support the lifestyle you want for as long as you’re alive.

Factors That Determine When You Can Retire

To figure out exactly how much income and assets you need to fund the retirement of your dreams (or just one with a minimal amount of financial security), you have to dig deeper and ask questions, like:

How to Plan for Retirement

I know, those questions are very difficult, if not impossible, to answer with 100% certainty. In my book, Money Girl’s Smart Moves to Grow Rich, I say that planning for retirement is kind of like trying to plan a huge party when you don’t know exactly when or where it’ll be, how many people will show up, or how long it will last.

That ambiguity, combined with the fact that you’re going to need a large nest egg, is what makes saving for retirement the granddaddy of all long-term financial goals. Even though planning for retirement is tricky because the variables may seem fuzzy right now, you have to start somewhere. And the most important tip I can give you is to start planning as early as possible.

How Much Should You Save for Retirement?

You can use an online retirement calculator at sites like dinkytown.com and choosetosave.org to find out how much you should be putting aside to accomplish your retirement goals. However, remember that a retirement calculator is a tool that can’t estimate every factor of your unique circumstances.

For instance, if you currently have expensive medical needs or a family history that indicates you may have such challenges in the future, it would be wise to save more than what a retirement calculator indicates. That’s why it’s smart to sit down with a certified financial planner who can customize a retirement plan that’s right for you.

Don’t Rely Solely on Social Security

If you think you can skip the drudgery of retirement planning because you’ll just cut your expenses and live frugally off of Social Security, you need to think again. As the full retirement age creeps up and the benefits go down, it won’t be possible to have much financial security during retirement by relying on Social Security income alone.

The Benefits of Postponing Retirement

If you can’t accumulate a nest egg large enough to last your entire life, you’ll need to consider all your options. For many people, postponing retirement and working longer will be the answer. You should never leave your job or business until you’ve consulted with a financial advisor and are confident that you can afford to do so.

The majority of retirees take early retirement at age 62, but that gives you a Social Security benefit that’s reduced by as much as 30% for life. If you’re healthy, consider working until your full retirement age of 66 or 67, depending on when you were born.

How Long Should You Work?

How long you stay in the work force on a full-time or part-time basis is a personal decision, but it can give you income to keep adding to your retirement account, boost your Social Security benefits, and allow you to continue participating in employer-provided health insurance until you’re eligible for Medicare at age 65.

Affordable Places to Retire

If you’re an adventurous type, a way to retire on less or ahead of schedule is to relocate to a more affordable place where the natives don’t speak English. In Best Places to Retire Abroad, AARP.org lists countries like Panama, Argentina, Belize, Mexico, France, and Italy as top picks with good health care that welcome retired Americans.

Start Saving for Retirement Now

As I mentioned, getting started saving for retirement earlier, rather than later, is very important. Having plenty of time to invest gives you the ability to meet your goals on time with the greatest amount of wealth. But if you haven’t started saving yet, don’t burn any more time—get started now. With a plan in place you can live fully in the moment and stop worrying about your future. And who knows? If you accumulate a sufficient nest egg early, perhaps retirement may not be as far away as you think.

Medicare is a program provided by the federal government that offers health care insurance for those aged 65 or greater and to a few other groups such as those with certain disabilities or with kidney problems. Many of my clients retirement planning is heavily dependent on Medicare being there for them and helping ease the cost of their medical expenses.

The Medicare program involves four specific parts that provide various benefits which include:

1. Part A-Hopital Insurance
2. Part B-Coverage of doctors’ services
3. Part C-Medicare Advantage managed care plans
4. Part D-prescription drug coverage

These four parts allow for you to tailor a program that best suits your needs.

Medicare Part B is an option for medical insurance for those who qualify for Medicare. Medicare Part B covers medical services that are separate from the hospital such as doctor’s visits, laboratory tests, durable medical equipment and outpatient surgery. It will also provide for some preventative care such as chiropractic visits, flu shots and pap smear tests.

Medicare Enrollment

If Medicare Part B is something you are interested in, you will want to sign up for it when you are first eligible because if wait to sign up for it at a later date, you will permanently have to pay a higher premium. Your Medicare card can tell you if you have the Part B coverage. If you do not have it, you can still sign up for it. To enroll, call your local Social Security Office. Medicare Part B requires that you must sign up for the program and charges a monthly premium and yearly deductible.

Part B Fees

Part B is not free to applicants. The fees are determined by whether you are enrolled in the original Medicare program or are involved in a Medicare health plan. The fees are also based on your income. The amount is deducted from your retirement benefits or your monthly Social Security payment. The yearly deductible will also apply. You will be required to meet the deductible before your benefits will begin. Once the benefits begin, you will only owe a 20% co-pay on any services rendered. You will also want to be mindful of choosing doctors who accept Medicare assignments, as that will save you costs also.

Coverage

• Doctor’s services. Medicare Part B will cover most doctors’ services, durable medical equipment and outpatient treatment. You will pay 20% while Medicare covers the other 80%.
• Radiology and Laboratory Tests. This will provide for x-rays, blood tests and other diagnostic testing.
• Outpatient services. Medicare Part B will cover some outpatient hospital services. The coverage varies based on which service is being provided.
• Preventative measures. This offers services such as flu shots, screenings and some types of testing. It also provides for a one-time physical.
• Home Health Care Services. Part B will give you services such as an in-home nursing service or an in-home therapist on a part-time basis as long as the provider participates with Medicare.
• Blood transfusions. The first three pints are provided for you and then you will owe your 20% deductible for any blood costs needed on an outpatient basis.

When deciding whether or not to include the Medicare Part B in your plan, you may want to speak with a benefits administrator. Remember there will be additional fees for singing up for Part B at a later time.

photo credit: Leo Reynolds

Medicare is our countries government administered health care program.  At the ripe age of 33, I have many years before I have to worry about signing up.   I do, however, have several clients that depending when they qualify for Medicare is big determent on when they retire.   It’s huge for many retirees.

There are essentially two groups of people who qualify for Medicare health insurance coverage – those who have reached age 65 and those with disabilities.

Adults Over 65

Most adults in the United States are eligible for Medicare when they turn 65. Individuals must be US citizens or permanent residents and enroll in the Medicare program to qualify.

Individuals who are already receiving Social Security benefits will be automatically enrolled in the Medicare program. Approximately three months before their 65th birthday, an enrollment package will be sent and must be completed to activate coverage. Medicare part A, which covers hospitalizations, requires no payment. However, adding part B – which is for doctors visits and outpatient procedures – or additional coverages, such as prescription drug coverage does cost money. The premium is determined based on income level. So individuals must decide what plan is best for them when enrolling and what they can afford to have..

Who Does NOT Qualify for Medicare

People who are not already receiving Social Security benefits will need to contact their local social security office to apply for Medicare coverage. This should be done three months before the individuals 65th birthday. The enrollment period begins in the three months before the month of the 65th birthday and ends three months after. If one enrolls during this time frame there is no cost for enrollment and coverage should begin at the start of the 65th birthday month or shortly thereafter (if one applies after their birth date). If, however, one does not apply during that enrollment period then fees apply. So it is important to apply on time, and as close to the three month prior date as possible. This will ensure everything is done correctly and coverage starts at the beginning of the individuals birth month.

Individuals with Disabilities

Medicare coverage is also available to individuals with disabilities regardless of their age. Once an individual has been collecting social security disability payments for twenty four months, they become eligible for Medicare during the 25th month. An enrollment package will be sent a few months before a person becomes eligible for Medicare coverage. If a person with social security disability does not receive the enrollment package, they should contact their local social security office to request a packet.

Like an individual who is over age 65, disabled persons who have been getting SSI disability payments are automatically eligible for Medicare. There is no reason to decline coverage as Medicare part A costs nothing and covers hospital care and nursing facility care. However, if a disabled individual would like, they can decline Medicare Part B coverage which would require premium payments. There is a card that comes with the enrollment package that the individual can mail back declining part B coverage.

With the high costs of health care it makes sense for those eligible for Medicare to take advantage of this government administered health care program.

photo credit: anolobb