Bryant - Course 5. Retirement Planning & Employee Benefits. 1. Retirement Needs Analysis Flashcards
Module Introduction
Many people think that they are too young to worry about retirement. Unfortunately for them, today looms larger than tomorrow. The car loan and/or mortgage they are trying to pay off this year will no doubt seem to be far more important to them than their financial situation 30 to 40 years from now. It is hard for a young person to concern himself or herself with the notion of retiring. However, retirement planning is essential, regardless of age. With a sound plan and a little discipline, a person can retire to a life of relative financial ease without ever having to worry.
Some people assume that if they make it big early in life, retirement planning will be a breeze. They can live off their abundance of money, put a little away, and let time + compounding work their magic. Retirement planning is much more complex. A retirement planning practitioner must be skilled not only in retirement planning but also in all aspects of financial planning, such as estate planning and benefit/compensation planning. He or she must be capable of structuring plans for a broad range of clients from different age groups that have varied needs.
The Retirement Needs Analysis module, which should take approximately four hours to complete, will explain the process of retirement planning.
Upon completion of this module you should be able to:
* Sequence and describe the steps in the retirement planning process.
* State the importance of monitoring the retirement plan.
* Describe the need for adequate insurance coverage.
* Specify the effects of withdrawals, rollovers and annuity payout options.
* Identify the information required for planning retirement.
* Explain the functioning of a retirement plan.
* Define the changes required as a client nears retirement.
Module Overview
Retirement planning is an increasingly important part of the financial services industry. With the baby boomers ranging from middle age to early retirement age, the number of individuals with significant savings and retirement-planning needs is increasing dramatically. At the same time, the economic and tax complexity of all types of retirement-related financial planning has also increased. It is important for financial planning practitioners to understand the basic process of retirement planning, the broad general approaches, the tools and techniques and where they fit in.
To ensure that you have an understanding of retirement needs analysis, the following lessons will be covered in this module:
* Retirement Planning
* Other Retirement Issues to Consider
* Retirement Planning Practitioner
Section 1 - Retirement Planning
It is incredibly easy to avoid thinking about retirement. However, we must remember that nothing happens without a plan. Saving is not a natural event; it must be planned. Unfortunately, planning is not natural either. Although an elaborate, complicated plan might be ideal, a person will still benefit from a simple & straighforward retirement plan.
Once the plan becomes part of the client’s financial routine, it can be modified and expanded. The bottom line is that a retirement plan should not be postponed. The longer it is put off, the more difficult it becomes for the client to accomplish his or her goals.
To ensure that you have an understanding of th retirement planning process, the following eight steps will be covered in this lesson:
1. Set goals.
2. Estimate the amount of assets needed at retirement.
3. Estimate income need at retirement.
4. Calculate the annual inflation-adjusted shortfall.
5. Calculate the funds needed to cover this shortfall.
6. Determine how much must be saved annually between now and retirement.
7. Put the plan in play and save.
8. Monitor the plan.
Upon completion of this lesson, you should be able to:
* State the importance of setting goals,
* Calculate retirement needs and income at retirement,
* Compute future value and funds needed,
* Identify the appropriate plan according to needs, and
* Describe how the plan must be monitored.
Describe Setting Goals
The first step in planning for retirement is figuring out just what a person wants to do during retirement. Most people want to be able to support themselves and pay any medical bills, but the actual costs are unknown. Therefore, to set proper goals a person must ask himself or herself some basic questions.
Once these questions are answered, it is easier to set the basic goal of being able to support oneself and pay medical expenses.
A retirement planning practitioner must endeavor to help his or her clients to be as exhaustive as possible when thinking about and setting their goals.
Goals are not entirely useful unless the element of time is included. The client must decide when he or she hopes to achieve them. In the case of retirement, the client must figure out when he or she would like to retire. The typical retirement age is 65, but more and more people are putting off retirement until 70 or even later.
A retirement planning practitioner must make a Worksheet for Funding Retirement Needs as shown below. This will aid in recording calculations at each stage of the retirement process.
What is the second step of retirement planning?
Estimate the Retirement Income Need
Once the retirement goals are in place, the client needs help to achieve them and turn them into a secure retirement.
* This is the second step of retirement planning, the conversion of goals into figures in dollars.
The starting point for estimation is the client’s current living expenses. Future needs start with current living expenses because the main goal is to help the client support himself or herself. The amount it currently takes to support oneself is required to start calculating how much it is going to cost to support oneself in retirement.
Many practitioners estimate that retirees may only require income equal to 70% to 80% of their pre-retirement income.
Below are some of the reasons that 70% to 80% of current living expenses are usually adequate:
* Work-related expenses could drop considerably.
* Not contributing toward saving for retirement, such as through 401(K) plans.
* Not paying payroll taxes (7.65%) on the money that you are receiving.
* A mortgage could be paid off.
* Children may independent.
* Using the wage replacement ratio may be appropriate for younger clients. However, for clients within 10-15 years of retirement, it may be more accurate to calculate their retirement income needs based on a budget.
The calculation of an individual’s personal income statement will show the cost of supporting that person. If the current living expenses of a person are $35,000, the basic retirement living expenses maybe $28,000 ($35,000 x 0.8). Apart from this $28,000, the person may have several other goals that are going to cost money. The retirement planning practitioner must estimate, in today’s dollars, how much each goal is going to cost the client annually. Adding up the estimated costs of achieving all the client’s goals, including the base amount for living expenses, will give the income amount in today’s dollars that is needed each year to fund retirement.
In addition, some clients wish to factor income taxes into the retirement planning calculations. It is impossible to project what tax rates will be in the future, so the planner must work with the client to determine an acceptable assumption.
If an overall tax rate is assumed the formula to determine the before-tax income needed is as follows:
Retirement income/(1−tax rate)
Retirement Income Need Calculation Example:
Larry and Louise Tate calculated their annual living expenditures to be $52,234. To obtain an estimate of their annual living expenses at retirement in today’s dollars, they would multiply this amount by 0.8 to get $41,787, a figure that would meet their living expenses but omit other goals, such as traveling.
Assume the Tates wish to take two additional vacation trips annually at $2,000 per trip, measured in today’s dollars, for an increase of $4,000 per year. They would need a total of $45,787 for their annual living expenditures at retirement in today’s dollars.
The Tates now must adjust this number for taxes. They are comfortable assuming an overall income tax rate of 14% in retirement.
* Therefore, they must divide their annual living expenditures by (1 - 0.14) or 0.86, resulting in $53,241.
* Fourteen percent of $53,241, which is $7,454, will go to pay taxes, leaving $45,787 to cover living expenditures.
Practitioner Advice:
* Although the 70% – 80% estimate is a common practice, studies have not been conclusive as to an effective wage replacement ratio and this should be considered a “rule of thumb” for projecting living expenses.
Describe Estimating Income at Retirement
Once the income that will be required at retirement is estimated, the next logical step is finding out how much income a person is actually going to have from current sources.
First, an estimate of Social Security benefits is required.
* Workers are encouraged to establish an online “my Social Security” account to access annual statements.
* The statement provides estimates of the Social Security retirement, disability, and survivor’s benefits that an individual and their family could be eligible to receive now and in the future.
* Additionally, there are helpful calculators available at SSA.gov to help individuals estimate their benefits.
For individuals receiving pension benefits, companies provide benefit statements for plan summaries.
* These statements describe the pension plan, estimate how much it is worth today, and the level of benefits that the employee will receive when he or she retires.
Practitioner Advice:
* A spouse may collect either their own benefit or 50% of their retired spouse’s benefit, whichever is greater.
* For example, if a spouse’s retirement Social Security estimate is less than 50% of their husband’s or wife’s, he or she can round up the amount to 50% of their husband’s or wife’s projected benefit.
* This is because a spouse will get an amount of retirement benefit that equals the greater of his or her benefit or 50% of the spouse’s.
Describe Calculating the Inflation-adjusted Shortfall
The next step is to find out the amount of money that will be needed at retirement by inflating the current need until retirement.
* For most people, there is a big shortfall between the retirement income they will need and the retirement income they will have.
* As pensions are phased out and Social Security becomes less certain, that difference is going to get bigger.
For Larry and Louise Tate, the current before-tax income level they need is $53,241.
* This amount is in today’s dollars, as are all the calculations so far.
* To determine the amount that will be needed in retirement dollars, 30 years from now, the Tates must project $53,241 into the future.
* This is simply a problem involving the future value of a single cash flow.
Because Social Security is an inflation-adjusted number, it must be subtracted from the income need ($53,241 - $18,000 = $35,241). The pension benefits will be accounted for later as they are not usually inflation-adjusted.
To project the future value of the income need, we need to establish an assumed inflation rate for the next thirty years. If we assume 3% as that rate, then the calculation of income need for the Tate’s at their retirement is calculated using a financial calculator and the following inputs:
HP12C
35,241 CHS PV
30 n
3 i
Solve for FV
$85,539.16
Describe Calculating the Funds Needed
For an alternative method of calculating the real rate of return, subtract the inflation rate from the expected (after-tax) rate of return as a whole number, (i.e. 8 – 3 = 5).
* Now divide this result by 1 plus the rate of inflation, expressed as a decimal.
* 5 / 1.03 = 4.8544
The calculation of the annual shortfall in retirement funding gives insight into how much additional money the individual needs to come up with each year to support himself or herself in retirement.
* The next step is to calculate how much money must be saved by retirement to fund this annual shortfall.
Let’s return to the example of Larry and Louise Tate, who have an annual shortfall of $85,539 in retirement.
* They do not want inflation to erode the value of their retirement income and want their retirement income to grow by the assumed inflation rate of 3% each year.
* It is implied that they will each live in retirement for 30 years because no other specific information was offered.
* In addition, assume they can earn an 8% after-tax return on their retirement funds. This means that while the shortfall payout will increase by 3% per year to compensate for inflation, they will earn 8% per year on their investments.
* We will assume their investments earn an inflation-adjusted rate of 4.8544% per year, which is determined by using the formula:
* [(1 + rate of return) / (1 + inflation rate)] × 100
- HP 12C
1.08 ENTER
1.03 ÷
1 -
100 x
4.8544
What is the lump-sum needed at retirement?
Next, we need to determine how much the Tates need to have saved if they wish to withdraw $85,539 in the first year of retirement while earning 8% on their investments.
* These withdrawals will be increased by the inflation rate each year. It is assumed the retirement income payments will be received at the beginning of the period, so the calculation is completed in BEG mode.
* The lump-sum needed at retirement is calculated using the following inputs:
HP 12C
g BEG
85,539 PMT
0 FV
4.8544 i
30 n
Solve for PV
-1,401,958.98
Note: Under the capital utilization method, we base the calculation with zero funds remaining after the projected retirement time horizon. Therefore, the input for future value is 0.
I = 4.8544% (Use the inflation-adjusted rate of return when you want a serial payment)
What is the the present value of the pension at retirement?
It is expected the pension benefit of $25,000 per year will not be increased by inflation each year, therefore, its value should be converted to its lump sum equivalent at retirement.
* Assuming 30 years of payments, an inflation-adjusted rate of return of 4.8544%, and monthly payments on the first of each month, the present value of the pension at retirement is calculated as follows:
HP 12C
g BEG
25,000 ENTER
12 ÷
PMT
0 FV
4.8544 g
12 ÷
30 g
12 x
PV
-396,197.97
Subtracting the present value of the pension ($396,198) from the lump sum needed ($1,401,959) leaves a shortfall of $1,005,761.
How do you calculate How Much You Must Save for retirement?
After determining the total amount a person needs to have saved by the time he or she retires, the amount that must be put away each year must be calculated.
The Tates know they need to accumulate $1,005,761 by the time they retire in 30 years.
* To determine how much they need to put away each year to achieve this amount, they need to know how much they can earn on their investments between now and when they retire.
* Let us assume they can earn 8% after tax.
* Assuming that they will save the same amount each year, the following inputs will provide the necessary annual savings amount:
HP 12C
1,005,761
FV
8 i
30 n
0 PV
Solve for PMT
-8,878.29
Note: We are assuming the Tates have no current savings set aside for retirement. Therefore, the input for the present value is 0.
Again, because we are solving for payment, we must determine if the payment will occur at the beginning of the end of the period. Since this involves savings for the future, unless otherwise indicated, set your calculator for “END” as human nature will usually cause savings to be made at the end of each year rather than the beginning.
The calculation indicates that the Tates will need to save $8,878 per year to reach their goal.
Put the Plan in Play and Save
Once the exact figure of how much a person needs to save each year to achieve retirement goals is determined, the next step is action.
* There are countless ways to save for retirement and choosing the ones that are best for the client requires knowing about the various retirement savings plans that are available.
Practitioner Advice:
* You cannot overestimate to your client the value of starting to save and invest early.
* For example, if Bob, age 25, saved $3,000 per year (at the beginning of each year) for 10 years and earned 10% after tax and then stopped but let the fund accumulate to age 65, he would have accumulated $917,725.
* If we compare this to Steve, age 25, waiting until age 35 to begin and saving $3,000 (also at the beginning of each year) for 30 years, he would have accumulated $542,830.
* Not only will Steve have less money, but also he put in three times as much. This example illustrates the importance of saving early for retirement and the effects of compound interest.
Which Plan Is Best for You?
The circumstances of each individual will play an important part in determining what is the best way for that person to save for retirement.
* Of the many options available, using a tax-favored retirement plan is most beneficial.
* Most of these plans are tax-deferred and work by allowing investment earnings to go untaxed until the earnings are removed at retirement.
* In retirement planning, the fact that taxes affect personal financial decisions cannot be overstressed.
There are two important advantages to tax-deferred plans:
* The contributions may not be taxed initially. Therefore, a person can contribute more because he or she can contribute the funds that would otherwise go to the Internal Revenue Service (IRS).
* The investment earnings are not taxed until they are withdrawn at retirement.
* In other words, you can earn compound interest on money that would normally have gone to the IRS.
* This compounding can be dramatic as shown by the chart below.
Tax-Deferred vs. Nontax-Deferred Savings Example:
Assume that Janet wishes to invest $2,000 of before-tax income on an annual basis in a retirement account. She can earn 9%, compounded annually on this investment and her marginal tax rate is 32%.
* If she invests in a tax-deferred retirement account to which the contributions are fully tax-deferred, she will start with more money because, after taxes, she will still have the full $2,000 to invest.
* She will also end up with more money because she will be able to compound more of her earnings instead of paying them to the IRS.
* On the other hand, investing in a fully taxable account has different results. Janet will not be able to invest the entire $2,000 because 32% of this amount will go toward taxes, leaving her with only $1,360 to invest. In addition, the investment earnings will be taxed annually, at a rate of 15%.
The chart shown above compares the two retirement plans if annual investments of $2,000 are made for 30 years.
* After 10 years Janet would have accumulated $33,121 in the tax-deferred account but only $19,511 in the taxable account.
* After 20 years the tax-deferred account would have grown to $111,529, whereas the taxable account would be at $55,150.
* Finally, after 30 years the tax-deferred account would have grown to $297,150, whereas the taxable account would have accumulated only $120,250.
Though taxes will have to be paid eventually on the contributions and the interest earned on retirement funds when they are withdrawn, at least such funds provide the opportunity to earn plenty of extra interest.
* There are major advantages to saving on a tax-deferred basis.
* Therefore, tax-favored savings plans must be considered before any other types of retirement investments.
Describe Monitoring Your Plan
Most individuals would rely on retirement savings from a combination of different plans, instead of just a single source of retirement income. Depending on an individual’s employment and the available retirement benefits, each person’s plan will be unique.
Monitoring the retirement plan includes making changes in investment strategies over the period of time up to retirement.
* Early on during this period, the client should be willing to take on more risk, such as more stocks in the retirement portfolio.
* However, as retirement draws near there should be a gradual switch to less risky investments.
* Once a person retires, he or she may live for a long time. Therefore, an investment strategy must include a choice of stocks that reflect his or her investment time horizon.
* The purpose of the retirement plan must always be kept in mind, which is to earn enough on retirement savings to cover inflation and allow the money to grow conservatively but grow just the same.
Life is full of surprises, many of which may be unpleasant. To their dismay, many find that their tax bracket does not drop after retirement.
* The retirement income a person receives will be worth even less after federal and state governments get their slice.
* In addition, there can be some unpleasant surprises, including rising property taxes and taxation of Social Security benefits.
Although retirement planning practitioners use 70% or 80% of preretirement income as a rule of thumb, in reality, a person may be a lot less comfortable with that amount than he or she imagined. So a person may decide to increase his or her yearly savings or postpone retirement for a few more years to generate more income and thus enlarge the retirement portfolio.
An individual’s family situation will also affect this decision. Parents may require help or expenses for their assisted care facility may have to be borne. Children may come calling for financial help and most would find it very difficult to refuse. If such needs are expected to arise, adjustments would be required in the retirement plan. Future medical advances will be accompanied by increased costs that may far exceed the present level. As a person’s life expectancy climbs, there is a good chance that his or her medical bill will do the same.
Changes in inflation rates can also have a drastic effect on one’s retirement income. Though everybody says it is under control, most people have seen prices increase for daily expenses. Such changes in anticipated inflation affect the amount of money that a person will need for a comfortable retirement.
It is necessary to monitor not only the client’s individual progress but also the financial health of the company in which he or she is employed. At times the client may have to adjust his or her goals along with what’s necessary to meet those goals.
* The performance of the retirement investments must be tracked constantly.
* If the person is a participant in an Employee Stock Ownership Plan (ESOP), it is necessary to monitor the company’s health.
* If the company’s financial future is questionable, it is wiser to try and move the investments into something other than company stock.
Therefore, monitoring a client’s retirement plan, both before and after he or she retires, is an ongoing process in which adjustments are constantly made for new and unexpected changes in his or her financial and personal life.
Section 1 - Retirement Planning Summary
Saving for retirement requires planning. Funding retirement needs can be thought of as an eight-step process that involves setting goals, estimating how much is required to meet the goals, estimating income at retirement, calculating inflation-adjusted shortfall, calculating funds needed to cover this shortfall, determining how much must be saved annually henceforth until retirement, putting the plan into action and monitoring the plan.
In this lesson, we have covered the following:
* Setting goals is the initial step of retirement planning. It requires an analysis of future needs and expectations. Two of the basic considerations are the lifestyle that a person wants to have after retirement, and expected medical expenses. In addition to this, an individual may have several other goals that must also be considered. The retirement planning practitioner must help his or her client to make the list of goals as exhaustive as possible because this will be the basis of a solid retirement plan.
* Estimating how much will be needed involves the conversion of goals into dollars to achieve these goals. The starting point for estimation is the client’s current living expenses. Most retirement planning practitioners estimate that 70 to 80% of current living expenses will be required to support oneself after retirement. To this amount, the money required to fulfill other goals must be added. The total amount must then be calculated, considering the effect of taxes, using the formula retirement income/(1-tax rate).
* Estimating income at retirement requires calculating Social Security benefits and any other expected retirement income. The annual earnings and benefits statements provided by the Social Security Administration give an estimate of the Social Security retirement, disability, and survivors benefits that an individual and his or her family could be eligible to receive.
* Calculating the inflation-adjusted shortfall converts the amounts calculated from today’s dollars into retirement dollars. Using a reasonable inflation rate and the number of years remaining for retirement, the compounded sum is obtained. Subtracting the future available sources of income from the adjusted annual retirement need gives the inflation-adjusted annual shortfall.
- Calculation of the funds needed to be saved by retirement is essential. After establishing the annual inflation-adjusted shortfall, the calculation of an amount of capital needed at retirement to fund the shortfall must be made. First, you need the inflation-adjusted percent of earnings on investment, which is approximately the after-tax actual earning percentage less the rate of inflation. Using this inflation-adjusted percentage, the annual inflation-adjusted shortfall, and the number of years in retirement, the present value of the annuity is determined. The result is the amount that an individual must accumulate by retirement.
- Determining how much must be saved each year must be calculated before putting a plan into operation. Using the percentage of earnings on the investments and the time period remaining until retirement, the future value of an annuity is determined. The amount that must be saved each year until retirement to meet all retirement goals is thus obtained.
- Putting the plan in play and saving may sound simple, but is actually the hardest step in the process because it requires resolute action. It also involves investigating and collecting information regarding all the available retirement savings plans and options before deciding the course to take.
- Determining the best plan for an individual involves taking into consideration the circumstances of each individual. The most advantageous plans for retirement are tax-deferred plans. These plans work by allowing investment earnings to go untaxed until earnings are needed at retirement. Some plans allow initial contributions to be made on either a tax-deferred or tax-deductible basis. As contributions may not be taxed, one may be able to initially contribute more. Also, because investment earnings are not taxed until they are withdrawn at retirement, more earnings can be made in such accounts due to the compounding of interest on money that would normally have gone to the IRS.
- Monitoring the plan is vital to ensure one’s progress toward retirement goals. An effective plan must constantly adjust for new and unexpected changes that may occur in his or her financial and personal life. Some such changes are increases in the inflation rate, unexpected expenses, lower rate of return on investments, higher tax rates, and increases in medical bills. They can be offset by annually saving a bigger amount, working for a few more years before retiring, and making appropriate variations in investment strategy as the time nears for retirement.
Samantha Kruger asked you, “What is the best way to save for retirement?” How would you answer her?
* A taxable account
* A tax-deferred plan
* Social Security
* Relying on someone else to provide for you
A tax-deferred plan
- In retirement planning, the fact that taxes affect personal financial decisions cannot be overstressed.
- Of the many options available, using a tax-deferred retirement plan is most beneficial because they allow investment earnings to go untaxed until the earnings are removed at retirement. Social Security, an employer’s retirement plan and an IRA may or may not be taxed.
Which of the following questions are relevant to setting retirement goals? (Select all that apply)
* How costly a lifestyle do I want to lead?
* Will I have major medical expenses after retirement?
* Under which income tax bracket are each of my children taxed?
* Do I wish to travel after my retirement?
How costly a lifestyle do I want to lead?
Will I have major medical expenses after retirement?
Do I wish to travel after my retirement?
* The income tax bracket of children of the retiree is irrelevant to setting retirement goals.
* The other questions must be answered to assess the financial goals that must be set before planning for retirement.
Russell and Charmin have current living expenses that equal $57,000 a year. Assuming 80% replacement, estimate the amount of income they will need to maintain their level of living in retirement. Assume their average tax rate will be 13%, not including inflation.
* $43,291.84
* $32,279.83
* $52,413.79
* $38,927.32
$52,413.79
- Russell and Charmin will need 80% of their current living expenditures of $57,000.
- Tax must then be added at the estimated average tax rate of 13%, using the formula retirement income/(1-tax rate).
- $57,000 x 0.80 = $45,600
- $45,600/(1-0.13) =
- $45,600/0.87 = $52,413.79
Section 2 - Introduction to Other Retirement Issues
Many people create the required retirement plans and put them into operation by saving regularly. However, if certain issues, such as medical and other insurance coverage are overlooked, they may not have sufficient funds. If they have an unexpected illness or emergency, this might mean dipping into their retirement funds before they planned to. To understand the working of an effective retirement plan, the effects of withdrawals and rollovers, as well as annuity payout options, must be considered.
To ensure that you have an understanding of other retirement issues that must be considered, the following topics will be covered in this lesson:
* Medical Insurance
* Shortfalls of Medicare
* Withdrawals
* Rollovers
* Roth IRA
* Annuity Payout Options
* Investment Strategy
* Insurance Coverage
Upon completion of this lesson, you should be able to:
* State the importance of medical insurance,
* Describe the effect of withdrawals from retirement funds,
* Define the process of rollovers,
* Explain the benefits of the Roth IRA,
* List and describe the annuity payment options,
* Determine investment strategy, and
* Identify the insurance coverage required.
Describe Medical insurance costs in the calculation of retirement needs
Medical insurance costs must be included in the calculation of retirement needs, especially if a person is planning to retire before he or she is eligible for Medicare.
* Medicare is a government insurance program that provides medical benefits to the disabled and to persons aged 65 and older who qualify for Social Security benefits.
* The cost of Medicare part A is covered by Social Security, with the individual paying a monthly premium for Medicare part B.
Medicare coverage is divided into two parts:
* Part A provides hospital insurance benefits, and
* Part B allows for voluntary supplemental insurance.
Many employers are paring down or eliminating postretirement medical coverage.
* Even with Medicare, a supplement plan may be required, which could cost several hundred dollars a month for both spouses.
* Private insurance companies sell medical insurance aimed at bridging the gaps in Medicare coverage. These plans pay for things such as deductibles and coinsurance that Medicare part A and B do not cover.
* These plans are typically referred to as Medicare supplements. Some of these supplements will also pay for outpatient prescription drugs.
Practitioner Advice:
* Most seniors believe that Medicare will cover all their long-term care needs but this is false.
* Medicare does not pay for custodial nursing care if that is the only care needed.
* Also, Medicare will only pay up to 100 days in a skilled nursing facility per benefit period (only if hospitalized for at least 3 days).
Exam Tip:
* As of current legislation, a person is entitled to Medicare health benefits at age 65 even if their full retirement age is later.
Which part of the Medicare coverage includes hospital insurance benefits?
* Part B
* Part A
Part A
* Part A provides hospital insurance benefits.
What are considerations with the Shortfalls of Medicare?
Getting information regarding the shortfalls of Medicare coverage for nursing home and custodial care and on the eligibility requirements for Medicaid will help in making the right decisions for individuals.
Many people assume that once they are on Medicare, everything will be taken care of, however, this is not always the case.
* Medicare expects the person to pay part of the cost for many medical services and it usually does not cover prescription drugs, custodial nursing home care, dental costs, hearing aids, and glasses, among other items.
A client may decide that it is prudent to purchase long-term care insurance before retirement and must include its cost in the calculation of annual financial needs.
* If he or she anticipates having to care for elderly family members, it could be advantageous to assist the elderly family member in purchasing such coverage.
