According to recent statistics, there are now more than 44 million unique borrowers who collectively owe $1.6 trillion in student loan debt—making student loans the second largest consumer debt category after mortgages. Those are staggering numbers.
For the considerable Millennials and massive Gen Z workforce to follow, student loan debt is a primary economic concern, often before mortgages and retirement savings can even be considered. Smart businesses have taken notice in a growing trend toward creating student loan repayment assistance programs as a necessary company benefit to attract and retain younger talent.
There are a range of benefit approaches that have already been rolled out across a number of forward-thinking companies in the past couple years. Some employers offer to pay off a portion of employee student loan debt on a monthly or yearly basis with caps on total amounts to be paid. Organizations also differ in whether they offer this repayment benefit to only full time or also for part time employees, while others offer a lump sum repayment only after an employee has worked at the business for a certain amount of time. Most student loan repayment plans target payments to the principal total in an effort to reduce subsequent interest payments. Employers can also offer an automatic payroll deduction option to target student loan debt to facilitate a proactive payment plan without incurring costs to the business.
As 2019 closes and a new year starts with a fair amount of uncertainty, it is a good idea to take stock of your financial situation. While markets have been going strong and the economy seems largely sound, upheaval in both domestic and world politics, an increasingly fragile interaction with the environment, and uncertainty in global trade policies will continue throughout the immediate future. We’d like to ask all of our clients, both individual and as part of an organization—how is your money working for you and do you have a cohesive plan to maintain and grow your wealth?
There is growing interest in a design strategy known as the Mega Backdoor Roth Conversion (the Conversion). The Conversion allows 401(k) or 403(b) Plan participants who are already deferring the maximum allowed to contribute After-Tax funds to the plan. The participant may then convert the money from After-Tax funds to Designated Roth funds. This two-step process has the effect of allowing plan participants to contribute additional Roth money to the plan and shelter the gains from taxes.
Whether your 65th birthday is fast approaching or decades away, it pays to understand the basics of how Medicare works and what it does and does not cover—and then plan accordingly for any additional coverage that you may need in retirement.
Enrolling in Medicare can be more complicated and frustrating than many might expect, and the rules and regulations are changing.
Parts A & B (Original Medicare): Applying for Medicare A/B is handled through Social Security and can be administered on-line rather than going to a Social Security office. An on-line Social Security account will require setting up a username and password and may require the answering of “security questions” based on credit bureau information—some of which can be very specific and based on older data they have on record. Unfortunately, this can sometimes result in failed attempts and needing to go to a Social Security office to complete the enrollment process.
Medicare Part A is used for hospital insurance and covers inpatient stays at medical facilities, as well as costs of hospice care, home health care, and nursing homes (which are limited). If you will be spending the remainder of your life in a nursing home, Medicare will not cover it. Part A has a per “benefit period” deductible of $1420 in 2020. A new benefit period begins after a beneficiary has been released from the hospital for at least 60 days, meaning the deductible can be incurred multiple times throughout a year.
Part A has a $0 premium for most people, but will only pay for a maximum of 100 days of nursing home care (after certain conditions are met). After 20 days of full coverage, a significant daily co-pay is required for days 21-100 at skilled nursing facilities.
Medicare Part B provides medical insurance to help cover the costs of physical therapy, physician visits, durable medical equipment costs, and other medical services, such as lab tests, and screenings.
Part B requires a monthly premium based on income level, along with an annual deductible of $197 in 2020. It also requires a co-pay of 20% of costs.
Aviva Sapers, President and CEO of Sapers & Wallack, and Peter Stoner, President and CEO of Stoner & Company, answer questions about our October blog ‘Medicare Coverage: What to expect, how to enroll, and will you need supplemental plans for retirement’.
For most Americans in 2019, the idea of retirement is associated more with a sense of anxiety than the promise of relaxation it once inspired. Have I saved enough? When should I stop working? Will I have a guaranteed source of income? And more than ever before, how can I plan for the rising costs of healthcare?
These are all valid questions that need answers, but the stressors around future medical expenses and the cost of insurance coverage, in particular, have never been more pressing.
We are living longer, healthcare costs are rising faster than general inflation, government coverage and subsidies are less, and we won’t have the same employer and union-based benefits that our parents’ generation enjoyed. According to a 2019 Fidelity Benefits Consulting estimate, the average cost for healthcare after the age 65 will be $285,000 per couple.[i] But our own internal estimates find that the costs will likely be much higher, and possibly even double, depending on your income levels in determining Medicare coverage.
Many pre-retirees believe that Medicare will cover all of your health care costs in retirement, but that isn’t the case. Medicare only covers 60% of medical expenses, and whether you expect it or not, healthcare premiums and out of pocket medical payments will account for a significant percentage of yearly expenses throughout your retirement. There are numerous factors that will determine how much of an expense you’ll face, including when and where you’ll retire, how healthy you are, how long you’ll live, and above all, how much taxable income you bring in.
On average, it is estimated that a largely healthy couple will spend between 8k-12k/year on healthcare after Medicare. If an unforeseen accident or illness arises, those costs are likely to spike exponentially. According to government findings, 70% of individuals will require an extended period of long-term care at some point over the age of 65.[ii] Everyone thinking about retirement should look up the Medicare Modified Adjusted Gross Income (MAGI) to see what bracket they fall into in terms of premium payments for Medicare Part B.
It’s a storyline played out in best-selling books, movies and TV dramas: the successful family that’s torn apart after the death of the matriarch or patriarch and transition of the business and other assets. This isn’t the stuff of fiction. A succession plan addressing how to take care of your family business—and your relatives who are part of it—is key to a successful, perhaps drama-free, transition.
Why business succession planning is important
Transitioning your family business requires time, attention, empathy and communication as its effect on family members and on the business itself are vast. A succession plan is important because:
It ensures that your business will survive your death (or a major illness). If the business is the primary source of income supporting your family, a thoughtful, detailed succession plan reflects your family’s values and supports its goals, identifies future leadership, and addresses potential issues before they arise.
It can help ensure family members are taken care of emotionally and financially.
It will also address ways that family members outside your business can still receive income, whether from the business itself or through other assets or trusts.