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.
On average, Americans are living longer than ever before. This reality has complicated the planning and saving stage of retirement as we struggle to secure enough income to cover our needs for the duration of our lifetime. One increasingly critical tool of financial planners for retirees is the use of Roth IRA conversions. A Roth conversion refers to taking all or part of the balance of a pre-tax traditional IRA and moving it into a Roth (after-tax) IRA.
After extensive polling, the number one concern for most retirees is outliving their income. Much of today’s workforce do not have enough to guarantee success in retirement, and a recent study found that the average median savings of millennials is only $8,000—promising that adequate saving for retirement will be a problem for a long time to come. For this reason, and for the struggle I see and work I do on behalf of my clients every day, I wanted to discuss a few factors that can erode retirement designated wealth, as well as pose some solutions.
In 2018, Massachusetts signed into law a statute that provides paid family and medical leave (PFML) benefits to workers. Massachusetts becomes only the sixth state, along with the District of Columbia, to require paid leave. The state has yet to issue final regulations, but they did provide updated draft regulations at the end of March. Although benefits will not be paid until January 2021, employers have obligations to notify employees of this law now. The withholding and reporting obligations begin on July 1st, 2019.
Employers must notify their workforce about the law including the benefits and protections that apply to them. This is a two-part requirement and includes a workplace poster and a written notice to employees.