Retirement Report
Your Guide to a Richer Retirement
Volume 23 | Number 6 | june 2016 | $5.00
creases. On average, premiums on issued policies have
jumped 50% to 60% over the past decade, says Kevin
McCarty, former commissioner of the Florida Office of
Insurance Regulation.
If you bought a policy more than five years ago and
your premiums
haven’t increased
yet, brace yourself
for a possible rate
INVESTING
hike next time your
5 | Dozen Funds for Income
policy renews. “Pol6 | Target Fund Tweaks
icies issued prior
MANAGING YOUR FINANCES
to 2005 with ben7 | Track Down a Pension
efit periods longer
than five years and
9 | Your Questions Answered
5% compound infla10 | Information to Act On
tion protection are
12 | Tapping an IRA Early
getting hit the hard13 | Social Security Benefits Cap
est,” says John Ryan,
Taxes
of Ryan Insurance
14 | Pay-As-You-Go Taxes
Strategy Consultants, in Greenwood
YOur HEalth
15 | Home Health Coverage
Village, Colo.
The timing and
PROFILE
size of the increas16 | Improving ALS Care
es vary depending
on where you purchased the policy. In New York, for example, some
premiums have catapulted more than 60% in the past
few months. Several insurers recently asked the Texas Department of Insurance to allow increases nearing
100%. Already in 2016, four major insurance companies have sought permission from Pennsylvania regulators to boost prices for current policyholders. MetLife
in this issue
Long Term Care
Coverage Costs Rise
john w. tomac
frustrated by unexpected rate increases , many
people who bought long-term-care insurance to
protect their retirement savings from the potentially devastating cost of care are now wondering
whether they made a mistake.
Almost all insurers have jacked up premiums years
after people bought their long-term-care policies—
and some are now on the second or third round of in-
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requested rate increases of 43% to 60%, and the insurance department approved a 20% increase. Genworth
requested 33% to 130% increases, but the department approved 15% to 30% increases. Unum requested increases of 63% to 94%, which the department approved but asked to have spread over four years. John
Hancock requested rate hikes of 2.5% to 88%, but the
increases were capped at 20%.
When deciding to approve a rate increase, regulators consider consumer protection and the financial
stability of the insurer. “We may give a higher increase
for someone in the 55-year age range who has more
options than someone who is 80 years old and has paid
premiums for the past 25 years,” says McCarty. “Most
of the time, we don’t approve the rate increase as asked
for. But there is a balance you have to strike because if
a company is insolvent, it can’t pay claims.”
Insurers are seeking big premium hikes now
because they made big mistakes when pricing policies earlier. They assumed more people would drop
their policies before making any claims, underestimated the number and length of claims, and didn’t anticipate the record-low interest rates that crimp earnings on their investments. Also, the way people receive
care has changed since the policies were introduced;
people now live longer with Alzheimer’s and often receive care in their homes or in assisted-living facilities
for several years, rather than moving straight to a nursing home for their last months or years of life. “The
data they had to price these long-term-care policies
was very different from today’s reality,” says Jan Graeber, chief life and health insurance actuary for the Texas Department of Insurance. “Advances in medicine are
changing their experience, and insurers have to constantly incorporate that into pricing for a benefit that
is not going to be paid for many years in the future.”
Even though long-term-care premiums were never guaranteed to remain the same, many policyholders
Editor in Chief and Publisher
Knight A. Kiplinger
Editor
Rachel L. Sheedy
twitter.com/KiplingerRetire
Senior Editor
Eleanor Laise
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Contributing Editors
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feel blindsided when they’re hit with a major rate increase many years after buying the policy—often after
they retire and have less control over their cash flow.
Ken Witty, a 75-year-old retired TV news producer in New York City, had been paying about $3,600 annually for a Genworth long-term-care policy for more
than a decade. In February, he was shocked when the
insurer notified him that the premiums would jump by
60% unless he significantly scaled back his coverage.
“I could understand a modest increase, but not this
sort of rate hike,” he says.
Insurers usually offer several options to mitigate a
rate increase, such as reducing the benefit period or
lowering the inflation protection. Witty wanted to keep
his three-year benefit period, which would cover him
for the length of the average claim. But his daily benefit had already increased significantly over the past decade—compounding 5% a year and rising from $250 to
$407. He chose to cut future adjustments to 3.5%, which
sliced the rate hike in half. He’ll pay $4,750 per year
rather than the $5,800 he’d owe for the original coverage. Before deciding to cut the inflation protection provided in a policy, calculate how much the daily benefit
would grow under the new and old rate by, say, age 80.
People now protected by lifetime benefits can reduce a rate hike significantly by switching to a threeor four-year benefit period. But you could end up with
huge bills if you need long-lasting care, such as for Alzheimer’s disease. Before you reduce the benefit period, consider your family medical history and how you
might pay for care that’s needed after the benefits end.
Depending on your state, the insurer may also let
you stop paying premiums and switch to a paid-up policy. But this should be a last resort because your coverage will only equal the amount you’d paid in premiums
through the years. If you’ve paid $10,000 in premiums so far, that would be the cap on benefits paid if
you need care. It won’t be easy to add coverage later:
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From the Editor
Over the past 10 years working on Retirement Report,
I have covered the nuances of Social Security, IRAs,
reverse mortgages, state taxes on retirement income
and many other issues that can bedevil readers on the
cusp of retirement or well into it. I’ve also had the great
fortune to talk with many readers, answering questions
and listening to stories. These conversations are invaluable to the work we do here—and often turn into articles, such as the one on page 15 that sparked into life by
a subscriber’s e-mail.
As I take the helm as Editor, I am excited to continue
this conversation with all of you. Together with Senior
Editor Eleanor Laise and the rest of the Retirement
Report team, we look forward to continue sharing the
latest retirement-planning news and providing actionable advice that can bolster your financial security.
Think there’s something we ought to be writing
about? Let us know. Have a question about anything
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There are many ways to get in touch: You can send
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address listed on page 3. No matter how you get hold
of us, we really do appreciate hearing from you.
Rachel L. Sheedy, Editor
You will pay more because you’re older and may have
health issues, and new policies are far more expensive
now, even for the young and healthy.
Mike Ashley, president of Senior Benefits Consultants, in Prairie Village, Kan., bought a Genworth policy 17 years ago, when he was 52. He paid $879 a year
for a $70 daily benefit, 50-day waiting period before
any benefits are paid, 5% compound inflation protection and lifetime benefits. After two rate increases, his
premium has climbed 76%, to $1,547 per year. But a
52-year-old man would now pay $2,944 per year for
less coverage. The new policy would have a five-year
benefit period because insurers stopped selling policies
with lifetime benefits.
Protecting Your Retirement Savings
Despite the tumult in the long-term-care insurance
business, you can’t ignore the potential costs of care
when planning for retirement. The median cost of a
private room in a nursing home is $253 per day (more
than $92,000 a year), according to the 2016 Genworth
Cost of Care Study. Assisted living has a median cost of
$3,628 per month (more than $43,500 per year). And it
can cost more than $41,000 per year for a home health
aide to come to your home eight hours per day. Costs
can vary dramatically depending on where you live.
Check costs in your area at www.genworth.com/costofcare.
“People who haven’t personally experienced a longterm chronic illness in their family think it will never happen to them,” says Chris Draughon, a financial planner in St. Augustine, Fla. Those whose family
members needed long-term care, however, are more
eager to find a way to protect their savings, he says.
Dan Torgersen, 67, and Mary Torgersen, 66, of St.
Cloud, Minn., have a lot of personal experience. Dan’s
mother and both of Mary’s parents needed care in an
assisted-living facility for six or seven years before they
died, burning through their savings with monthly bills
of $3,000 to $5,000 each. “They had to pay the cost
from whatever funds they had available,” says Dan. In
their mid fifties, he and his wife worked with a financial planner to figure out how to protect their savings if
they needed care themselves. They bought Northwestern Mutual policies in 2003 to provide each of them
with a $200 daily benefit that grows at 5% compounded each year, and they paid extra for lifetime coverage.
“Mary and I decided it was not all that much more expensive to get 100% coverage rather than having to use
some of our retirement assets to pay for care,” he says.
“Once you need care, the premiums stop, and your retirement assets are preserved for your beneficiaries,”
says Dan, who hopes to leave money to his two sons.
Since then, the policy has become more valuable:
The daily benefit has grown to $378 per day, and insurers have stopped offering lifetime benefits (the longest
policy Northwestern Mutual now offers is six years).
Northwestern Mutual is one of the rare companies that
hasn’t raised rates for people after they bought their
policies, but the Torgersens have been paying steep
premiums from the beginning—a total of $16,200 per
year for the two policies.
Many people are shocked by the idea of paying that
much for coverage they may never use. And new policies tend to be even more expensive. To limit the cost,
shoppers frequently research care costs in their area;
june 2016 kiplinger’s Retirement report
|3
decide how much they can afford to pay from their
Social Security, pensions or retirement savings; and
buy just enough long-term-care insurance to fill in
the gap. “We talk about how much risk do they want
to shoulder themselves and how much do they want
to transfer to an insurance company,” says Draughon.
Most buyers now choose policies with a three-year or
four-year benefit period (the average claim is just under three years), a 90-day waiting period and 3% compound inflation protection, says Ryan.
That’s what Sheryl and John Maguire of Kansas
City, Kan., did earlier this year. Both retired last year
at age 62, and they expect to have enough income from
their pensions (hers as a public school teacher, and his
from a career in pharmaceutical sales), savings and Social Security to cover a large portion of potential longterm-care expenses. Still, they wanted some coverage
to help them afford care in their home, if needed. “You
feel like it is such a gamble,” says Sheryl. They recently bought long-term-care policies that would pay up to
$3,000 a month for each of them for up to four years,
with benefits increasing by 3% per year. They also have
shared benefits (which tend to increase premiums by
about 12%), which lets them hedge their bets by sharing the eight-year benefit period between them.
Working with long-term-care specialist Mike Ashley, the Maguires chose insurance from LifeSecure
primarily because of its generous home-care benefits.
Some insurers require home-care providers to be licensed and hired through an agency, which can boost
the costs. Their policy lets them use up to 50% of their
home-care benefit to pay for care in their home by
family or neighbors. “This gave us a lot of freedom to
hire whoever we want,” she says. They’re paying about
$4,050 per year for the two policies.
When shopping, pay special attention to how the insurer calculates the waiting period. Some start the clock
ticking as soon as you need help with two of six activities of daily living (such as bathing and dressing) or a
doctor certifies cognitive impairment. But others only
count the days you actually receive care (called “service
days”). If you only need care a few days a week at first,
which is how many claims start, it could take several
more months before the insurance starts to pay out.
Premiums can vary significantly from one insurer
to another, and each has different sweet spots. MassMutual, for example, tends to have competitive rates
for single women in several states, says Dian Haider,
long-term-care specialist for Ryan Insurance Strategy
Consultants. Otherwise, most companies charge 50%
4 | kiplinger’s Retirement report june 2016
more for single women than for single men.
Your health can have a major impact on premiums.
Some insurers now charge more if your parents had
cognitive impairment before age 70, but others do not.
Some reject applicants with diabetes, but others may
charge the standard rate (not the lowest-cost preferred
rate) for those who have had diabetes for less than 20
years and control it with certain levels of insulin. Coverage for cancer survivors can vary widely, too. “It depends on the stage, the type of cancer, the type of treatment and how long ago it took place,” says Haider. She
asks clients a lot of medical questions before identifying which insurers are likely to offer the best rates. You
can find a long-term-care specialist at www.aaltci.org.
Other Ways to Pay for Care
Even though planner Draughon considers preparing for potential long-term-care expenses as an essential part of retirement planning, he’s moving away from
traditional long-term-care policies. “We generally don’t
use the traditional long-term-care insurance anymore
because it is so prohibitively expensive, the number
of providers has declined, and you’re faced with the
risk of premium increases,” he says. Instead, he tends
to prefer policies that combine long-term care and life
insurance. These policies pay out whether or not you
need care, and the premiums can’t increase. They also
tend to offer a better deal for single women.
Lincoln Financial recently made some positive
changes to its MoneyGuard policy. In the past, you had
to invest a lump sum, but now you can spread premiums over as long as 10 years. A 55-year-old man who
pays $10,000 per year for 10 years could get a monthly long-term-care benefit of $5,500 for up to six years,
growing at 3% compounded per year. (Benefits could
start before all the premiums were paid, but the payments would be owed for the full 10 years.) If he
doesn’t need long-term care, his heirs would receive a
$130,000 death benefit. Or he could cash in the policy
while alive and get back 80% of his premiums. For the
same premiums, a woman would get $5,100 per month
of long-term care and a $122,000 death benefit.
Another option is to buy a deferred-income annuity, generally in your fifties or sixties, that starts to pay
out in your eighties. A 60-year-old man who invested $125,000 in a New York Life deferred-income annuity would receive $72,279 a year for life starting at age
85. Because the likelihood of needing long-term care
increases as you age, the timing of payouts that start in
your eighties could be opportune. K Kimberly Lankford
INVESTING
Great Funds Offering
Steady Income
investors approaching retirement often adjust
n
Preferred stocks. We like a couple of ETFs for deliv-
ering income from preferred stocks—those stock-bond
hybrids that pay fat dividends and behave a lot like
bonds. IShares US Preferred Stock (PFF) holds 290
preferred securities. Banks and other financial firms
account for 63% of the ETF’s assets. If you’re wary
of the heavy concentration in financial firms, check
out VanEck Vectors Preferred Securities ex-Financials ETF
(PFXF). It tracks an index of nonfinancial preferreds.
n Government-backed mortgage bonds. Governmentguaranteed mortgage-backed securities—and funds
that invest in them—offer a better yield than comparable Treasury securities. For example, Vanguard GNMA
Fund (VFIIX) and T. Rowe Price GNMA Fund (PRGMX)
yield 2.1% and 1.8%, respectively. A comparable Treasury would yield 1.7% these days.
n Investment-grade corporate bonds. These bonds are
issued by companies with solid credit ratings (tripleB or better, which is the lower end of the investmentgrade spectrum). Our favorite short-term bond mutual
fund is Vanguard Short-Term Investment-Grade (VFSTX).
Half of the portfolio is in corporate bonds and the rest
in cash, Treasuries, and asset- and mortgage-backed
bonds. Vanguard Short-Term Corporate Bond ETF (VCSH)
holds only corporate debt, with bonds rated single-A
and triple-B accounting for 86% of its assets. Vanguard
their portfolios both to reduce risk and generate
more income. After all, when the paychecks end,
you’ll need a ready, and steady, source of income. This
collection of mutual funds and exchange-traded funds
offers great candidates to help you meet those goals.
n Retirement-income funds. Designed for investors
already in retirement, these all-in-one funds aim to
generate income as well as some capital appreciation.
They are often the last stop in the glide path—the
portfolio’s shift in asset allocation over time—of most
target-date funds. For instance, if you invest in Vanguard Target Retirement 2020, a fund designed for
people planning to retire around that year, and you
stick with the fund after you retire, your money will
end up in Vanguard Target Retirement Income (symbol
VTINX). That fund is made up of five Vanguard funds,
and it currently has 70% of its assets in bonds and
30% in stocks. Target Retirement Income returned
4.7% annualized over the past 10 years. (Data are as
of May 12.)
n Dividend-growth stocks. Some
funds focus on companies with a
long track record of consistently
raising dividends. Although stocks
Fund Name
symbol yIELd*
with rapidly expanding dividends
aren’t usually the biggest yielders,
Vanguard Short-Term
VFSTX
1.6%
Investment-Grade
they do offer some income. Our faT. Rowe Price GNMA Fund
PRGMX
1.8%
vorite fund in this category is VanVanguard Target Retirement
VTINX
1.8%
guard Dividend Growth (VDIGX),
Income
which invests in high-quality
Vanguard Dividend Growth
VDIGX
1.9%
firms expected to raise their diviVanguard Short-Term
VCSH
1.9%
Corporate Bond ETF
dends over time. Over the past 10
Vanguard GNMA Fund
VFIIX
2.1%
years, Dividend Growth returned
Vanguard Intermediate8.8% annualized, compared with
VCIT
3.0%
Term Corporate Bond ETF
7.1% for the S&P 500.
Schwab US Dividend Equity
SCHD
3.2%
Among ETFs, we like Schwab
Vanguard High-Yield
VWEHX
5.5%
Corporate Fund
US Dividend Equity (SCHD). It invests in 100 firms that have paid
iShares US Preferred Stock
PFF
5.6%
dividends for at least 10 years and
VanEck Vectors Preferred
PFXF
5.9%
Securities ex-Financials ETF
rank well with respect to severOsterweis Strategic Income
OSTIX
6.7%
al fundamental factors, including
Data as of May 12. *Higher yields typically indicate
dividend yield and five-year divihigher risk. Source: Fund companies
dend growth.
How the Yields
Stack Up
Intermediate-Term Corporate Bond ETF
(VCIT) has nearly half of its assets in
triple-B-rated corporates.
n High-yield bonds. Also known as
junk bonds, these are issues from
companies with credit ratings of
double-B or lower. The average junk
fund currently yields 7.7%. Our top
pick in this category is Vanguard
High-Yield Corporate Fund (VWEHX).
One of the tamer funds of its kind, it
sticks with debt in rating tiers just
below investment grade. Nearly half
of its assets are rated double-B, the
highest junk rating, and only 8% are
in bonds that are below B or unrated.
Since 2008, the fund has returned
6.5% annualized.
Another worthy option is
Osterweis Strategic Income (OSTIX).
The fund focuses on short-term
high-yield debt, which has helped
limit losses in past downturns. K
Nellie S. Huang
june 2016 kiplinger’s Retirement report
|5
Target Funds
Tweak Their Game
target -date funds are devising new strategies
designed to help investors achieve a secure
retirement. But along the way, they’re introducing
new risks for older investors.
These funds, a staple of 401(k) plans, hold stocks,
bonds, cash and other investments. Following a preset “glide path,” the asset mix gradually becomes more
conservative as the “target date,” which corresponds
to the investor’s retirement date, approaches.
Challenges currently facing retirement savers,
including low bond yields, the expectation of rising
interest rates and longer life expectancies, are prompting many target-date fund managers to shake up their
investment mix—particularly in portions of the glide
path just before and after the target date. Recent
adjustments made by some major target-date fund
providers include boosting stock allocations for preretirees; shifting away from traditional, high-quality
bond holdings in favor of high-yield bonds and alternative, hedge-fund-like strategies; and giving fund managers more leeway to deviate from the predetermined
glide path to take advantage of market opportunities.
Fund companies say their new strategies help
achieve a better balance between market risk and
longevity risk—the risk that investors will outlive
their money. But the changes also raise concerns for
older investors. Higher doses of stocks and lower6 | kiplinger’s Retirement report june 2016
istockphoto.com
INVESTING
quality bonds can make target-date funds more volatile. And hedge-fund-like strategies often carry higher
fees, putting upward pressure on target funds’ costs.
Investors need to keep close tabs on what’s happening inside these funds, especially since they’re built to
be 100% of your portfolio, says Jeff Holt, associate director of multiasset strategies at investment research
firm Morningstar. Although it’s natural for these funds
to evolve over time, “investors should be leery of
changes that reflect flip-flopping” in terms of investment philosophy, Holt says.
Target-date fund assets have been soaring ever since
a 2006 law gave 401(k) plans a green light to use these
funds as a default investment. Investors poured a record $69 billion of net new money into the funds last
year, bringing total assets to more than $763 billion.
The answers to the following questions will help
you understand the potential risks and rewards of a
target-date fund.
n What is the fund’s goal? The target-date fund industry
has long been divided into two camps. The “to retirement” funds aim only to bring the investor up to the
retirement date, making no further asset-allocation
adjustments in the retirement years. The “through
retirement” funds, which aim to balance market and
longevity risks throughout the investor’s life, continue
to dial down the portfolio risk throughout retirement.
The Dimensional Target Date Retirement Income
funds, launched last year, are throwing a new objective
into the mix: They aim to boost the investor’s certainty about how much income a nest egg can sustain in retirement. To do that, the funds shift heavily into inflation-protected bonds during the 20 years before the
retirement date. At the retirement date, they devote
75% of assets to Treasury inflation-protected securities. The hefty TIPS allocation helps protect investors’
“real” (after-inflation) purchasing power in retirement,
says Massi De Santis, vice-president at Dimensional.
For investors who are behind on retirement saving,
a TIPS-heavy portfolio may not offer enough growth
to make their money last a lifetime. But Dimensional
rejects the idea that target-date funds should maintain
a larger stock allocation to reduce the risk that investors will run out of money. Funds shouldn’t solve the
problem of investors not saving enough by taking more
risk into retirement, De Santis says.
Some more established target-date funds are taking
the opposite stance. The Fidelity Freedom funds, for
example, increased stock allocations across most of the
glide path in late 2013. In addition to longer life expec-
tancy, the move was based on Fidelity’s higher return
expectations for stocks and 401(k) investors’ apparent
tolerance for risk, says Mathew Jensen, director of target-date strategies at Fidelity. “We saw individuals being very consistent and steady in their target-date fund
investments, regardless of the fluctuation up and down
in the market,” he says.
n What’s under the hood? In recent years, many target-date funds have been trimming plain-vanilla bond
holdings in favor of foreign developed and emergingmarkets bonds, high-yield debt, and “unconstrained”
bond strategies—which can invest anywhere in the
bond market.
In the John Hancock Retirement Living Through
2015 fund, whose investors are just entering retirement, about 30% of the fixed-income allocation is in
bonds rated BB or lower, according to Morningstar.
Although high-yield bonds have been whipsawed lately, the allocation has “paid off handsomely” over the
longer term because the fund added to the position in
2009, catching a major post-financial-crisis rebound,
says Marcelle Daher, the fund’s co-portfolio manager.
Examining your target-date fund’s underlying fund
holdings can give you another view of the potential
risks. The Dimensional 2020 Target Date Retirement
Income fund, whose investors are on the brink of retirement, devotes nearly 30% of assets to DFA LTIP
fund—a long-term TIPS fund that is highly sensitive to
interest-rate changes and lost 26% in 2013. “I wonder
if investors are prepared to see those types of losses in
a bond portfolio while they’re in retirement,” Holt says.
Dimensional says it doesn’t expect its target-date funds
to be more volatile than others in the industry.
n How steep is the slope? A target-date fund’s glide path
“slope” is the rate of change in the stock allocation over
time. Some target-date fund families have made their
slopes a bit steeper lately, Holt says, by boosting stock
allocations in the years leading up to retirement while
holding them steady at the retirement date.
But a steeper slope can be riskier for investors. A
fund manager who is trying to stay in line with a steep
glide path may be forced to rapidly sell stocks in the
years leading up to the target date, even if the market is
slumping. And the fund may have difficulty recovering
from those losses, since it will have relatively little exposure to any subsequent stock-market rebound.
To see an illustration of your fund’s glide path, along
with details on the underlying holdings, enter the fund
name or ticker in the quote box at Morningstar.com
and click “portfolio.” K Eleanor Laise
Managing Your Finances
Missing Pensions
Costly to Retirees
people who have earned a defined -benefit pension
seem to be in an enviable position—retiring with
the promise of a steady income stream for life. But
it’s not so enviable if the promised benefits don’t show
up. And an investigation by the U.S. Department of
Labor is finding that many retirees aren’t getting the
benefits they’ve earned.
Since last summer, the Labor Department has
opened investigations into more than four dozen large
pension plans, with eye-opening results: Some do a
very poor job keeping track of retired participants
and paying benefits when they’re owed. In some
cases, plans don’t even have the names or ages of
many of their participants.
Sloppy recordkeeping isn’t the only factor separating retirees from their pensions. Corporate mergers,
spinoffs and bankruptcies can make it tough for retirees to track down and claim pensions from employers
they left years ago. And when pensions are transferred
from one administrator to another, or turned over to
an insurance company, participant information may be
garbled or lost completely.
That puts a heavy burden on plan members to maintain employment records, plan documents, tax returns
and other paperwork that can help prove they’re eligible for a pension—and to be proactive about claiming
benefits when the time comes.
“There isn’t a lot of initiative on the part of plans to
pay benefits when they’re due,” says Jeanne Medeiros,
director of the Pension Action Center, a research and
advocacy group at the University of Massachusetts
Boston. “It’s largely up to the participant to come forward and find the plan.”
Kenneth Rowland, 68, is just now collecting the
pension he was owed at 65. Rowland, who lives in Hull,
Mass., earned the pension during his employment in
the 1980s with the yellow-pages division of the telephone company Nynex. He did receive a letter from
Nynex documenting the pension he had earned . . . in
1992, but nothing after that. When he started trying
to claim his benefits in 2013, the telecom industry had
changed completely, and Nynex was long gone.
Rowland contacted the Pension Action Center, and
a pension counselor finally tracked his pension down
june 2016 kiplinger’s Retirement report
|7
Keeping Track of a Pension
If you have earned a pension, keep your individual
benefit statements as well as the summary plan description, which outlines the requirements for earning
benefits. Maintain records of your employment history, including W-2 forms and pay stubs. And hold on to
all of your old tax returns. When it comes time to claim
your benefits, the plan might say that it has already
paid you a distribution—and you’ll need your old tax
returns to prove whether or not that’s accurate.
If you leave a job before the plan’s retirement age,
verify that you have a vested benefit and get the plan’s
most recent summary plan description, which will determine the benefits you receive in retirement. Update
the plan on any changes in your address, phone number, name or marital status. “If a person has terminated
employment and is no longer at the address of record,
the easiest thing for the plan to do is nothing,”
says John Turner, director of the Pension Policy Center, a research and consulting group in Washington, D.C.
Periodically check your former employer’s website, watching for mergers, buyouts or bankruptcies. “One of
the main reasons that participants
lose track of plans is corporate restructuring,” says Jane Smith, policy
analyst at the Pension Rights Center.
If your plan is terminating,
make sure you know who will be
administering the plan. If the
plan is sufficiently funded, an insurance company will take over
8 | kiplinger’s Retirement report june 2016
payment of the benefits—and if not, the plan will likely
be turned over to the Pension Benefit Guaranty Corp.
If you’ve lost track of a pension, go to www.pension
help.org to find pension counseling projects funded by
the U.S. Administration on Aging. Check an old W-2 to
find your former company’s employer identification
number (EIN), which can help track down the company. Watch out for a “notice of potential private pension
benefits,” which the Social Security Administration
sends as a reminder to people who have earned a private pension. A pension counselor can also help you
request this notice from Social Security. Although the
information may be out of date, “it’s very helpful in
terms of evidence you were vested,” Medeiros says.
Search for plans that have been turned over to the
PBGC at www.pbgc.gov/wr. You can also click “find an
unclaimed pension” at this site to find out if your name
is on the PBGC’s list of missing participants.
If you’ve been omitted from your plan’s records, you
must document your work history and eligibility for
the benefit. If you don’t have W-2s and other employment documentation, you can request a Social Security
earnings statement using Form SSA-7050, for $136.
After spending years tracking down his pension,
William Ross Berggren finally got his monthly benefit
along with retroactive benefits and interest. Berggren,
82, earned the pension from his work at Citizens Savings and Loan in San Francisco in the 1970s and 1980s.
By the time he tried to claim benefits in 2010, the bank
had been acquired, and he couldn’t locate his pension.
Berggren turned to the Western States Pension
Assistance Project, which tracked down his pension
in a surprising place: the Ford Motor Company. Citizens had become First Nationwide, which was later bought by Ford. Collecting
the pension “was a very significant win, even though it
wasn’t a lot of money,” Berggren says. “I’ve realized as
a retired person that oftentimes I need to be my own
advocate.” A Ford spokeswoman says that the company “has a process in place
to find pension participants” when participants are required
to start taking
distributions. K
Eleanor Laise
istockphoto.com
at Verizon Communications. That was a surprise to
Rowland, who had never worked for Verizon—but
Nynex had merged with Bell Atlantic, which later acquired GTE and became Verizon. The whole process of
finding the pension, he says, was “an obstacle course.”
A Verizon spokesman says that the company has procedures to try to contact participants before they turn 65.
It’s not just a few retirees who are slipping through
the cracks. Plans the government has examined so far
owe more than $500 million to retirees. One plan had
thousands of “missing” participants age 65 and older, but the Labor Department was able to find 70% of
those people using basic online search tools. “It’s a very
big problem,” a Labor official says, adding that some
trustees have “lost sight of this very basic duty” to
provide earned benefits to participants.
from the mailbox
Your Questions Answered
a
Figuring Out Cost Basis
Of Lost Stock Shares
An unclaimed property firm
discovered stock shares that
my father owned when he
died seven years ago. Now that
I am the owner of the stock, do
I treat my cost basis as the value when my dad died?
Yes, according to Kaye Thomas, a tax lawyer and
publisher of the Tax Guide for Investors at www.fairmark
.com. He says losing track of the stock does not affect
the rule that the basis of stock owned by a decedent is
stepped-up to its value on the date of his death. You
can find historical prices at www.finance.yahoo.com.
q
File-and-Suspend Snafu
My husband beat the deadline to use the file-andsuspend strategy so that I could claim a spousal benefit when I turn 62 in July. But when I called my local Social
Security office in May, I was told that I was out of luck because the April 29 deadline applied to me, too. I thought
the deadline only applied to the spouse who was suspending a benefit, not to the one who was claiming a
spousal benefit. Am I forbidden to get a spousal benefit
until my husband actually starts taking his?
No, you can qualify as soon as you’re 62. The change
in the rules effective April 30 means anyone who suspends benefits from now on will suspend any spousal
or dependent benefits based on his or her record, too.
But because your husband suspended before April 30,
you can collect a spousal benefit based on his record.
Try Social Security again, and if you get more pushback, ask to speak with a supervisor.
Mixing an RMD and a Roth Conversion
You frequently warn that those of us over age 70½ must
take required minimum distributions from our IRAs before we can convert any part of that IRA to a Roth IRA. I
don’t understand why the IRS cares about the order, as
long as it gets its taxes on both the RMD and the converted amount. What’s the source of this rule?
The requirement is spelled out specifically in IRS regulations. One accountant who specializes in IRAs shares
your puzzlement. “It’s a stupid rule,” he says, “but it
is the rule.” If you convert money to a Roth IRA before taking your RMD, and the IRS notices, you could
be hit with the 6% excess-contribution penalty because
you’re not allowed to roll over an RMD into a Roth IRA.
File 1040X to Claim Overlooked Deduction
I just learned that since I’m self-employed, I can deduct
the cost of my health insurance even though I don’t itemize deductions. Unfortunately, I’ve already filed my return.
How hard is it to amend a return?
You may be pleasantly surprised because you don’t
have to redo your entire return. On the Form 1040X,
you’ll change the amount of your “adjustments to
income” to include your qualifying premiums. (The
Form 1040 instructions have a worksheet for computing that amount.) Then you’ll show how the change
affects your taxable income and the amount of tax
due. There’s a box to explain the change. Because your
change will reduce the tax you owe, you’ll get a refund.
Be patient; it may take up to four months to process the
amended return. But you can check its status by using
the “Where’s My Amended Return?” tool at IRS.gov or
by calling 866-464-2050 three weeks after filing the
form.
Lowdown on Pension Plan Termination
My defined-benefit pension plan is being terminated,
and my pension will be replaced by an annuity provided
by an insurance company. Any thoughts?
If you have not yet retired, locate your most recent
benefit statement and make sure both your employer and the insurance company have your correct salary
history and dates of employment. The insurance company may recalculate benefits when taking over the
pension plan, so double-checking this information will
minimize the risk of disputes over how much you’re
entitled to receive.
If you’re already receiving your pension, your
monthly benefit shouldn’t change. But instead of
being protected by the Pension Benefit Guaranty Corp.,
the federal agency that insures most private pensions,
your annuity will be covered by your state guaranty
association. Limits on this coverage vary by state. You
can find information on your state’s guaranty association at www.nolhga.com. K
do you have a retirement-Planning question?
E-mail it to [email protected].
june 2016 kiplinger’s Retirement report
|9
Information to Act On
ECONOMY
n Housing outlook. The housing market picked up steam as the spring selling season kicked in. Sales of existing
homes rose 5.1% in March to an annual
rate of 5.33 million units. Sales rose in
all regions of the U.S., up to 11.1% in the
Northeast and 9.8% in the Midwest.
INVESTING
n Target fund trends. Recently hired and younger employees
tend to favor target-date funds in their 401(k)s, according to a
study by the Investment Company Institute and the Employee
Benefit Research Institute. Nearly 60% of those with two years
or less on the job hold target funds, compared with 48% of all
401(k) participants. Sixty percent of those in their twenties held
target funds, while 41% of plan members in their sixties did.
TAXES
HSA limits. The annual limit for deductible contributions
to health savings accounts in 2017 will go up $50, to $3,400,
for singles. For those with family coverage, the annual cap will
remain at $6,750. To contribute to an HSA, you must have a
n
tax tip
A Home-Sale Bonus
Selling your home at a sizable profit? Congratulations. And, even better, rejoice in the fact that
all of the profit may be tax-free. For single homeowners, up to $250,000 of profit on a principal
residence is tax-free. Married couples can pocket
double that amount tax-free.
To qualify, you must have owned and lived in
the house for two of the five years leading up to
the sale. Your profit is the difference between the
proceeds of the sale and your tax basis.
Your basis is usually what you paid for the
place, plus the cost of any major improvements,
minus any depreciation (on, say, a home office)
or energy credits claimed over the years. Also, if
you postponed tax on the gain from a home sale
before the tax-free profit rule was enacted in
May 1997, reduce your basis by the untaxed gain
on that sale. See Publication 523 at IRS.gov.
10 | kiplinger’s Retirement report june 2016
high-deductible health plan, with a minimum annual deductible
of $1,300 for singles and $2,600 for family coverage in 2017—
the same as 2016. Also remaining the same: the maximum for
out-of-pocket expenses. For 2017, that limit is $6,550 for singles
and $13,100 for families.
n State tax stats. The Tax Foundation has launched an app
version of its Facts & Figures publication. View income tax rates
for all 50 states, and find tax rates by state for various products
such as gasoline. Download the free app from Apple’s App Store
or get the Android version from Google Play.
CONSUMER INFORMATION
n
Class action protection. The Consumer Financial Protection
Bureau (www.consumerfinance.gov) has proposed rules that
would allow consumers to file class action lawsuits against consumer financial companies. This would put an end to mandatory
arbitration clauses that prevent class action lawsuits regarding
products and services such as bank accounts and credit cards.
n Fraud trigger. Triggering emotions can make older adults
more susceptible to financial fraud, according to research by
Stanford University psychologists, AARP and the Financial
Industry Regulatory Authority. Research showed that inducing
excitement or anger increased the seniors’ intention to purchase
items in misleading advertisements. Download the report at
http://longevity3.stanford.edu/fraud-issue-brief.
BANKING
n New online option. Now almost everyone can have an account with Goldman Sachs. At press time, the new GS Bank was
offering an online savings account with no minimum deposit
and an annual yield of 1.05%. The bank’s 12-month certificate
of deposit pays a 1.00% APY; it’s 2.00% for a 5-year CD. Go to
www.gsbank.com, or call 855-730-7283. Goldman acquired GE
Capital Bank and reopened it as GS Bank.
RETIREMENT PLANNING
Online tool. Financial website
NerdWallet has a free online retirement
calculator. Plug in basic information,
such as your age and retirement contributions, and the results will tell you the
monthly amount you need in retirement and the monthly amount you are estimated to have.
Go to www.nerdwallet.com/investing/retirement-calculator.
n Gender gap. Women are more likely than men to face financial hardship in retirement, according to the National Institute
n
Rates and Yields
on Retirement Security. Women age 65 and older have incomes
25% lower than men, and they are much more likely to be poor.
Go to www.nirsonline.org.
n Income plan. When creating a “paycheck” in retirement, 77%
of retirees cite tax treatment of investments among the most
important considerations when deciding how or when to draw
income, according to an Ameriprise survey. Eighty-five percent
say they have a retirement income plan, and nearly two-thirds
have identified assets they will draw down first in retirement.
HEALTH CARE
n
Spending drop. Health care spend-
ing for some services dropped about
one-third when people switched from
private insurance to Medicare at age
65, according to a study published in
Health Affairs. The decline wasn’t a
result of a reduction in use of health
care services, the researchers found. Rather, the drop was driven
by lower prices paid by Medicare to doctors and other health
care providers. Read more at www.healthaffairs.org.
SOCIAL SECURITY
n
Exceptions. New Social Security rules generally require that
claimants receive the highest benefit for which they’re eligible.
But there are exceptions. Even if your own worker benefit is
higher, you can choose to receive a spousal benefit if you are caring for a child who is under age 16 or disabled. Or you can receive
spousal benefits if you are also entitled to disability. Also, if you
were 62 or older as of January 1, 2016, you can file a restricted
application for spousal benefits only once you reach age 66.
Certificates of Deposit
Six months
Yield
AloStar Bank of Commerce (Ala.)
California First National Bank (Cal.)
National Average
1.01% 877-738-6391
1.00 800-735-2465
0.17%
Phone Number
One Year
Yield
Colorado Fed Savings Bank (Colo.)
Connexus Credit Union (Wis.)*
National Average
1.35% 877-484-2372
1.33 800-845-5025
0.28%
Yield
Five Years
First Internet Bank of Indiana (Ind.)
Barclays Bank (Del.)
National Average
Phone Number
Phone Number
2.07% 888-873-3424
2.05 888-720-8756
0.83%
*Must be a member of the credit union. Yields include compounding and are as of May
13, 2016. For information on deposit insurance, go to the website of the Federal Deposit
Insurance Corp. (www.fdic.gov). SOURCE: Bankrate.com
Top-Yielding Money Market Funds
taxable
Yield Phone Number
Vanguard Prime MMF Inv
Vanguard Federal MMF
Category Average
0.41% 800-662-7447
0.29 800-662-7447
0.11%
tax-free
Yield Phone Number
Vanguard Tax-Exempt MMF*
CAT: Tax Ex/Deutsche T-E Money*
Category Average
0.29% 800-662-7447
0.18 800-730-1313
0.05%
*Fund is waiving all or a portion of its expenses. The 30-day simple yields are to
May 3, 2016. SOURCE: Money Fund Report
High-Dividend Stocks
We used Kiplinger.com’s stock-finder tool to screen stocks for at
least five years of consecutive dividend increases.
dividend stocks
Yield
share price
AT&T (T)
Verizon Communications (VZ)
Chevron (CVX)
4.9%
4.4
4.2
$39
51
100
Benchmarks
this month 3 months ago
TRAVEL
n Credit card perk. After reading “Insuring a Trip in Uncertain
Times” last month, a Retirement Report reader pointed out that
his credit card offers travel insurance coverage. But experts warn
that the coverage is typically not as extensive as that offered by
standalone policies. Read the fine print carefully to see exactly
what the card’s travel insurance covers and the dollar limits. You
generally have to book your travel using that card.
SPECIAL ISSUE
Annual guide. Kiplinger’s Retirement Planning 2016 is on sale
at newsstands. Or order a copy at kiplinger.com/go/retireKRR
or by calling 888-547-5464, operator #64. The cost to order is
$5.95 plus shipping.
n
Inflation rate*
Six-month Treasury
One-year Treasury (CMT)**
Ten-year Treasury
0.90%
0.36
0.55
1.70
0.70%
0.39
0.51
1.74
year ago
-0.10%
0.09
0.24
2.27
*Year-to-year change in CPI as of March 2016, December 2015 and March 2015.
**Constant Maturity Treasury yield.
Fixed Annuities
single-premium immediate-annuity
monthly payout factor
highest
average
Male age 65
Female age 65
Male age 70
Female age 70
$5.33
5.05
5.99
5.64
$5.10
4.84
5.75
5.41
Payouts are guaranteed to the annuitant for life, with a minimum payout period
of ten years. Payout factors are per each $1,000. SOURCE: Comparative Annuity Reports
(www.comparativeannuityreports.com). Data are to May 1, 2016.
june 2016 kiplinger’s Retirement report
| 11
without making a mistake,” says Jeffrey Levine, chief
retirement strategist for IRA consulting firm Ed Slott
and Co. “That means no partial rollovers into or out of
the account. No extra distributions. No forgotten distributions. No accidental contributions.” There’s a big
penalty for mistakes: The 10% penalty (plus interest) is
retroactively applied to all withdrawals.
MANAGING YOUR FINANCES
Tapping an IRA Early
With No Penalty
if you tap a traditional ira before age 59½,
you’ll usually get hit with a 10% early-withdrawal
penalty on top of the tax you owe on the withdrawal. But there is a way to avoid the penalty even if you
don’t qualify for one of the typical exceptions, such as
using the money to buy a first home or pay for college.
You don’t need to use the money for a specific reason to qualify for this break, but you do need to follow a very strict set of rules over a number of years.
“It’s important to understand that the rules surrounding this exception to the penalty are complex and rigid,
with considerable penalties,” says Dan Funk, a certified
financial planner with T. Rowe Price.
The rule is called “72(t)” for the section of the tax
code that spells out the various exceptions to the 10%
early-withdrawal penalty. It lets you withdraw money at any age and for any purpose, as long as you take
“substantially equal periodic payments” from the account for at least five years or until you turn age 59½,
whichever is later. If you’re 50 when you take your first
72(t) cash, you’ll need to keep taking the withdrawals until age 59½. If you start at 57, you’ll need to stick
with the program until age 62.
During that time, you can’t withdraw any more or
less than the required amount from the IRA, and you
can’t make new contributions to it, either. Only after
passing the five-year and age 59½ tests can you withdraw the remaining money however you’d like.
“If you start at age 45, you have to go almost 15 years
12 | kiplinger’s Retirement report june 2016
You have three options for calculating the size of penalty-free withdrawals. The calculation applies only to
the balance in the specific IRA you’re accessing early.
With the required minimum distribution method, you
calculate the required withdrawals based on your account balance at the end of the previous year and a life
expectancy factor from the IRS tables. You recalculate
the amount each year. This method typically provides
the lowest permissible payout, says Funk.
The amortization method sets a payment that would
drain the entire account over your life expectancy, assuming the remaining balance earns interest at a rate
of up to 120% of the federal mid-term rate, which the
IRS determines. The annuitization method is similar,
but it divides the account balance by an annuity factor (using an IRS mortality table and interest rate). The
required withdrawals remain steady under these two
methods, but you can make a one-time switch from the
amortization or annuity method to the RMD method.
A 50-year-old who has $200,000 in an IRA could
withdraw $5,848 in the first year under the RMD
method, $7,846 under the amortization method or
$7,816 under the annuity method, at current interest
rates, according to Beverly DeVeny, chief IRA analyst
for Ed Slott and Co.
Sound complicated? You can use a calculator, such
as the one at 72t.net, to compare the eligible withdrawals under each option. Your IRA administrator may be
able to help, but many will refer you to a tax adviser.
Because you can choose which IRA to tap, Funk recommends calculating how much income you need over
the time period and shifting money into a separate IRA
specifically for these withdrawals. “This account is
considered to be off-limits to additional distributions
or contributions, and is separate from all other IRA assets,” he says. You can make new contributions, rollovers or extra withdrawals from other IRAs (although
withdrawals from other IRAs before age 59½ may be
subject to the 10% penalty). Because the rules are very
complicated, the 72(t) option is usually a last resort. K
Kimberly Lankford
istockphoto.com
Choices for Calculating Payouts
MANAGING YOUR FINANCES
A Payout Limit on Social Security Benefits
out, that remaining $1,650 would be split evenly between the spouse and the child. If there were two qualifying children, the spouse and kids would get $550
each. When kids age out of eligibility, the amounts paid
to those still qualifying would increase.
Note that the maximum dollar limit can differ by
beneficiary because the limit is based on a worker’s
earnings. “The higher your earnings are, the higher your benefit and the higher your family maximum,”
Blair says.
When the Cap Doesn’t Apply
istockphoto.com
when a worker becomes eligible for social
Security, other family members may qualify for
benefits on that worker’s record, too. But there’s
a limit on how much can be paid on a single record—
known as the family maximum—and it can squeeze
what a spouse or dependent might otherwise be
entitled to.
Although the family maximum can range from
about 150% to 180% of a worker’s full retirement age
benefit, the cap is typically 175%, says Jim Blair, a
former district manager for an Ohio Social Security
office and a partner at Premier Social Security
Consulting, in Sharonville, Ohio. “If you have two
or more benefits coming off your record, the family
maximum will apply,” he says. Those benefits could
be paid to a spouse, a young child, a disabled child or
a dependent parent.
Here’s how it works: Let’s say a husband claims his
$2,200 a month benefit at his full retirement age of
66. His 66-year-old wife could claim a spousal benefit worth half of his benefit. The couple will receive
$3,300 a month in Social Security benefits—which falls
below their family maximum of $3,850, or 175% of his
full benefit.
But let’s say there’s a child in the mix. A child under the age of 18 (or under age 19 if a full-time student)
can receive a benefit of up to 50% of a worker’s full retirement age benefit. The 66-year-old worker would
get his $2,200 a month. But paying $1,100 to the wife
and $1,100 to the child would bring the family’s benefit to $4,400—and that exceeds the family maximum of
$3,850. So, says Blair, after the worker’s benefit is paid
Retirement Report reader Ted Laux of Ithaca, N.Y.,
wondered what happens if a worker delays taking his
Social Security benefit past full retirement age to earn
delayed-retirement credits. Laux, 68, says he’s worried
that if he waits until age 70 to claim, his boosted benefit plus his wife’s spousal benefit would cause the couple to exceed their family maximum.
But he can rest easy: Delayed credits don’t count
in this equation. The family maximum is based on the
worker’s full retirement age benefit. If a worker with
a $2,200 full retirement age benefit waits to 70 to earn
an extra 32% in delayed-retirement credits, his benefit would rise to $2,904 a month. But only the $2,200
full retirement age benefit is built into the family maximum equation. Up to $1,650 more could be paid out to
a spouse or eligible kids each month.
The family maximum also typically doesn’t matter
for divorced spouses. Benefits going to an ex who
has been divorced for at least two years are not included in the family maximum calculation, says Diane
Wilson, a client services adviser for Social Security
Solutions, a Kansas City–based firm that advises workers on how to maximize their lifetime Social Security
benefits.
Dual-earning couples in which each spouse qualifies for a benefit larger than 50% of the other’s benefit are free of this limitation, too. Say both spouses have
a $2,200 full retirement age benefit. If they each take
their own Social Security benefits at age 66, they would
bring in $4,400 a month. If they both delay claiming
benefits until age 70, the total rises to $5,808 a month.
Either way, the couple’s benefits are based on two
different earnings records—and the family maximum
is moot. K Rachel L. Sheedy
june 2016 kiplinger’s Retirement report
| 13
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deployed—your tax refund, or noticed that the IRS wise, you6can be penalized for underpayment of taxes.
happily cashed your check for the balance due.
To figure out how much to send in, you need to esBut before you stash away your 2015 tax papers, take
timate your taxable income for the year, your deducone last look at the bottom line of your Form 1040.
tions, credits and everything else that goes into figIf it shows that you owed the IRS or the IRS owed
uring your tax bill. Subtract the amount that will be
you more than $1,000, you face one more tax chore: 4P covered by withholding and the remainder is due in
Tweaking your tax payments for the rest of 2016 so the
four payments. Don’t assume the payments are due
amount you pay in withholding and estimated payat neat, three-month intervals. The first is due April
ments comes closer to what you’ll actually owe.
15, the same time as your return for the previous year.
If you’re still working, consider amending the Form
Then two months later on June 15, three months after
W-4 on file with your employer. Boosting the number
that on September 15, and finally four months later on
of allowances you claim will cut withholding and reJanuary 15 of the following year. Use IRS Form 1040duce next year’s refund; reducing the number will do
ES to figure your quarterly payments.
the opposite and reduce what you’ll owe next spring.
n RMD solution. Retirees taking required minimum disFor someone in the 25% tax bracket, each allowance
tributions from traditional IRAs may have an extra opclaimed or eliminated will result in an extra $1,000 less
tion for meeting the tax law’s pay-as-you-go demand.
or more being withheld over the course of the year.
If you don’t need the required distribution to live on,
Making the change midyear cuts that adjustment in half. wait until December to take the money. And ask your
So, if you got a $3,000 refund this year—and you
IRA sponsor to hold back a big chunk of it for the IRS—
expect this year’s income and deductions to be similar
enough to cover your estimated tax on both the RMD
to last year’s—claiming an extra three withholding
and other taxable income as well, including investment
allowances starting in July would let you collect an
income such as interest, dividends and capital gains.
Although estimated tax payments are considered
extra $1,500 in your paychecks during the second half
made when you send in the checks—and must be paid
of the year, and cut next year’s refund in half. Our nifty
as you receive your income during the year—amounts
calculator at kiplinger.com/links/withholding can help the
75% of taxpayers who get refunds each year figure how withheld from IRA distributions are considered paid
many extra allowances they should claim.
throughout the year, even if made in a lump-sum payment at year-end. So, if your RMD is large enough to
Paying the Piper on Retirement Income
cover your tax bill, you can keep your cash safely enUnlike wages, which are subject to mandatory withsconced in its tax shelter most of the year and still
holding, it’s up to you whether the IRS gets a crack at
avoid the underpayment penalty. K Kevin McCormally
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14 | kiplinger’s Retirement report june 2016
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YOur HEALTH
Medicare Rules for
Home Health Care
istockphoto.com
medicare home health coverage can be a crucial
benefit for seniors who have just been discharged
from the hospital or who struggle with a chronic
condition and have difficulty leaving home. But taking
advantage of this benefit can be a real challenge.
Medicare covers in-home services, including skilled
nursing and physical therapy. For eligible patients,
there’s generally no charge and no limit on how long
they can receive the benefit.
The problem, patient advocates say, is that the eligibility requirements are often misunderstood both by
patients and providers. Medicare’s requirement that
patients be “homebound,” for example, is sometimes
wrongly interpreted as meaning that an individual who
occasionally leaves home can’t qualify.
Confusion over the rules means that some patients
never seek care because they mistakenly believe they
won’t qualify—while others are wrongfully denied care
or see their services terminated prematurely, critics
say. “There’s a lot of subjectivity in some of the rules”
governing home health benefits, says Casey Schwarz,
senior counsel for education and federal policy at the
Medicare Rights Center, an advocacy group.
About 3.5 million people received Medicare home
health services in 2014, according to the Centers for
Medicare and Medicaid Services. To qualify, you must
need part-time skilled nursing, physical or occupational therapy, or speech-language pathology. The services
must be provided by a Medicare-certified home health
agency, under a care plan established by your doctor.
To find Medicare-certified agencies in your area, go to
www.medicare.gov/homehealthcompare.
The final requirement: A doctor must certify that
you’re homebound. But this isn’t as restrictive as many
people assume. To be homebound under Medicare’s
rules, your illness or injury must cause you to have
trouble leaving your home without help, such as using a walker or special transportation, or leaving home
must be difficult and medically unadvisable because of
your condition. Occasionally attending religious services, visiting the doctor’s office or going to adult day
care doesn’t mean that you can’t qualify as homebound.
“Sometimes people think homebound means they have
to be bedbound. Not true,” says Melissa Simpson, senior
program manager at the National Council on Aging’s
Center for Benefits Access. Some Medicare Advantage
plans waive the homebound requirement altogether.
What to Do If You Are Denied
Your home health care should continue as long as
you meet the eligibility requirements. In some cases,
patients’ services are cut off because their condition
is not improving. But the rules have never demanded that a patient’s condition improve, says Diane Omdahl, president of 65 Incorporated, a firm that helps
seniors navigate Medicare. In 2011, Medicare beneficiaries filed a nationwide class action lawsuit claiming
that providers were inappropriately applying an improvement standard—and the 2013 settlement of that
case clarified that patients should be able to get care to
maintain their condition or even slow their decline. Yet
the misperception persists, says Michael Benvenuto,
director of the elder-law project at Vermont Legal Aid,
which represented the plaintiffs in the case.
If you think your home health care is being wrongfully denied or cut off prematurely, you can file an
appeal. When a home health agency suspends care,
it should give you a written notice that includes the
rationale for ending care and contact information for
a Quality Improvement Organization—the group of
health-quality experts that will review your appeal.
You can get free help with your appeal—or simply
with navigating the home health care benefit—by contacting your State Health Insurance Assistance Program (find your state’s program at www.shiptacenter.org).
The Center for Medicare Advocacy offers detailed
instructions for appealing home health care denials
at www.medicareadvocacy.org. Click “coverage/appeals”
and then “self-help packets.” K Eleanor Laise
june 2016 kiplinger’s Retirement report
| 15
ALS Patients Lead
Independent Lives
steve saling can turn on the tv , open and close
on the walls. Sports paraphernalia and beer bottles
from trips to Montana and Belize line the shelves.
What Saling, 48, likes the most is the “freedom and
independence” the technology offers. He can control the stations on his flat-screen TV, change his room
thermostat, visit a friend on a different floor and close
his door. The technology and the care he receives enable him to “continue to live a vital and productive life.”
the door to his bedroom, and control the elevator
in his apartment building. That may not seem
remarkable—until you realize that Saling has ALS and
Planning for His Future
can barely move a muscle.
When Saling was diagnosed at age 38, he was working
Saling designed the computer system that enables
for a Boston architectural firm designing outdoor
him to enjoy a level of independence that’s unprecspaces. “Ironically, my specialty was in designing places
edented for people with ALS. Using a tiny computer
that would be accessible to people with disabilities,”
mouse on his eyeglasses, he gives directions to a comhe says. As he researched living options for when the
puter that is mounted on his motorized wheelchair. He disease progressed, Saling says he was horrified at what
also helped design the Leonard Florence Center for
he discovered. Young ALS patients he visited were livLiving, in Chelsea, Mass., the skilleding in nursing homes, sharing
nursing facility where he’s lived
small rooms with 90-year-olds.
since it opened in 2010.
Unable to move, they spent their
Earlier this year, I visited Leondays staring at the ceiling.
ard Florence, which has ten Green
At an ALS conference, Saling
met Barry Berman, chief execuHouses, an innovative alternative to
tive officer of the Chelsea Jewish
the traditional nursing home. The
Foundation, which operates nursten residents in each Green House
ing facilities in the Boston area.
have private bedrooms and bathrooms that surround a kitchen, a dinBerman had begun designing a
ing table and a living room (read “A
Green House complex for seniors,
but was intrigued with the idea
New Model for Nursing Home Care,”
of using the model for people
April). A team of certified nursing asSteve Saling designed the
with ALS and MS.
sistants cook meals and provide indi- computer system on his wheelchair.
vidualized attention to residents.
Saling and Berman decided to
The 187 Green House developments in 28 states
work together. Saling met with the architects, and the
typically serve older adults with dementia and other
elevator and window-shade designers. He also worked
chronic conditions. But two of the Green Houses
with a technology company to create the wireless auat Leonard Florence, which is run by the Chelsea
tomation system that now takes commands from each
Jewish Foundation, are designed specifically for those
ALS and MS resident. “He has a keen sense of techwith ALS, commonly referred to as Lou Gehrig’s disnology,” Berman says. “He knew that technology could
ease. One serves residents with multiple sclerosis.
change the lives of so many people with disabilities.”
“It’s truly a home in every way,” says Saling, who is
Berman and Saling would like to see the tech-heavy
on a ventilator and speaks through his computer.
ALS residential model replicated by nonprofit nursing
He gave me a tour of Leonard Florence, including
homes elsewhere. But such care is hugely expensive.
its lobby café and chapel. He called for the elevator and Most ALS patients are covered by Medicaid, which
took me to the Green House that he shares “with my
pays just a fraction of the cost. “Without philanthropy,
other friends”—all with ALS. A landscape architect, he
this would not be possible,” Berman says.
showed off the hillside garden he designed by sending
The roadblocks don’t intimidate Saling. He says
e-mail instructions to workers who did the planting.
he is “busier than ever” trying to show others that
Saling’s room is large, sunny and painted in bright
a combination of technology and humane care can
colors. Photos of his formerly physically active life—
revolutionize the lives of the severely disabled. K
skiing, skydiving, sailing, swimming with his son—hang Susan B. Garland
16 | kiplinger’s Retirement report june 2016
Susan B. Garland
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