Christmas Day 2009
ELDER MUSIC: Toes Up 2009

GRAY MATTERS: Some Basics

SaulFriedman75x75 Pulitzer Prize-winning journalist Saul Friedman (bio) writes the weekly Gray Matters column which appears here each Saturday. Links to past Gray Matters columns can be found here. Saul's Reflections column, in which he comments on news, politics and social issues from his perspective as one of the younger members of the greatest generation, also appears at Time Goes By twice each month.

This is a good time, before the year is out, to catch up on some things financial that older Americans need to know. Much can be left to your adviser or accountant, but these days it’s better if you understand and have a hand in your finances and what’s going on with your Social Security and Medicare benefits.

Social Security
As you’ve probably heard, there will be no cost of living adjustment (COLA) or increase beginning in January for Social Security beneficiaries. This is a first, but it’s difficult to complain; the COLA in 2009 was a healthy 5.8 percent, the highest since 1982, and many Americans who worked (if they did) did not see that sort of increase in their wages, if any.

I know that the actual cost of living – housing, food, medical care and drugs - grew faster for older people than the official Consumer Price Index, which has been flat during this recession. The same inequity is involved in calculating poverty levels, which cheats some people out of benefits. Several members of Congress have promised legislation to change the CPI for the benefit of older consumers, but it won’t happen anytime soon.

Medicare
President Obama has said he’s considering a flat payment of $250 for every beneficiary in lieu of the COLA and Congress may stir to act on this. For most beneficiaries, the lack of a COLA increase means that the present Medicare Part B monthly premium of $96.40 cannot be raised because of what are called the “hold harmless” provisions in the law which say your Social Security benefits cannot be reduced.

However, for newcomers to Medicare, the standard Part B premium next year will be $110.50. And because of the Medicare Part D law of 2003, the program now provides means testing for the first time whereby more affluent beneficiaries will pay still higher premiums.

Thus, the premium for individuals with yearly incomes between $85,000 and $107,00 will be $154.70; between $107,000 and $160,000: $221; between $260,000 and $214,000: $287.30; greater than $214,000: $353.60. For couples filing joint returns, double all these income numbers to find your premium.

There are other Medicare numbers for next year: The Part B yearly deductible (now at $110) is going up to $155. While Medicare pays 100 percent of the first 20 days of skilled nursing care (usually after a hospital stay of at least three days), the co-insurance for days 21 to 100 will be a hefty $137.50 a day, which is why Medicare cannot be considered long term nursing care.

The Part A hospital deductible is going up to $1,100 per spell of illness. Hospital stays for the first 60 days are fully covered, but co-insurance is $275 a day for days 61 to 90 and $550 for days 91 to 150.

The 2010 resource limits, recently announced, for the full Low Income Subsidy to pay for Part D premiums and other costs are $8,100 for an individual and $12,910 per couple. And for the partial subsidy, $12,510 for an individual and $25,010 if married.

While Medicare does not cover long term nursing care, it does cover most of the costs of medical care for nursing home residents or during home care. Medicaid, the federal program administered by states, will cover nursing care and in a future column, we’ll explore planning for Medicaid when a loved one needs nursing care and while the spouse remains at home.

There’s been some talk on Capitol Hill that the health care reforms now before the Congress may eliminate some higher Part B premiums which, I believe, were approved by the Republican Congress in 2003 to encourage more affluent people to desert Medicare for private insurance.

One more Medicare note: Under the law, Part B premiums must pay for one-quarter the cost of Medicare services for doctors and other outpatient services. Because the Congress is expected to cancel scheduled cuts and raise fees for doctors, the Associated Press and critics of health reform have reported that this would result in higher Part B premiums during the next ten years.

The one-quarter rule and rising doctor fees have been responsible for past premium increases, but David Certner of AARP told me that the increase in the fees for doctors will be offset by other savings in the Medicare program and premium raises will be held down. We’ll see.

Mandated IRA Withdrawals
On another money issue, my sources in Congress tell me that the IRS will NOT suspend for another year, the requirement that persons over 70-1/2 must, during the year, withdraw from their IRAs and other tax-deferred savings plans a certain amount of money, based on one’s age. It’s called the Required Minimum Distribution (RMD). Your financial adviser or plan administrator, who usually arranges for the distribution, has the IRS uniform table which tells you how to figure what you need to withdraw. But if you want to know how much of a distribution to make, I have the table and I can e-mail to you if you ask.

For the uninitiated, the first RMD must be taken by April 1 in the year after you reach 70-1/2, and subsequent distributions are taken each year by December 31. If 2009 is the year in which you turned 70-1/2, you may delay the withdrawal until 2010 because of the suspension. But if there is no suspension for 2010, it would be best to make the withdrawal during the year rather than waiting until April 1, 2011.

The withdrawal amount next year will be a percentage based on the total value of all your IRAs (or 401(k)s), as of this coming December 31, when the market is expected to be relatively high. That means the withdrawal will be high and while you may save or reinvest it, you must add it to your income and pay taxes on the amount.

Roth IRAs are exempt from required withdrawals. You should ask your accountant, administrator or financial adviser early next year to begin planning to set aside the funds for the distribution. And let’s hope that the congress or the IRS does us a favor and suspends RMDs for another year.

Income Tax Deductions
If you itemize on your tax returns, I assume you know that all the Medicare (and Medigap) premiums, deductibles and co-pays are tax deductible provided that they, along with other unreimbursed medical expenses exceed 7.5 percent of your adjusted gross income.

But many taxpayers don’t realize that part of those hefty long term insurance premiums are deductible. Here are the allowed deductions for this year and 2010:

  • Age 40 to 50: $600, $620

  • 50 to 60: $1,190, $1,230

  • 60 to 70: $3,180, $3,290

  • Over 70: $3,980 and $4,110

The self employed may deduct the entire premium regardless of the 7.5 percent threshold.

Entitlement Commission
A warning: As Time Goes By has told us, be very afraid of proposals by Senate conservatives (Democrats and Republicans) to create a bi-partisan commission to deal with the deficit in general and Social Security and Medicare in particular. One reason: that would take the future of these programs out of the hands of Congress.

More important, when will these idiot lawmakers learn that Social Security is not in crisis and the benefits do not contribute one penny to the deficit.

Don’t agree? Need help? Write to saulfriedman@comcast.net

Comments

Saul....

I, like everyone else, have assumed there would be no increase in Medicare Part-B premium which was indeed $96.40 per month for 2009. However, I received my new Benefit Statement for 2010 a few weeks ago and it reflects a Part-B premium of $96.50 for the upcoming year.

Granted it is only ten cents per month but nevertheless, it is an "increase". Perhaps it is an error in the statement. I will determine that when I get my January Social Security check. But at this point, I remain suspicious!

Of course I will contact the Social Security folks if I do see an increase - so we'll see...

Thanks so much for the tip on long-term care insurance deductions. This is my year to make a decision about taking Social Security. I'm retired, and, after studying the numbers, I'm opting to take it. I'll use the monthly check to purchase the best CLTC insurance I can get, with a rider for assisted living, and to start a college savings account for my grandson. I don't know if this is wise, but it helps to know about the deduction. I'm getting too old to have to think this hard, so I welcome your valuable work here!

Like your plain talk on difficult issues. Now if politicians could only talk as clearly as you we might actually realize what is going on in Congress! -- barbara

Good info here I welcome being able to
reference myself and refer others to read.

Thank you, Mr. Friedman for this valuable information....I am so confused about everything and our limited income exacerbates the situation that your help it most welcome.

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