The Hidden Cost of Supporting Adult Children: Implications for Seniors Aging in Place

A recent report from Savings.com reveals a startling trend: 50% of American parents with adult children are providing regular financial support, averaging $1,474 per month. This figure, which has risen to a three-year high, underscores the economic pressures many young adults face in today’s cost-of-living crisis. For Generation Z, the average monthly support is $1,813, while millennials receive about $863. While parents may feel compelled to help their children navigate these challenges, this generosity could have significant consequences for their own financial security—particularly for seniors planning to age in place.

The Financial Strain on Parents

The Savings.com report highlights that parents are often prioritizing their adult children’s financial needs over their own retirement savings. On average, parents who provide this support contribute just $673 per month to their retirement funds—less than half of what they give their children. This imbalance is particularly concerning given the broader retirement crisis in the U.S. According to AARP, nearly 20% of adults over 50 have no retirement savings, and 61% worry about outliving their funds. A 2024 survey by the National Council on Aging adds that 80% of seniors are either financially struggling now or at risk of economic insecurity in retirement.

For seniors aiming to age in place—remaining in their homes as they grow older—this trend raises red flags. Aging in place often requires careful financial planning to cover costs like home modifications (e.g., ramps, grab bars), periodic in-home care, medical expenses, and general living costs. Diverting funds to adult children can erode the savings needed to sustain independence and comfort in later years.

Implications for Aging in Place

Reduced Retirement Savings: The most immediate impact of supporting adult children is the depletion of retirement funds. Seniors who prioritize their children’s financial needs may find themselves with insufficient savings to cover essential expenses later in life. For those aging in place, this could mean forgoing necessary home modifications or cutting back on in-home care services, potentially compromising safety and quality of life.

Increased Financial Dependence on Children: Ironically, parents who support their adult children now may inadvertently create a cycle of dependency. If young adults remain reliant on parental support, they may struggle to build their own financial stability. This could leave them less capable of providing financial or caregiving support to their aging parents in the future. For seniors aging in place, the expectation that children will “step up” later may not materialize, leaving them vulnerable to financial hardship.

Emotional and Relational Stress: The Savings.com report notes that 77% of parents attach conditions to their financial support, such as encouraging employment or education. While these boundaries are practical, they can strain family relationships. For seniors aging in place, maintaining strong family ties is often crucial for emotional support and occasional assistance. Financial disagreements could weaken these connections, leaving seniors more isolated.

Long-Term Economic Insecurity: With 18% of parents reporting that their support for adult children may continue indefinitely, the long-term financial outlook for these seniors is precarious. Aging in place requires a sustainable financial plan, but ongoing support for adult children could drain resources, increasing the risk of economic insecurity or even forcing seniors to relocate to more affordable (and less desirable) living situations.

Hidden Risks of Financial Dependency

Beyond immediate financial strain, supporting adult children can spark deeper risks that threaten seniors’ ability to age in place safely and securely.

Fomenting Crisis Desperation:  Adult children who rely heavily on parental support may face intense financial and emotional strain when that support diminishes, especially in today’s economic climate. This desperation can cloud decision-making and disrupt the mutual support families often expect. For instance, a child struggling to maintain their lifestyle might delay or forgo a parent’s necessary medical treatment to preserve funds. Others may keep a parent at home, despite lacking the ability to provide adequate care, prioritizing financial stability over safety. In extreme cases, desperation could lead to coercion, such as pressuring a parent to alter an estate plan to ensure continued support, or, in the worst scenarios, even result in elder abuse or violence.

Risk of Assets: Financial dependency also exposes seniors’ assets to significant legal and financial risks. Joint ownership of property or accounts with a child, often seen as a way to provide support, can expose those assets to the child’s liabilities, such as debts or lawsuits. Cash transfers to or for the benefit of children may later impair eligibility for government assistance programs like Medicaid or Passport, which have strict asset and income limits. In the most troubling cases, dependency can lead to theft or misappropriation, where a child intentionally or recklessly depletes a parent’s resources, leaving them unable to afford aging in place expenses.

Broader Consequences: The National Center on Elder Abuse reports that financial exploitation affects 5-10% of seniors annually, often by family members under financial stress. Untrained or overwhelmed children providing care may neglect critical needs, like medication management, increasing risks of falls or health declines. The mental health toll is also significant—seniors may feel anxious or coerced into continued support, while children face guilt or resentment, straining family bonds essential for aging in place.

Strategies for Balancing Support and Security

To protect their financial future while supporting their children, seniors can adopt these strategies:

Set Clear Boundaries: Discuss financial support openly with children, setting limits like a fixed monthly amount or a cutoff age (e.g., 25 or 30). The Savings.com report shows 77% of parents use conditions to encourage independence, a model others can follow.

Prioritize Retirement Savings: Financial planners emphasize saving for retirement first. Seniors should ensure monthly retirement contributions at least match or exceed support given to children.

Offer Non-Financial Support: Instead of cash, provide help like job search assistance, temporary housing, or financial literacy resources to foster independence without draining savings.

Protect Assets Legally: Work with an elder law attorney to safeguard assets through trusts, powers of attorney, or other tools. Avoid joint ownership or large cash transfers that could jeopardize Medicaid eligibility or expose assets to a child’s liabilities.

Plan for Aging in Place: Budget for home modifications, explore long-term care insurance, and apply for programs like Medicaid or HUD’s Section 202 for low-income seniors. An elder law attorney can ensure plans align with long-term goals.

Foster Family Communication: Hold family meetings to align expectations and prevent desperation-driven conflicts. Mediation or financial planning sessions can help maintain healthy dynamics.

Monitor for Exploitation: Stay vigilant for signs of financial abuse, such as unauthorized withdrawals or pressure to change estate plans. Regular check-ins with a trusted advisor or attorney can provide oversight.

A Call to Plan Ahead

The Savings.com findings are a wake-up call for seniors and their families. While helping adult children is natural, it must not compromise financial security or expose seniors to exploitation. For those committed to aging in place, preserving savings, protecting assets, and fostering healthy family dynamics are critical to maintaining independence.

By setting boundaries, prioritizing savings, and seeking legal guidance, seniors can support their children without sacrificing their future. Aging in place is a rewarding goal, but it demands discipline and foresight—starting with today’s decisions.

For personalized guidance on aging in place or elder law matters, consult a qualified elder law attorney or financial planner to ensure your plan aligns with your long-term goals.

Ohio Department of Medicaid Changes Treatment of Retirement Plans- Eases Burden of Planning

The Ohio Department of Medicaid (ODM) has finally adopted a change that means retirement accounts will no longer be counted  as resources for determining Medicaid eligibility. This means that Ohio law now comports with existing federal law,"[a]fter six suspenseful years," as one law firm characterized the change,  Understanding the change, and its impact, requires some appreciation of  Medicaid and its role in paying for long-term care.

As most know, Medicare provides no real long-term care benefit. Medicare does not cover the cost of any care in a nursing home when a person requires only custodial care. Custodial care includes the following services:

• bathing
• dressing
• eating
• going to the bathroom

Generally, if the care or services that a person requires can be provided by another person without a degree or certification, Medicare does not cover the service.  There is no licensing required for one person to assist another to bathe, or to dress themselves.  There is, of course, licensing required for dispensing medical care, or providing certain rehabilitative care services such as physical therapy and occupational therapy.  

Further, non-custodial care is not fully covered by Medicare.  The best Medicare will do is pay for acute or rehabilitative care for a short period of time following a three-day hospitalization.  The Medicare benefit provides payment for twenty (20) days of institutional care following hospitalization, and additional payments for necessary care up to a total of one hundred (100) days.  After that one hundred (100) days, if a person needs long-term care (in-home assistance, assisted living, or a nursing home), that care is not paid for by private health insurance or by Medicare. 

Nursing home care can cost, on average, $8-12,000/month. Most people cannot afford to pay out of pocket such a large amount for long, so many turn to Medicaid to cover these costs.

Medicaid will pay for the cost of a nursing home or assisted living facility, provided that the institution accepts Medicaid reimbursement, but Medicaid benefits are limited to the impoverished.  That means that:

• A single person can have no more than $2000 to their name (in addition to a home and a car);
• A married couple is limited to a maximum of $139,000 and often less if the combined estate is less that $278,000 (the Community Spousal Resource Allowance or CSRA is one-half of the estate up to $139,000 but only one-half whatever the estate is valued at if the estate is less than $278,000).

To qualify, Medicaid applicants must "spend down," a euphemism for impoverishing themselves, especially since the person receiving their benefits may have to contribute their income to their cost of care.

Taxes and Retirement Accounts Under The Old Rules

For many people, retirement accounts (IRAs, 401ks, 403bs, deferred compensations, Roths, etc.), have replaced the home as the most valuable asset in their estate. Retirement accounts are owned by human beings (for example, trusts or LLCs cannot own retirement plans), and cannot be transferred between people except by death or divorce. Except for Roth IRAs, the taxes haven’t been paid on the accounts, so if individuals want to cash it out, they’ll incur significant income tax. 

Safeguarding the home or after-tax investments from spend-down ahead of time under the Medicaid rules is and has been fairly straightforward. Simply, to protect the retirement accounts, the account would be liquidated and the tax  incurred and paid.  In addition to the tax consequence, liquidation often meant losing the future benefits of tax deferred growth.  The options for safeguarding retirement accounts were limited, complex, expensive, and, for most people and advisors, frustrating. 

Many people would simply leave their retirement assets exposed to spend-down risk, choosing to forego the tax incurred and necessary, and protect their home and other assets.  Imagine a senior paying the cost and expense necessary to protect their $200,000 home, only to lose their $500,000 IRA left exposed. Those who chose against protecting the IRA in advance would, in crisis situations, end up with a severe tax consequences liquidating their IRA to either pay for care, or to protect other assets.

Under the old rules, if a couple had $500,000 in retirement assets, that amount counted toward their asset limit. They would have to spend their money until they reached $139,000 in total countable assets, incurring taxes along the way.  Retirement accounts were not treated any differently than checking or brokerage accounts for eligibility purposes.

Taxes and Retirement Accounts Under The New Rules

Starting in 2016, Ohio changed how it takes Medicaid funding from the federal government. As part of that change, it had to align Medicaid with Social Security disability asset rules. Under Social Security rules, retirement accounts are not counted as assets if they pay out regular, periodic payments – those payments are counted as income instead. In other words, as long as you take your required minimum distribution, or set up a recurring distribution that looks like a required minimum distribution, then Medicaid wasn't supposed to consider how much is in that account, just how much those distributions are.

After four years, the Ohio Department of Medicaid finally started talking about making the change. Some counties adopted these rules consistently, others inconsistently, and some not all. Finally, after more than a year of promising guidance, ODM published Medicaid Eligibility Policy Letter 164 on May 26, 2022. This letter clarified how the Social Security rules applied to Ohio and confirmed that retirement account payouts should be treated as income, and the principal should not be counted.

The change means seniors won't be forced to cash out their retirement accounts in order to qualify for Medicaid. It will save taxes and allow more money for the applicant or the healthy spouse. 

Some folks believe, and are being led to believe that the new rules completely protect retirement accounts.  That is not true.  The income is still countable, but estate planning can provide a solution in the form of a Qualified Income if the income is excessive.  Even then, and more fundamentally Medicaid estate recovery still exists.  Medicaid estate recovery permits Ohio to recover money paid in benefits from a Medicaid recipient’s estate.  

Regardless, the change will make planning much comfortable for people with large retirement accounts. 

Importance of Senior Tax Deduction Returns in 2021

A tax break for seniors that all but disappeared last year has resurface this year. This tax break benefits retirees in their 70s and up. These tax breaks are qualified charitable distributions (QCD), "which allow individual retirement account holders to divert some of their federally taxable required distributions to charity." The deductions allow IRA holders to make donations and reduce their federally taxable income. 

The pandemic limited the effectiveness of this deduction last year.  The Cares Act effectively cancelled required minimum distributions (RMDs).  Even though you could still use QCDs, their effectiveness was almost completely eliminated due to the cancellation of RMD requirements in 2020:  those who didn't want the taxable income could simply forego the RMD, and thus, there was no need to take take advantage of the QCD.

Now, retirees can take advantage of these contributions. However, if considering QCDs, you should consult with your financial or tax  advisor to discuss the best way to take advantage of these contributions, or possibly to stay away from them.  There are limitations and possible pitfalls. 

For more information, go here.

Source: Allan Sloan, "A tax break for retirees is back. Here’s how to use it — and what to avoid," Washington Post, March 18, 2021. 

Retiring to a Foreign Country - Americans Lose $100 Million on Tropical Real Estate Says FTC

Click here to see the facebook post, with a link to the article.

Click here to proceed directly to the Wall Street Journal article. 

Reforming Social Security with Child Caregiver Credits

The Center for Retirement Research at Boston College has released an issue brief entitled, "Modernizing Social Security: Caregiver Credits."  The brief opens with the following statement of the challenge presented by recent demographic changes:

Women still tend to work fewer years and earn less than men, which leads to less income in retirement. One reason is that women are often still the main family caregiver. Traditionally, Social Security has recognized this role by providing spousal and widow benefits for married women. Today, however, many women are not eligible for these benefits because they never married or they divorced prior to the 10-year threshold needed to qualify. Even those who are married are less likely to receive a spousal benefit, as their worker benefit is larger. Thus, many mothers receive little to no support to offset lost earnings due to childrearing.

Of course, the population for whom Social Security was designed looks much different than the population for whom Social Security must provide benefits.  Social Security was designed in the 1930s when, typically, the husband was the sole breadwinner and the wife a homemaker. The program included spousal and widow benefits designed for this standard one-earner household. Although these family benefits are not gender based, they typically worked to benefit women because women generally work fewer years and earn less than men. The ability of women to receive family benefits, however. has declined sharply in recent decades as their employment patterns and the nature of the family unit have changed dramatically. 

On the employment front, the labor force activity of married women has increased significantly, which means that women increasingly receive benefits based on their own earnings record, and are much less likely to receive spousal or widow benefits.  Despite their increased workforce activity, though, research suggests that women continue to be at a disadvantage in the labor market compared to men. Research suggests that part of the reason is caregiving duties, which can reduce work hours and affect access to better-paying jobs.   For example, women ages 25-44 – those most likely to have young children – work part time more often than men. Even when working full time, women earn only about 80 percent as much as men.

Contributing to the challenge of providing a fair benefit for women is that fewer women are eligible for Social Security family benefits due to patterns of marriage and divorce. The increasing divorce rate has resulted in about 25 percent of first marriages ending within 10 years, the eligibility threshold needed for access to family benefits.  These short-lived marriages, which comprise a greater number of total marriages, unfortunately, are excluded from access to family benefits under Social Security, despite the continuing financial burdens the marriages place upon the individuals involved.      

Childbearing among unmarried women has also increased sharply – from 18 percent of all births in 1980 to 40 percent today. These trends have sharply increased the percentage of households headed by single mothers, leaving a wide swath of women with no access to family benefits.  Compared with married mothers, single mothers face even more labor market constraints from their childcare responsibilities, further impeding their job prospects and reducing their ability to earn an adequate Social Security benefit.

Overall, the changes in labor market and marital patterns mean that large numbers of women are going to move through retirement with more disadvantages than their earlier counterparts. Not surprisingly, among those ages 65 and over, poverty rates for unmarried women exceed those of unmarried men,  and unmarried women account for one-third of all households ages 65-69 and two-thirds of households ages 85 and over. Childcare responsibilities are a major contributor to low income in retirement. One study found that women ages 65-74 who spent at least 10 years as a single mother were 55 percent more likely to be poor than continuously married mothers of similar education and ethnicity. 

Because of the poor outlook for retirement income among single women and a growing sense that the economic value of caregiving should be recognized, many policy experts have advocated caregiver credits.  The 10 page brief looks at how the topic is handled in other countries and discusses two avenues for resolution in the U.S.: (1) "[i]ncrease the number of work years that are excluded from benefit calculations ... [and] (2) [p]rovide earnings credits to parents with a child under age six for up to five years."  The brief argues for earnings credits for child rearing.

The brief concludes in part:

"It is easy to understand the appeal of crediting Social Security records to reflect lost earnings due to caring for a child. In the past, this activity was usually compensated for by the spousal benefit, but changes in women’s work and marriage patterns have left fewer eligible for it. A credit is also more appealing than a spousal benefit if the goal is to compensate for the costs of child rearing, independent of marital status."

Regardless to which cause or causes you attribute these changes, there is little question that the disparity, at least in outcomes among single women, is real.  Moreover, our society is evolving to value more "caregiving," whether or not familial, and regardless of the age or needs of the person requiring care.  Nothing could better underscore the real value of caregiving, especially for children, than the government recognizing a financial value for the effort in order to provide a more effective safety net for seniors. 

Particularly as the government struggles to find effective solutions for care and support, and individuals, families, and communities design and construct their own, often non-governmental solutions, these efforts should find encouragement and support.  In other words, the decision to value caregiving will not only impact retirement income for a vulnerable group of retirees, but will suggest promise in addressing the caregiving needs , demands, and realities, of both the elderly, and the someday-to-be-elderly family caregivers.  

Skipping the 401(k) RMD Without Penalty For Those Continuing to Work After Age 70

More than ever, workers are continuing to work into their 70s and beyond.  The general rules governing retirement accounts require nearly every individual account owner to begin taking Required Minimum Distributions (RMDs) by April 1 of the year following the year in which the owner turns 70½.  There exists a notable exception for employer-sponsored 401(k) accounts owned by employees who continue working past age 70½.

If the plan allows, an owner who leaves funds in the 401(k) can avoid RMDs if s/he remains employed with the employer who sponsors the plan.  Moreover, the owner can also continue to make contributions to the 401(k)! 

This exception has some significant requirements, though.  The current employer must sponsor the 401(k);  an owner cannot change employers and defer RMDs beyond age 70½.  In other words, if a former employer sponsors the relevant 401(k), the owner must take RMDs even if continuing to work for another employer that also sponsors a 401(k).  If the owner has more than one 401(k) and the plans allow for rollovers, however, it may be possible to roll all 401(k) funds into the 401(k) of a current employer and delay RMDs on all of the funds if the still working exception applies. Combining accounts will also simplify RMD planning once the owner stops working, because the RMD on each account would have to be determined separately.

The plan, too, must permit the exception.  Because not all 401(k) plans permit the exception, even though permitted by law, an account owner must ensure that his/her plan actually does allow the funds to remain in the plan to avoid a steep 50 percent penalty that apply to missed RMDs.

The exception does not apply if the plan is an IRA (whether a traditional, SEP or SIMPLE IRA).  As an aside, remember that RMDs do not apply to Roth IRAs during the original account owner's lifetime.   

Despite these carefully prescribed and limited conditions, the last condition, that the owner continues to work for the employer, is without a concrete definition, and therefore, may permit flexibility.  Because the IRS does not provide a provides a concrete definition of what it means to continue working past age 70½, it may be possible for an owner to continue working on a reduced-hours or consulting basis and still defer his or her RMDs past the traditional required beginning date.Of course, if special arrangements are crafted by an employer and employee, it is advisable to consult an attorney to document the special relationship in order to ensure that it won't be deemed a sham or fraudulent  arrangement by the IRS.

While an account owner may generally avoid taking RMDs from his or her 401(k) as long as s/he continues working past age 70½, many small business owners are not permitted to take advantage of this exception, because the exception does not apply to participants who are five percent owners of the business sponsoring the retirement plan.  Plan participants  who own a portion of the business sponsoring the 401(k) must also be aware of the constructive ownership rules that apply when determining whether s/he is a five percent owner; interests held by certain members of the owner's family (e.g., spouse, children, parents, etc.) and by certain entities which the owner controls  will be added to the ownership interest of the participant/business owner in determining whether the 5 percent threshold has been crossed.

The above article is based upon an article  published by ThinkAdvisor, which in turn was drawn from Tax Facts Online, and originally published by The National Underwriter Company, a Division of ALM Media, LLC, as well as a sister division of ThinkAdvisor. 

Social Security Claiming Rules Changed to Eliminate Beneficial Strategies

President Obama has signed the Bipartisan Budget Act of 2015 which includes important changes to the Social Security retirement system.  Among these changes are Rules that are designed to close "unintended loopholes" in the Social Security Act. These "loopholes" are the "file and suspend" and "restricted application" claiming strategies. These strategies are used by applicants to provide necessary income, but permit social security benefits to continue to grow, permitting later claiming of benefits at larger benefit amounts.  

Under the new law, some groups of Social Security claimants are wholly unaffected, while others will lose all access to available claiming strategies.  If you are not already implementing a claiming strategy, you may find that the strategy is no longer available to you.  

The new law adversely impacts the following groups:

1. Divorcees who were born in 1954 or later;
2. Couples where the person who was previously planning to claim a spousal benefit first then switch to their own benefit later under a restricted application strategy was born after 1953;
3. Couples who are planning to pursue a file and suspend strategy, but wait more than six months to file and suspend.

Divorcees born after 1953 will be able to claim either a spousal benefit or their own retirement benefit (whichever is larger), but they will not be able to switch from one to the other at a later time.  Claimants born after 1953 will not be able to claim one benefit and then switch to another benefit later under the new law, affecting those who intended to employ a restricted application strategy.

The new law allows people to file and suspend for another 180 days after the law goes into effect. If someone waits more than six months, they will not be able to use this strategy. They will be able to pursue a restricted application strategy if the person who claims the spousal benefit was born in 1953 or earlier.

The new law does not affect claiming strategies for the following groups:

1. Single people;
2. Widowers;
3. Divorcees who were born in 1953 or earlier; and
4. Couples who are already pursuing a restricted application claiming strategy (These are couples where the primary beneficiary has already claimed his/her benefit and the spouse has claimed a spousal benefit. The spouse will still be able to switch to their own benefit at a later date.);
5. Couples who are already pursing a file and suspend strategy (These are couples where the primary beneficiary has already filed and suspended, and the spouse has claimed a spousal benefit. The spouse will still be able to claim their own benefit at a later date. The primary beneficiary will also be able to claim his/her own benefit at a later date.);
6. Couples who are planning to pursue a restricted application strategy and the person who plans to claim a spousal benefit was born in 1953 or earlier (These are couples where the primary beneficiary plans to claim his/her benefit in the future- or has already claimed a benefit- but the spouse has not yet claimed a spousal benefit. As long as the spouse was born in 1953 or earlier, the spouse will be able to claim a spousal benefit after reaching 66 and then claim their own benefit later.);
7.  Couples who plan to pursue a file and suspend strategy before sometime in late April or early May of 2016, and the person who plans to claim a spousal benefit was born in 1953 or earlier (The new law provides a window of 180 days after the law becomes effective where couples can still use the file and claim strategy).

Previously Recommended Strategies

If you have received a written strategy, plan, or analysis from a professional, you will need to consult with the professional before implementing the plan.  Generally,  however, the following are suggestions for helping to determine whether previous recommendations are valid:

• If a scenario recommends “file and suspend” it is probably no longer a valid recommendation, unless the the claimant can can sensibly file and suspend no later than about May 1, 2016 (The precise cut-off date is 180 days after the law becomes effective, which appears to be 11/2/15.);
• If the scenario recommends a “restricted application” (and no file and suspend strategy is involved), it is almost surely a valid recommendation if the claimant is born in 1953 or earlier. If a claimant is born in 1954 or later, a recommendation to file a restricted application is no longer valid. NOTE: Whether this statement also applies to ex-spouses is presently unclear.

If you have already implemented a strategy, it is best for you to consult with your financial adviser or professional to ensure that future actions pursuing the plan are not foreclosed by the new law.

The bottom line for those who may be retiring is that the government has now made it more difficult for you to comfortably forestall claiming social security at a later age, where the benefit paid to you is higher and more valuable over your life.  The effect will be that millions will continue to claim social security at the first availability, leaving the government responsible for paying less in social security benefits.    

2016 Medicare Pemiums to Increase- Social Security Benefits Stay Flat

According to Mark Miller, writing for RetirerementRevised, "retirees are facing a double-whammy next year: no inflation adjustment in their Social Security benefits and a whopping 52 percent jump in certain Medicare premiums."

The article continues: 

Medicare premium hikes will hit only 30 percent of beneficiaries – those who are not protected from a “hold-harmless” provision in federal law that prohibits any premium hike that produces a net reduction in Social Security benefits. But the likely increases suggest strongly that the recent trend of moderate healthcare inflation is ending.

Let’s start with the Social Security news. Final figures for 2016 will not be available until the fall, but the recent annual report of Social Security’s trustees projects that there will not be any cost-of-living adjustment (COLA) next year. The COLA is determined by averaging together third-quarter inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Inflation has been flat due to collapsing oil prices.

On the healthcare front, renewed cost pressures are pointing toward much higher Medicare premiums starting next year, according to the Medicare trustees’ annual report.

Consider the monthly premium for Part B (outpatient services), which has stayed at $104.90 for the past three years. The Medicare trustees projected that the premium will jump 52 percent, to $159.30 for beneficiaries who are not protected by the hold harmless provision.

That would include anyone enrolled in Medicare who is not yet taking Social Security benefits due to a decision to delay enrollment. It also would include new enrollees in Medicare next year. (The increase also would be applied to low-income beneficiaries whose premiums are paid by state Medicaid programs).

High-income retirees – another group that is not protected by the hold-harmless provision – also will be hit hard if the trustee projections hold.

Affluent seniors already pay more for Medicare Part B and also Part D for prescription-drug coverage. This year, for example, higher-income seniors pay between $146.90 and $335.70 monthly for Part B, depending on their income, rather than $104.90.

The Medicare trustees now project that to jump even more.

Go here to read the whole article.

White House Proposes New Rules to Protect Investors Saving for Retirement

You might think that the top priority of the broker or financial adviser managing your retirement funds is to maximize your returns, but that’s not always the case.  Some steer their clients to bad retirement investments with high fees and low returns because they get higher commissions or other incentives to do so.  And there’s nothing currently in the law that requires advisers to put their clients’ interests first.

The Obama Administration has proposed new rules to change this and require financial advisers to act in the best interests of their clients. The move is designed to increase the amount investors receive in retirement.

Americans may lose as much as $17 billion every year because of bad financial advice from advisors with conflicts of interest, according to a report by the President's Council of Economic Advisors. Many financial advisors have a sales incentive to steer clients into investments that offer higher payments to the advisor but are not necessarily the best option for the client. According to the report, a retiree getting advice from an advisor with a conflict of interest when rolling over a 401(k) balance at retirement can lose an estimated 12 percent of the value of his or her savings.

To confront this problem, President Obama has directed the Department of Labor to promulgate new rules that require financial advisors to act like fiduciaries. This means they must put their clients' interests above their own. The new rules would prevent brokers and financial advisers from rolling over retirement accounts unnecessarily or putting clients' savings into investments with high fees and low returns when there are better options.

The Department of Labor will publish the new rules and then hold a hearing on the rules and accept public comments. The financial industry is fighting the proposed rules, arguing that they will disadvantage small savers by increasing costs. 

“What they are saying,” says business columnist Darrell Delamaide writing in USA Today, “is that they are currently willing to offer their services to the low-income bracket because they will reap even higher profit from hidden costs and fees. Their opposition to the rule is virtually proof that it is necessary.”

For more information about the new rules, click here and here. 

To read the report from the Council of Economic Advisors, click here. 

Elderly Couple May Be Responsible for Adult Son's Unpaid Medical Bills

An elderly Pennsylvania husband and wife are being asked to pay their deceased adult son's medical bills under a law making family members responsible for a loved one's unpaid bills. The case is a reminder that such “filial responsibility” laws may go both ways – requiring parents to pay the debts of adult children as well as the children to pay for their parents'.  

For those involved in estate and retirement planning, the case underscores just how clueless policymakers are to the challenges of proper planning.  The financial risk of filial responsibility debt adds yet another layer of uncertainty, and non-quantifiable risk to planning considerations.  For the well-informed senior, asset protection planning is the order of the day, since only asset protection planning will mute the blow of unexpected financial filial responsibility.  But, the vast majority of ill-informed seniors will continue to accept too much risk for too long in their retirement plans in order to reach an ever receding horizon represented by the amount of money necessary to live comfortably safe from risk.  This species of planning has brought current financial and retirement planning to the crisis point at which most seniors find themselves today.  

Alternately, seniors and their children, recognizing the seemingly insurmountable hurdles of these risks will simply eschew savings and financial planning- living month-to-month, year-to-year as best they can, relying upon the harsh and dangerous hand of government benefits as their safety net.  Many will find the benefits they imagined to be illusory.  Others will find that the benefits come at a cost- sacrifice of independence, quality of care, quality of life, and control.  Never before in history have so many risked so much for so little.     

Peg and Bob Mohn's son died at age 47, leaving unpaid medical bills. Now according to an article in The Morning Call, debt collectors are trying to dun the Mohns using an archaic state law that was not enforced until recently. Pennsylvania is one of at least twenty-eight (28) states that currently have filial responsibility laws. These laws usually make adult children responsible for their parents’ care if their parents can't afford to take care of themselves, but some of the laws also make parents responsible for their childrens' care. Filial responsibility is the law in the State of Ohio, although like Pennsylvania a few years ago, the law was rarely enforced.

Filial responsibility laws, which originated before the advent of the modern public support system, have been rarely enforced since these public support systems were enacted. States and health care providers have been clamoring for states to begin enforcing the laws in order to recover medical expenses, including Medicaid payments. In May 2012, a Pennsylvania court found an adult son liable for his mother's $93,000 nursing home bill under the state's filial responsibility law.

According to attorney Stanley Vasiliadis who is quoted in the Morning Call article, these laws provide additional incentive for people to plan their estates. Without proper planning, children could be on the hook for their parents' nursing home bills, and vice versa.

States with filial responsibility laws include: Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Mississippi, Montana, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Virginia, and West Virginia. Two states, Idaho and New Hampshire, recently repealed their filial responsibility laws, but elder law attorneys in Pennsylvania haven’t made much headway in convincing their legislators to repeal.

These laws differ from state to state.  If you live in a state that still has such a law on the books, check with your attorney to find out how you can protect yourself from a child or parent’s debts. 

For more information on filial responsibility laws, go here. 

MyRA?

President Obama announced a new retirement savings program for people who do not currently have an employer-sponsored plan during his 2014 State of the Union message. The new investment product, called myRA, is a starter savings account aimed at low- and middle- income workers.

Similar to a Roth IRA, the myRA accounts will allow workers to invest money after tax and withdraw the money in retirement tax-free. Unlike a Roth IRA, however, the savings will be backed up by U.S. Treasury bonds, so investors will have a safer investment alternative designed never to risk the principal investment. The accounts, which are voluntary, will be available to married couples with modified adjusted gross incomes up to $191,000 and to individuals earning up to $129,000.

Workers can open a myRA with a minimal initial $25 investment. The plans are funded through paycheck deductions with contributions as small as $5 at a time. Savers will earn variable interest on the accounts, and there are no fees on the account. Principal contributed to the account can be withdrawn without penalty at any time.  There will be a penalty, however, for withdrawing the earnings i.e., interest, from the account before age 59 1/2. 

Once an account holder has accumulated $15,000, the account holder must roll the account into a traditional Roth IRA, which will then be subject those rules. In addition, the accounts last only 30 years, so at the end of that time the funds must be rolled into a traditional Roth IRA, even if the $15,000 maximum limit has not been reached.  It is unclear whether an account holder can open a new account after a period of time in order to avoid contributions being rolled up, and subject to traditional Roth IRA withdrawal rules.  

Employees who switch jobs will be able to keep their myRA accounts without cashing them out. Workers would also be able to contribute to the same account from multiple part-time jobs. The new accounts will initially be offered through a pilot program with employers who choose to participate and should be available at the end of the year.

Critics contend that the myRA initiative will do little to address the retirement savings gap because enrollment will not be automatic and contributions will be invested only in low-return Treasuries.  The requirements that the myRA rolls up into a traditional Roth IRA at either the $15,000 limitation or upon thirty years is at best going to create confusion.  At worst it will cause account participants to mistake the flexibility and ease of the accounts prior to roll-up in planning, and fail to carefully consider the more cumbersome rules governing Roth IRA distributions after roll-up.  Unexpected tax consequences may follow.

"Qualified" distributions from a Roth IRA are not included in gross income for individual tax purposes. That is deceivingly simple: a "qualified" distribution from a Roth IRA is tax-free, i.e., no taxes due on the principal, and no taxes due on the earnings.

The reason that "simple" is deceiving is the rules that define a qualified distribution.  To be qualified, the distribution MUST be:

• Made on or after the date you become age 59 1/2; OR
• Made to your beneficiary, or to your estate, after you die; OR
• Made to you after you become disabled within the definition of the IRS code; OR
• Used to pay for qualified first-time homebuyer expenses.

But,  even if one of the qualifications above are met, the distribution is STILL not qualified if it is made within a five-tax-year period. Complicating matters further is that tax-years are NOT necessarily the same as five calendar years.

So, in effect, there are two sets of rules that must be met before a Roth IRA distribution becomes qualified, and therefore tax-free: The distribution rules and the five-tax-year rules. Unless both sets of rules are met, the distribution will NOT be qualified, and the earnings will be subject to tax, and possibly penalties.

The direct investment in treasuries may be a safer alternative for many investors, and it will benefit the treasury by encouraging direct investment.  But, is the myRA an example of the government giving with one hand only to take with the other?  Perhaps, only time will tell. 

For the press release detailing the new myRA account, click here.

Most Men Unaware that Early Retirement Adversely Impacts Their Spouse's Social Security Benefits

According to a recent study released by the Center for Retirement Research at Boston College (http://crr.bc.edu), most men begin drawing on their Social Security retirement benefits at age 62 or 63, rather than waiting until their full retirement age or even age 70.  The early receipt of benefits means that both the husbands and their wives will receive less each month than they would if they waited.

According to the study, written by Steven A. Sass, Wei Sun and Anthony Webb, this early election has no effect on average on the men.  On average, though men will receive a smaller benefit check each month, this will be offset by the checks they receive between the ages of 62 and normal retirement age.  Because this is based, on average, there are obviously exceptions.  For example, men who are in ill health would do better to take early retirement and men who expect to live a long time should postpone their receipt of benefits for as long as possible.

The same statements also hold true for single women, meaning on average they do about as well in terms of lifetime Social Security benefits no matter whether they start earlier and get more smaller checks or start later and receive fewer larger checks.

But for today's seniors, most wives' benefits are based on their husband's work record.  If husbands choose to take benefits before the full retirement age, their wives are penalized twice -- first while their husband's are alive when they get a reduced benefit, usually half of the husband's benefit, and second when the husband dies (which often happens due to women's greater life expectancy) when they receive their husband's benefit rather than their own.

If these decisions were based upon informed appreciation of the adverse impact upon the spouse's benefits, perhaps we could dismiss them as simple life choices. The researchers conclude, however, that they are not, that instead most retiring men simply don't understand the implications of claiming benefits early.  More education may change their behavior, although the researchers note that "financial education has not been especially effective in changing behavior." As an alternative, they suggest a number of potential policy changes, such as requiring spouses to sign off on the decision to claim Social Security before the beneficiary's full retirement age.

Interestingly, while the Social Security Administration's Web site (www.ssa.gov) has a number of excellent calculators to assist beneficiaries in deciding when to retire, none appear to calculate spousal benefits.  Based on the Boston College report, adding such calculators would be a good first step.

To read the report, go to:  http://bit.ly/10PhPBr.

Annuity Tax Remains in Health Care Reform

By Steven A. Morelli, Senior Editor, InsuranceNewsNet

Despite protests from insurance groups, the health care reconciliation act will add a new tax on annuity income to pay for Medicare once the bill becomes law.

Several insurance groups issueda last-minute appeal in a letter to legislators on Wednesday to exempt annuities from the new tax, citing the important growing role annuities are playing in securing retirement. But annuitiesremained in the reconciliation bill the Senate and House passed on Thursday and sent to President Barack Obama to sign.

The 3.8 percent tax applies to investment income from married individuals filing a joint return and surviving spouses with taxable income of at least $250,000; married taxpayers filing separately with an income of $125,000; and other individuals, with an income of $200,000.

The bill lists annuities as investment income. The tax would apply to annuity income that is already taxable (the amount above the annuity owner’s cost basis), starting in 2013. Annuities sold in employer-sponsored retirement plans would be exempt.

Ohio Increases Annuity Guaranty Coverage

Ohio Department of Insurance Director Mary Jo Hudson has announced that a recent amendment to Ohio insurance law by the Ohio General Assembly has increased The Ohio Life and Health Insurance Guaranty Association’s coverage protection for annuities from $100,000 to $250,000. The change goes into effect on May 26th, 2010.

The new changes to the law (Section 3956.04 of the Ohio Revised Code) will guarantee that consumers who purchase an annuity product may be able to recover up to $250,000 of their policy in the unlikely event that the company they purchased the product from becomes insolvent.

The Ohio Life & Health Insurance Guaranty Association (OLHIGA) is a non-profit association of insurance companies that sell life insurance, health insurance, and annuities in Ohio. It was created by Ohio law to provide some level of protection for certain Ohio policyholders against the insolvency of an insurance company licensed to sell those types of policies in Ohio in the event that the company is placed into liquidation.

Value of Annuities Behind Fed Efforts to Boost Retirement Savings

In January, the Obama administration announced an initiative to promote the availability of annuities in qualified retirement, 401(k), and similar plans. Only 22% of such plans now offer annuities among the options available to plan participants.   While the initiative is not long on details, it is gaining support among senior advisors and advocates.  Making annuities an option in qualified retirement planning would permit more workers to turn some of their nest egg into guaranteed income for life.  The opportunity to insure a lifetime of income is an attribute unique to annuities, and is an attribute uniquely suited for retirement planning.

Simultaneously, a Senate bill that would require your 401(k) to inform you of the projected monthly income you could expect at retirement based on current savings.  Causing investors to focus on the income they can expect from their retirement planning, rather than upon their account balances, is a welcome turn of events.  Investors often pay too much attention to the balances in their retirement plan portfolio, without careful attention to whether that portfolio will sustain them after retirement.  Simply, income is a more relevant basis upon which to plan for retirement.  That is the approach Social Security takes with its annual statements.

The confluence of these events suggests that the government is finally acknowledging the value of income retirement planning, and the value of annuities in securing that income.  As Americans grapple with the challenge of potentially outliving their retirement savings, lifetime income annuities are among the most cost-effective and least risky asset class for generating guaranteed retirement income for life according to numerous studies, perhaps the most prestigious being one co-sponsored by the Wharton Financial Institutions Center at the University of Pennsylvania and New York Life Insurance Company.