Principles of Retirement Planning/Retirement Years

D e l o i t t e & T o u c h e L L P

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RETIREMENT YEARS

Understand the Effects of Part-Time Work

Investigate Medigap Insurance Coverage

Stay Educated and Seek Professional Advisors as Needed

Understand the Effects of Part-Time Work

As a valuable supplement to retirement income, many retirees re-enter the work force on a part-time (or full-time) basis. Other retirees may re-enter for non-financial reasons (to provide something to occupy the day). In 1994, individuals who are 65 or older but under age 70, can earn up to $11,160 of this extra income without impacting your Social Security benefits. Individuals under age 65 can earn $8,040 without reducing benefits. For individuals 65 or older but under 70, earnings over these thresholds will reduce benefits by $1 for every $3 earned. For individuals who have not reached age 65, the reduction is $1 for every $2 of earnings. For individual 70 and over, there is no reduction in benefits for additional earnings. This additional earned income can also impact your income taxes. As taxable income increases, you pay a greater percentage of your income stream the IRS and state governments. You may also be subject to FICA or self-employment taxes.

Remember the 70-1/2 Rule

Minimum distributions must begin by April 1 of the year after you reach age 70-1/2 whether or not you have actually retired. The amount of the minimum distribution is calculated based on your life expectancy or the joint and last survivor life expectancy of you and your designated beneficiary. If the amount distributed is less than the minimum required amount, an excise tax equal to 50% of the amount of the shortfall is imposed.

Investigate Medigap Insurance Coverage

Medicare provides basic health care coverage but cannot pay for every type of medical expense the retiree may incur. Many private insurance companies provide "Medigap" policies, or Medicare Supplemental insurance. There are various Medigap plan levels which provide coverage's ranging from basic hospital care coinsurance to skilled nursing home care, prescription drugs, and preventive care.

Before purchasing any Medigap coverage, you should compare several policies and ask the following questions:

* Does the policy cover the Part A hospital deductible?

* Does the policy cover skilled nursing care facility daily coinsurance?

* Can the insurance company cancel or non-renew the policy?

* How often can the company raise premiums?

* How are pre-existing conditions treated and is there is a waiting period before benefits will be paid?

Be sure to look at all of these areas, and then compare the proposed Medigap coverage with your existing coverage and risk exposures. Medigap premiums can range from $400 annually for basic coverage, to $1,800 or more a year for comprehensive coverage.

In addition, some companies provide for medical benefits for retirees. However, as the health care environment is being drastically reshaped in the 1990's, these benefits may substantially change. If you are paying for your own medical insurance, or find that you must begin paying for more of your insurance, investigate whether or not you can join with other individuals (such as church groups, professional, or fraternal organizations) and obtain group insurance rates. You will still be responsible for paying the premium, but the costs may be cheaper than single policies.

Stay Educated and Seek Professional Advisors As Needed

Estate planning for changes in your family (birth of a grandchild or death of a parent or spouse), changes of the investment mix in your portfolio, and the need for assistance with general money management or specific help with monthly bill paying are all examples of issues which you may face during your retirement years. Stay educated on by reading financial publications or other magazines aimed specifically to retirees. Consult with competent advisors in the area of financial planning, estate planning, and income tax planning as needed.

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