Retirement Asset Planning Retirement Income Planning

Do You Want to RAP or Do You Prefer to RIP?

Retirement planning is unquestionably the most difficult type of goal-oriented financial planning. Most goal-based planning is straight-forward, solving for the amount, and frequency, of payments that need to be made to accumulate a sum of money at a future date using two assumptions: rate of return and inflation rate.

College education planning is a good example of the use of this methodology with a twist. Unlike other planning where the future value will be withdrawn in one lump sum, college costs are generally paid for over a series of four or five years. This complicates the planning since it requires the calculation of the present value of the future annual costs of college at the beginning of college, which in turn becomes the future value that must be accumulated.

Retirement Asset vs. Retirement Income Planning

Retirement planning is a whole other world. For starters, there are two stages of retirement planning, i.e., retirement asset planning (RAP) and retirement income planning (RIP). Until recent years, RAP was the only type of retirement planning and, as such, is what’s considered to be traditional retirement planning. RAP’s focus is the accumulation and “spending down” of assets. Although it’s more complicated, much of the methodology used is similar to other types of goal-oriented financial planning.

While RAP works well in the accumulation stage, it isn’t designed for calculating, and planning for, projected retirement income amounts that need to be available to pay for projected retirement expenses during various stages of retirement with unknown durations. As a result of the uncertainty of traditional RAP as a solution for providing a predictable income stream to match one’s financial needs in retirement, RIP was born.

Retirement Income Planning Issues

In addition to possessing the knowledge and experience of financial planners who specialize in RAP (RAPers?), retirement income planners (RIPers?) require an expanded skill set and associated knowledge to assist their clients with issues that are unique to RIP before and throughout a client’s retirement years. Planning issues extend well beyond asset accumulation and include, but aren’t limited to, the following:

  • Medicare
  • Long-term care
  • Social Security claiming strategies
  • Conversion of assets into sustainable income
  • Income tax minimization
  • Choosing strategies to address gaps in income
  • Retirement plan distribution options
  • Retirement housing decisions
  • Philanthropic
  • Estate transfer

Recommended Timeframe

Retirement planning is a time-sensitive and arduous task that requires a high level of discipline and commitment over the duration of one’s adult years, not to mention specialized expertise. Given the relatively short accumulation period compared to the potential duration of retirement complicated by an unknown escalating cost of living, the RAP phase should begin as soon as possible.

There are always competing goals, including saving for one’s first house and education planning, to mention a couple. All financial goals must be balanced against one another, keeping in mind that the ability to provide for your support – before and throughout retirement – supersedes all other goals.

RIP works best when it’s initiated long before you plan to retire. In addition to the nature and complexity of the various planning issues, this is very important given the fact that historically approximately 50% of all retirees retire before they plan on doing so. Given this reality, a 20-year pre-retirement RIP timeframe is recommended.

Finally, it’s important to keep in mind that RIP doesn’t end the day you retire. The success of your retirement years is dependent upon your ability to employ and adjust RIP strategies for the duration of your, and your spouse’s, if applicable, retirement years.

Do you want to RAP or do you prefer to RIP? As I hope you can appreciate, you need to do both at the appropriate time in your life in order to enjoy your retirement years on your terms.

See Planning to retire? Start with the right question


Retirement Income Visions Celebrates 4-Year Anniversary!

Thanks to my clients, subscribers, and other readers, Retirement Income Visions™ is celebrating its four-year anniversary. Retirement Income Visions™ published a weekly post each Monday morning beginning four years ago through and including the March 11, 2013 post.

Beginning with the March 25, 2013 post, Retirement Income Visions™ changed to a biweekly publication schedule. This was in response to my acceptance of another retirement income planning writing gig as a Wall Street Journal MarketWatch RetireMentors contributor. I continue to do all my writing on Saturday mornings, enabling me to fulfill my primary goal of providing outstanding, timely service to my clients.

Even with its reduced publication schedule, Retirement Income Visions™ continues to boast a fair number of followers. It has had over 72,000 pageviews in its four years of publication, including over 4,000 in the last 30 days.

In addition to becoming a RetireMentors contributor, I further distinguished myself as a retirement income planning expert when I became one of the first recipients of the Retirement Income Certified Professional® (RICP®) designation from The American College on July 1st. The RICP® educational curricula is the most complete and comprehensive program available to professional financial advisors looking to help their clients create sustainable retirement income.

This past year, Retirement Income Visions™ deviated from its themed approach whereby it historically featured a long stretch of weekly posts focusing on a single retirement income planning strategy. After completing a lengthy series of weekly posts about fixed index and deferred income annuities from August 20, 2012 through November 5, 2012, I began mixing it up with a variety of educational topics.

The November 12, 2012 post, The Smooth COLA, straightened out some misconceptions about Social Security retirement benefit cost of living adjustments. The November 19, 2012 post, Black Friday – Think Roth IRA Conversion, proved to be a very timely post for those who did Roth IRA conversions at that time since they have benefited from a 23% increase in stock prices as of Friday, combined with a significant tax increase that went into effect on January 1st for higher income taxpayers.

The November 26, 2012 through December 17, 2012 posts featured two two-part miniseries about two important Social Security topics, Social Security as a deferred income annuity and considerations when choosing a Social Security starting age.

The January 7, 2013 post, The 2013 Tax Law Schizophrenic Definition of Income – Part 1, was timely, as it was quoted extensively and linked in Robert Powell’s MarketWatch January 11, 2013 Now is the Time for Tax-Efficient Investments article. The January 7th post and the January 14th, 21st, and February 4th posts, which included Part 2 of the January 7th post and a two-part miniseries, New Tax Law – Don’t Let the Tax Tail Wag the Dog, provided readers with a comprehensive understanding of the new tax laws that went into effect on January 1st.

The next four posts, beginning with the February 11, 2013 post, The Almost Irrevocable Retirement Income Planning Decision, through the March 4, 2013 post, Insure Your Longevity Risk with Social Security, featured a series of four timely Social Security topics.

Retirement Income Visions™ really began mixing it up, beginning with the March 11, 2013 post, Consider the Future Purchase Option When Buying Long-Term Care Insurance, through the July 29, 2013 post, Immediate Annuities – Where’s the Planning? The eleven posts in this stretch presented a number of different topics, including long-term care insurance, retirement income planning considerations and strategies, fixed index and immediate annuities, Medicare, longevity insurance, budgeting, and personal financial management systems.

As I’ve traditionally done in previous “anniversary” posts, I would like to conclude this post by thanking all of my readers for taking the time to read Retirement Income Visions™. Once again, a special thanks to my clients and non-clients, alike, who continue to give me tremendous and much-appreciated feedback and inspiration. Last, but not least, a big thank you to Nira, my incredible wife, for her enduring support of my blog and MarketWatch RetireMentors writing and other professional activities.

Long-Term Care Medicare

Are You Depending on Medicare for Long-Term Care Coverage?

I’ve wanted to write this post for a long time, however, I just haven’t gotten around to it. Over the years, clients and others I’ve talked to have been reluctant in initial conversations about long-term care planning to consider the purchase of long-term care insurance (LTCI) because they thought that Medicare will take care of them.

Let’s put it this way, if you’re part of this school of thought, you experience a long-term care event, and you don’t have LTCI, you’re in for a big surprise. A large part of the problem is that most people don’t know what constitutes a “long-term care event,” let alone how this compares to what Medicare will cover.

Long-Term Care Event

In order to qualify for benefits under a tax qualified LTCI policy, which represents 95% of policies sold today, you’re required to be certified by a qualified health professional as having a chronic illness that will last for at least 90 days whereby the illness must result in you:

The six ADL’s include bathing, dressing, eating, continence, toileting, and transferring.

Will Medicare provide benefits for either of these two situations? It’s not likely, and, if there’s coverage, it will be limited as far as number of days, dollar amount, and type of coverage.

Custodial Care

The majority of long-term care expenses are for custodial, or personal, care, none of which is covered by Medicare. Custodial care is designed to assist a person who has limited ability to perform daily activities due to deficiencies in physical and/or cognitive functions. It’s provided to help someone with his or her ADL’s or instrumental activities of daily living (“IADL’s”). IADL’s are the cognitive functions pertaining to comprehension, judgment, memory, and reasoning. Activities include shopping for personal items, managing money, using the telephone, preparing meals, managing medication, and doing housework.

Medicare Event

Medicare wasn’t designed to handle significant long-term care expenses. Medicare only covers medically necessary care with the focus on medical acute care, such as doctor visits, drugs, and hospital stays. There are three qualifications that you must meet in order to receive Medicare benefits:

  • Have had a recent prior hospital stay of at least three days
  • Admitted to a Medicare-certified nursing facility within 30 days of your prior hospital stay
  • Need skilled care, such as skilled nursing services, physical therapy, or other types of therapy

Medicare Benefit Period and Benefit Amount

If you meet these strict requirements, none of which are necessary to qualify for LTCI benefits, Medicare will pay for some of your costs for up to 100 days. Medicare will pay for 100% of your costs for the first 20 days, with the cost being shared for the next 80 days. In 2013, you’re required to pay the first $140 per day and Medicare pays any balance for days 21 – 100.

Home and Other Care Services

In addition to skilled nursing facility services, Medicare will pay for various services when your doctor says they are medically necessary to treat an illness or injury. If you’re unable to perform ADL’s and/or IADL’s that’s unrelated to the treatment of an illness or injury, Medicare won’t provide any coverage for home and other care services.

The home and other care services that Medicare covers, some of which are for a limited number of days, include part-time or intermittent skilled nursing care, physical and occupational therapy, speech-language pathology, medical social services, and medical supplies and durable medical equipment. Once again, custodial services aren’t covered.

Are you depending on Medicare to be your long-term care plan? If so, you may want to revisit your plan.

Annuities Celebration Income Tax Planning IRA Retirement Income Planning Roth IRA Social Security

Retirement Income Visions™ Celebrates 2-Year Anniversary!

Thanks to all of my subscribers and other readers, Retirement Income Visions™ is celebrating its two-year anniversary. Since its debut on August 16, 2009, Retirement Income Visions™ has published a weekly post each Monday morning, the theme of which is Innovative Strategies for Creating and Optimizing Retirement Income™.

As stated in the initial post two years ago, Retirement Income Visions™ Makes Its Debut, the importance of retirement income planning as a separate and distinct discipline from traditional retirement planning was magnified during the October, 2007 – March, 2009 stock market decline. Although the stock market experienced three positive and encouraging days this past week, the market volatility the last three weeks has only served to emphasize the need for a comprehensive retirement income plan.

Add to the mix the increasing instability of the Social Security and Medicare programs and the rapid decline of traditional pensions as a source of retirement income. Not to mention increasing life expectancies, soaring health care costs, and an economic situation ripe for inflation. Retirement income planning is no longer an option – it has quickly become a downright necessity.

Since inception, Retirement Income Visions™ has used a themed approach, with several weeks of posts focusing on a relevant retirement income planning strategy. This past year was no exception. The weekly posts, together with the customized Glossary of Terms, which currently includes definitions of 99 terms to assist in the understanding of technical subject matter, has contributed to a growing body of knowledge in the relatively new retirement income planning profession.

Going back a year, the six August 16 through September 20, 2010 posts completed a 36-part series on Roth IRA conversions. This was a very timely topic with the January 1, 2010 availability of this strategy to all taxpayers regardless of income level, combined with the ability to defer 50% of the reporting of income from a 2010 Roth IRA conversion to 2011 and the other 50% to 2012.

The September 27, 2010 post, Plan for the Frays in Your Social Security Blanket, began a 25-part educational series about Social Security. The first two parts discussed some of the historical events in connection with changes to the Social Security system affecting benefit amounts and delay in the commencement of receipt of benefits. The October 11, 2010 post, Do Your Homework Before Flipping the Social Security Switch, began a five-part series regarding various considerations in connection with electing to begin receiving Social Security benefits before full retirement age (“FRA”).

The November 15, 2010 post, Wait Until 70 to Collect Social Security? examined the opposite end of the spectrum, i.e., delaying the start date of receipt of Social Security benefits. The follow-up three-part series, Pay-to-Play Social Security, presented the “do-over” strategy, a little-publicized strategy for increasing monthly benefits in exchange for repayment of cumulative retirement benefits received.

The “file and suspend” and “double dipping” strategies for potential maximization of Social Security benefits were addressed in the next two two-part posts from December 13, 2010 through January 3, 2011, Breadwinner Approaching Social Security Retirement Age? – File and Suspend and Working? Remember Your Social Security Spousal Benefit When Your Spouse Retires.

Income taxation and associated planning strategies was the subject of the subsequent respective two- and four-part January 10 through February 14, 2011 series, Say Goodbye to Up to 30% of Your Social Security Benefits and Increase Your After-Tax Social Security Benefits. The February 21, 2011 post, Remember Your Future Widow(er) in Your Social Security Plan made the point that the decision regarding the start date of Social Security Benefits, in addition to fixing the amount of your retirement benefit, may also establish the amount of your spouse’s monthly benefit.

Retirement Income Visions™ Social Security series culminated with the three-part February 28 through March 24, 2011 series, Your Social Security Retirement Asset. These three posts discussed the importance of Social Security as an asset, perhaps one’s most important asset, in addition to its inherent role as a monthly retirement income stream.

With the media’s emphasis in 2010 on the two-year deferral of inclusion of income from a 2010 Roth IRA conversion as the motivating factor for pursuing this planning technique, I felt that there wasn’t enough attention given to the potential long-term economic benefits available through use of this investment strategy. Roth IRA Conversions – Don’t Let the Tax Tail Wag the Dog began a six-part series on this important topic on March 21, 2011 that ran through April 25, 2011. The May 2 and May 9, 2011 Roth IRA Conversion Insights two-part series followed up the Roth IRA conversion economic benefit discussion.

The importance of nonretirement assets in connection with retirement income planning was discussed in the May 9, 2011 Roth IRA Conversions Insights post as well as the May 23 and May 30, 2011 respective posts, Nonretirement Investments – The Key to a Successful Retirement Income Plan and Nonretirement vs. Retirement Plan Investments – What is the Right Mix? This was followed up with two posts on June 6 and 13, 2011 regarding traditional retirement funding strategies, Sizeable Capital Loss Carryover? Rethink Your Retirement Plan Contributions and To IRA or Not to IRA?

The June 20 and June 27, 2011 posts, Do You Have a Retirement Income Portfolio? and Is Your Retirement Income Portfolio Tax-Efficient? addressed the need for every retirement income plan to include a plan for transitioning a portion, or in some cases, all, of one’s traditional investment portfolio into a tax-efficient retirement income portfolio. This was followed by the July 5, 2011 timely Yet Another “Don’t Try to Time the Market” Lesson post.

The July 11, 2011 Shelter a Portion of Your Portfolio From the Next Stock Market Freefall began a new timely and relevant ongoing series about indexed annuities. This post was published just ten days before the July 21st Dow Jones Industrial Average peak of 12,724.41 that was followed by the beginning of a steady stock market decline coinciding with the final days of U.S. debt limit negotiations and Standard & Poor’s unprecedented U.S. credit rating downgrade, culminating with a closing low of 10,719.94 this past Wednesday. As implied in the titles of the July 18 and July 25, 2011 posts, Looking for Upside Potential With Downside Protection – Take a Look at Indexed Annuities and Limit Your Losses to Zero, this relatively new investment strategy has the potential to be a key defensive component of a successful retirement income plan.

As I did a year ago, I would like to conclude this post by thanking all of my readers for taking the time to read Retirement Income Visions™. Once again, a special thanks to my clients and non-clients, alike, who continue to give me tremendous and much-appreciated feedback regarding various blog posts. Last, but not least, thank you to my incredible wife, Nira. In addition to continuing to support my weekly blog-writing activities, she also endured my year-long family tree project that I recently completed. Well, sort of. Is a family tree ever completed?

Medicare Roth IRA

Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? – Part 3

We learned three important things in Parts 1 and 2 of this blog post regarding the potential impact of a Roth IRA conversion on one’s Medicare Part B premium:

  1. 1. The amount of income from the conversion can increase one’s Medicare Part B annual premium by more than $3,000 if single or more than $6,000 if married and both individuals are eligible for Medicare.
  2. The premium increase, if there is one, will occur two years after the year in which the income from the conversion is included on one’s income tax return.
  3. Assuming a 2010 conversion, the premium increase, if there is one, will occur in 2013 and 2014 if the “Default” method is used to report the conversion or in 2012 if the “Election” method is used.

To illustrate, let’s assume that you’re married and you’re both eligible for Medicare, your 2008 Social Security Administration modified adjusted gross income (“SSA MAGI”) was $165,000, and your Medicare Part B premiums are being withheld from your Social Security checks. Per last week’s post, each of your 2010 monthly Medicare Part B premiums would be $96.40. For both of you, this would be $192.80 per month, or $2,313.60 per year. Let’s further assume that your total 2010 Roth IRA conversion income was $540,000 and there have been no other changes to your income since 2008.

Assuming that you went with the default of reporting 50% of your Roth IRA conversion income in 2011 and 50% in 2012, your 2013 and 2014 MAGI would be $435,000 ($165,000 + 50% of $540,000), placing you in the top Medicare Part B premium level per the table in Part 1 of this post (joint return with income above $428,000). Let’s assume that you instead elected to report 100% of your Roth IRA conversion income on your 2010 income tax return. In this case, your 2012 MAGI would be $705,000 ($165,000 + $540,000) and your 2013 and 2014 MAGI would revert to $165,000.

How much would your Medicare Part B premium be over the next several years? As stated above, it depends upon the year(s) in which the income from your 2010 Roth IRA conversion is reported on your income tax returns. The following table shows the amount of a married couple’s Medicare Part B 2010 – 2015 annual premiums unadjusted for future premium increases, assuming base MAGI of $165,000 and 2010 Roth IRA conversion income of $540,000:


Roth Conversion Income Reported 2011 and 2012

Roth Conversion Income Reported 2010



















While the amount of the 2010 Roth IRA conversion of $540,000 used in the above example is on the high side, it drives home the point that potential increases in Medicare Part B premiums need to be considered in a Roth IRA conversion analysis for Medicare-eligible individuals. Furthermore, if you do a Roth IRA conversion in 2010, it could increase your Medicare Part B premium amount for two years by more than $3,000 if single and by more than $6,000 if married and both individuals are eligible for Medicare.

Medicare Roth IRA

Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? – Part 2

Last week’s blog post, Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? began a discussion of how Medicare Part B (medical insurance) premiums are calculated. As discussed last week, of importance is that Social Security Administration (“SSA”) will use the income reported on your federal income tax return from two years prior to the current year to determine the amount of your Part B Medicare premium. Also of importance is the distinction between IRS’ and Social Security Administration’s definition of “modified adjusted gross income,” or “MAGI.”

IRS uses MAGI for various purposes, including calculation of allowable real estate rental losses, deductibility of IRA contributions, and qualification for certain tax credits, to name a few. Prior to 2010, it was also used to determine eligibility for Roth IRA conversions. From 1998 through 2009, only taxpayers with MAGI of less than $100,000 were eligible to convert a traditional IRA to a Roth IRA. For purposes of Roth IRA conversion eligibility determination, income attributable to the conversion was excluded from the calculation of MAGI. There are several adjustments, both negative and positive, made to “adjusted gross income,” or “AGI” to arrive at IRS’ definition of MAGI.

When SSA determines MAGI, the calculation is much simpler than the one used by IRS. SSA’s MAGI calculation increases AGI by tax-exempt interest income and that’s it. Since AGI includes income from Roth IRA conversions, unlike IRS’ pre-2010 Roth IRA conversion eligibility MAGI calculation which excluded income from the conversion, SSA includes Roth IRA conversion income in its MAGI calculation.

What does this mean if you’re a Medicare-eligible individual contemplating a Roth IRA conversion in 2010? Any income resulting from a Roth IRA conversion will be added to your other income to determine the amount of Medicare Part B monthly premium that you will pay two years after the year the Roth IRA conversion is included in your income. Your Medicare Part B premium amount could be greater for either one or two years depending upon whether you use the “default” or “election” method for reporting your 2010 Roth IRA conversion income.

Since Medicare premiums are based on SSA’s calculation of MAGI from your tax return two years prior to the current year and since the default for the reporting of 2010 Roth IRA conversion income is the deferral of 50% of the income to 2011 and 50% to 2012 (See In Which Tax Year(s) Should You Include Your 2010 Roth IRA Conversion Income? – Part 1), depending upon the amount of conversion income, your Medicare Part B annual premium assuming that you are married and both eligible for Medicare could increase by more than $6,000 in both 2013 and 2014 for a 2010 conversion. Alternatively, if you elect to report 100% of the income from your conversion in 2010, your Medicare Part B annual premium could increase by more than $6,000 in 2012.

Next week we will look at an example of how a 2010 Roth IRA conversion can directly impact the amount of your Part B monthly premium.

Medicare Roth IRA

Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? – Part 1

It’s always amazing to me how one thing in life leads to another. This phenomenon is so true when it comes to the Roth IRA conversion series of blog posts that I’ve been writing and publishing since the beginning of the year, with the first post, Year of the Conversion, published six months ago on January 11th. As an example of the “one thing leads to another” phenomenon, the idea for last week’s post, Got Dormant 401(k)? Consider Converting to a Roth IRA came about as a result of writing the previous week’s post, Don’t Forget About Your SEP-IRA for Roth IRA Conversions.

This week’s post is yet another example of the “one thing leads to another” phenomenon. The second to last paragraph of Got Dormant 401(k)? Consider Converting to a Roth IRA discussed various factors to consider when contemplating the Roth IRA conversion decision. Included in the list of factors was the affect of the conversion on Medicare premiums. Since this is an important consideration for anyone 65 years of age or older who is evaluating a Roth IRA conversion, I am devoting this week and the next two week’s posts to this topic.

For those of you unfamiliar with Medicare insurance premiums and how they’re calculated by Social Security Administration (“SSA”), first some background regarding Medicare insurance premium amounts. There are two types of Medicare premiums: Part A and Part B. Both premium amounts are subject to change each year.

Part A is for hospital insurance. Most people don’t pay a monthly Part A premium because they or a spouse has 40 or more quarters of Medicare-covered employment. The amount of Part A premium is currently $254.00 per month for people having 30 – 39 quarters of Medicare-covered employment and is $461.00 per month for people who are not otherwise eligible for premium-free hospital insurance and have less than 30 quarters of Medicare-covered employment.

Part B is for medical insurance with a basic monthly premium that is currently either $96.40 or $110.50 per month for individuals who file an individual return with modified adjusted gross income (“MAGI”) of $85,000 or less or individuals who file a joint return with MAGI of $170,000 or less. The monthly premium is $96.40 for individuals who have their Part B premium withheld from their Social Security benefits and is $110.50 for all others. The 2010 Part B monthly premium for higher levels of income is as follows:

2010 Part B Monthly Premium

Individual Return With Income

Joint Return With Income


$85,001 – $107,000

$170,001 – $214,000


$107,001 – $160,000

$214,001 – $320,000


$160,001 – $214,000

$320,001 – $428,000


Above $214,000

Above $428,000

What’s important to keep in mind is that SSA will use the income reported on your federal income tax return from two years prior to the current year to determine the amount of your Part B Medicare premium. As an example, the income reported on your 2008 federal income tax return will be used to determine your monthly Part B premium in 2010. If your income has decreased since 2008, subject to meeting certain criteria, you may request that the income from a more recent tax year be used to determine your premium.

Part 2 will discuss the distinction between IRS’ and SSA’s definition of “modified adjusted gross income” and how this affects the Medicare Part B monthly premium amount. Part 3 will provide an example of how a 2010 Roth IRA conversion can directly impact the amount of your Part B monthly premium.