Financial Surprises Retirees (and Those About to Retire) Want to Avoid
If you’re looking for a safe nursing home for your loved one, the federal government’s new comparison tool is helpful starting point, but long-term care experts advise digging a bit deeper.
The Centers for Medicare and Medicaid (CMS) in October introduced an eye-catching alert icon on their online Nursing Home Compare tool to signal that a particular facility had recently been cited for abuse or neglect. Before the icon’s debut, consumers could learn about a nursing home’s history of abuse by looking through its health-inspection reports, which are also available on Nursing Home Compare.
The icon, a white hand within a red
circle, appears for facilities cited in
the past year for abuse that led to
harm of a resident and/or those cited
in each of the past two years for abuse
that could potentially have led to a
resident’s harm. CMS said that the
symbol, updated monthly, is meant to
supplement its five-star rating system
and help consumers “develop a more
complete understanding of a facility’s quality.”
The Wall Street Journal reported last month that 760 of the database’s 15,262 Medicaid- and Medicare-certified facilities — nearly 5% — had been marked as such.
“Our new abuse icon helps patients make the best choices for their care, incentivizing nursing homes to compete on quality,” CMS administrator Seema Verma said in a statement emailed to MarketWatch. “While fewer than 5 percent of the more than 15,000 nursing homes participating in Medicare and Medicaid will be subject to the icon, CMS nevertheless urges all providers to focus on preventing abuse.”
Robyn Grant, the director of public policy and advocacy at the National Consumer Voice for Quality Long-Term Care, said she thought the new icon would serve to grab public attention. It also serves as an important incentive for nursing homes to examine their policies and procedures and work to prevent, respond to, and report abuse and neglect, she told MarketWatch.
“Abuse is just a persistent and pervasive problem in nursing homes,” Grant said. “I just think we do need something that’s startling enough to get people’s attention.”
But the warning drew complaints from the American Health Care Association (AHCA) and LeadingAge, two nursing-home industry associations. The groups argued that the icon gave the wrong impression — the visual urges consumers to avoid a facility altogether rather than investigate it further, they said — and didn’t account for facilities having taken corrective action after a citation.
“We feel that that icon is not helping a consumer, and that there’s much more information about an organization either being compliant or noncompliant,” Janine Finck-Boyle, LeadingAge’s vice president of regulatory affairs, told MarketWatch. She questioned whether consumers would actually look any deeper to learn about a facility after seeing the bright-red icon.
Mark Parkinson, AHCA president and chief executive, suggested in a statement that the icon had the potential to create “unnecessary worry” and “decrease access to care.”
Icon controversy notwithstanding, abuse in nursing homes frequently goes unreported. The Health and Human Services Department’s Office of Inspector General this year estimated that one in five high-risk hospital emergency-room claims for Medicare beneficiaries living in nursing homes in 2016 “were the result of potential abuse or neglect.”
“We determined that [nursing homes] failed to report many of these incidents to the Survey Agencies in accordance with applicable Federal requirements,” the OIG review added.
If you’re looking for a nursing home for a parent, grandparent or other loved one, you might be preoccupied with any number of safety concerns: abuse and neglect, falls, infection or even unnecessary use of antipsychotic medication. But experts say there are steps you can take to help minimize risk. Here’s what you can do:
Check Nursing Home Compare, but seek additional context. The government site lists the 15,000-plus nursing homes nationwide that participate in Medicare and Medicaid. Some 97.5% of nursing homes in the U.S. were Medicare-certified in 2016, while 95.2% were Medicaid-certified, according to a February report from the National Center for Health Statistics.
While the database can help narrow down possibilities, there are lots of other factors to take into consideration, Grant said. For starters, read the facility’s actual survey report and then ask the facility what it has done to correct any problems and ensure they don’t happen again, she said.
Lisa Laney, an Asheville-based aging life care professional and board member for the nonprofit Aging Life Care Association (ALCA), agreed that Nursing Home Compare was a “starting point.” “There’s nothing better than firsthand knowledge from someone who’s had a family member in that community recently,” she said. “What that facility was like last year may be totally different from this year.”
Visit the facility — and not just during its optimal moments. “You should always set up a tour with an admissions person, and then you should go back without the admission person, because you want to see what really goes on,” said Debbie Fins, another aging life care professional based in Worcester, Mass., who also sits on ALCA’s board. Late morning on Saturday or Sunday will give you a sense of a facility’s “weakest point” in terms of staffing, Laney said.
Observe how staff and residents interact; whether residents seem engaged in activity or just slumped over with nothing to do; whether residents appear well-groomed; and how long it takes for staff to respond when a resident needs help, Grant said. At mealtime, pay attention to whether residents have a choice in what they eat, how food is served, and whether aides are assisting those who need help eating, Fins said.
Use your nose, Fins added: People have accidents, but is there a strong odor of urine or staleness in the air? Do people smell like they haven’t been cared for?
Research how well a facility is staffed. Ask about staff turnover rate, Laney said. “The biggest complaint we hear, bar none, is that there aren’t enough staff to take care of residents,” Grant said. Nursing Home Compare provides staffing charts for comparison.
Staffing can have a big impact on safety, Grant added: Neglect can stem from an inadequate number of people — often overworked and overwhelmed — available to provide care. Abuse, however unjustified, can occur when staffers are under tremendous pressure due to workload.
Experts recommend 4.1 hours of “direct-care” nursing time per resident a day, a number that includes time spent with nursing assistants, licensed nursing staff and registered nurses, Grant said. The New York-based Long Term Care Community Coalition offers state-by-state data on facilities’ direct-care staffing levels.
Meet with the nursing-home administrator and director of nursing. “They’re the two most important people for establishing the culture of that entire workforce,” Laney said. Take notice if the higher-ups seem unapproachable or cold, she said, as that could provide a window into how they treat staff.
Assess the potential for abuse. Ask about the facility’s policy for male staff members providing intimate care for female residents, Laney said, and how it handles such situations on short-staffed days. Ask what staff members’ anti-abuse training entails, Finck-Boyle added — as well as how exactly abuse allegations are reported and investigated, how family members are notified of an incident, and what preventive measures the facility takes.
Check CMS’s list of special focus facilities (SFFs), or nursing homes with “a history of serious quality issues” that receive extra attention from CMS. The government lists nursing homes that have been recently added, have or haven’t improved, and qualify as SFF candidates, among other categories. “All things being equal, if you have a lot of candidates in an area, I would probably stay away from the special focus facility,” Grant said.
Contact your national, state or local long-term care ombudsman program, a network that advocates for nursing-home residents. Ombudsmen can provide information on their experiences with various facilities, Grant said, and give you a general sense of the types of complaints they’ve received and how responsive a facility has been.
Consider a facility close to family and friends. “Finding a place that’s geographically convenient for people to visit regularly is something to keep in mind,” said Fins. “The more family or friends are visible in a facility in general, the better care people get.” Facility staff will know that “someone’s watching,” she said, and a family member can also pick up on subtle changes like weight loss or behavioral shifts.
If you wind up choosing a facility far away from family, try to enlist help from a care manager (who can act as an advocate for folks caring for aging family members), neighbors or fellow churchgoers, Laney suggested. And consider that pairing your loved one with a roommate could potentially provide “another set of eyes and ears,” particularly if she or he has conditions like memory impairment or trouble communicating.
Seek insight from a nursing home’s family council, a voluntary group composed of residents’ family members who voice concerns and advocate for improvements. Ask during a tour of the facility whether there is an active family council and who its leaders are, Finck-Boyle said.
Don’t be seduced by bells and whistles. “For someone living in those four walls, the only thing that matters is the quality of the staff that’s taking care of them — period,” Laney said. “The beautiful landscaping outside your window doesn’t matter if there’s nobody to help you pee in a timely fashion, and with dignity and compassion.”
If your loved one has dementia or Alzheimer’s disease, ask whether staff are trained in the basics of Alzheimer’s and dementia care, and provide care based on a person’s individual needs, said Doug Pace, the director of mission partnerships for the Alzheimer’s Association. “It is about balancing safety and autonomy for those folks,” he said.
Ask about the facility’s policy on using antipsychotic medications and its non-pharmacological approaches to care, Pace added. Patient advocates today warn about the dangers of misusing antipsychotic medications to treat dementia patients’ behavioral symptoms.
To the extent possible, start your research in advance. “If you have a loved one who is declining, and you are concerned that in the future they’re going to need nursing-home care, now’s the time to be looking — not when they’re in the hospital and you have to make a decision in 24 hours,” Fins said.
The Wall Street Journal
Close to retirement, but you're still short
If you are nearing the end of your career or just starting out in retirement, you might assume it’s time for the careful financial planning you did all those years to finally pay off. You imagine a long-desired Alaskan cruise or map out cross-country trips to visit the grandkids. You picture filling your free time pursuing your interests in activities from biking to art.
But even the most diligent pre-retiree planner can get tripped up by unpleasant financial surprises along the way. And if you’re not careful to avoid some of these shocks to your budget, they can derail your dreams and force a shift in your retirement goals.
Consider just a few possibilities: You
thought you’d have lower taxes as a
retiree, but you land in a higher bracket
instead as you begin to tap your
qualified retirement accounts. You
budgeted for Medicare payments,
only to find your monthly premium is
much higher than expected. You
counted on your expenses shrinking
in retirement, but you still have hefty
bills for home maintenance and car repairs.
That retiree health care from your employer that you figured was free? It actually costs hundreds of dollars each month in premiums. Even little things add up: You paid for expensive extended warranties that will far outlast how long you hold onto appliances or devices, or you forget to cancel costly recurring subscriptions for online services you no longer use. “I know what my regular monthly bills are, but I think it’s the unintended expenses, the major house repairs and other things you don’t plan on, that surprise you,” says Susan Garcia, 62, a former physician who lives in New Orleans and retired two years ago. “Your costs don’t really go down in retirement. They stay the same, and you don’t have 100% of the salary you had before.”
More people are likely to face this financial squeeze as they enter retirement with fewer resources than previous generations. A recent report by the Center for Retirement Research at Boston College notes that most adults approaching retirement are more reliant on retirement accounts built up during their working years than guaranteed pension income. If they have invested much of their savings in stocks, they are more vulnerable to sharp market downturns in early retirement. And nearly 80% of the spending needs of middle-income households entering retirement is earmarked for basic expenses, the study says.
All told, it leaves retirees with little room for error. “Things that happen in the few years prior to retirement and the few years after can have a disproportionately large impact on your retirement years financially,” says Brook Lester, chief wealth strategist at Diversified Trust in Memphis. “Any kind of financial shock, like a large unexpected expense, a sick spouse or a big market downturn, can be hard to recover from.”
Fortunately, there are moves you can make now to shore up your finances and head off unexpected hits to your retirement budget. Here’s a look at some of the nastiest retirement surprises—and how to handle them.
Surprise No. 1: Medicare costs more than I thought
If you’ve never heard of IRMAA, you’ll want to know all about it before you retire. It’s the Medicare income-related monthly adjustment amount surcharge, and it refers to the extra premiums for Part B and Part D that higher-income beneficiaries pay for Medicare coverage.
In some cases, even a tiny increase in your income can put you in a higher income bracket and trigger the surcharge, meaning a married couple, for example, could suddenly be paying as much as $1,000 a month more than planned. And if you convert a traditional IRA into a Roth account, thinking it’s a smart strategy for avoiding higher taxes later in retirement, your additional income could put you in surcharge territory and wipe out some of your expected savings.
For 2020, the surcharge is triggered when your modified adjusted gross income—that is, your adjusted gross income plus tax-exempt interest income—exceeds $174,000 for taxpayers who are married and file jointly or $87,000 for individual taxpayers.
Part B premiums combined with premium surcharges for Part B and Part D range from a total of $214.60 to $568.00 per month per person in 2020.
Not only are many pre-retirees unaware of the surcharge, they also don’t understand how it works, says Forrest Baumhover, a planner with Lawrence Financial Planning in Tampa, Fla. For example, the surcharge is calculated based on your tax returns from two years prior. Many retirees know they might be subject to the surcharge, “and they dread it, but they don’t know what to do,” he says.
How to tackle it: If you are married and one spouse is still working, coordinate your health insurance coverage. One of Baumhover’s clients retired and realized he’d be hit with an IRMAA surcharge as he enrolled in Medicare. “We pointed out that he didn’t need to enroll in Medicare and pay the related IRMAA surcharge as long as she was still working and he was covered under her plan,” Baumhover says.
The couple verified this with their local Medicare office, enrolled in her employer’s health care coverage and are dropping Medicare for now, saving over $2,000 per year in IRMAA surcharges, plus the standard Medicare premiums, he says. (Before using this strategy, confirm whether your spouse’s health plan requires you to enroll in Medicare at age 65. In companies with fewer than 20 employees, for example, the employer plan may pay secondary to Medicare when an enrollee is Medicare eligible.)
You also can appeal the surcharge. Request a reconsideration by calling the Social Security Administration at 800-772-1213. An inaccurate tax return or a life-changing event, such as divorce or death of a spouse, can qualify for an appeal.
Glen Turnes, 74, a retiree from Tampa, says his appeal was successful, and the process was less intimidating than you might think. Read your IRMAA notice carefully and follow the procedures for appealing, he says. Be sure to follow up and get help from a financial professional if you need it.
How did that happen, when you expected it to go down? One possibility: You overlooked the fact that a portion of your Social Security benefits could be taxed. “It comes as a shock” to many retirees, says Paul Staib, a Highlands Ranch, Colo., financial planner. “People think of it as double taxation, and they get upset about it.”
For married couples filing jointly with incomes between $32,000 and $44,000, 50% of benefits are taxable. And 85% of benefits are taxed at incomes above $44,000 for joint filers. (See Publication 915 at IRS.gov for more details.)
Another potential tax shock: You followed accepted financial advice and saved for years in your tax- deferred retirement accounts, but you didn’t think about the tax bill that comes due when you start drawing down your money. Add in your retirement income from other sources, such as Social Security, pensions or deferred compensation payouts, and you easily can wind up in a higher bracket as a retiree than when you were working. This “tax torpedo” is a frequent and upsetting surprise, planners say.
Another potential tax shock: You followed accepted financial advice and saved for years in your tax- deferred retirement accounts, but you didn’t think about the tax bill that comes due when you start drawing down your money. Add in your retirement income from other sources, such as Social Security, pensions or deferred compensation payouts, and you easily can wind up in a higher bracket as a retiree than when you were working. This “tax torpedo” is a frequent and upsetting surprise, planners say.
Consider a couple who saved every penny in retirement accounts that now have a balance of $3 million. Once they retire and begin to draw from those accounts, they realize that about one-third of each withdrawal will be consumed by taxes.
Jane Upton, 69, who lives in Jacksonville, Fla., retired in 2017 and receives a pension from the city; her husband is still working. They now take distributions from her IRA to travel, because all their money is in tax-deferred retirement accounts, and they are feeling the impact of the tax on those distributions. Some of their more expensive trips—a Galapagos cruise, whitewater rafting and Grand Canyon camping—forced them to take IRA distributions much larger than the cost of the trip because of tax withholding.
“I knew I was putting money into my retirement accounts at a pretax rate, and thinking, ‘I’ll pay the taxes when I get this out,’ ” Upton says. “But I was never really thinking how much it would be. Now when I’m looking at that whole nest egg, it’s like 28% of it I’m not going to get. That’s a shock when you think of it that way.”
How to tackle it: The best way to avoid the tax torpedo is to start tax planning early. “Keep in mind that at some point the government is going to want its share of taxes,” says Mark Astrinos, a San Francisco CPA financial planner and member of the American Institute of CPAs Personal Financial Specialist Committee.
Structure your retirement accounts to allow for potentially tax-free distributions or lower tax-impact withdrawals later. Consider Roth conversions, which Astrinos calls “the golden window of opportunity” for some retiring between ages 65 and 70. Perhaps they’re already on Medicare, their income has fallen, and they haven’t yet drawn on their Social Security benefits or RMDs. It’s their best chance to convert those tax-deferred accounts to Roth IRAs, paying taxes now at a potentially lower rate than after age 70. But be careful on timing, or you could bump up your Medicare premiums after a Roth conversion, he says.
If it’s too late to plan ahead, you still have alternatives. If you’re charitably inclined, use the qualified charitable distribution strategy, which involves donating IRA money directly to a qualified charity, lowering your taxable income at the same time. Bonus: The QCD can count toward your RMD.
And alter your spending to cover your tax bills. Upton and her husband are replacing the major travel getaways they’d planned with smaller and less costly trips spread out over the year. Before they spend anything from a retirement plan distribution, they subtract about one-third of it to account for taxes and adjust their spending. “It means a trip I’m not going to take, or some other thing I’m not going to be able to do,” Upton says. She and her husband also expect to be in a lower tax bracket when he stops working in a few years.
Surprise No. 2: My tax bill went up in retirement
You no longer need your rambling house and spacious yard, not to mention the upkeep. You assume a sure-fire way to build up retirement savings would be to sell it and move to a smaller house. But expecting a windfall from downsizing is one of the biggest fallacies about retirement savings, says Mike Kurz, chief executive officer of a financial planning firm in Frisco, Tex.
On paper, swapping out the family house for a smaller footprint should cut your expenses. But moving is an emotional decision as well, Kurz says. If you have ties to your neighborhood, church, community organization or even the local coffee shop, you might hope to keep living there, just in a smaller house. But in an expensive neighborhood, you might still have a significant property tax bill even in a smaller house or find yourself limited to pricey rentals. Add in moving costs, real estate commissions, renovations or upkeep, and sometimes your move amounts to far less money saved than you thought.
How to tackle it: Before posting a “for sale” sign, be sure you are committed to moving from a grand home to a more modest one, often in a different neighborhood, to save significantly. “You really have to be willing to sacrifice,” Kurz says. If you are on the edge financially and you can save $500 each month by moving to a smaller rental, getting rid of your house and mortgage makes sense. If you’re pursuing a major lifestyle change, you also might make it work. In north Texas, Kurz says, clients sometimes trade in their family home on a suburban cul-de-sac for a less expensive home in a rural community or farther out in the country. But be sure the savings will be worth it and that you won’t miss walkable streets or neighbors. You also want to avoid being isolated from relatives, friends and transportation.
Surprise No. 3: I downsized my house, but I didn’t
get a windfall
If you retire before you’re eligible for Medicare and don’t have coverage through a spouse’s employer or other group plan, you’re on your own for health care—and it may not be cheap. Quit working at age 55, for example, when you’re still 10 years away from Medicare eligibility, and your coverage in the individual market may cost hundreds of dollars more than Medicare each month. “Having private insurance is just so expensive,” says Tiffany Beard, a financial planner with Wealth Enhancement Group, in Jacksonville, Fla.
That’s particularly true if you don’t qualify for premium tax credits on the Affordable Care Act insurance exchanges. Early retirees may be able to tweak their retirement drawdown strategy to qualify for those tax credits.
If you had employer health coverage and you’ve stopped working, you may be eligible for Cobra coverage. But be sure you understand you’ll be paying 110% of the entire cost, not just the smaller premium you paid while working. And Cobra is often limited in length; you may only be eligible for a year to 18 months.
Louise Bryant, 59, founder of Financial Spyglass, a fee-only comprehensive planning firm in Rye, N.Y., and her husband both have small businesses and are no longer on their previous corporate health plans. Until recently, they paid $3,400 each month in Cobra premiums, which was much higher than their monthly health care cost under their corporate health coverage. And finding a plan on the Affordable Care Act exchanges hasn’t been easy. Even getting the information you need to coordinate with your doctors can mean numerous phone calls, emails and even office visits. “It’s a lot of work to wade through the options for coverage after Cobra and before Medicare as small business owners,” she says.
How to tackle it: Check with your state to see how long you may be eligible for Cobra. For instance, if your coverage is from an employer based in New York state, you may be eligible for up to three years total of coverage under Cobra rather than the more typical 18 months. Bryant eventually found a plan for 2019 for $1,896, or $948 each, per month to cover herself and her husband. As of December 2019, her husband is covered by Medicare. And she has found one plan for 2020 that her doctors accept as “in network” that will be $1,137 a month. “It can work,” she says.
Alternatively, find a part-time job with health benefits; Beard says one client started working at a Publix grocery store for the benefits. If you have a health savings account, fund it to the maximum now so you can use it in retirement.
Surprise No. 4: I retired early, and health care is expensive and hard to get
You thought you had estimated your spending needs carefully before retirement, but you’re tapping your nest egg more often than expected. There’s the out-of-pocket costs for the hip replacement you didn’t expect or for the air conditioning unit that finally gave out. Watching your money dwindle away interferes with what are supposed to be your carefree years. Retirees regularly underestimate their costs in retirement, planners say. New Orleans retiree Susan Garcia, for example, says she “didn’t want to work until age 84” and tried to plan carefully for retirement with her husband, who had retired about 15 years before she did.
But they still encounter expenses they can’t always plan for, such as a new roof on the house and other maintenance issues.
How to tackle it: Creating a retirement spending budget and sticking to it are just as important as in your working days or when you were raising a family. Include everything from expected future costs for long-term care to everyday spending. Garcia and her husband, for example, researched local assisted-living facilities with their financial planner, Lauren Lindsay, to see what they could afford, and then included some $4,000 a month for care in the budget. Garcia also now factors in money for emergency maintenance and other needs, which offers some peace of mind, she says.
Surprise No. 5: My nest egg is disappearing faster than I thought it would
You may feel set for retirement as you start out, but covering health costs in your early years can look much different than paying for care when you are older and ill. Even if you have long-term-care insurance, it will cover only a portion of your care. Many people also wrongly assume Medicare covers long-term care—but it doesn’t, except in very limited circumstances. And waiting until a spouse or parent needs help before figuring out how to pay for it may leave you scrambling for solutions and forced to pay even more for emergency help.
Sherry McKinney, a financial planning professional with Stearns Financial Group, in Greensboro, N.C., dealt personally with the long-term-care-cost dilemma. Her mother had spent down her assets, and McKinney was going to step in and pay the costs of assisted living for her. Her mom fell and ended up in nursing care instead, “but when you are facing the payment of $3,000 to $4,000 a month, it is daunting and concerning,” McKinney says. “I had no idea that my mom would be in this weird zone where she makes too much money to qualify for assistance, but nowhere near enough to pay the cost of assisted living.”
How to tackle it: If you have an extended family and it’s financially possible, you may need to have a family meeting and figure out whether everyone can pitch in for care. McKinney’s family—all four adult children and 10 adult grandchildren—decided to ask all its members to consider helping, even just a small amount on a monthly basis. She also regularly sees her own clients doing the same.
Alternatives can include having the children purchase a life insurance policy with a long-term-care rider for their parents, keeping in mind that this needs to be done before care is needed. The children who pay the premiums on the policy should be designated as beneficiary of the life insurance in the event the parents don’t need long-term care, McKinney says. Also, investigate whether you or a loved one might be eligible for veterans benefits or other assistance. Start your search at BenefitsCheckup.org.
Surprise No. 6: Long-term care is more costly than I imagined