When considering your Social Security benefits for your retirement financial planning, remember to consider federal income taxes! If your only income is from Social Security, your benefits will probably not be taxable. But if you earn over $25,000 single/$32,000 married filing jointly, you will be taxed on your Social Security income.
How much of Social Security benefits are taxable?
Single: Between $25,000 and $34,000, up to 50% of your Social Security income may be taxable. Over $34,000 income, 85% may be taxable.
Married filing jointly: Between $32,000 and $44,000, up to 50% of your Social Security income may be taxable. Over $44,000 income, 85% may be taxable.
Married filing separately: You will probably pay tax on 85% of your Social Security income.
To figure combined income for this situation, you add your adjusted gross income (line 37 on Form 1040), one-half of your social Security benefits (from Form SSA-1099) and federally non-taxable interest (i.e., municipal bond interest—Line 8b on Form 1040).
For a worksheet to see if your Social Security benefits should be taxable click on taxable Social Security benefits worksheet.
What about state income tax on Social Security benefits?
Some states with their own income taxes include at least part of your Social Security benefits in your taxable income. Some may only tax above a certain income level. If you file taxes in one of these states, you may pay state income tax on your benefits:
Colorado, Connecticut, Iowa, Kansas, Minnesota, Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Vermont, Utah and West Virginia.
So when you are looking for that dream location for retirement, this may be one thing to consider!? But remember to consider other taxes too—sales tax, property tax, car registration, personal property tax, etc. AND the availability of services for seniors.
Well, almost free. If you are a 62 year old US citizen/permanent resident, you can purchase a Senior Pass for National Parks and Federal Recreational Lands for $10. Normally an Annual Pass costs $80. This Senior Pass lasts for your entire lifetime, as long as you do not lose the card itself. You need to show the card and your picture ID at staffed recreational areas or place the card on the dashboard of your car in unattended areas.
Purchasing a Senior Pass for National Parks
You can buy a Senior Pass at staffed recreational areas for $10. You can also purchase one through the mail, but it will cost $20 which includes the processing fees. To download an application to mail, go to Senior Pass application website. For questions or to attempt to receive an application through the mail, call 1-888-ASK-USGS (1-888-275-8747) or email fedrecpass@USGS.gov . The application is sent to USGS, Box 25286, Denver, CO 80225.
Benefits of the Senior Pass for National Parks
You can use the Senior Pass at over 2,000 recreational sites managed by five Federal agencies:
- National Park Service
- The Forest Service
- Fish and Wildlife Service
- Bureau of Land Management
- Bureau of Reclamation
- Entrance into parks/facilities—for areas with a vehicle charge, it covers all people in one non-commercial vehicle; for areas with a per-person charge, it covers the card holder and up to 3 other adults (Children under 16 are free.)
- 50% discount on some amenity fees, such as camping, swimming, boat launching—check with location for details on specific activities
- Exceptions—facilities where private contractors manage activities or facilities may not accept the card—contact facility directly for details
*If you are not 62 yet, active military personnel and dependents can receive a free Annual Pass, and disabled citizens are entitled to a free Access Pass that is good for a lifetime.
Summer has started. It’s time to think about taking the grandkids to a National Park. So the Senior Pass could be a great value for you—almost free, especially when spread over the rest of your life!
Previously in the blog, HSAs and Medicare Do Not Mix, I covered how you know if you have the type of employer health coverage plan that does not permit you to have Medicare at the same time. Now I want to get into details about how to avoid getting into a prohibited situation.
Medicare and Employer HSA Coverage
Because you receive a tax advantage when contributing to an HSA with a qualified high deductible plan, the IRS does not allow you to contribute to that HSA and also receive the health premium savings that Medicare provides. So if you have an HSA with qualified employer health coverage, do not enroll in Medicare if you continue working.
Social Security and Medicare Part A
Not enrolling in Medicare is simple enough to do if you do not take Social Security income benefits. Once you begin to receive a monthly Social Security check, Medicare Part A automatically begins if you are Medicare-eligible (i.e., age 65). If you are working, most people do not start Social Security benefits until they reach their Full Retirement Age (FRA, i.e., age 66 if current near-retiree). After reaching FRA, you can earn as much money as you want without losing any Social Security benefits.
If you choose to take Social Security and continue to work and if you are contributing to a “qualified” HSA, you must pay close attention to timing. Once Social Security benefits begin, if you are already 65, you will be enrolled in Medicare Part A retroactively for up to 6 months. To avoid a tax penalty in this case, you must have stopped contributing to your HSA before the Medicare effective date, which could be before the Social Security effective date.
For example, John turned 65 in March of 2012. He started taking his Social Security benefits at FRA of 66 (March, 2013). Unaware of the consequences, he has continued to contribute to his qualified HSA. Since he is taking his Social Security benefits and already 65, Medicare automatically starts retroactively 6 months (September, 2012), and he will have a tax penalty for the contributions made since September, 2012. (See reference to penalty in next section.)
In the unlikely situation that you were on Social Security Disability benefits (SSDI), on Medicare and go back to work with employer coverage with an HSA, your Medicare coverage could last for up to 93 months—the period that you could not contribute penalty-free to the employer HSA.
IRS Tax Penalty with Medicare and an HSA
If you do contribute to a qualified HSA while on Medicare, there is a 6% tax penalty on any contributions and their income until withdrawal of such amount from your account. This withdrawal cannot be used for eligible medical expenses. So if this happens by mistake, withdraw the money as quickly as possible to stop the penalty.
Opting Out of Medicare Part A
To avoid the above situation, you can opt out of Medicare Part A by paying back all the Social Security payments you have received plus anything Medicare has paid for your health coverage. This could be an expensive proposition if you are unaware of the penalty. Also, this repayment option is limited to the first 12 months that you are receiving Social Security benefits.
Tax Penalty vs. Coverage
You need to weigh the cost of the tax penalty vs. not having Medicare coverage and/or needing the employer coverage for dependents. As was explained in the above-mentioned blog post from May, 2011, if you can keep your employer coverage for your dependents, they can have a private HSA which does not affect your Medicare.
Bottom line—If you have an employer plan with an HSA, contact Social Security to find out all the particulars of your situation before taking Medicare or Social Security (1-800-772-1213). Please consider sharing any wisdom you have gained from your own experience with an HSA and Medicare. Obviously this can be a tricky situation.
In a recent blog post, I discussed Encore Careers where retirees combine “purpose, passion and a paycheck.” Marc Freedman who founded the organization, Encore.org, and coined the term “encore career,” had originally founded an organization called Civic Ventures. Freedman had written a book called Primetime: How Baby Boomers Will Revolutionize Retirement and Transform America, where he described how Boomers were changing retirement and looking to be more active in making changes in their world during retirement.
Baby Boomers and Civic Engagement in Retirement
In Minnesota along with the Vital Aging Network (VAN), Freedman held forums on Baby Boomers and Civic Engagement. One of the findings described at these seminars was that Boomers wanted intellectually challenging volunteer experiences that called on their skills and experience from their work life. They often preferred project management or coordination of a program as opposed to stuffing envelopes and being greeters.
However, the findings also showed that non-profits were not prepared for this new kind of volunteer. Aside from being board members, non-profits did not have a good process for incorporating volunteers with valuable business or other specialized skills into their organizations. Like training student teachers or teaching children life skills, initially a job can take longer when incorporating volunteers than if one completes it themselves. A friend of mine reported that she wants to volunteer at a local senior center where her technology skills and masters degree in gerontology would be a perfect fit, but that she always has to consider how she can help the organization without requiring too much of the director’s time to initially set up the project.
Non-profits and Skilled Retired Volunteers
A recent Forbes blog post, “Why So Few Baby Boomers Are Volunteering,” describes similar findings about Boomers and skilled volunteering, but it also points to some non-profits that are beginning to use volunteers in a more specialized way. So, Boomers, if you want to help with research, plan specific fundraising events, train other volunteers, put together educational or marketing literature, or provide community outreach and education, first you might need to help non-profits establish a process to more easily incorporate your services into their organization OR find non-profits that already “get it.”
If you have an example of how an organization benefitted from a volunteer’s expertise, please comment below. Maybe we can all help the growth of more meaningful volunteering!
Unfortunately I have been running into people who are receiving Social Security Disability benefits (SSDI) and are paying a premium penalty for their Medicare Parts B and D. A previous blog post Good News for SSDI Recipients with Medicare Premium Penalty explains that you have a new enrollment period when you turn 65, and the penalty should go away.
Medicare, SSDI and Employer Coverage
One of the pieces that I see happening is that if people on SSDI decide to not take Medicare when they are first eligible (i.e., after receiving SSDI benefits for 24 months), they do not realize that they may have the premium penalty later. One person did not know that when she lost her husband’s employer coverage, she could have avoided the penalty if she had just filed Social Security form L-564. The rule is that you have a special enrollment period if you have been covered under a group health plan based on your own or a family member’s current employment status. Then if you file the L-564 form, you will have 8 months to sign up for Medicare Part B without a penalty. You have 2 months to sign up for a Medicare Part D plan when you lose creditable employer drug coverage. While you are covered by that employer group health plan, you can sign up for Medicare Part B at any time without a penalty.
Medicare, SSDI and other health coverage
Other people continue some health coverage that puts them past the 7 months that would be their Initial Enrollment Period which starts after receiving 24 months of SSDI benefits. This mistake is because whatever coverage they have, they do not know that it is not the same as the group employer/union health coverage described above. Some people may have a type of COBRA coverage or state health plan or individual coverage. Any of these do not provide an option for another penalty-free enrollment period before age 65.
So, please, if you receive notification that you are eligible for Medicare due to SSDI, ask questions before deciding not to take Medicare at that time. (Where to find Medicare answers in your state) You do not want to be surprised by a penalty later.
One person with whom I worked, is paying over $200 a month for the same Part B coverage that regularly costs $104.90 in 2013 because she did not look into Medicare until her other coverage became too expensive for her. Now her Medicare is also much more expensive than need be. If you know of a similar situation, please comment below so we can all learn from other’s experience!
Having just experienced two amazing presentations/performances by Teepa Snow on caregiving strategies for care partners of people with dementia, I discovered/rediscovered two pieces of related art. I don’t know for certain, but I would believe it if someone told me that Teepa had started her career in drama. She has a wonderful gift for vibrantly demonstrating typical responses from people with dementia to different requests made of them. She explains their “confusing” behavior from a perspective that they are doing the best they can, considering their brains are dying. In contrast to other medical model categorizations, she names different stages of dementia with the names of gems—diamonds, emeralds, pearls, etc.—directing our attention to what abilities are left, not what is gone.
Cranky Old Man
In a poem that has circulated on the internet, a “Cranky Old Man” describes what he sees from his perspective, but what is missed by the nursing staff and others who work with him in a nursing home. Excerpts:
What do you see nurses? . . .. . .What do you see?
What are you thinking .. . when you’re looking at me?
A cranky old man, . . . . . .not very wise,
Uncertain of habit .. . . . . . . .. with faraway eyes?
Who dribbles his food .. . … . . and makes no reply.
When you say in a loud voice . .’I do wish you’d try!’
At Fifty, once more, .. …Babies play ’round my knee,
Again, we know children . . . . My loved one and me.
Dark days are upon me . . . . My wife is now dead.
I look at the future … . . . . I shudder with dread.
I remember the joys . . . . .. . I remember the pain.
And I’m loving and living . . . . . . . life over again.
So open your eyes, people .. . . . .. . . open and see.
Not a cranky old man .
Look closer . . . . see .. .. . .. …. . ME!!
The origin of this poem is disputed, but the sentiment is not. In the US especially, we often write off our aged as useless and demanding of difficult care. If we look to their history, experience and wisdom, we can find treasure—the gems of a “Cranky Old Man.”
Hello in There
The “Cranky Old Man” poem and Teepa’s artful presentation reminded me of a Bette Midler song from long before we were addressing the Silver Tsunami of Boomers that are approaching retirement and dreading entering that life stage where we lose relevance. Bette’s “Hello in There” song lyrics (video) were not addressing someone with Alzheimer’s or in a nursing home, but simply an older couple living on their own. Excerpt:
Me and my husband, we don’t talk much anymore.
He sits and stares through the backdoor screen.
And all the news just repeats itself
like some forgotten dream
that we’ve both seen.
You know that old trees just grow stronger,
and old rivers grow wilder every day,
ah, but, but old people, they just grow lonesome
waiting for someone to say,
“Hello in There. Hello.”
So if you’re walking down the street sometime
and you should spot some hollow ancient eyes,
don’t you pass them by and stare
as if you didn’t care.
Say, “Hello in there. Hello.”
All these art forms remind us that as we approach retirement, and inevitably age, we can still look for the cranky (or not) gems in there. So as Bette sings, look for them as you walk down the street–or enter a nursing home or visit an older relative…
Combining several of our last topics—passion in retirement, working in retirement, and volunteering in retirement —we come up with Encore Careers. Encore.org promotes “second acts for the greater good”—encouraging people age 50+ to use their experience, skills and wisdom to leave a lasting legacy for the well-being of future generations.
Boomers as “takers”
I love the encore career concept because we Boomers are always cited for taking so much—resources, jobs, services, attention. Because Boomers are the largest and best educated generation and had the greatest opportunity for jobs and material success up to this point, we are looked upon as “takers.” Now because we are entering retirement age, we are “taking” a chunk out of Social Security and Medicare. When the Boomers were born, we knew there would be a large number of people hitting retirement age at this time. What has changed is that thanks to advances in medicine, we are living longer and, thus, stressing those government programs even more.
Boomers as “givers”
Encore careers offer us a chance to prove that we can be “givers” as well. Even though we often have enjoyed a higher standard of living than our parents and seem to be focused on financial/material success, many Boomers are now at the developmental stage where we want to leave a valuable legacy for future generations. We can use our gifts of education, training and experience to help provide solutions to social problems.
“Encore career” was coined by Mark Freedman, founder of Encore.org. Encore careers promote “purpose, passion and a paycheck” in your second act. One way social entrepreneurs in the second half of life are encouraged is through the $100,000 Purpose Prize. According to Freedman, “Winners guided by experience, drawing on creativity and anchored in pragmatism set out to find solutions to significant, seemingly intractable social problems.” Recent winners from Purpose Prize:
Inez Killingsworth, 72, became a housing expert and advocate—just in time for the home mortgage and foreclosure crisis. In a recent year her organization, Empowering & Strengthening Ohio’s People, provided foreclosure counseling to 8,000 families, helping more than 80 percent stay in their homes.
Susan Burton, 61, a former drug addict who spent years in and out of jail, is an advocate for women who are also former inmates. Her organization, A New Way of Life Reentry Project in Los Angeles, helps female parolees — and their children — start fresh, by offering them housing, legal services and job training.
Judy Cockerton, 61, aims to transform America’s foster care system through her Treehouse Foundation. The nonprofit has created a mixed-income housing community where families who have adopted foster children live among “honorary grandparents” age 55 and older. Volunteers serve as mentors, tutors and counselors.
Other prize winners have helped the homeless; first-time, at-risk mothers; severely-disabled students; and have projects in other countries like Tanzania, India or Afghanistan.
Encore Career Resources
We may not all be able to start new organizations, but we can start looking for opportunities to pursue our “passion, purpose and a paycheck” through:
Encore Career Handbook Review at: Review
AmeriCorps national service network: AmeriCorps or call 800-942-2677. Volunteer and paid service.
AARP Experience Corps. Volunteer and paid tutors improve K-3 literacy in disadvantaged schools.
Support from other sources for encore careers
Richard Eisenberg in his blog post, Encore Careers for the Rest of Us, suggests there are 4 other major players who need to support this movement to make it part of traditional retirement:
–Financial Advisors need to help clients look at retirement in a new way and consider encore careers as an opportunity to help themselves financially while finding meaning in retirement.
–More employers need to offer near-retirees paid internships or bridge jobs like the Intel Encore Fellowships — six- to 12-month assignments at local nonprofits.
–Nonprofits need to welcome skilled people interested in encore careers.
–Colleges should provide training for people interested in encore careers. See encore.org for list of current programs.
So Boomers, let’s become known as the generation who started the “purpose, passion and a paycheck” retirement. Give us your encore performance!
If you want to do something meaningful to you in retirement, but also want to have complete freedom to travel whenever you want, have more control over what you do and do not need the extra income, volunteering vs. paid work may be the answer. According to a research study done for the Corporation for National and Community Service volunteering improves physical and mental health, with lower mortality rates, greater functional ability and lower rates of depression. Fantastic reasons to volunteer in retirement!
Types of Retirement Volunteering
What cause is meaningful to you? Do you want to work directly with people in need of services— alleviating hunger, poverty, illness, disability? Hospitals, social service organizations, nursing homes, food shelves, and churches can provide opportunities. Do you want to help animals? Animal shelters, zoos, and foster parent programs could use your love of animals. Do you want to promote the arts? Theaters, schools, and museums can all use help. Is the environment your passion? Parks, critical habitats, and organizations for specific environmental causes need help with research, conservation, education and community development. Is education where you want to make your impact? Schools, adult basic education and community education opportunities abound. Are you ready for physical labor when disaster relief is needed? Many national organizations need you.
Level of Involvement in Retirement Volunteering
Here again, you can pick the level of volunteer involvement you want in retirement. Do you want to work at a food shelf weekly? Do you want to head a project that is intense for a period, but is time limited—so you can be in Florida in December? Or do you want to be extra hands to help with mailings or setting up rooms? Do you want to get training in a specific area in which you have always been interested—mediation, tax preparation, Medicare assistance? Do you want to work a few hours a month or full-time? You get to choose. Look for the right opportunity that matches what you want.
Resources for Volunteering in Retirement
If you do not know where you would like to volunteer or where they could best use your skills and passion, check out the resources below. Some are national or international with the ability to identify your preferred area, and some are local, but there may be counterparts in your area.
Volunteers of America–national
AARP Volunteer Wizard–national
Senior LinkAge Line—Minnesota 1-800-333-2433
HandsOn Twin Cities, Minneapolis-St Paul area
AmeriCorps VISTA—more in next blog post
According to the Corporation for National and Community Service’s Volunteering and Civic Life in America survey, our own Minneapolis-St Paul metropolitan area is number one for volunteering—a total of 86,524,920 hours in 2011. And of course, the 65-74 age group volunteered the most hours! When planning your transition to retirement, consider volunteering–to benefit others and yourself!
Really! 75% of current workers say they expect to work as long as they are able according to a Bankrate poll. Why would anyone want to do that?
Obvious financial reasons for working in retirement
Since 2008, the stock market and economy have impacted many worker’s savings for retirement. When our 401(k) became our 201(k), we might have decided that we needed to work longer before retirement in order to build up our savings. If we were unfortunate enough to be downsized out of our job and we were over 50, we might have had to dip into savings that we had earmarked for retirement for current living expenses because we could not find another job quickly. Or our plan to use our equity in our home disappeared.
Longevity and working in retirement
One of the factors that we all are facing is that our life expectancy is longer than we might have considered previously. Medical advances are keeping us all alive longer. So the longer we can work, the longer we do not have to depend on our savings for income. A Society of Actuaries report suggests that since we cannot know how long we will live and how our investments will do in the future, we are just guessing about how much money we will need in retirement. The longer we work, the less guessing.
Early Retirement and Health benefits
Many Boomers dreamed of early retirement. However, with the continually rising expense of health care premiums and co pays, if we can even pass the health screening of insurance companies, we might be remaining on the job to guarantee health coverage until age 65 and Medicare.
Engaging work in retirement
But it is not all so bleak. Many Boomers are continuing to work because they love their work. Jim Toscano of Toscano Advisors, LLC, is 75 and going strong. He has “retired” from a few long-term executive positions in the nonprofit sector of the health care industry, but now enjoys using his management experience to help other nonprofits stay afloat.
Ron Strand of Russell Associates and Resource Connections describes the process of “rusting” in retirement when one does not stay actively involved. For him active engagement means continuing to help organizations provide relevant training and testing for their employees.
Our last blog post addressed activities that promote healthy aging. The intellectual, social and, possibly even physical, components of work that we love can contribute to a longer, healthier life.
Workforce demographics and work in retirement OR Because the economy needs us
As the Boomer generation enters retirement age, the demographics of the US workforce is changing as related to age and education. The generations coming up behind the Boomer generation are much smaller and have fewer college degrees or advanced training. Allowing Boomers to remain working will help provide a bridge to fill that gap until younger workers can be trained.
Flexibility in the Workplace
Even though retiree age workers may want to continue to work for any of the previous reasons, we often want more flexibility in order to enjoy some of the benefits of reaching retirement age. We may want more flexibility with hours or location in order to travel or visit family and friends. We might enjoy the same work but want to decrease stress, possibly without the responsibility of supervising others or managing a project. Pharmacies are an example of companies who are filling a shortage of skilled workers, e.g. pharmacists, by allowing retirees the flexibility of working in one location in the summer and another in the winter.
Resources for finding employment in retirement
Great Jobs for Everyone 50+: Finding Work That Keeps You Happy and Healthy … And Pays the Bills Book by Kerry Hannon of AARP
“5 Jobs in Demand for 2013” for 50+ workers: Crossing Guard, Hospice Chaplain, Home Health and Personal Care Aide, Construction Estimator, Move Manager
Work Reimagined: A project of AARP powered by LinkedIn. Work Reimagined connects you to the contacts, information, and inspiration you need to succeed in today’s ever-changing workplace.
When Work Works: A nation-wide initiative on effective and flexible workplaces that is designed to share research and best practices on what makes work “work” in the 21st Century.
Staying actively engaged and wanting more flexibility often leads to working without pay–volunteering. Watch for future blogs posts on this possibility and even a cross-pollination version of “encore careers.”
Activities to enjoy retirement—not just activities to enjoy in retirement. We cannot spend time in any information source—newspaper, magazine, internet, television, even snail mail advertisements—without finding health suggestions. We all know that nutrition is important to staying healthy. We do not necessarily eat the things we know we should, but we probably have a decent idea of the dangers of too much fried food and sugary drinks and desserts.
We all can think of examples of people who are still active, healthy and engaged in life well into their 90s. While we do not all have the luxury of good genes for excellent health, we can all look at how our choice of activities can help increase our health and enjoyment of our retirement years.
Activities to Enjoy Retirement
The Alzheimer’s Association recommends nutrition and activity to promote brain health. In addition to the usual Sudoku and crossword puzzles, they suggest any activity where you are intellectually engaged or learning something new—a foreign language or even how to use the new smart phone or tablet computer or video game that your grandchild might have brought you.
Another piece that we might not recognize as easily is the social component. We know that as older adults may become less mobile, they may become more isolated socially. We may think of depression coming into play, but the Alzheimer’s Association suggests that this may also affect basic brain functioning.
The last piece they connect with these brain-healthy activities is physical movement. We all know exercise is good for us, but have we considered it good for keeping our brains more agile also? This doesn’t have to be extreme exercise, but just healthy movement.
The Alzheimer’s Association calls the combination of all these components of activity—intellectual, social and physical– the trifecta. So what activity do you do that could be considered a trifecta? Because I always find this a very intellectually-challenging activity, I consider a social dance class a trifecta. Dr. Daniel Amens, who has written many books on brain health including Use Your Brain to Change Your Age and Making a Good Brain Great, recommends table tennis as the ultimate brain-enhancing activity. Table tennis definitely has the social and physical components and possibly strategy brings in the intellectual piece.
Social Portfolio for Retirement
Another way to categorize activities to increase our health and enjoyment of retirement was created by Gene Cohen who wrote The Mature Mind: The Positive power of the Aging Brain. If you are familiar with the concept of a financial portfolio for retirement, Cohen’s concepts in his Social Portfolio will sound familiar.
Cohen put activities into 2 groups, either active or sedentary and group or individual. Your financial portfolio should be diversified and balanced to insure against loss. The same is true for the social portfolio. You are insuring against the loss of ability and spouse/friends. You need activities in all areas so that if you lose the ability to be active, you still have sedentary activities to enjoy. If you lose your spouse or friends, you have solitary activities to keep you from losing everything you previously enjoyed. So do not have all your activities be active sports that you do with your spouse or best friend
As with a financial portfolio, you are best served by building up your assets early—your activities and relationships. Look for fun activities or a fun group before retirement, hopefully before you lose your spouse.
Cohen’s research found that our brains can continue to grow and change as long as we provide appropriate stimulation. What is appropriate stimulation? Cohen documented that even patients in nursing homes improved with artistic/creative activities. So one idea may be to give yourself permission to finally pursue that acting or painting class or learning to play the guitar. In a 2002 study, Cohen showed that those who engaged in the arts late in life had fewer illnesses and injuries, more independence and possibly decreased risk factors that drive the need for long-term care!
You can find new interests and activities at any age, but the sooner you build those assets, the more likely you will be to enjoy your retirement. So, once again, follow your dreams!