Tax Tips in Retirement

Written by Sally Perkins

Many retirees may assume that they don’t have to pay as much income taxes since they don’t work. Though a single or married retiree may be in a lower tax bracket, certain retirement vehicles are still taxable. In fact, you may have to pay taxes on social security if you are in higher tax bracket. But if you plan ahead and learn the tricks of how to manage your taxes, you can be prepared for that dream trip to Europe or the extra indulgence you’ve been hoping for. So when tax planning year to year, consider the following:

Manage Your Expenses

It has been said before, but managing your expenses is a key element to a successful financial retirement. If you can keep your adjusted gross income below $37,500 in 2017 your tax burden will only be 15%. So try your best to avoid a higher tax bracket when you are withdrawing from any of your savings accounts, IRAs, 401(k)s, etc. Follow a budget, a retirement income strategy, and how you are going to pay for potential healthcare costs.

If you are considering retiring, try to have your house paid off as you can then avoid using retirement money for this expense.

Life Insurance Legacy

If you want to leave a legacy or if your dependents may have debts to pay on your estate, consider a life insurance policy. The death benefits and payout are not taxable. However, if you borrow against the policy you may be subject to taxes.

Withdrawal Strategy

Some retirement income is taxable. As mentioned earlier, social security is taxable if you are in a higher tax bracket. But, for example, if you are withdrawing money from a Roth IRA it isn’t taxable if you contributed the money over 5 years ago. The general advice given by many financial planners is to withdraw money from your retirement income in the following steps:

  • Taxable accounts, like investments
  • Tax deferred accounts, traditional 401 (k)
  • Tax exempt accounts, Roth IRA

The idea behind this tiered strategy is 401(k)s and Roth IRAs can continue to grow without any tax penalties. In your investment accounts there is no tax shelter, so you might as well use investment money first. Then, if you are going to have a year where your expenses are going to increase, use the tax exempt money so you won’t have to pay income tax on the withdrawal.

This is an important concept and may be worth talking to a financial planner about.

Annuities

Annuities have a tax benefit as well. Annuities are an insurance product where the individual purchases an investment and the price paid is converted into periodic payments to the retiree. There is a lot of flexibility on how often you get paid (monthly, quarterly, annually), when payments start to occur, how long you want the payments for, etc. Setting up a payment plan can take out some of the guess work.

If you have to cash out the annuity because of an emergency, you will have to pay income taxes on all earnings. But if you hold onto the annuity and paid for it with pretax money, then the payments will be taxable. If you use after tax income to buy the annuity, then you will only be taxed on the earnings.

Deductions

Of course all taxpayers want deductions! Individuals over 65 used to be able to itemize for medical expenses that were over 10% of their adjusted gross income, but that changed in 2017 to 7.5%. Keep this in mind when it comes to tax time, but stay organized and track your medical payments as you never know when your medical expenses will be high. Medical expenses include health and long term care premiums, dental care, prescriptions drugs and other health care expenses.

Another deduction that some people miss is dividends from investment income which are taxed lower than regular income, and you can still invest as a retiree. If you still run a business, even part time, your business expenses are deductions. Downsizing houses can be attractive and if you sell your home and you’ve lived in your home at least two of the five years before you sell the property, the equity won’t be taxed.

And if you are considering selling and moving…

Tax Free States

Florida may be infamous for having many retirees, and for good reason, there is no state income tax. There is also no state income tax in Nevada and Texas. The weather is warm in all three! So though there may be an expense to moving, you could recoup that by saving on taxes. If you are considering moving to warmer climates, look into these states and research the cost of living.

Finally, with a little strategic planning, you won’t be giving all your hard earned retirement income to the IRS. Have a budget, try not to have a mortgage, plan how you are going to withdraw income, look at different income vehicles, and consider your tax deductions. It will be worth the time investment to carefully plan your income streams.

The Chaos of New York Real Estate: Not the Case for the State’s Seniors

Written by Sally Perkins

The infamous battleground of New York real estate is not lost on the rest of the nation, whether you hail from the affordable and inexpensive Midwest or from the equally ruthless Bay Area market. Affordable housing eludes millions of New Yorkers, with the average sale price of an apartment tipping over $2 million in 2016, and the average rental price in Manhattan up 91% than just ten years ago. But thankfully, for the home of the third-largest elderly population in the nation (2.6 million seniors aged 65+) assisted living facilities offer a welcome reprieve to the stressful tussle of the general real estate market.

Quick Facts About NYC Elder Living

  • Due to New York’s varied population density and large geographic area, the state has the largest range of elder care cost in the United States.
  • The average cost of assisted living in New York is $4100 a month, however it dips in many areas to the $3000-$3500 a month range.
  • The convenience and cost of assisted living far outweighs in-home care, with averages climbing as high as $25 an hour in some areas (and that’s not even round-the-clock, 24/7 availability care).
  • NYC assisted-living real estate rates do not trump nearby states, as it does in the general real estate market. In New Jersey, the average monthly cost for a senior living in an assisted living facility is $5725.
  • Unlike other states, approved assisted living residences offer a daily meal and snack service, 24-hour medical care and monitoring, personal counseling and social work services. Optional and (often included) services like housekeeping, group activities, medication assistance and recreational activities are common.
  • Online reviews from experts about the different assisted living residences in New York, make it easier to choose which facility is best for you or your family member.

 Payment Assistance

While the monthly sticker shock of an assisted living facility is less than that of an apartment in downtown Manhattan, the price tag is not insignificant. Thankfully, New York State’s Assisted Living Program pays for services in assisted living facilities who meet the required personal/financial qualifications. Those in the program require a very high level of care, equal to what is provided by certified nursing/care homes. This program provides needy qualifiers with a structured, hygienic, care-centered environment and also kicks back savings to the state government which saves on providing full-time nursing home care. The basics of the program include:

  • 85% of eligible participants are on Medicaid, although all who meet the requirements are welcome to apply.
  • Assisted living residences operating within the program are certified by the NY State Health Department, and are subject to frequent, unannounced checks.
  • This is a unique program in that it does not separate Medicaid/Non-Medicaid needy seniors. In this, the actual “assisted living” services (medication, mealtime help, etc.) are covered in conjunction with boarding costs.
  • The ALP caps at 4200 residents.

ALP Requirements

While this excellent program helps seniors find affordable, assisted living homes within their home state it is unfortunately not open for everyone. Requirements for ALP consideration include:

  • Medicaid recipients AND those with private insurance must have a medical need to be placed in an assisted living facility. (This is subject to medical record inspection along with doctor/patient sign-off forms.)
  • Recipients must NOT be completely bedridden, and must not pose a danger to those around them (including other ALP beneficiaries.)
  • Monthly income- must not exceed $825 for an individual and $1209 for a couple. However, applicants who receive a higher monthly sum may still qualify via the Medicaid Excess Income option.
  • Assets of applicants must not exceed $14,850 (single) or $21,750 (couples.) This does not include current residences, if they are owned and occupied by the applicant.

What If I don’t Qualify for the State/City-Run ALP?

If you’re a senior seeking out an assisted living facility as your next residence, cannot pay the monthly cost and do not qualify for Medicaid/privately-funded ALP eligibility, you are not forgotten. There are numerous non-profit local and national organizations that seek to increase affordability within elder care, as well as federal programs that were created to ease the burden. If you or your elderly loved one is a veteran, check with your local VA for veteran assisted living programs. If none of these are applicable, eldercare loans can be financed specifically for assisted living senior care.

With numerous financial options available, and reasonably priced statewide elder care assisted living facilities in NY, there are feasible options for the ever-increasing aging population. With daily services like housekeeping, social interaction, medical care, and round-the clock meal services, assisted living facilities are the reasonable solution for seniors looking for help while maintaining their independence.