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Some Notable Events That Grabbed My Attention This Week

Published on: Aug 25 2022

Big Announcement: My next book is at the publisher being prepared for publication. You can make a pre-publication order or review the book by clicking here and here, respectively.

More of Retirees’ Social Security Benefits Pay for Medical Expenses

As you know, Medicare isn’t free and doesn’t cover all retirement medical expenses.

A good retirement plan assumes medical expenses will increase over the years and that a higher percentage of income will be absorbed by premiums and other out-of-pocket medical expenses.

One way to measure this trend is to look at how much of the typical Social Security benefit goes to medical expenses.

For median retirees, out-of-pocket medical expenses absorb 25% of Social Security benefits, according to a recent study by the Center for Retirement Research at Boston College. Medical expenses absorb 89% or more of the Social Security benefits for 5% of retirees.

The calculations include premiums, copayments, deductibles and care not covered by Medicare or insurance. But they don’t include long-term care. The study used 2018 data.

The study calculated median retirement medical expenses as $4,311. Retirees in poorer health, of course, have higher out-of-pocket expenses than the median and pay a higher percentage of their income to medical expenses.

Rising premiums and deductibles have been taking a higher percentage of Social Security benefits, according to a separate study from the Kaiser Family Foundation. Part B premiums increased from 6% of the typical Social Security benefit in 2002 to 10% in 2022, according to the study.

The combination of Medicare premiums and deductibles increased from 15% of the typical Social Security benefit in 2002 to 19% in 2022.

It is important for retirees and pre-retirees to understand the growth of retirement medical expenses and select the right Medicare insurance package for them.

Additional Burdens Imposed on Medicare Insurance Agents

Beginning Oct. 1, agents and brokers who sell Medicare Advantage plans or Part D prescription drug policies will be required to record all telephone calls, according to new regulations from the Centers for Medicare and Medicaid Services (CMS).

CMS is responding to concerns about television, internet and direct mail advertisements that promote additional free benefits and other features of some plans. CMS believes many people are being misled about the features of different insurance coverage and persuaded to switch to Medicare plans that aren’t best for them.

Insurance agents are not happy about the rule and are asking CMS to revoke or modify it.

The rule is meant to increase accountability of firms with extensive organizations of telephone representatives who handle calls responding to advertising. These are referred to as third-party marketing organizations (TPMOs), but the new rules include all agents who sell Medicare plans.

I know my Medicare insurance agent currently does a lot of business over a cell phone, so her business practices would have to change to comply with the rule.

CMS says in the latest open enrollment period it received 39,617 complaints about insurance agents. Insurance agents respond that this is a small percentage of the 29 million Medicare enrollments and most of the complaints are about the large marketing operations, not local agents.

If your Medicare insurance agent becomes difficult to reach or stops selling Medicare policies, you’ll know why.

IRS Makes Estate Tax Exemption Portability Easier

Each person has a lifetime estate and gift tax exemption amount, which is $12.06 million in 2022.

For a married couple, when one spouse passes away and his or her estate isn’t valuable enough to use the entire exemption amount, the unused amount can be transferred to the surviving spouse. This generally is referred to as portability of the lifetime exemption.

But the transfer of the unused exemption to the surviving spouse has to be elected by the executor of the deceased spouse’s estate, or the unused exemption amount isn’t transferred.

The IRS makes it easy to transfer the exemption amount. All the executor has to do is file a federal estate tax return, even when one isn’t required because the estate isn’t valuable enough. The executor doesn’t even have to check a box or make a statement. Filing the return is treated as election of the transfer, unless the executor specifically says the exemption isn’t being transferred.

But many surviving spouses and their executors don’t focus on the transfer of the exemption amount and fail to file estate tax returns within the deadline of nine months after the deceased spouse passed away.

In 2017, the IRS said the portability election could be claimed if the estate tax return were filed within two years after the deceased spouse passed away.

It turns out even that wasn’t long enough. The IRS said it was receiving a lot of requests to extend the filing deadline after the two-year period passed, because people didn’t focus on the issue early enough.

In July, the IRS amended the rule so that a portability election could be claimed up to five years after the deceased spouse passed away simply by filing an estate tax return. The IRS said almost all the requests it has received were within five years, so the new rule should allow surviving spouses to claim the unused exemption amounts without having to pay tax professionals to file requests with the IRS.

Update to Last Week’s Email

The $2,000 limit on out-of-pocket prescription drug costs under Medicare Part D doesn’t take effect until 2025. In 2024, the 5% coinsurance for “catastrophic prescription expenses” will be eliminated.

The Data

New home sales in July were 12.6% lower than in June, according to the Census Bureau, and 29.6% lower than 12 months earlier. The sales in July were well below pre-pandemic levels.

The number of new homes completed and ready for sale in July was well below normal levels while the number of homes under construction was at a record high.

Existing home sales declined by 5.9% in July, the sixth consecutive month of declining sales. The number of sales registered in July was the lowest since November 2015, excluding the three low months at the beginning of the pandemic period.

July’s existing home sales were 20.2% less than 12 months earlier.

Pending home sales declined by 1.0% in July, which follows an 8.9% decline in June. July is the eighth month in the last nine that pending home sales declined. Over 12 months, pending home sales are down 19.9%.

The Leading Economic Indicators Index from The Conference Board declined again by 0.4% in July, following a 0.7% decline in June. The Conference Board said the recent data indicate a recession is likely in late 2022 or early 2023.

Durable goods orders were unchanged in July from June’s level. But June’s report was revised to a 2.2% increase from the original 1.9% increase. Excluding the volatile transportation sector, orders increased 0.3% in July.

Core capital goods orders, considered a good measure of business investment, increased 0.4% in July. Also, June’s core capital goods orders report was revised to record a 0.9% increase, up from the original 0.5% increase.

Manufacturing activity increased in the Philadelphia area, according to August’s Philadelphia Fed Manufacturing Index. The index increased to 6.2, after registering a negative 12.3 reading in July.

But manufacturing activity declined in the Richmond region. The Richmond Fed Manufacturing Index for August was negative 8, down from 0 in July.

The PMI Composite Flash Index for mid-August showed economic activity declined nationwide in the first half of the month.

Manufacturing activity expanded, though the PMI Manufacturing Index declined to 51.3 at mid-month from 52.2 at the end of July.

The Services Index declined to 44.1 from 47.3 at the end of July.

The Composite Index for the economy declined to 45.0 from 47.7 at the end of July. Any reading below 50.0 in these indexes indicates the activity is contracting.

New unemployment claims declined by 2,000 to 250,000 in the latest week. In addition, the previous week’s claims were revised down to 252,000 from 262,000.

Continuing claims increased by about 7,000 to 1,437,000.

The Markets

The S&P 500 lost 4.04% for the week ended with Tuesday’s close. The Dow Jones Industrial Average fell 3.51%. The Russell 2000 decreased 5.00%. The All-Country World Index (excluding U.S. stocks) dropped 3.57%. Emerging market equities retreated 2.67%.

Long-term treasuries lost 3.36% for the week. Investment-grade bonds fell 2.42%. Treasury Inflation-Protected Securities (TIPS) rose 0.01%. High-yield bonds decreased 2.75%.

The U.S. dollar gained 1.97%.

Energy-based commodities jumped 5.35%. Broader-based commodities rose 2.33%. Gold declined 1.57%.

Bob’s News & Updates

My latest book is “Where’s My Money: Secrets to Getting the Most out of Your Social Security.” It tells you clearly what your benefit options are in different situations and how to determine the best choice for you. You can find it on amazon.com or Regnery.com.

The number of regular viewers for my Retirement Watch Spotlight Series continues to increase. You should sign up because I make in-depth presentations of key retirement finance topics. You can watch these online seminars from the comfort of your home or office at times you choose. To learn more about my new Spotlight Seriesclick here.

A recent five-star review of my book on amazon.com said, “A complete retirement guide! One of the best books on this topic!” Click for more details about the revised edition of “The New Rules of Retirement.”

If you’re interested in my books, check my amazon.com author’s page.

I’m a senior contributor to the Forbes.com blog. You can view my contributor page here.

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