It is important to understand what you can expect from Medicare and Social Security when you are planning for retirement, including the limitations. We look at the details here, and we also provide a solution to a very significant potential challenge.
Benefit Eligibility Parameters
You become eligible for a full Social Security benefit when you are between 66 and 67 years of age depending on your birth year. There is a retirement benefits brochure on the Social Security Administration website that you can check out to obtain all of the specific details. The eligibility age for Medicare is 65 for everyone at the present time.
You do not automatically qualify for Medicare; eligibility is earned through the accrual of retirement credits. These credits are earned when you work and pay FICA or self-employment taxes, and you get one credit for every $1640 that you make in 2023.
The maximum annual accrual is four credits, and you become eligible for Medicare and Social Security after you have at least 40 credits. If you are married, you can potentially qualify for these benefits on your spouse’s work record even if you have never worked at all.
Medicare Out of Pocket Expenses
You have to pay 20 percent of expenses incurred due to visits to doctors and other health care professionals. Medicare Part B is the portion of the program that covers these treatments, and there is a monthly premium of $164.90 this year. There is also a $226 deductible.
Beneficiaries are not required to pay a premium for the hospitalization coverage, which is Part A, but there is a $1,600 deductible. A coinsurance charge will be assessed if you are in the hospital for more than 60 days.
The prescription drug portion of the program is Part D, and you have many options to choose from, so the out of pocket costs will depend on the specific policy that you choose.
Medicare does not cover the custodial care that you would receive in a nursing home, and it does not pay for in-home custodial care. This should be a major source of concern, because long-term care is expensive, and most seniors will need some form of living assistance.
In Indiana, the median charge for a private room in a nursing home in 2021 was $110,763. The average length of stay is just over two years, and a married couple could face two different rounds of nursing home costs.
These are some eye opening statistics, but there is a way to prepare for these costs in advance. Medicaid is another government health insurance program that does cover custodial care. In fact, most seniors in long-term care facilities are Medicaid beneficiaries.
There is a $2000 limit on assets that are considered to be countable, but your home is exempt with an equity limit of $688,000 this year. If a healthy spouse is remaining in the home while their spouse is in a long-term care facility, there is no equity limit.
You can qualify for Medicaid if you own a home, but this is not a long-term solution, because there is a Medicaid estate recovery mandate. They can place a lien on your home if you own at the time of your passing.
A Medicaid eligibility plan will typically be centered around the utilization of an irrevocable trust. You would surrender access to the principal, so it would not count if you apply for Medicaid.
Your home would be protected if you convey it into the trust, and you can add income-producing assets and other countable resources. While you are living independently, you could receive distributions of the trust’s income without negatively impacting the strategy.
There is a five-year look-back period, so the trust must be funded at least 60 months before you apply for Medicaid.
We Are Here to Help!
When you have a nursing home asset protection plan in place, you can maintain your lifestyle and go forward with the knowledge that your legacy will be protected.
If you are ready to get started, we are here to help. You can schedule an appointment at our Crown Point or Lafayette, IN estate planning office if you call us at 219-865-2285, and you can use our contact form if you would rather send us a message.
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