One very important matter for retiring seniors is the decision of when to begin receiving social security benefits. This helpful calculator from AARP can help in the decision-making process. But be forewarned: there is a lot of information on the internet suggesting that you should delay receiving benefits as long possible. And this is not without some merit as your benefits will be higher and theoretically provide better cashflow through your retirement the longer you wait to begin receiving benefits. However, in many cases the modest monthly gain for waiting is not offset by the years of foregone benefits. Consider it this way: If you retire at 65 with a household income of about $50,000.00, you can immediately begin receiving about $1,750.00 per month. If you choose to wait until age 67 to begin receiving social security, your monthly benefit will be about $1,988.00 per month. Think you should wait for the extra $238.00 per month? Well, in order to receive that additional $238.00 per month, you will not receive $42,000.00 in benefits ($1750.00 x 24 months = $42,000.00). The additional $238.00 per month will take you a little more than 176 months to make up the difference between the total of what you would have received with the earlier election and waiting to have the higher monthly payout.

Retirement assets (401ks, IRAs, etc) are considered available assets for purposes of Medicaid qualification in Michigan. In simple terms, that means that those funds have to be spent down until the threshold for asset eligibility is met. In the case of a single person, asset eligibility is generally about $2,000.00, with some additional allowances for the homestead, modest life insurance and funeral expenses. In the case of a married person, the threshold is higher, and will be between $20,880.00 and $104,400.00, depending on the couple’s assets before entering the nursing home. For more details, see The Basics of Medicaid Qualification, below.

In order to avoid having to spend these assets on the cost of care, it is very common to annuitize the retirement assets. For a variety of reasons, I think this is something to avoid whenever possible. First of all, the return on such annuities is low. With inflation likely to increase in the present economic climate, it is difficult to recommend a long-term investment with a low return. An additional concern is that current law requires an annuity to pay out in level installments and in an actuarially sound manner. The days of the deferred annuity with a substantial amount held until after the passing of the owner are gone. Furthermore, under current law, the state of Michigan must be named as the remainder beneficiary after the community spouse or a disabled child. It is true that an annuity will provide secure retirement income for a community spouse, but it should be considered an alternative of last resort in light of these considerations.

Read the rest of this entry »

Estate Planning often involves transfer of real property. Care must be taken to avoid incurring unnecessary property taxes as an asset protection plan is carried out.

One of the biggest obstacles to overcome is the so-called uncapping of property taxes. In Michigan, property taxes can only increase by a fixed percentage each year, regardless of the increase in fair market value of the real estate so long as the real estate is owned by the same person or joint owners. For those who have held real property for a long time, this rule has helped to keep their property taxes down.

Read the rest of this entry »