I get asked some great questions about financial planning. Here are a few I wanted to share that I think you may find interesting.
Can I qualify for Medicaid long-term care coverage by creating a trust and placing my assets in it?
The cost of long term care can exhaust assets faster than most people can imagine. The following is a graphic showing the average cost of LTC in New Jersey for 2012.
Medicaid can cover almost the entire cost of long-term care costs for people with very low income and few assets. Creating a trust and placing assets in it can remove those assets from Medicaid consideration as "available resources" only if all of the following apply:
- The trust is created more than 60 months before applying for Medicaid coverage
- The trust is irrevocable, meaning that once the assets are placed in it they cannot be removed, and the trust cannot be ended
- The Medicaid applicant is not a designed trust beneficiary, which means that no trust assets could, at any future time, be distributed to the Medicaid applicant under the trust's terms.
Hiding assets can be done, but it is not as easy as one would think.
How will working a couple of extra years impact my Social Security benefits?
Anyone is eligible to start receiving Social Security benefits at age 62. However the longer you delay collecting Social Security the larger your monthly benefit will be. For every year after age 62 that you delay starting to collect your benefits, your benefit will be approximately 8% larger. Social Security provides this raise because it is less years that they would have to pay you benefits for. There are however various things that have to be considered when you decide whether or not to hold of collecting benefits.
What most people don't realize is that working longer also increases the size of your benefit because it usually increases your earnings history. In addition to what age you are when you start collecting benefits you earnings history is also a factor to determine what your benefit will be. Social Security uses your highest 35 years of earnings to calculate your benefit. Most people are earning more towards the end of their career rather than what they earned when they just entered the workforce years ago. So working a few more years at a higher salary may make a big improvement to your average
To estimate how working longer would improve your benefits, the Social Security website makes a calculator available where you could plug in different scenarios of when you would stop working and what your earnings estimate would be until then. The calculator would then estimate your benefits. http://www.ssa.gov/estimator/
You can also read a sample chapter from my book on Social Security planning here - http://retirementfitnesschallenge.com/wp-content/uploads/Retirement-Fitness-Challenge-Social-Security-Chapter.pdf
Is it worth it to open a 529 Plan for my child?
Tuition and fees at private colleges and universities increased 3.9% for the 2012-2013 academic year, according to a survey by the National Association of Independent Colleges and Universities. Surprisingly this is the smallest increase on record and the first time the increase has been less than 4%. Best way to save for college. In my opinion it's the 529 plan. Not only it is a great way to pay for college, but it is also a powerful wealth management tool for gifting, estate, and legacy needs.
- Accelerated gifting. A 529 plan is the only investment vehicle allowing five years of tax-free gifts in a single year - up to $130,000 per beneficiary
- Estate tax benefits. All 529 plan gifts and investment earnings are excluded from federal estate taxes due to rise from 35% to 55% next year if the Bush tax cuts expire
- Legacy planning. Multiple family members and friends can give to the same 529 plan account to help create larger college funds and lasting legacies.
