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What can be done to plan for the management of my affairs in case of the disability or incapacity which often comes with advanced age?

If you should become disabled, life goes on. Bills (rent, mortgage, utilities) must be paid. Form 1040 must be filed. If you own a business, you may want it to carry on without you. Your property must be managed. One way to give someone else authority to manage your property is to put it into joint tenancy. This will give your co-owner the power to handle your property should you become disabled. In some cases (usually when a spouse is a joint tenant), this arrangement may be all you need to protect your property. Another method is to establish a revocable living trust, naming yourself and someone you trust as co-trustees. You transfer the assets that need managing to the trust, and give the co-trustee the powers over the assets you designate. For many people, a durable power of attorney (DPA) is the best protection against the consequences of becoming disabled. A DPA is a document in which one person (the principal) gives legal authority to another person (the agent) to act on the principal’s behalf. If you want someone to handle some of your basic financial matters but don’t want to give them full power of attorney, you can name them your payee representative. A payee representative is usually limited to jobs like receiving your income, making bank deposits on your behalf and paying your bills. You, however, retain control over your other financial affairs.

What kind of income will I need when I’m retired?

It’s impossible to say exactly how much you’ll need when you retire, in part because the amount will be based on so many variables. Someone who owns a home debt-free and is in perfect health, for example, will have lower expenses than a frail person who must live in a nursing home with round-the-clock care. As a general rule, some experts say you will need about 75% percent of your current gross monthly income to maintain a similar lifestyle after you quit working. Others say you will need 100% , so, if you’re grossing (before taxes) $4,000 a month now, figure on needing perhaps $3,000 to $4,000 a month when you retire. Better yet, do a retirement budget. If you are like most people you’ll want to spend enough money on travel and leisure to offset any reduced living expenses. If you plan to do a lot more traveling or take up an expensive hobby, you might need considerably more than that.

What is inflation risk, and how can it affect my retirement income?

If a person is living on a fixed income of $20,000 per year and inflation is 5%, the purchasing power of the $20,000 declines over time. That is to say, the prices of the goods the person buys increase by 5% each year but the income does not. After 15 years the $20,000 income that seemed comfortable will be worth only $9,600 in purchasing power. To say it another way, the goods the person bought for $20,000 the first year of retirement will cost $41,600. The risk imposed even by "guaranteed" fixed-income investments is that the income won’t keep up with price increases due to inflation.

I pay a lot of money into Social Security. Why can’t I depend on that for my retirement?

You can probably depend on some form of Social Security when you reach retirement age, but you cannot afford to rely solely on Social Security to fund all of your retirement expenses. Americans are living longer, which means they are draining the system by collecting payments longer. The first of the Baby Boomers haven’t even begun drawing Social Security benefits yet, and there are fewer young people to pay the taxes that fund payments to older retirees. A cut in future Social Security benefits is inevitable. Sums up "Wealth Enhancement & Preservation" (The Institute Inc., Denver): "Times have changed. When we began the Social Security system, we had many more workers paying into the system than we had workers drawing funds out. Today, we have only three workers for every two people drawing funds out of the system. Essentially, our children cannot afford us. Social Security was never intended to provide 100 percent of a person’s retirement income. It really cannot be expected to do so in the future."

I have established a life insurance policy as a retirement planning vehicle. How do I access my money at retirement?

After you retire, there are several ways to turn the built-up cash value of your life insurance into cash. Here are some of your options, from the National Network of Estate Planners, Denver: 1. You can withdraw your "basis" free of tax. Your basis is the amount of premiums you paid, less any withdrawals you have made. 2. You can take a policy loan. Loans are not generally taxable because they are seen as an advance of the death benefit. 3. You can combine both techniques. Often, a combination of withdrawing your basis down to zero and then borrowing the remainder offers the best method of accessing your life insurance cash value at retirement. If you lapse the policy with the basis withdrawn and a full loan outstanding, there will likely be a significant tax bill, so be careful and consult with those who understand the method and its risks. You’ll probably want to discuss your options with a financial planner or similar professional.

How can I use a reverse mortgage to get funds for retirement?

A reverse mortgage is a loan against the equity in your house, based on that equity alone and not on your income, which provides a cash advance without requiring repayment until some future date. It is used to extract an income stream from the equity in a home and in most cases does not require repayment of the loan until the borrower dies, at which time the balance owed is paid by selling the house. 

Why would someone in their 20s want to contribute to a retirement plan?

It's never too early to begin saving for retirement, regardless of which savings vehicle you use. It's tempting to avoid saving for retirement, especially for people under 30. After all, they reason, they'll have 30 or 40 years to build a retirement nest egg. But one of the most powerful reasons to start saving early is that the earnings on your retirement funds will begin compounding sooner. Consider this example, provided by "Wealth Enhancement & Preservation" (The Institute Inc., Denver): Jo Anna, 28, deposits $2,000 to a tax-deferred retirement plan for 7 consecutive years and then at age 35 makes no additional contributions to the plan. Her friend, Ted, thinks saving for retirement at age 28 is ridiculous and waits until he is 35 before making retirement plan contributions. He then makes $2,000 annual contributions for the next 30 years. Jo Anna has made total contributions of $14,000, and Ted has contributed $60,000. If both earn an average of 10% on their investments, which one of them has the greater retirement fund? Through the magic of compounding, Jo Anna's balance has grown to $331,000; Ted's is $329,000. By starting to save early, you will ultimately need to save less to have the retirement lifestyle you dream of.

What is the full retirement age for Social Security?

The full retirement age for Social Security <http://www.ssa.gov/pubs/10035.html> benefits is 65. You can retire sooner, but your monthly benefits will be reduced. It’s worth noting that 65 is the full retirement age only for those who plan on retiring relatively soon. According to "The Truth About Money" (Georgetown University Press, Washington, D.C.), "For younger workers, Congress already has cut back the benefits. . . . Those born after 1959 are not eligible for full Social Security benefits until age 67." Those younger workers can start receiving benefits at 62, but they will get 30% less than if they wait until 67 -- not 20% less, like those retiring today. Considering the sorry shape that the Social Security system is in today, it’s probable that further cutbacks will have to be made.

Should I begin my Social Security benefits at age 62, 65 or 70?

The longer you wait to begin collecting Social Security <http://www.ssa.gov/pubs/10035.html> payments, the higher your monthly checks will be. Most Americans are eligible to begin drawing full benefits at age 65. But you can start drawing benefits as early as 62 if you’re willing to accept smaller monthly payments. Although people who wait until age 62 get 20% lower payments, they also get 36 more monthly checks than they would if they waited the additional three years to collect. If they continue working, their earnings over $10,680 in 2001 will reduce their benefit $1 for every $2 in excess earnings. Because of this complication, we need to consider two cases: 1. You will not need to work and you will save the benefit checks until the latest age in the comparison (either 65 or 70). 2. You will need or want to continue working as long as possible and you will save the benefit checks until the latest comparison age(either age 65 or 70). For case 1, the the time weighted value of the income stream for beginning early (62) exceeds the value of beginning at 65 or 70 until an assumed age of death at 90. Thus, for case 1, beginning at 62 is the preferred choice. For case 2, we assume that the need to work creates enough income to reduce the early retirement benefit to zero (assuming a $12,000 benefit and earnings greater than $34,680). Therefore, the comparison is between beginning at 65 or delaying until 70 since earnings prior to 65 reduces the benefit to zero. Because there is no longer a benefit reduction for earnings after age 65 and because the time weighted value of the benefit income stream is greater for beginning at age 65 even though the benefits at age 70 are 40% larger we must conclude that beginning benefits at 65 is the best option for case 2.

What kind of health insurance should I get?

Like so many things when it comes to insurance, that depends. If your employer (or spouse’s employer) offers a group plan that insures all of its employees, you can probably save a lot of money by taking part in it. If you don’t have access to a group plan-or if the choices available through the group plan don’t fit your needs-you will have to buy an individual policy that will probably cost a lot more. Group plans are not only cheaper, but many also let you choose from a range of services. You don’t have to pay for coverage you don’t want. Under a group plan, you’re automatically eligible for coverage and cannot be dropped or charged more if you get sick. However, depending on the plan, the coverage may only reimburse you for a fraction of your actual medical bills. You may be limited as to which doctors you are allowed to visit, and your employer can raise your share of the premiums or even drop the plan anytime it wants. If you buy an individual plan, regulators in some states monitor price increases and might even have to approve them before they are passed to you. Many individual policies also allow you to visit any doctor or other specialist you like. However, the plans are generally much more expensive than group plans, the insurer itself has greater latitude to cancel your coverage, and some have relatively low maximum payout levels that could mean you’ll run out of coverage if you’re involved in a major accident or suffer a prolonged illness.

What types of health-related insurance should I avoid buying?

When buying health insurance, it’s important to remember that you want to purchase the broadest coverage possible. A good, broad policy will cover just about every medical problem you encounter, regardless of how you get it or where. As a result, you can usually avoid "narrow" insurance policies that will pay only under unusual circumstances. According to Net Worth: Creating and Maximizing Wealth with the Internet (Jamsa Press, Las Vegas), here are some health-related policies you can probably live without: 1. One-disease insurance. Once you have broad coverage for every major health risk, any other coverage for a specific disease is redundant and a waste of money. 2. Accident insurance. These policies pay specific medical expenses resulting from an accident, rather than expenses resulting from illness. Again, this is redundant coverage because a standard health policy should cover health expenses resulting from either accidents or illnesses. 3. Health policies pitched by celebrities on TV, with premiums that appear to be unusually low. These policies usually have extremely long waiting periods before they cover any pre-existing conditions -- far longer than the waiting periods required by underwriters who don’t have to pay for expensive advertisements and celebrity endorsements. 4. Policies sold through unsolicited mail that offer spectacularly low rates. Many of these policies also have unusually long waiting periods for pre-existing conditions. 5. Student health insurance. Chances are, your student is already covered under your family health policy until he or she is 18, or for as long as the student stays in school. Check your policy and call your agent. 6. Most indemnity policies. They pay you a flat rate, sometimes a mere $50, for every day you spend in the hospital. That’s not very helpful, considering that the average daily rate at many hospitals now tops $500.

What is a major medical plan?

A major medical plan is a health insurance policy that provides comprehensive benefits for both hospital, physician and private nursing services. There is typically a deductible, ranging from $100 to $2,000 or more, and a co-insurance percentage, ranging from 10% to 50%. These two elements of the plan make up the insured’s potential out-of-pocket expense, which is the portion of the cost of services that must be paid by the insured. For many policies, there is a cap on the annual out-of-pocket cost to the insured of $1,000 to $5,000. Employees may also be required to pay part of the premium on an employer-provided plan.

What is an HMO?

A growing number of insurance plans now contract with a health maintenance organization (HMO) to provide medical services to policyholders. The typical HMO provides a broad range of services. You (or your employer) pay a monthly premium for its coverage, as well as a small charge for each office visit. You’re also usually covered for general physical exams and other types of services that many other insurance plans don’t cover. There are no complicated claim forms to fill out. Many HMOs are big medical clinics, with doctors, nurses and therapists on staff. You typically have to choose a doctor from the organization’s own roster, and the doctor will coordinate your medical treatment. HMOs tend to provide the least expensive medical coverage and a minimum of paper work. However, your choice of doctors may be limited. Getting an appointment to visit an HMO doctor can also take longer than getting an appointment with a doctor outside the plan, because each HMO physician is responsible for the care of literally hundreds or even thousands of patient-clients.

What are PPOs?

In a preferred provider organization (PPO), you get medical coverage that combines some of the cost-control advantages of an HMO with more of the choice associated with fee-for-service plans. You or your employer pay a monthly or quarterly premium to the health plan and, in exchange, you are covered for a broad range of medical services. Like an HMO, a PPO charges only a small fee for each office visit. There is no complicated paperwork to fill out. But in an HMO, your choices are usually restricted to a list of doctors that the organization has approved. In a PPO, the network of doctors is often much larger, and you’re free to use a doctor outside the approved list as well. For this freedom, a PPO usually charges a bit more than an HMO. The cost of each office visit under a PPO may also be a higher than the cost of a visit to an HMO.

Should I get an HMO or a PPO?

Health maintenance organizations (HMOs) and preferred provider organizations (PPOs) are more similar than they are different. Both types of plans offer broad health care coverage, and their insurance premiums are relatively low. The cost of each office visit is nominal, and little or no paperwork is involved. The biggest difference between the two involves your choice of doctors. If you choose an HMO, you will have to select your doctor from a list of professionals the organization has chosen. If you select a PPO, you’re free to continue using your family doctor or any other physician you choose. However, if the doctor or hospital you choose is not on the list of preferred providers, the plans generally cover only half of the total costs. If freedom of choice is especially important to you, you’ll probably want to choose a PPO even though its premiums will be higher. But if you’re looking for the least expensive coverage and don’t insist on seeing a particular physician, an HMO would be your best bet.

What does long-term care cover?

A typical long-term care policy covers extended care regardless of whether the care is medically related to a specific illness or injury. According to the National Network of Estate Planners in Denver, a typical policy will pay for care "provided either in a nursing care facility or at home. In some cases, long-term care also extends to adult day-care centers and other community-based care facilities." It is very important that you know which medical and ancillary expenses will be covered, because you’ll want to choose a policy that reimburses you for expenses rather than one that pays you a flat daily rate (an indemnity policy). The following expenses should be explicitly listed in your policy contract as covered: respite care, home modification, hospice care, caregiver training, professional health-care services, therapeutic devices, and personal care adviser and bed-registration fees if you are moving to a nursing home.

Is there any rule of thumb to determine if I should buy long-term care insurance?

Long-term care insurance can easily cost more than $1,000 a year, which is one reason some experts say you shouldn’t buy the coverage unless you already have other types of insurance and cash to spare. According to the National Network of Estate Planners, Denver, Colo., "Consumer and financial experts generally agree that long-term care insurance is a bad investment . . . unless you will be able to pay the monthly premium with no more than 5% of your income. If you can, and in addition to your home, you expect to have over $10,000 in assets and over $30,000 per year in income when you reach your 80s, then a long-term care policy with high benefits and compounded inflation protection might be a reasonable investment if you can find and qualify for a good one."

From whom should I buy long-term care coverage?

If you decide to buy long-term care insurance, choose an insurance company that will be financially strong enough to pay any claim you might make. Stick to plans offered by insurers who get the top financial ratings from independent rating firms. You can find ratings from both Standard & Poor’s and Duff & Phelps on the Insurance News Network <http://www.insure.com/ratings/> Web site. You also want to be sure that you’re comfortable with the person who actually sells you the plan. According to the National Network of Estate Planners, Denver, "You should develop a reasonably high trust level with the person who presents a coverage plan to you. You should feel that you have the ability to openly communicate your concerns and receive accurate answers to your questions. It would be beneficial for you to buy from a representative of an organization that can provide current and future service to you as questions or needs arise." Another reason to build a lasting relationship with the person who sold you the plan is that you should review your coverage with the agent at least once a year. If you’re comfortable with the person, the review process will go more smoothly.

What is the typical premium for long-term care insurance?

A typical policy begins paying benefits 60 days after the onset of an illness or injury that requires long-term care. Benefits may last for up to 50 months and are increased 5% annually to keep pace with inflation. While there are a lot of additional variables that can affect premium rates, the biggest is one’s age when the insurance is purchased. Typical current preferred rates are:

Age Annual Premium 40$240 50$460 60$1,000 65$1,550 75$3,300 79$6,150 A preferred rate is typically a 25% discount from a standard rate. If a couple applies jointly, many companies will automatically grant them a preferred rate. Single applicants can typically qualify for a preferred rate if they haven’t smoked in the five years preceding the application, drive at least 1,500 miles per year and work or volunteer outside the home for at least 8 hours per week. The above characteristics represent common provisions, benefits and rating procedures in the industry. However, keep in mind that each company will have its own unique policy and rates. Just make sure you understand what you’re buying and how much your are paying. Talk to more than one agent or, for a small fee, a financial planner will assist you.

How will my insurer determine whether I’m eligible for benefits under my long-term health-care insurance?

If you have long-term health care insurance and make a claim, your insurer will likely look at six "benefit triggers" to determine if you can collect. According to the National Network of Estate Planners, Denver, "The measurement devices, or ’benefit triggers,’ are known as ’activities of daily living.’ These activities are used to determine whether a person is capable of living independently or is dependent in some areas. There are six commonly recognized activities: Eating, using the toilet, continence, bathing, dressing [and] moving about." Typically, a patient must be unable to perform two or three of those six functions in order to qualify for benefits under the policy.

If I’m in my 30s or 40s, why should I be concerned about long-term care?

If you’re under 55, you can’t be blamed if you consider purchasing a long-term care policy a waste of money. After all, it may be a long time before you need long-term hospitalization or nursing care. But just as with life insurance, it’s never too early to think about buying long-term care coverage. Such insurance is much cheaper when you’re young because the insurer knows it’s unlikely you’ll need to be hospitalized any time soon. For example, if you sign up when you’re 50, your annual premiums will be about 30% as much as those for a 75-year old, and you will be covered for 25 years more. In addition, it’s much easier to qualify for long-term care insurance when you are young. All the application forms ask you about a host of medical conditions you may have experienced: If you answer "yes" to any one of them, your application may be rejected. But since most of those conditions develop only as you grow older, you probably haven’t had them. Long-term care policies are good investments for some people and poor investments for others. Being young doesn’t automatically exempt you from deciding whether to buy such a policy.

What is daily hospitalization insurance?

Some insurance companies sell daily hospitalization insurance that pays a certain amount per day, usually $75 to $100. These policies usually are a bad idea and are certainly no substitute for a comprehensive health or major medical insurance policy. According to Eric Tyson’s "Personal Finance for Dummie$" (IDG Books Worldwide Inc., Foster City, Calif.), "One day in the hospital can rack up a bill of several thousand dollars, so $100 can be gone in an hour or less! These policies don’t offer coverage for the big ticket expenses. If you don’t have a comprehensive health insurance policy, get it!" If you already have a major medical policy, it might seem useful to buy an in-hospital plan for those expenses not covered by your plan. However, a better approach might be to save an amount equal to the premium in a special account or mutual fund. Such funds could be used for any unforeseen expense.

What are conditionally renewable policies?

A conditionally renewable insurance policy is a policy that the insurer can unilaterally cancel if it feels that you have made too many claims. Thus, an insurer can drop you when you need the coverage most. For example, if you have held a conditionally renewable health insurance policy for the last 20 years and have dutifully made your payments without filing many claims, the insurer will have the power to drop you when you turn 60 or 70 -- the time when most people start visiting a doctor more frequently.

What are guaranteed renewable policies?

A guaranteed renewable insurance policy is a policy that prevents the insurer from unilaterally dropping you as long as you keep paying your premiums on time. Virtually all health insurance policies written today are guaranteed renewable. So are policies that provide many other types of coverage.

What is HIPAA and what are its benefits?

The Health Insurance Portability and Accountability Act (HIPAA) went into effect on July 1, 1997. It protects an insured person’s insurability. Before this law, if an insured person lost insurance coverage for some reason, losing a job for example, he or she could be required to prove insurability before obtaining new coverage. For most people this wasn’t a problem; however, for people with chronic health problems or whose health deteriorated while they were covered, it was a serious problem. Such people lived in constant fear of losing their jobs and thereby losing their health insurance. Now, if a person has been insured for the past 12 months, a new insurance company cannot refuse to cover the person and cannot impose preexisting conditions or a waiting period before providing coverage.

How does COBRA affect my group insurance coverage when I leave a job?

If you leave your job, you can keep the insurance offered by the company’s group plan from 18 to 36 months, depending on your situation. Your right to obtain this extended coverage is guaranteed by a federal law, the Consolidated Omnibus Budget Reconciliation Act of 1985, whose acronym is COBRA. Details vary from state to state, but COBRA generally allows you to purchase insurance through your employer’s group plan for the same price the employer pays (plus 2% extra to cover administrative costs). If you’re disabled, your COBRA rights last for 29 months. Buying COBRA insurance isn’t always a great idea. If the company you work for offers a medical plan, it’s probably paying at least part of your premiums for you. If you left the company, your employer would no longer subsidize your payments. So, under COBRA, you’d pay the full tab yourself, which can be hefty. You might want to exercise your COBRA rights and stay with the plan if you can’t get coverage elsewhere, or if the coverage is the cheapest and best that you can obtain. You will need to shop the market to determine the best alternative.

Are Medicare premiums tax-deductible if I’m a senior citizen?

Premiums paid for medical insurance are deductible if they provide for reimbursement for hospitalization, surgical fees, other medical or dental expenses, drugs, or lost or damaged contact lenses. If you are over age 65 and not entitled to Social Security benefits, you may also deduct the premiums voluntarily paid for Medicare A coverage. Medicare B premiums (the premiums paid or withheld from Social Security benefits for supplementary Medicare coverage) are also deductible. However, since medical expenses are deductible only to the extent they exceed 7.5% of your adjusted gross income, many senior citizens find that they are better off utilizing the standard deduction ($7,600 for 2001for joint filers). The additional standard deduction (in year 2001) for taxpayers 65 or older who file as Single or Head of Household is $1,100; it is $900 for taxpayers who are married or who are qualifying widow(er)s.

How does the death of a spouse affect the surviving spouse’s insurance coverage?

If you’re married but your spouse dies, you need to review your own insurance coverage to make sure that you have adequate protection and to determine whether any changes are needed. According to "The New Century Family Money Book" (Dell Publishing), "If your spouse handled your insurance, you may be unfamiliar with policy features, etc. In this case, you will need to educate yourself on your insurance needs. Besides revising and changing the beneficiary designations on existing policies, you have to assess your own insurance needs as a result of the changed circumstances. If you were formerly covered as a spouse under a health insurance plan, continuing coverage will have to be acquired. Appropriate coverage in your name for auto, homeowner’s or renter’s, and umbrella liability insurance is also necessary." Depending on your individual circumstances, you may also need to buy or increase your own disability and life insurance coverage.

Can I make penalty-free withdrawals from an IRA to buy medical insurance?

Losing your job is bad enough, but those problems can be compounded if your medical insurance disappears along with your paycheck. Since 1997, some workers who lose their jobs have been able to make penalty-free withdrawals from their Individual Retirement Account (IRA) to defray the cost of buying medical coverage. According to J.K. Lasser’s "Your Income Tax" (Macmillan General Reference), "After 1996, unemployed individuals who have received unemployment benefits under federal or state law for at least 12 weeks may make penalty-free IRA withdrawals to the extent of medical insurance premiums paid during the year. The withdrawals may be made in the year the 12-week unemployment test is met, or in the following year. However, the penalty exception does not apply to distributions made more than 60 days after the individual returns to the work force." Self-employed persons -- who are ineligible for unemployment benefits -- now can also make penalty-free withdrawals from an IRA to pay their insurance premiums.

What is the difference between Medicare Part A and Medicare Part B?

Medicare, the federal government’s health care program for older people, is split into two parts. Everyone is eligible for Medicare’s Part A, which covers 150 days of your annual hospital bills and pays for skilled nursing care (but not for custodial care, such as help with daily dressing, eating or bathing). You have already paid for this coverage in your Social Security taxes, so you’re automatically entitled to it at age 65. Medicare’s Part B is optional, so you have to pay extra for it. Part B covers some or all of a doctor’s bill, out-patient surgery, emergency room treatment, X-rays, laboratory tests and some medical supplies. You can only sign up for Part B coverage during specific enrollment periods. You should sign up for Medicare during the three months before you reach 65 to avoid any waiting period for Part B coverage.

When am I eligible for Medicare?

Medicare is the federal program designed to provide medical coverage for older Americans. When you reach the age of 65, you’re eligible. You automatically qualify for Medicare coverage if you have met the work requirements to receive Social Security benefits. You can also qualify if you can claim benefits on the account of someone else, such as a spouse or deceased spouse who worked long enough to qualify for Social Security. Although most people must wait until they turn 65 to become eligible for Medicare, exceptions are made for those who have been receiving Social Security disability payments for at least two years and for those who have lost the use of their kidneys.

What is the prospective payment system (PPS) for Medicare?

Hospitals that treat Medicare patients do so on a prospective payment system (PPS). Under this system, Medicare sets a limit on the price it will pay for a patient’s stay in the hospital and the hospital agrees to accept that amount, even if the treatment it provides costs more.

Will Medicare pay the bills for a patient who must stay in a nursing home?

Medicare is the federally funded insurance program that’s automatically available to most people when they turn 65. The program will pay for a participant’s stay in a nursing home, but only for a limited amount of time. If you are discharged from a hospital but continue to need skilled nursing care at an approved nursing home, Medicare will pay for the first 20 days’ stay in the home. It will pay a portion of the cost if up to 80 more days are needed. After that, neither Medicare nor a Medigap policy will pay for any services. However, Medicare will pay nothing if your need is only for custodial care. If you go directly into a nursing home without first staying in the hospital, neither Medicare nor Medigap will cover any of the cost. You might be eligible for assistance from Medicaid, the program for low-income elderly people who have few assets. But failing that, the cost of your stay will likely have to be paid out of your own pocket.

What are peer review organizations and how can they help in Medicare disputes?

Peer review organizations are groups of doctors and other health care workers who review the quality and type of care that is provided to Medicare patients in hospitals, outpatient clinics and some health maintenance organizations. All 50 states have peer review organization, and members are paid by the federal government. If you have a dispute with Medicare, a peer review organization can assess your complaint and approve or deny payment for various services.

Can I lose my Medicare coverage if I get divorced?

If you qualify for Medicare coverage based on your own work record, the coverage can never be canceled. But if the insurance is based on your spouse’s work history, you might lose it if you get divorced. The key factor Medicare will consider is the length of the marriage. If you qualified for coverage based on your spouse’s work and remained married for at least 10 years, the coverage will stay with you even after you are divorced. But if you were married for less than 10 years and didn’t work long enough to qualify for you own insurance, Medicare can drop you from its program.

How do reverse mortgages affect income tax, Social Security and Medicare benefits?

If you take out a reverse mortgage, you don’t have to worry about the loan affecting your ability to collect Social Security or Medicare benefits. (However, if you are receiving Supplemental Security Income payments, you must spend the proceeds from the reverse mortgage and not accumulate the payments.) Nor will the mortgage have much effect on your income taxes. According to "Wealth Enhancement & Preservation" (The Institute Inc., Denver, Colo.), "Reverse mortgage advances do not affect eligibility for Social Security and Medicare benefits and will not affect SSI benefits as long as the recipient spends the advances within the month they are received. The loan advances from a reverse mortgage are not taxable, and the interest which is credited on a reverse mortgage is not deductible for income tax purposes until it is paid. This does not occur until all the reverse mortgage debt is paid."

Will Medicaid pay for care in an adult day-care center?

Adult day care centers are one of the fastest growing types of facilities that provide help for older people. They work much like a day care center for children. Someone (usually a son or daughter) drops the parent off in the morning and the day care staff provides meals and basic assistance until the end of the day, when the parent is picked up and taken home. If a person is impoverished, Medicaid will pay for adult day care services. Or, it can cover the cost involved in having a home-care provider visit the patient at home to provide assistance with bathing, cooking and medication.

What is Medigap insurance?

Medigap policies pay for some or all of the medical expenses that Medicare doesn’t. You can tailor your policy to cover deductibles, outpatient prescriptions or the cost of extremely long hospital or skilled nursing home stays. Although most people qualify for federal Medicare benefits at age 65, Medicare won’t cover all the medical expenses you’re sure to encounter as you get older, so it’s wise to consider a Medigap policy. When shopping for one, make sure the insurer you’re considering is highly rated. You can find ratings from both Standard & Poor’s and Duff & Phelps on the Insurance News Network <http://www.insure.com/ratings/> Web site. Companies with lower ratings might be able to charge less, but there’s no guarantee they’ll have the cash needed to pay your future claims.

What are some alternatives to Medigap plans?

Medigap insurance supplements Medicare benefits. Although more than half of all Medicare recipients also buy Medigap coverage, there are other alternatives to fill the gap left by shortfalls in the Medicare program. Another type of Medigap policy is called Medicare SELECT. Retirees who purchase a SELECT plan rather than traditional Medigap coverage are restricted to visiting certain doctors and hospital facilities. In exchange, premiums for a SELECT policy are usually lower than those for Medigap plans. A handful of states-including Massachusetts, Minnesota and Wisconsin-have their own laws governing Medigap plans, and these policies are regulated by each state’s insurance department.

What does long-term care cover?

A typical long-term care policy covers extended care regardless of whether the care is medically related to a specific illness or injury. According to the National Network of Estate Planners in Denver, a typical policy will pay for care "provided either in a nursing care facility or at home. In some cases, long-term care also extends to adult day-care centers and other community-based care facilities." It is very important that you know which medical and ancillary expenses will be covered, because you’ll want to choose a policy that reimburses you for expenses rather than one that pays you a flat daily rate (an indemnity policy). The following expenses should be explicitly listed in your policy contract as covered: respite care, home modification, hospice care, caregiver training, professional health-care services, therapeutic devices, and personal care adviser and bed-registration fees if you are moving to a nursing home.

Will Medicare pay the bills for a patient who must stay in a nursing home?

Medicare is the federally funded insurance program that’s automatically available to most people when they turn 65. The program will pay for a participant’s stay in a nursing home, but only for a limited amount of time. If you are discharged from a hospital but continue to need skilled nursing care at an approved nursing home, Medicare will pay for the first 20 days’ stay in the home. It will pay a portion of the cost if up to 80 more days are needed. After that, neither Medicare nor a Medigap policy will pay for any services. However, Medicare will pay nothing if your need is only for custodial care. If you go directly into a nursing home without first staying in the hospital, neither Medicare nor Medigap will cover any of the cost. You might be eligible for assistance from Medicaid, the program for low-income elderly people who have few assets. But failing that, the cost of your stay will likely have to be paid out of your own pocket.

Will Medicaid pay for care in an adult day-care center?

Adult day care centers are one of the fastest growing types of facilities that provide help for older people. They work much like a day care center for children. Someone (usually a son or daughter) drops the parent off in the morning and the day care staff provides meals and basic assistance until the end of the day, when the parent is picked up and taken home. If a person is impoverished, Medicaid will pay for adult day care services. Or, it can cover the cost involved in having a home-care provider visit the patient at home to provide assistance with bathing, cooking and medication.

How much of my annual pay should I be saving for retirement?

Exactly what percentage of your annual salary you should earmark for your retirement years depends on a variety of factors. Two key factors are your current age and the lifestyle you hope to lead when you quit working. As a general rule, financial experts say you should take at least 10% of your annual pre-tax income and set it aside for retirement. You should put even more than 10% away if you plan on lots of travel, expensive hobbies or other extravagances. You will also need to save more than 10% of your annual income for retirement if you are already middle-aged and haven’t been saving much. If you reach age 50 and don’t have much of a nest egg, experts say you must begin tucking away at least 20% of your pre-tax earnings for retirement to have even a hope of maintaining your current lifestyle when you quit working.

Why should I save for retirement when I plan to work until I die?

Working until you die. Doesn’t that sound jolly? Younger people often don’t think much about saving for retirement, because they can’t even imagine what life will be like 40, 50 or 60 years from now. Even older people sometimes shrug off saving because they plan on working forever. You may plan to work until you die, but life has a way of disrupting such plans. Health problems or disabilities may prevent you from working until you die or earning sufficient income.

What is the best way to build up a retirement account?

Religiously putting a little money into an investment account month after month is one of the best ways to painlessly build a retirement nest egg, and there’s no need to pay a financial planner or broker to help you do it. The problem with most contractual investment plans is that up to half of your investment in the first year or two is gobbled up by fees that the mutual fund pays to the broker who signed you up. Losing 50 cents of every dollar you put in is hardly the best way to start saving for retirement. On top of that, most plans charge hefty sales loads, annual management fees, or both. Sponsors of many of these plans must earn an average of 10% or even 15% yearly just to cover the customer’s expenses. Don’t be fooled by the plan’s "guaranteed" average return of at least 5% annually. That’s a paltry figure, and it probably doesn’t include sales loads and management fees. A better way to go would be to contact a true no-load fund directly and arrange such a program yourself. Nearly all funds offer automatic investment plans. You simply sign a few forms, and the fund will automatically debit your checking or savings account every month. There’s no reason to pay a financial planner or other middleman big fees to do such simple paperwork for you, and you’ll avoid costly sales loads in the future.

Is there an insurance product I can use to put away money for retirement?

A flexible-premium life insurance policy may be a good savings alternative, especially if you also need life insurance. If the funds you put into the policy are within certain Internal Revenue Service limits, you can access this money free of income tax with a combination of withdrawals and policy loans at your retirement. The interest earned by the policy will accumulate on a tax-deferred basis similar to an IRA. In addition, it will provide life insurance protection for your beneficiaries.

What is endowment life insurance?

Endowment life insurance is unusual because it’s designed to pay you benefits while you are still alive rather than pay your beneficiary after you have died. According to The Question and Answer Book of Money and Investing (Adams Publishing, Holbrook, Mass.), "Endowment life insurance pays the face value of the policy either at the insured’s death or at a certain age or after a number of years of premium payment. A whole life insurance policy is an endowment at age 95 (or 100) policy. Unlike whole life, an endowment life insurance policy is designed primarily to provide a living benefit and only secondarily to provide life insurance protection. Therefore, it is more of an investment than a whole life policy. "Endowment life is a method of accumulating capital for a specific purpose and protecting this savings program against the saver’s premature death. Many investors use endowment life insurance to fund anticipated financial needs, such as college education or retirement." Premiums for an endowment life policy are much higher than those for a term life policy, so you might be better off simply buying term life and investing the savings by yourself. However, endowment life often appeals to people who don’t have enough discipline to do so. They know that they will lose their policy if they don’t pay their annual premium, so it acts as a forced savings plan. Another alternative to an endowment life policy is term insurance combined with a deferred fixed annuity. It may be cheaper than an endowment life policy.

If I’m saving money that I plan to use before I retire, does it make sense to do it with after-tax 401(k) contributions?

If you’re saving money that you plan to use before you retire, it’s usually better to save it outside your 401(k) plan. According to "Building Your Nest Egg with Your 401(k)" (American Press Inc., Washington Depot, Conn.), "It’s true that usually you can withdraw your after-tax 401(k) contributions at any time without taxes or penalty, but remember, you’ll owe taxes on any interest they earned, as well as a 10% early withdrawal penalty if you’re under age 59 1/2. The 10% penalty is an expense you wouldn’t have if you saved on an after-tax basis outside your 401(k) plan. "But there are situations where it can make sense to use after-tax contributions for short-term savings: if your employer matches your after-tax contributions and if you’re fully vested in the matching contributions by the time you withdraw the money, you may wind up with more money by saving in the 401(k) plan, even after taking the 10% early withdrawal penalty into account."

What is a qualified retirement plan?

A qualified retirement plan is one that qualifies for special tax treatment under IRS Code Section 401. The contribution to a qualified plan is deductible for the employer and not taxed immediately to you. Instead, it will grow tax-deferred until you finally begin making withdrawals -- usually after age 59 1/2. And if you wait until then, you will get another tax break because the money will be taxed at your retirement rate, which will probably be lower than the rate you pay while still working. In short, you will get to keep more of the money you have earned and Uncle Sam will get less. Money in a nonqualified plan may also grow on a tax-deferred basis, but contributions are not deductible and thus will accumulate less cash for retirement.

What are the tax advantages of participating in a qualified retirement plan?

A qualified retirement is one that qualifies for special tax treatment offered by the federal government. Those tax breaks mean that qualified retirement programs offer advantages over nonqualified plans or taxable investments. In a sense, the money you invest in a qualified retirement plan provides triple tax benefits. First, the cash invested is not taxed immediately, so your annual income tax bill will be lower. In addition, the money in a qualified plan grows tax-deferred until you finally begin making withdrawals. Since this year’s growth won’t be taxed, you’ll have more money working for you next year. And since next year’s growth won’t be taxed, you’ll have even more money working the following year. Over the years, this compounding effect can boost the total value of your retirement plan by tens or even hundreds of thousands of dollars. You’ll qualify for the third tax break when you finally begin making withdrawals, usually after you reach age 59 1/2. At that point, the money you take out will be taxed, but at your retirement rate-which may be a lot lower than the rate you’re paying now. In short, you will get to keep more of the money you have saved for retirement and Uncle Sam will get less. Money in a nonqualified plan may also grow on a tax-deferred basis, but contributions are not deductible so there will be less cash for retirement. Money placed in taxable investments outside a tax-favored retirement plan provides even fewer tax benefits or none at all.

Will my taxes go up when I retire?

More than likely, your taxes will fall rather than rise when you retire. Taxes are based largely on what you earn: the more you earn, the higher your tax bracket. You usually reach the highest tax bracket just before you retire, when your earning power peaks. When you retire, you may find yourself in a lower tax bracket because the combined income from your investments, pension and Social Security is less than what you made while working. The good news is that your tax bill won’t be as high as it was; the bad news is that your taxes are lower because you have less income.