Is it Alaska, Florida or somewhere in between?

I have been thinking about taxes in retirement recently.  I even had a conversation with a friend that is also exploring retirement.  I had even explored my own state of Virginia which offers seniors no tax on the social security benefits and $12.000 cap on benefits beyond the social security before state tax is imposed.  My friend had reported to me that the state she and her husband plan to retire to offers a $41000 cap on social security income, IRA’s and pensions per person.  We had both always felt our only break for state taxes would be to maintain a residence in Florida.  I was somewhat relieved to know that I could maintain my home in Virginia with a somewhat lowered tax rate.  I put this on the table for another day’s exploration.    An article in USA TODAY mobile app caught my eye yesterday, “10 worst states for retirement” (Brody, 2014).  The link is at the bottom of the page if you want to explore this list.  Much has to do with high estate taxes but there are other issues as well. Most appear to be taxes or financial issues.  I thought I might as well explore what is the best state from a tax or financial standpoint to consider for retirement.  I found the list!  In  Kiplinger online,  there is a list published in August, 2013 (“10 Most Tax Friendly States”, 2013.) This link too is available at the end of this blog article.  It does appear from a tax standpoint that Alaska has no state income tax, no sales tax, or no estate tax.  I figured I must check for Florida on the list.  It does have a sales tax but no income or estate tax.  The others listed have many of the mentioned taxes but at a lower rate than others.  I suppose it is not all about the tax but it can  enhance one’s lifestyle with a little more funding available.  Family presence and especially locality of one’s children and grandchildren is important in the consideration of where to settle.  If one is going to be a part- time resident in a particular state to maintain lower tax rates, it would nice if that state had things to offer that were appealing to a preferred lifestyle.  For some that might be weather and for others it might be friends or family.  I hope you explore the links below.  There is some interesting information about the 10 on each list.  Comments are welcome.  I love to know what readers are thinking and considering especially if you follow the links.

“10 Most Tax Friendly States”.( 2013).  Retrieved from http://www.kiplinger.com/slideshow/retirement/T006-S001-10-most-tax-friendly-states-for-retirees/

Brody, J. (2014).  “10  Worst States for Retirement”.  Retrieved from  http://www.usatoday.com/story/money/personalfinance/2014/04/19/retirement-states-taxes/7788891/

Long Term Care (LTC) -Hope you have it.

Long Term Care Policies have been around awhile.  Many of you bought them when the payout did not have a cap on the number of years.  I purchased mine about 7 years ago through a large insurance company and was told that the cap of payment was five years.  I was informed that most people that need long term care, whether in the home or in a facility averaged about 5 years before the person expired.
I just read a study that the current average life span once LTC use begins is 3 years!  What is happening?  I did began to get curious as to what care in different facilities cost both nationwide and locally in central Virginia.  What I did find  is that the cost of  using this care in your home is growing at a much slower rate  versus a long term care facility (Blackwell, 2014).
Would not most of us prefer to be in our own home.  My insurance carrier explained to me that if I received this care in my home from an agency and/or used an elderly day care that I could stretch the monies alloted in these policies to almost double time.  For me that would be 10 years!
If I were paying out of pocket and did not have a policy, what might this service cost in my home?
As recently reported by a Genworth Financial study, "Nationally, the 2014 median hourly cost for the services of a homemaker or home health aide hired from a home care agency is $19 and $19.75, respectively. In Virginia, the median hourly cost of homemaker services is $18 and the median hourly cost of home health aide services is $19. " (Blackwell, 2014).  I am glad I purchased a policy when I did.  I would be without funds quite quickly trying to pay these rates.  I realize the agency gets a percentage of this payment but the hourly rate is about the same as a beginning Registered Nurse!
I am sure those of you that have arranged care for elderly parents are aware of these costs.  Placement in an assisted living facility or a nursing home would be close to double this assessment. The question I am left with is --why is the average life span once one begins long term care declining?  I will have to research this trend.  There will be more to come. Hope you have explored a Long Term Care Policy!

Blackwell, J. (2014).  Genworth Studies Costs of Elder Care.  Retrieved from http://www.newsadvance.com/work_it_lynchburg/news/genworth-studies-costs-of-elder-care/article_fefc9946-c47f-11e3-aea2-001a4bcf6878.html

What is Modified Adjusted Gross Income to my retirement?

In researching the affect of the Affordable Care Act  (ACA) on my IRA's, I found it had more to do with the affect on my affording health care policies if retiring early.

If I retired before becoming eligible for Medicare, I would need some type of insurance.  Those available would be COBRA (available for 18 months), private insurance, or those on the healthcare exchange.  The private insurance policy or COBRA premiums would be extremely high due to the risk pool having people in an older age group and probably with more health problems.
The best option would probably be the healthcare exchange which has subsidies available for those under a certain income level.  Now here comes the Modified Adjusted Gross (MAGI) income.  In determining the  MAGI the ACA  begins with the Adjusted Gross Income (AGI) and adds back the following credits one might be allowed on their tax form:

·         Deductions for IRA contributions.

·         Deductions for student loan interest or tuition.

·         Excluded foreign income.

·         Interest from EE(employee) savings bonds used to pay higher education expenses.

·         Employer-paid adoption expenses.

For most people, MAGI is the same as AGI. (Rinck, 2013)

The only one from above that might affect many of us is the deduction for an IRA contribution.  One suggestion is to convert to a Roth IRA even though the money is taxed.The distribution from a Roth does not count in the MAGI (Davidson, 2013).

Keep in mind that social security does count in the MAGI.  Taking the social security early such as at age 62 might be postponed.  Wow!  Everything is revolving around healthcare and where I get my money.  I feel that  my healthcare source and cost is determining all other decisions.   The MAGI is important and could cut my premiums greatly.  I am glad I now know what that is now.  The headlines I read yesterday must have been more of a political ploy but healthcare is going to control a large portion of how we fund retirement.  I guess control is the label.

Davidson, l. (2013).  retrieved from

http://www.forbes.com/sites/financialfinesse/2013/05/30/what-obamacare-means-for-early-retirees-next-year/

Rinck,A. (2013) ".Health Care Reform :  Adjusted Gross Income vs Modified Adjusted Gross Income" retrieved from

http://www.zanebenefits.com/blog/bid/256075/Health-Care-Reform-Adjusted-Gross-Income-VS-Modified-AGI