A Layman’s Look from Don: Streams of Retirement Income, Pt. 5

by Donald Whelpley
@ 2022 All rights reserved.

PART 5

  • Streams listed in previous Articles:
  • Social Security (Spouse’s SS)
  • Pensions
  • Traditional Retirement Accounts (IRA, 401k, etc)
  • ROTH IRA

These are the legs for the traditional 3-legged stool of retirement planning. They are NOT enough to meet all of your goals of security and inheritance. So, here are some other tools for your retirement toolbox…

Another word about retirement-type accounts and Medicaid: my exploration of this issue suggests that every state handles retirement accounts differently when determining your assets and/or determining how much you must spend down before they will assist you. I thought I had this figured out for my state…but recently found that my information was dated. The point is that retirees are left out of the loop on much of this and, thus, are often blindsided when they need help. Get answers long before you need them if you want a secure retirement.
The American Counsel on Aging says: Countable assets are assets that can easily be converted to cash to help cover the cost of long-term care. This may include cash, stocks, bonds, investments, credit union, savings, and checking accounts, pension funds, and real estate in which one does not reside. There are many assets that are considered exempt (non-countable). Exemptions include personal belongings, household furnishings, an automobile, irrevocable burial trusts, IRAs, and generally one’s primary home. (Note: My state’s Medicaid website is not very forthcoming about what is and is not considered an asset, nor what types of resources must be spent down before they will give assistance. Again, consult an Elder Law attorney!!!)

Stream 5: ANNUITY.
You may want to have SOME money here, but I do not recommend investing greater than 15% of your retirement funds in this type of asset. An annuity is supposed to be an insurance product AND investment product. It does neither well. As much as I dislike annuities they have THREE significant advantages if you choose one of the BETTER annuity options…
First, they pay the same amount each month, even when the stock market is falling. Second, if you die your loved ones may receive a non-taxable payment based on the value at your death (there are several types of annuities so read the fine print for yours). Third, let’s say you have a significant physical decline and you need to go into a nursing home. If you apply for your state’s Medicaid program to help, and survive, you may find yourself in a position of abject poverty. Medicaid requires you and your spouse to spend down much of your combined financial resources before they will help (IRAs, 401ks, investments, second home, second car…the rules are different for every state). They also may put a lien on your primary home to recover those assets after your deaths. However, they cannot require you to spend down your Social Security, pension, or annuity (other than your monthly checks) while you are receiving Medicaid benefits. After you are no longer requiring Medicaid assistance, those resources are yours once again. Life for you and your spouse may be difficult, but not as difficult as it would have been had there not been an annuity.

Stream 6: NON-RETIREMENT ACCOUNTS.
You may have investments or savings that are not in Retirement-Type accounts. You may have an emergency fund or Savings Bonds. Hey! These are great assets, but there is no advantage to maintaining large balances in these assets when you retire. You will be taxed on the growth every year or every time you cash out a Savings Bond. So, most retirement planners recommend you lean more heavily on these funds in the early years of retirement to allow your IRAs to grow tax free. If you have a large balance here your may be able to use some of these funds to add to your Roth IRA balances, preventing future taxes on growth (talk to your financial advisor first).
My opinion: Maintain a $6k balance in one easily-accessed non-retirement account and move the remainder to beef up your ROTH IRA, or other types of investments. Seems like a good idea to have ready cash for vacations, large purchases (like major car repair), at hand. I have never been comfortable living paycheck to paycheck…so why should I do it when I retire.

Stream 7: SOMETHING OF VALUE TO SELL.
Some may have an issue with this, but it is neither illegal or immoral, it allows you to keep some resources, and it can add to the inheritance factor. The big issue is HOW MUCH should be invested here. Answer: Not much. I would not put more than $30k in this type of asset. Reason: It is not as liquid as other investments and often does not increase in value.
Going back to the problems of Medicaid OR a major dip in the stock market…you may need an alternative source of short-term cash or an alternative long-term investment that is not subject to the problems of each. You are permitted to have quality art in your home, high quality hand tools, hunting rifles, musical instruments and/or jewelry. Amazingly, these things can be more valuable than you think. It is easy to put away $10,000 – $30,000 in art, rifles, gold jewelry and/or other collectibles that the government will never make you spend down if you need Medicaid. The surviving spouse may need that money, and meanwhile you can enjoy your collection. You are thinking, “I’ll just buy some physical gold.” Bad idea. You have to report “investment” quality gold, silver, and coin collections to your state’s Medicaid office when you apply for assistance (and you have to “spend it down”) but you do not have to report jewelry or art on the wall. The risk is that, if you have that much quality art or jewelry, you should have a home insurance rider to cover them in case of fire or theft. I have yet to find a state where you are required to report items such as art that decorates your home, personal jewelry, hand tools,or your collection of antique cow bells as financial resources…(but don’t collect cars, real estate, or spendable items like coin collections or gold bars).

See Part 1 of A Layman’s Look from Don: Streams of Retirement Income
See Part 2 of A Layman’s Look from Don: Streams of Retirement Income
See Part 3 of A Layman’s Look from Don: Streams of Retirement Income
See Part 4 of A Layman’s Look from Don: Streams of Retirement Income

See Part 4 of

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