Retirement Planning Class Materials – Winter 2017






Our Winter 2017 Retirement Planning Today class, was held in partnership with Western Carolina University’s Office of Professional Growth and Enrichment.   During our class we had a number of questions, and discussed some material that was not included in the accompanying workbook.  Below, you will find the questions and answers from our two classes.  You will also find a PDF file of the slides that were included in our class presentation, but which are not included in the workbook.


Retirement Planning Today – Winter 2017 Bonus Slides


What is a qualifying quarter of coverage for work credit for Social security and Medicare?  A qualifying quarter is based on the amount of earnings that you have.  For a quarter of coverage (QC) in 2017 is $1,300. “Quarter of coverage” is a legal term, but you may also see the term “Social Security credit” (or just “credit”) used elsewhere. A QC is the basic unit for determining whether a worker is insured under the Social Security program. No matter how high your earnings may be, you cannot earn more than 4 QC’s in one year [i].


If you don’t have 40 quarters of work credit can you qualify for Medicare? Normally, you need to have earned about 40 “credits” or “quarters” by paying Social Security and Medicare payroll taxes while working — equal to about 10 years of work — in order to get Part A services without paying premiums. The premiums have already been covered by your payroll taxes. However, if you don’t have enough credits you may qualify for premium-free Part A services on the work record of your spouse, provided that you are 65 or older and your spouse is at least 62. In some circumstances, you may qualify on the work record of a spouse who is dead or divorced [ii]. Following the overturning of the Defense of Marriage Act, people in a same-sex marriage can also qualify on their spouse’s work record if they live in a state that accepts same-sex marriage or recognizes the laws of other states that do. Otherwise, if you’re 65 or older, you can buy into Medicare by paying monthly premiums for Part A hospital insurance. You can also join Part B and pay the same premiums as other people. In both cases, you must be a U.S. citizen or a legal resident (green card holder) who has lived in the United States continuously for at least five years. The amount you pay for the Part A premium in 2014 is $234 a month (if you have 30 to 39 work credits) or $426 a month (if you have fewer than 30 work credits). These amounts usually change a little each year. If you continue working until you’ve earned 40 credits (about 10 years’ work in total), you’ll no longer be required to pay Part A premiums.


What are the average Long Term Care Insurance premium costs?  According to data from the 2012 Long Term Care Insurance Price Index – the average age 55 year old couple purchasing LTCI can expect to pay $2,700 per year for $340,000 of coverage [iii].  Premiums may vary widely, based on criteria in the policy (daily benefit, lifetime benefit, inflation protection, elimination period, etc.) and may vary widely based on the health of the applicant.  It is best to work with an insurance professional who specializes in objectively evaluating available LTCI policies.


Which is better – Interest compounded Daily or Annually?  Usually a daily compounding rate is better (the more frequent the better). For example, $10,000 compounded at 5% will grow to $10,500 after one year, when compounded annually.  Compounded daily, $10,000 will grow to $10,512.67 at 5%.  There is a difference, though it is incremental.


Is there an authorized clearing house for unclaimed retirement accounts? According to a recent news story from National Public Radio, some retirement accounts, bank accounts, (and tax refunds) are unclaimed by their beneficiaries or forgotten about [iv].  The best place to start in the search is your state governments repository for unclaimed funds.  The website may be a good starting point in this search.


What income is considered for Social Security Earnings Test (Pre Full Retirement Age)? If you earn income before your designated Full Retirement Age and have already filed for Social Security – your income benefit may be reduced $1 for every $2 of earnings above a specified level.  This is known as the earnings test- and it only applies to earned income.  Investment income is generally not included in this calculation[v].


What can you use Health Savings Account for?  What are the uses pre 65 and post 65?  Prior to age 65, distributions (Tax Free and Penalty Free) from a Health Savings Account must be used for ‘Qualified Medical Expenses’.  After age 65, you can take penalty-free distributions from the HSA for any reason. Withdrawals made for non-medical will be subject to ordinary income taxes. Given that Medicare does not cover all of your medical expenses, most HSA owners over 65 continue to use their HSA funds for qualified medical expenses. This will ensure they get the maximum benefits from their HSA [vi].


Can an HSA be used to pay for Long Term Care Insurance Premiums? – Yes, but only for qualified LTCI policies.


Can an HSA be used to pay for Healthcare and Medicare premiums? – Yes, and Medicare premiums over 65.  At age 65, you can use your HSA to pay for Medicare parts A, B, D and Medicare HMO premiums tax-free and penalty-free. You cannot use your HSA to pay for Medigap insurance premiums[vii].


What is difference between ordinary and qualified dividends?  As a general rule, dividends are qualified when they’re paid by a U.S. corporation or a foreign firm in a country with tax agreements in place with the U.S. So if you get a dividend from Microsoft (MSFT), that’s a qualified dividend if you hold the stock for more than 60 days during the 121-day period starting 60 days before the ex-dividend date. Generally speaking, most regular dividends from U.S. companies with normal company structures (corporations) are qualified – qualified dividends may be eligible for capital gains tax treatment[viii].


Is your Social Security benefit calculated based on the best 35 or most recent 35?  It is based on the highest 35 (best 35).


Is your Social Security estimate based on continuing to work and earn at current level?  Yes, the benefit estimate is based on your past earnings and a projection of your future income, which assumes your income will remain at the same level as the previous year until you retire. You could get more than the estimate if you end up earning more in the future or less if your income drops. The estimate also assumes you continue to work until you take benefits at age 62, at full retirement age or at age 70, so it’s less helpful if you plan to retire at a different time. Use the online calculator or the more precise (and more complicated) detailed calculator at to enter your future earnings estimates.  Removing years with zero earnings will have a greater impact than replacing years with relatively low earnings – because of the way the benefit is calculated to disproportionally count low earnings[ix].


What are the total contribution limits for qualified defined contribution plans?  What if you have more than one plan?  There is a limit (adjusted each year) for the maximum amount you can contribute to a qualified workplace retirement plan (i.e. 401(k), 403(b), SIMPLE IRA, etc.).  The contribution limits vary by account type – but the total contribution limit (employer matching/safe harbor plus employee contributions/deferral) cannot exceed a specified limit.  Currently that limit is $54,000 (2017) if under 50, and $60,000 (2017) over 50.  For example: If you are an employee and you have both a 401(k) and SEP IRA through your employer, your deferral contribution to the 401(k) cannot exceed $18,000 ($24,000 if over 50), and the total contributions to both accounts cannot exceed $54,000 ($60,000 including 401(k) catch-up contributions if over age 50).  If you believe you have over contributed to qualified retirement plan – you must correct this over contribution no later than the tax filing deadline of the following year in most cases[x].