FINANCIALconnection
Long-term care
worth a look
AskSuze
Orman
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Suze Orman’s latest
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Money:Owning the
Power to Control Your
Destiny. Suze’s TV
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can be contacted at
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What’s your take on long-term-care poli-
cies? The attorney who drew up our liv-
ing trust is advising us to purchase one now.
—Ann Marie Rose, Zephyr Cove, Nevada
KEI TH LATHROP
GIVEN THE HIGH COST of nursing care and the
fact that many of us are living well into our 80s and
beyond, buying insurance to cover some or all of the
cost of nursing or at-home care can be a smart move.
That said, it can be very expensive, so you need to do
your homework before you sign up.
The younger you are when you purchase a policy, the less expensive your annual premium will be.
I think purchasing a policy when you are in your late
50s is a good sweet spot—wait any longer and your
policy will be more costly or you could be denied
coverage if your health has begun to falter.
While an insurer can’t increase an individual
policyholder’s premium, it can petition for an across-the-board increase for all policyholders in a given
state. Be aware that such blanket increases have
occurred as insurers struggle to correctly gauge the
cost of providing this relatively new coverage.
Therefore, my advice is to buy a policy today
only if you know you could handle a premium increase of up to 20 percent in the future. I know that
sounds steep. But it would be unfortunate to pay
thousands of dollars into a new policy for a few
years and then abandon it because a rate hike makes
it too expensive.
My husband and I are in our 70s and own our
home. He wants to do a reverse mortgage.
What are the advantages and disadvantages
of this? Would we still own our home?
—Josephine Raffanti, Fair Oaks, California
A REVERSE EQUITY MORTGAGE (REM) is a way
to live off your house. With a REM, a lender agrees to
give you a monthly or lump-sum payout, or a credit
line, based on the equity you have in your home.
You must be at least 62 to qualify for a REM.
The amount you can borrow is based on your age,
the equity you have in the home and current interest rates. The lender gives you money today with the
understanding it will be paid back when you move
or when you pass away.
The good news is that you or your heirs will
never owe more than the value of the home. And as
long as you live in the house, you will never be
forced out. As for drawbacks: If you had intended to
leave your home to your heir(s), your REM could
reduce or eliminate that inheritance if they need to
sell the house to settle the bill with the lender.
You also need to weigh the cost. The most pop-
ular programs are backed by federal agencies and
have costs that can easily be more than 5 percent of
the loan amount. If you plan on moving in just a
year or so, that’s a stiff price to pay. A REM makes
the most sense when you intend to stay in the home
for a long time.
You can learn more at the AARP Web site,
www.AARP.org/money/revmort/.
Can you comment on the pitfalls of selling a
home, a rental property or stock with large
capital gains before turning 65? I understand
that Medicare Part B will be based on a sliding scale for adjusted gross income; what
you do at 63 will affect what you pay two
years later.
—Douglas Tokes, Antioch, California
STARTING THIS YEAR, the annual premium you
pay for Medicare Part B is based on the modified
adjusted gross income (MAGI) that you report on
your federal tax return. The higher your MAGI, the
higher your Part B premium.
Because of the lag time in filing taxes, your premium for the current year will be based on your
reported MAGI from two years earlier. For example,
your 2007 premium is based on the MAGI you
listed on your 2005 tax return.
So the issue isn’t just what you do two years
before turning 65, when you become eligible for
Medicare. It will be an issue every year.
The way the premium scale works is that individuals with MAGI below $80,000 and married
couples filing a joint tax return with MAGI below
$160,000 will continue to pay the standard 25 percent of their Medicare Part B costs. That works out
to a monthly premium of $93.50 in 2007. If you are
in the highest income range—individuals with income more than $200,000 and married couples
with income higher than $400,000—your monthly
2007 premium is $161.40.
In your January Connection column, it was
stated that a reader’s granddaughter had
$20,000 in a Roth IRA. Parents or grandparents
cannot contribute, right, unless the young woman has income for that year?
—E. Todd, Long Beach, California
YES, THE GRANDDAUGHTER must have reported
earned income for that year. But there’s no requirement that she actually invest her own income. Parents
and grandparents can be the ones to fund the account
as long as the child has indeed earned income for
that tax year. C
