How to Plan for Retirement Care

How do you plan to take care of your health and finances after you’re done working? There is no better time than the present to start planning for retirement and our friends at Nationwide can help. They have shared the following information and programs specifically for farmers and ranchers to make planning for retirement easier. This guide will highlight options on the best ways to prepare medical care and costs, in addition to qualifying for social security as a farmer.

The Hidden Side of Healthcare Costs

For many farmers, retirement is not something they intend to do. While the average age of a U.S. farmer continues to climb and now stands at 57.5 years,1 health issues may force some operators to retire or semi-retire from the day-to-day farm activities earlier then intended. A large consideration facing aging farmers or ranchers is the health care options available to them and how they will pay for these services.  For many Americans 65 and older, the answer is Medicare.2

Individuals are entitled to Medicare so long as they are a U.S. citizen or permanent legal resident of the U.S. who has lived in the U.S. for at least five years. The program’s benefits can be great but determining the participation level to elect can be somewhat confusing.

Most farmers qualify for Part A coverage under Medicare at no out of pocket expense so long as either the individual or their spouse has paid Medicare taxes for at least 10 years. Care under Part A only covers inpatient hospital stays and/or a skilled nursing facility. This leaves many individuals seeking additional coverage for doctor services, outpatient care, vision, dental, hearing, and potentially other care needs not covered under Part A. These additional services are generally covered though Part B and Part C of Medicare. However, unlike Part A, individuals wishing to participate in these additional coverages will be required to pay the additional premiums associated with those plans. Combined costs could be hundreds of dollars monthly and prove to be burdensome to not only the individual but potentially the farm as well.

One way to plan for these costs is to set aside funds to provide the additional level of income that will be needed to pay for these premiums. To determine the appropriate amount of funds to set aside, it is critical to determine what coverage is desired and its associated cost. Nationwide, in partnership with leading physicians and other professionals, created a tool that analyzes your personal health and lifestyle information, healthcare costs based on your region, actuarial data and medical coverage to estimate the additional costs of healthcare beyond your Medicare Part A coverage.

[1]2017 Census of Agriculture, USDA NASS, April 2019

2P.L. 89-97

 

Long-Term Care Options and How much they cost 

Long-term options can protect you, your family and your farm operation so it is important to determine what it means to you. Do you think of the consequences like the stresses placed on family caretakers or the changes to your lifestyle that may result? How will your farm or ranch operation be impacted by your need for care? Many believe long-term care (LTC) planning is too expensive or too complicated, or that it’s something they’ll never use. Improving your understanding may help you better protect what matters most.

What is long-term care & how much does it cost?

It’s an event that needs to be planned for to help you live as independently and safely as possible when you can no longer do so on your own.

Most of us would prefer to receive care in our homes; in familiar surroundings and with our families.  The good news is that “home health care” is what just over half of us needing care will receive. Another 20% of us will likely receive care in an assisted living facility, and about 3 in 10 of us will need care in a nursing home.[i]  Each has varying costs and they can certainly be substantial. Today, the average annual expense of a home health aid is $49,192 and in the next 20 years, that is expected to grow to $88,846.[ii]

Long-term care options

Recently, the variety of LTC coverage options has increased even as the number of providers offering coverage has shrunk. Combination products that provide an LTC benefit along with life insurance coverage have become more available and more popular. They’re designed to protect your premiums paid by providing a benefit even if the LTC benefit is not used.

Minimizing the consequences

The consequences of not planning for a long-term care event can be costly. The time is now to decide which options are best for you, your family and your business. If you have questions about LTC, call Nationwide to speak to a specialist at 855-863-9636.

[1] Share of LTCI Claims Starting with Nursing Care Falls: AALTCI”, ThinkAdvisor, Allison Bell – April 20, 2018

[1] Compare Long Term Care Costs Across the United States,” Genworth, www.genworth.com/about-us/ industry-expertise/cost-of-care.html (2017). Median cost of semi-private room based on 2017 survey conducted by CareScout covering 400 regions across the U.S.; 20-year projection based on 3% annual inflation.

 

Qualifying for Social Security as a Retired Farmer

For many Americans, Social Security makes up a sizable amount of their income in retirement. In 2018, 63 million Americans received approximately one trillion dollars in Social Security benefits, with a majority of those funds going to retired workers.1 However, due to the way in which many farm operators utilize the tax code to adjust their income, many farmers run the risk of not qualifying for Social Security retirement benefits.

What does it take to be eligible for Social Security retirement benefits?

For any individual to qualify for Social Security retirement benefits, they must have earned a minimum amount of either wages or net profit for a given year (or quarter). Individuals earn one credit per quarter in which an annually-set minimum required wage or net profit is achieved. For 2020, the minimum earnings per quarter are $1,410.2 Individuals can earn up to four credits per year, making the total minimum earnings equivalent to $5,440 for 2019. To qualify for future benefits under Social Security, an individual must have earned 40 quarters (or, 10 years) of wages or net profits. If an individual does not have at least the 40 required earned credits, they will not be able to collect Social Security retirement benefits.

Your farm business structure matters

For those individuals that own and operate a farm as either a C-corporation or as an S-Corporation, it is highly likely they will already be paying themselves wages. Any wages of $1,410 per quarter (or, $5,640 per year) will receive their max of four credits for benefit calculations. For those farmers that run their operation through an LLC or are filing their taxes as a sole proprietor under a Schedule F return, credits will be earned on net farm income. Net farm income in excess of $5,440 per year will result in four credits being earned. However, farmers who utilize tax deductions and expenses that result in an income loss for the tax year (reported on a Schedule F IRS tax form) should be aware that this action will result in zero credits being earned for that tax year.

Who pays the Social Security tax is another key issue. Individuals employed by an employer will have 6.2%3 of their pay withheld for Social Security tax and 1.45%4 withheld for Medicare tax, while the employer pays the other half of the total tax. For many farmers, these two taxes will both be paid by the individual, generally referred to as self-employment tax, for a total of 15.3%. It’s important to note that any wages above $132,9005 will not be assessed the 12.4% tax and will only be subject to the additional Medicare taxes.

To get the most out of your Social Security benefits, register for one with Nationwide.

1 I.R.C. § 212

2 www.sss.gov

3 I.R.C. § 55

4 Treas. Reg. § 1.404(a)-3(d)

5 I.R.C. Sec. 72 (e) (2)

 

Resources Cited


*A.M. Best Market Share DWP 2018. Based on statutory data

[i] Share of LTCI Claims Starting with Nursing Care Falls: AALTCI”, ThinkAdvisor, Allison Bell – April 20, 2018

[ii] Compare Long Term Care Costs Across the United States,” Genworth, www.genworth.com/about-us/ industry-expertise/cost-of-care.html (2017). Median cost of semi-private room based on 2017 survey conducted by CareScout covering 400 regions across the U.S.; 20-year projection based on 3% annual inflation.

This material is not a recommendation to buy, sell, hold or rollover any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation.

Federal income tax laws are complex and subject to change. The information in this paper is based on current interpretations of the law and is not guaranteed. Neither Nationwide, nor its employees, its agents, brokers or registered representatives gives legal or tax advice. You should consult an attorney or competent tax professional for answers to specific tax questions as they apply to your situation.

Products are issued by Nationwide Life Insurance Company or Nationwide Life and Annuity Insurance Company, Columbus, Ohio.

Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2019 Nationwide

NFM-18453M1 (06/19)

Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2019-2020 Nationwide

NFM-18760AO.2 (05/20)

*A.M. Best Market Share DWP 2017. Based on statutory data

Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2019 Nationwide

NFM-18272M1.1 (12/19)