When you pay self-employment or payroll taxes, it can seem like you are throwing money into a black hole, but this is really not the case. You earn retirement credits that lead to Medicare and Social Security eligibility when you pay these taxes.
In 2021, you get one credit for every $1470 that you earn, and the maximum annual accrual is four credits. Since the requirements are so modest, everyone that works consistently will receive four credits each year. After you have 40 credits, you will qualify for these programs.
The eligibility age for Medicare is 65 for everyone at the present time, but the White House has proposed a reduction in this age. For Social Security, you can receive a reduced benefit when you are 62 years of age.
Depending on your birth year, the reduction would be between 25 percent and 30 percent. The eligibility age for a full benefit is 66 if you were born between 1943 in 1954.
It then goes up by two months each year, so somebody that was born 1955 would become eligible two months after their 66th birthday. This arrangement goes on year-by-year until the eligibility age reaches 67 for people that were born in 1960 and later years.
Medicare and Custodial Care
If you know you are going to qualify for Medicare when you are 65, you may assume that you do not have to be concerned about medical expenses that you incur as a senior citizen. In fact, there are some out-of-pocket costs that you should budget for in advance.
Part B is the portion of the program that pays for treatments that are administered by doctors and other health care professionals. There is a monthly premium of $148.50 a month this year, and there is a modest $203 deductible.
After the deductible has been met, Medicare will pay for 80 percent of these expenses, and the other 20 percent will come out of your pocket. The hospitalization coverage is free, but there is a $1484 deductible per benefit period.
There can be premiums, copayments, and deductibles for the prescription drug coverage, so this is another cost to take into consideration.
Most people can manage these out-of-pocket expenses, but there is one gap in the coverage that is not easy to address on your own. Medicare will not pay for in-home care that is provided by a paid home health aide, and it does not cover a stay in a nursing home.
Nursing Home Costs
This is something to take very seriously, because most seniors will need paid living assistance, and 35 percent of elders will in fact reside in nursing homes. In Los Angeles, the median monthly charge for a private room in a nursing home last year was $10,570.
The average length of stay is 12 months, and 13 percent of people that receive paid long-term care receive the assistance for more than five years. If you are married, you and your spouse make be saddled with two different sets of nursing home bills.
Medi-Cal is a need-based government health insurance program that will pay for long-term care. There is a $2000 limit on countable assets, but some things that you own are not considered to be countable, including your home.
The fact that you can qualify as a homeowner is somewhat deceiving, because Medi-Cal will put a lien on the home after your death if you are the owner at the time of your passing.
To protect your home and divest yourself of direct possession of assets to qualify for Medi-Cal, you can convey resources into a trust. This would be an irrevocable trust, and you would surrender access to the principal, but could receive distributions of the trust’s earnings.
The income that you receive can give you the ability to fund the trust before you know that you need long-term care. This is key because you have to divest yourself of assets at least 30 months before you apply for Medi-Cal.
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You can see the schedule if you visit our Los Angeles estate planning webinar page, and we ask that you register for the event or events you would like to attend so we can reserve your spot.