Making good decisions for retirement

Baby Boomers are retiring every day and have important decisions to make.  Last year, the Government Accountability Office (GAO) offered two pieces of advice for retirees:

1. Delay the age when you elect to start receiving Social Security payments

Most people should avoid the temptation to begin payments early. While it may be tempting to start receiving Social Security payments early, you are most likely to receive a greater lifetime income if you wait until your full retirement age. Statistically if you live 12 years of more after you retire, delaying payments would make sense. Remember that Social Security does not provide enough income for most retirees so it is important to accumulate assets in other plans (i.e., IRAs and employer sponsored plans).

2. Convert your cash-balance defined benefit pension into a lifetime income annuity rather than take a lump-sum payment upon retirement

Only one third of Americans are covered by a defined benefit plan.  The rest are accumulating assets in a retirement plan and will receive a lump sum distribution.  Of course, even if an employer retirement plan only offers a lump-sum payment, retirees can go to an insurance company and buy their own annuity. However, statistics show that most retirees who are required to put in the effort themselves to find an annuity do not do so.  Converting at least a portion of a lump-sum retirement-plan payout into a lifetime income annuity may substantially increase the odds of achieving a comfortable retirement.

You can read the full article about the GEO report here.

DC Realizes What LTC Insurance Providers Have Known For Years

People with long-term care needs would prefer to receive assistance in the comfort of their own homes. Beyond that, it’s less expensive in many cases to provide home care assistance than it is to have someone enter a nursing home. This Washington Post article highlights what the District is doing to provide more home health services to people with long-term care needs through Medicaid and other programs.

Your loved ones don’t have to spend down their assets enough to qualify for government assistance in order to receive long-term care assistance at home. Most long-term care policies that are available today offer home health care benefits to insureds who qualify with no elimination period! Additionally, most long-term care carriers provide a complimentary concierge service to help families navigate care options. Long-term care insurance can provide not only financial protection but also logistical assitance when your family needs it most.

IRS Extends Tax Benefits to Married Gay and Lesbian Couples

Recently, the Internal Revenue Service announced that legally married same-sex couples will be treated the same as heterosexual couples for federal tax purposes, regardless of where they currently reside.

The Treasury Department, following up on the Supreme Court’s ruling in June of 2013, which struck down a key section of the 1996 Defense of Marriage Act, announced that same-sex married couples can file joint federal tax returns.

One of the most significant decisions is that the government will allow gay and lesbian couples to file joint returns even if they have moved to states that do not permit same-sex marriage; however they may have to file their state tax returns as if they were not married, depending on state laws. Additionally, Social Security will only recognize couples living in states that allow same-sex marriages.

Thirteen states and the District of Columbia permit same-sex couples to marry, including California, Connecticut, Delaware, Iowa, Main, Maryland, Massachusetts, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington.

The new rules, which take effect September 16, will provide “clear, coherent tax-filing guidance for all legally married same-sex couples nationwide.” Internal Revenue Service guidelines will apply to all federal taxes, including income, gift, and estate taxes. They affect personal and dependent exemptions and deductions, employee benefits, IRA contributions, and tax credits.

The biggest financial bonanza for wealthier couples will be the ability to take advantage of the unlimited marital deduction and higher exemption limits for estate tax purposes. A more common benefit will come in the form of the tax exclusion for employer-paid help insurance, which many same-sex spouses previously bought on an after-tax basis and will result in a typical tax savings of about $1,000 per year.

It is important to note that the new guidelines will not affect couples who are in civil unions or domestic partnerships rather than legal marriages.

DOMA: Social Security Spousal Benefits

As promised, we’re taking a look at the impact DOMA will have on insurance planning, specifically concerning social security spousal benefits, for same-sex couples.


Will states start recognizing out-of-state same-sex marriages or even allow them to happen?

Pennsylvania and Virginia could possibly follow Maryland and Delaware’s footsteps, which legalized same-sex marriages in January and July, respectively.

A federal lawsuit was filed in Pennsylvania by the America Civil Liberties Union on behalf of 21 plaintiffs who either wish to get married or want their out-of-state same-sex marriage recognized. Importantly, Attorney General Kathleen Kane publicly announced that she would not defend the state against the lawsuit claiming that she found Pennsylvania’s ban “wholly unconstitutional.” The state will have Gov. Tom Corbett’s general counsel defend the state’s anti-gay-marriage law.

In Virginia, the ACLU says a lawsuit is currently in the works that would challenge the constitutionality of Virginia’s ban on same-sex and recognizing out-of-state same-sex marriages.


What changes will happen in the 13 states and Washington DC where same-sex marriage is legal?

We already discussed that same-sex couples can now transfer property from one partner to another without worrying about a federal gift tax.

Same-sex couples in marriage equality states are now eligible for Social Security’s spousal benefits. They can now apply for

  • Spousal retirement: if your spouse or ex-spouse is receiving or eligible for retirement or disability benefits and if you are at least 62 years of age, you may be able to receive money
  • Disability: if you cannot work because of a medical condition that is expected to last at least one year or result in death, certain family members can receive money
  • Survivor benefits: if you die, members of your family could be eligible for benefits based on your earnings

The claims processing instructions will allow for payment of claims when the claimant “was married in a state that permits same-sex marriage” and “is domiciled at the time for application, or while the claim is pending a final determination.”

How Striking Down DOMA Affects Unlimited Marital Deduction

On June 26 2013, the United States Supreme Court ruled Section 3 of the Defense of Marriage Act (DOMA) as unconstitutional. In a 5-4 decision, the judges said, “DOMA is unconstitutional as a deprivation of the equal liberty of persons that is protected by the Fifth Amendment.”

Striking down DOMA means that same-sex married couples can now access over 1,000 benefits that have been traditionally only available to heterosexual married couples.


How was DOMA brought into the Supreme Court?

It’s important to note that DOMA ended up before the US Supreme Court in the first place because it was basically a lawsuit about federal estate tax liabilities.

DOMA plaintiff Edith Windsor was forced to pay $363,053 in estate taxes when her wife died—something that would not have happened if her spouse was male. After paying the taxes, Windsor filed a lawsuit against the IRS, claiming that DOMA prevented her from being a spouse under federal tax law, resulting in a $363,053 tax liability that traditional married partners would not have been subjected to.

The U.S. District court for the Southern District of New York ruled that $363,053 worth of damages be paid to Windsor. Then the Second circuit Court of Appeals ruled in favor of Windsor. After that, the Supreme Court considered the case.


How will this affect Unlimited Marital Deduction?

The Unlimited Marital Deduction allows an individual to transfer an unrestricted amount of assets to his or her spouse at any time, including at the death of the transferor, free from tax. This is one benefit that DOMA restricted from spouses of the same sex.

By striking down DOMA, the unlimited marital deduction benefit, along with hundreds of other benefits, is eligible for same-sex married couples. This also meant that Windsor won her case and was awarded $363,053 plus interest.

However, there may still be some confusion about tax treatment for legally-married, same-sex couples that live in states where same-sex marriage is recognized[1] or not. Where a couple resides (State of Residence) versus where a couple was married (State of Celebration) will have an impact with respect to some federal benefits for the 29 states that have currently have bans on same-sex marriages, unions, or don’t recognize them at all.

Next month, we will explore how DOMA will impact insurance planning for same-sex couples.




1There are currently 11 states that recognize same-sex marriages: California, Connecticut, Delaware, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New York, Vermont, Washington, and the District of Columbia. By August 1, Minnesota and Rhode Island will also recognize same-sex marriages. There are also 4 states that recognize same-sex civil unions: Hawaii, Illinois, New Jersey, and Colorado.