Newsletter for December 2001

This issue of the IRA.Com Retirement Newsletter looks at a number of hot issues that are key to successful retirement planning: social security, IRA management, long-term care insurance, HMOs, senior housing options, and more. Also, the Resource Links offer great leads on mortgage information and wise charitable giving.

Be sure to take a look at the year-end tax planning tips under this month's Featured Question. Remember, it's too late to do your tax planning on the eve of April 15th!

Article Briefings
Social Security's Poor Deal
Thinking of Cashing Out?
Planning Ahead for Peace of Mind
Seniors Face Fewer Medicare HMO Options
Seniors Don't Shy From Retirement Communities

Featured Question of the Month
Year-End Tax Planning News
Newsletters and Past FAQs Available Online

Resource Links
Better Business Bureaus' Wise Giving Alliance
Mortgage Bankers Association of America - Consumer Information Page

Social Security's Poor Deal
Washington Times [], 11/29/01; Ferrara, Peter.

Republican John Boozman won a special congressional election in Arkansas on Nov. 20, marking a great victory for the Bush administration and its efforts to reform social security. Boozman has joined the administration in its campaign to provide working families with the option of investing social security benefits in their own retirement accounts instead of paying taxes to the government. Though working families are concerned about the risks involved in investing social security funds in the stock market, critics claim that any reform should include a government guarantee that workers will receive the minimum benefits they would have received had they paid the government.

Thinking of Cashing Out?
Washington Post [], 11/25/01; Crenshaw, Albert B.

In a faltering economy, employees worry about lay-offs as well as having their 401(k) options in limbo--should an employee retain his or her 401(k) with their previous employer, cash it out, or roll it over into an IRA or a new employer's plan? Experts agree that unless individuals need to pay house payments or cover essential medical care, they should either retain their retirement money with their previous employer or roll it over. IRA accounts may offer more flexibility and control for individuals, but employer plans can reduce fees and offer security.

Planning Ahead for Peace of Mind
New York Times [], 11/25/01; Schembari, James.

More people are purchasing long-term care insurance as part of their investment plans and retirement planning tools, as well as purchasing it at younger ages. Long-term care insurance can help people keep their homes by paying for in-home care and possibly home alterations, as well as nursing home care, assisted living, and homemaker services. The average annual premium for a three-year policy is $693 for a 50-year- old, $2,756 for a 70-year-old, and $5,133 for someone 75 or older. Author Les Abromovitz recommends waiting until nearly age 60 to buy long-term care insurance, selecting a company that has been in the business for at least five years, and choosing a policy with a 90-day elimination period, as well as watching for policy triggers.

Seniors Face Fewer Medicare HMO Options
Boston Herald Online [], 11/15/01; Powell, Jennifer Heldt.

Hospitals and clinics throughout Massachusetts and across the country have been reducing the number of Medicare HMO plans that they accept, often limiting the "choices" to one. Winchester Hospital announced recently that it would be dropping Harvard Pilgrim Health Care's First Seniority plan and Blue Cross and Blue Shield's Blue Care 65, which leaves many seniors in the area with only one option--Tufts Health Plan's Secure Horizons. The Lahey Clinic has begun focusing on First Seniority rather than Secure Horizons, and some other physicians have decided to drop coverage altogether.

Easy Living: Seniors Don't Shy From Retirement Communities
Copley News Service Online [], 11/25/01; Tarter, Steve.

According to Legg Mason Wood Walker Inc., a financial services firm in Baltimore, Maryland, the senior housing market will skyrocket by 2010 from $15 billion to $56 billion. First, there will be a slowing in the senior housing industry over the next 20 years as the number of people over 80 drops--the result of fewer births during the 1930s and World War II. By 2026, however, the senior population will re-surge. Senior housing facilities--which include assisted living, continuing care, active-adult, shared housing, and skilled nursing--should jump by 30%. A recent HUD report finds that seniors choose housing that fosters a sense of independence, explaining the current shift away from expensive nursing homes. While developers are currently constructing facilities that offer a wide-array of amenities, sometimes at high costs, they also will be faced with demand for low-income senior housing. Industry experts recommend that seniors and their families do research first, as many housing plans have hidden fees.

Q. I'm interested in improving my year-end tax planning. Do you have any advice regarding planning areas or strategies to consider, especially in light of the 2001 tax legislation?

A. The general trend of the 2001 tax legislation is to lower future years' tax rates, particularly in the upper brackets, and particularly in 2006 and later. Five tax brackets will see a decrease in the tax rate. For example, the legislation carved out a new lower tax rate of 10% from the existing 15% tax bracket at the lowest income levels. For 2001, most individual taxpayers have already benefited from this reduction via advance refund checks ($300 to $600), issued prior to 12/5/2001.

From a planning perspective, the small decrease in the five tax brackets means that tax deductions postponed to next year will be worth less to you in tax savings than if they could be deducted this year. Conversely, the tax bite on income deferred from this year to next will be lessened due to the decrease in tax rates. As with everything else in life, the devil is in the details, so careful planning and discussion with your advisor are needed before implementing any specific tax reduction strategy. To assist in reducing your 2001 tax bill, we are noting below a number of areas that you should review prior to the year's end. Remember, it's too late to do your 2001 tax planning on the eve of April 15th.

Retirement Money
If you haven't already done so, consider contributing the maximum to your company-sponsored retirement plan, such as a SIMPLE IRA, 401(k), etc. Check whether you have the option to make additional contributions, wage deferrals, or commission deferrals, into the plan prior to December 31, 2001. Ask if any or all year-end bonus payments might be contributed to the plan, particularly if there is a company match available.

IRA Contributions
To the extent that you have already met contribution limits to your employer-sponsored retirement plan, consider funding a 2001 IRA account. See other areas of our site to determine which IRAs are available to you. The earlier you fund the IRA the more you will save. If need be, consider partially funding an IRA with amounts less than the maximum permitted.

Required Minimum Distributions for IRAs
Regular readers already are aware of the confusion generated by the January 2001 release (and subsequent "clarification") of proposed regulations to simplify the calculation of required minimum IRA distributions and, in many instances, to reduce the required amount. Consider following the regulations in 2001, although they won't be mandated until 2002. As murky as the regulations are, the bottom line is that implementing them for the 2001 tax year can reduce your taxable income. This is not an issue for the faint of heart to tackle without assistance, due to the 50% penalty assessed on distribution shortfalls.

Itemized Deductions
Remember, a dollar of deduction is worth more before January 1, 2002 than after. Therefore, steps should be taken to accelerate their payment. Generally fruitful areas to review include:

You can now browse past newsletters and FAQs from our online visitors at For newsletters, select For FAQs, go to and select the appropriate set of FAQs.

Better Business Bureaus' Wise Giving Alliance

The Better Business Bureaus' (BBB) Wise Giving Alliance collects and distributes information on hundreds of nonprofit organizations that solicit nationally or have national or international program services. It routinely collects information about their programs, governance, fund raising practices, and finances. The BBB Wise Giving Alliance selects charities for evaluation based on the volume of donor inquiries about individual organizations. The alliance does not recommend one charity over another, but helps donors to make their own informed decisions regarding charitable giving.

Mortgage Bankers Association of America - Consumer Information Page

Shopping for a home? Do you currently own a home and are thinking about refinancing? Want to reduce your payments or plan your options? If so, this site is for you. Here, you will find detailed news and information on purchasing, owning, and managing a home. You'll find a number of online financial calculators, as well as advice from widely published columnists and a glossary of mortgage terms.


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