The IRS recently announced new cost-of-living adjustments that affect dollar limitations for defined contribution plans and other retirement-related items for tax year 2019 in Notice 2018-83. Those contributing to 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan will be able to boost their contribution from $18,500 to $19,000.

IRA contributions, not raised since 2013, will now be $6,000, up from $5,500. However, catch-up contributions for workers age 50 and over remain the same at $1,000. Income ranges that determine eligibility for deductible contributions to traditional IRAs, Roth IRAs and to claim the saver’s credit have all increased for 2019.

For single taxpayers covered by a workplace retirement plan, the income range at which deductibility of traditional IRA contributions is phased out, formerly $63,000–$73,000, is now $64,000–$74,000.

For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range, formerly $101,000–$121,000, is now $103,000–$123,000.

For an IRA contributor not covered by a workplace retirement plan and married to someone who is covered, the deduction is phased out if the couple’s income is between $193,000 and $203,000; formerly the phase-out amounts were $189,000–$199,000.

For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0–$10,000.

Taxpayers making contributions to a Roth IRA now have a phase-out range of $122,000–$137,000 for singles and heads of household, up from $120,000–$135,000.

Married couples filing jointly now have an income phase-out range of $193,000–$203,000, up from $189,000–$199,000, while the phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0–$10,000.

The income limit for the Saver’s Credit, also called the Retirement Savings Contributions Credit, for low- and moderate-income workers is now $64,000 for married couples filing jointly, up from $63,000; $48,000 for heads of household, up from $47,250; and $32,000 for singles and married individuals filing separately, up from $31,500.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans and the federal government’s Thrift Savings Plan has not changed from $6,000.

Fears Over Retirement

A new study from BMO Wealth Management, “The Aging Economy: Improving With Age,” finds that Americans aren’t approaching retirement without some substantial fears for how that retirement will go. They fear health and financial woes will weigh on living a long life, as could becoming burdens to their families.

Higher life expectancy — 76 years old for men and 81 years old for women — offers the potential of a long retirement (18 years), but also presents its own problems.

According to the report, 46% fear a decline in their quality of life as they age and being snowed under by the cost of health care; 45% fear burdening families with their care and 44% worry about running out of money during retirement.

Spouses and partners don’t always agree about long-term financial goals, with the most common disagreement reported in the study being when and how much to save for the future (28% of couples disagreed). Retirement goals followed, at 27%, with the distribution of personal assets and possessions to heirs coming in third at 25%.

And when it came to investment and retirement issues, maximizing retirement income was the biggest concern. That was followed with the fear of outliving their savings in retirement and the impact of long-term care costs on personal finances.

Among the suggestions BMO offers to alleviate some of those fears are:

  • making sure that financial plans, investment policy statements and written estate documents are up to date;
  • considering working past traditional retirement age to stretch retirement assets;
  • understanding the impact that one’s personal and family medical history can have on the likelihood of illness and its effects on retirement spending;
  • having discussions with spouses, family members and support networks about end-of-life planning; and
  • talking with financial professionals about the financial implications of a longer life.

Tax Help Needed

A new survey from Nationwide Retirement Institute shows a high percentage of retirees lack an understanding about the effect of taxes on their retirement income, which is something many may come to regret.

According to the survey, about 60% of future retirees, 70% of recent retirees and 75% of those retired for over a decade said they were only somewhat knowledgeable or not at all knowledgeable about tax planning.

More than one third, or 37% of retirees, admitted they hadn’t considered how taxes would impact their retirement income when they were planning for the event.

The survey showed that more than half of those who are not yet retired would like to be more informed on how they will be taxed in the future. Many of these respondents also did not know about the effects of tax bracketing, according to the survey.

The numbers show an appetite to learn more. The overwhelming majority of those nearing retirement (82%) want to learn about taxes, Nationwide Retirement stated.

“Today, the majority of older consumers are focusing on saving for retirement, which is a critical component of your retirement plan, but not the only factor,” stated Eric Henderson, president of Nationwide’s life insurance business in a statement. “Building tax flexibility into a retirement income plan is crucial.”

The situation leads many to have wished they had been more proactive about planning earlier. The survey found that more than a quarter of older consumers owe tax money each year while those retired for more than 10 years are least likely to receive a tax refund each year.

Almost half of recent retirees responded that they wish they would have better prepared for paying taxes in retirement, with nearly a quarter acknowledging in retirement that they have paid several thousands of dollars more in taxes than they expected to.

The survey was conducted online by The Harris Poll on behalf of The Nationwide Retirement Institute in late August 2018 and included 1,031 adults age 50 or older.

High Health Costs

The Employee Benefit Research Institute has issued a study on health care expenses in retirement that may shock many advisors and clients. According to the report, a couple 65 years old with median prescription drug expenses would need $296,000 in savings to have a 50% chance of having enough on hand to cover their health care expenses in retirement.

If they wanted 90% odds of covering those costs, they would need $400,000 in savings.

Moreover, “many Americans will likely need more savings than cited in this report,” said Paul Fronstin, director of EBRI’s Health and Research and Education Program and co-author of the report, in a statement.

That’s because the study doesn’t factor in long-term care expenses and other health expenses not covered by Medicare; its calculations include projected premiums for a comprehensive Medigap plan that will no longer exist for new Medicare recipients starting in 2020, namely Plan F; and cutbacks are expected in the Medicare program as well as in private employment-based retiree health programs.

In addition to Plan F, EBRI’s calculation include premiums for Medicare Parts B (for physicians, ambulances and preventive services) and D (prescription drugs) and out-of-pocket spending for outpatient prescription drugs.

“Medicare was not designed to cover health care expenses in full,” according to the report, which notes that deductibles for inpatient and outpatient services were always part of the program.

In 2015, Medicare covered just 60% of the cost of health care services for beneficiaries 65 and older. Those beneficiaries had to foot the bills for out-of-pocket spending and private insurance, which accounted for 12% and 15%, respectively, of health care costs.

EBRI’s latest forecasts for retiree health care spending are markedly higher than its previous forecast of 2017. A couple wanting a 90% chance of having enough funds to cover their health care costs are projected to spend 8% more in 2018 than in 2017 whether their prescription drug costs are close to the median or are among the most expensive, in the 90th percentile.

(This analysis does not take into account a presidential proposal for Medicare to pay lower prescription drug prices, based on prices in other advanced industrial countries.)

The report concludes with a sober warning: “Issues surrounding retirement income security are certain to become an even greater challenge in the future, as policymakers begin to realistically address financial issues in the Medicare program with solutions that may shift more responsibility for health care costs to Medicare beneficiaries.”

Elizabeth Festa and Bernice Napach contributed to this report.