Factoring Healthcare Costs Into Your Retirement Budget

Creating a realistic budget for your post-work life is a critical part of a successful retirement strategy. According to one commonly used rule of thumb, we’ll need to replace roughly 70% of our working income in retirement to maintain a similar lifestyle. That means a person making the median annual 2020 income of $67,521 would need $47,265 of income each year of their retirement.1

Another factor to keep in mind as you plan your retirement budget is your future healthcare expenses. We all know healthcare needs tend to increase as we age. So, it’s important to understand and budget for how much you may need to cover healthcare costs in your retirement.

No one can predict how much care they’ll need in the future. Everyone’s healthcare needs are different — and healthcare costs are always changing. But to give you a rough idea, one analysis by the Employee Benefits Research Institute found that, in order to have a 50% chance of having enough to cover premiums and median prescription drug expenses in retirement, a 65-year-old man would need $73,000 in savings and a 65-year-old woman would need $95,000 in savings. 2 Another study found that a 65- year-old couple that retired in 2021 can expect to spend $300,000 on healthcare and medical expenses throughout retirement.3

 When you think about your retirement budget, you probably focus on the things you want to do with the time you’ll have after a career of hard work. And you should. But it’s also important to keep in mind the other expenses you’ll face. Knowledge is power. And knowing healthcare costs may significantly impact your financial well-being in retirement can empower you to make better-informed decisions about your future.

1 Census.gov, “Income and Poverty in the United States: 2020,” 2021, census.gov/library/publications/2021/demo/p60-273.html.

2 EBRI.org, “A Bit of Good News During the Pandemic: Savings Medicare Beneficiaries Need for Health Expenses Decrease in 2020,” 2020, ebri.org/content/a-bit-of-good-news-during-the-pandemic-savings-medicarebeneficiaries-need-for-health-expenses-decrease-in-2020.

3 Investopedia.com, “How to Plan for Medical Expenses in Retirement,” 2021, investopedia.com/retirement/how-plan-medical-expenses-retirement/.

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Steps you can take now to make tax filing easier in 2022

A very important part of making your tax filing easier is to make sure you withheld enough tax. If you owed taxes or received a large refund last year, consider adjusting your withholding. Changing your withholding can help you avoid a tax bill or let you keep more money each payday. In addition, life changes – getting married or divorced, welcoming a child, or taking on a second job – may also mean changing withholding. To do this, you will need to submit an updated Form W-4. This may seem overwhelming or confusing, but it doesn’t need to be. Here are some frequently asked questions on the new Form W-4 their answers:

 

Where can I download or update Form W-4?

The form can be downloaded from the IRS website, or you can update your withholding certificate in Oracle; see the below steps:

  1. Employee Direct Access
  2. Salary Related
  3. Federal & State Tax Forms 

You must click the update tab on the bottom right of the page to make changes. Once you’ve completed the necessary steps, submit the form to update the system. 

 

Why was Form W-4 redesigned? 

The new design reduces the form’s complexity and increases the transparency and accuracy of the withholding system. While it uses the same underlying information as the old design, it replaces complicated worksheets with more straightforward questions that make accurate withholding easier for employees.

 

What happened to the withholding allowances? 

Allowances are no longer used for the redesigned Form W-4. This change is meant to increase the form’s transparency, simplicity, and accuracy. In the past, the value of a withholding allowance was tied to the personal exemption amount. Due to changes in law, you currently cannot claim personal exemptions or dependency exemptions.

 

My tax situation is simple. Should I still complete every step?

No. The form is divided into five steps. The only two steps required for all employees are Step 1, where you enter personal information like your name and filing status, and Step 5, where you sign the form. Complete Steps 2 – 4 only if they apply to you. Doing so will make your withholding more accurately match your liability.

 

What happens if I only fill out Step 1 and then sign the form? 

The system will compute your withholding based on your filing status’s standard deduction and tax rates, with no other adjustments.

 

I want a refund when I file my tax return. How should I complete the redesigned Form W-4?

The redesigned Form W-4 makes it easier for you to have your withholding match your tax liability. But if you prefer to have more tax than necessary withheld from each paycheck, you will get that money back as a refund when you file your tax return (keep in mind though you do not earn interest on the amount you overpay). The simplest way to increase your withholding is to enter in Step 4(c) the additional amount you would like your employer to withhold from each paycheck. 

In Oracle:

                    

**Note, even if you don’t have any income tax withheld from your wages, you may get a refund if you are eligible for tax credits such as the Earned Income Credit, the Additional Child Tax Credit, or American Opportunity Credit. **

 

Why do I need to account for multiple jobs (Step 2)? I have never done this before. 

Tax rates increase as income rises, and only one standard deduction can be claimed on each tax return, regardless of the number of jobs. Therefore, if you have more than one job at a time or are married filing jointly and both you and your spouse work, more money should usually be withheld from the combined pay for all the jobs than would be withheld if each job was considered by itself. As a result, you must adjust your withholding to avoid owing additional tax and potential penalties when you file your tax return. This has been true for many years; it did not change with the recent tax law changes. The old Form W-4 accounted for multiple jobs using detailed instructions and worksheets that many employees may have overlooked. Step 2 of the redesigned Form W-4 lists three different options to choose from to make the necessary withholding adjustments. Note that, to be accurate, you should furnish a new Form W-4 for all these jobs.

 

If you are still unsure of the proper amount for your withholding, use the Tax Withholding Estimator to help you determine the right amount of tax to have withheld from your paycheck. This tool on IRS.gov will help determine if you need to adjust your withholding and submit a new Form W-4.

https://www.irs.gov/individuals/tax-withholding-estimator

 

For questions or additional information, please visit the IRS website.

https://www.irs.gov/newsroom/faqs-on-the-2020-form-w-4 

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Use your retirement account to make life less “taxing”

Every spring, Americans engage in the annual ritual of preparing their income tax returns for the previous year. Over the course of a lifetime, the average American will pay $339,1731 in income taxes. So, as you prepare your own tax return, you might be interested in a way to potentially lower the amount you pay — one that’s completely legal and could increase your future retirement income.

 

The advantages of “tax-advantaged” saving

Your employer-sponsored retirement plan offers you a “tax-advantaged” way to save for the future. Here’s what that means. With the pretax contributions your account offers, the money you put into your account comes out of your paycheck before your taxes are calculated and deducted, which may lower the amount of income taxes you pay with each paycheck. Also, any earnings your investments generate are tax deferred. In other words, the amount you would have paid income taxes on each year and any generated earnings gets reinvested in your chosen investment options and may generate additional growth. The future withdrawals you will make in retirement are then subject to taxation. With Roth contributions, you pay taxes on the amount you initially contribute, but future eligible withdrawals aren’t taxed — and that includes any earnings your investments may have generated.

 

Keep in mind that the IRS limits2 how much you can contribute to your account each year. But by increasing your contribution amount to that limit, you can potentially increase your future retirement income and benefit from tax-advantaged saving.

 

Why not take action now to make future income tax filings a little less painful? Log in to your account today and consider raising your contribution amount.

 

1 USA Today, “IRS tax season 2021: How much will you pay in taxes over a lifetime?” usatoday.com/story/money/2021/04/01/irs-tax-season-2021-how-much-do-you-pay-taxes-over-lifetime/7016671002/.

2 IRS, “Retirement Topics – Contributions,” irs.gov/retirement-plans/plan-participant-employee/retirement-topics-contributions.

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Public Service Loan Forgiveness (PSLF) Waiver- A Way to Get Closer to Loan Forgiveness

Public Service Loan Forgiveness (PSLF) is a federal program that forgives student loan debt for borrowers who work for a government or a non-profit employer such as teachers, firefighters, nurses, members of the military, and other public service workers. As a Henrico County employee, it may include you.

In October 2021, the U.S. Department of Education announced temporary, transformational changes to get public service workers closer to loan forgiveness. These changes include:

  • For a limited time, you may receive credit for past periods of repayment on loans that would otherwise not qualify for PSLF.
  • If you have FFEL, Perkins, or other federal student loans, you’ll need to consolidate your loans into a Direct Consolidation Loan to qualify for PSLF both in general and under the waiver. Before consolidating, make sure to check to see if you work for a qualifying employer.
  • Past periods of repayment will now count regardless of whether you made a payment, made that payment on time, for the full amount due, on a qualifying repayment plan.
  • Periods of deferment or forbearance, and periods of default, continue to not qualify.

Therefore, if you did not previously qualify for the PSLF, you may not qualify with the new waiver guideline. You must work for your qualifying employer full time, which amounts to at least 30 hours per week. If you work part-time for two qualifying employers and your time averages at least 30 hours per week, you may still be eligible.  To receive these benefits, borrowers must submit a single application used to certify employment and evaluate a borrower for forgiveness by October 31, 2022.

Henrico County Department of Human Resources, encourages all present and future employees to utilize this benefit. If you are interested, please follow the link to complete the necessary form and our Human Resources Department/Administration Division, will verify and confirm Henrico County is a qualified employer.

More information is available from Federal Student Aid at StudentAid.gov/PSLFWaiver. The Department of Education will communicate directly with borrowers about these changes to PSLF; to help borrowers understand how they may benefit and any actions they may need to take. Borrowers should ensure they have accounts on StudentAid.gov and their contact information is updated.    

For more information, please use https://studentaid.gov to get assistance.

Please use these resources to learn more about Repayment Plans.

Finally, we hope this information will assist in obtaining loan forgiveness during your tenure with Henrico County!

 

Resources:

https://www.ed.gov/news/press-releases/fact-sheet-public-service-loan-forgiveness-pslf-program-overhaul

https://studentaid.gov/help-center/answers/article/what-is-considered-full-time-employment-for-pslf

https://www.forbes.com/sites/adamminsky/2021/11/18/student-loan-forgiveness-education-department-clarifies-rules-for-expanded-new-program/?sh=229cf0d19611

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Case Studies of Fraudulent Activity in Henrico County

The Department of Finance, in conjunction with Internal Audit, has released a new procedure for notifying supervisors, department agency heads and the appropriate County agency heads if any employee or department suspects fraudulent activity by a County employee. Henrico County is committed to personal accountability and to protecting the County’s assets, including materials, equipment, and money.

The procedure can be found on the Finance SharePoint site under Finance Policies.

The following are a few examples of previous fraudulent activity identify what this activity might look like:

Falsifying overtime hours:

A county employee had been working overtime for an approved project for several months. As a result, the employee began to use the overtime funds, not as extra pay, but to pay for bills and extra expenses. When the project was over, the employee needed the overtime funds to continue those payments and purchases. So, instead of reigning in expenses, the employee added extra hours as overtime thinking no one would notice and the supervisor approved the timecards.

When you submit a timecard, you affirm “Falsification of any record, report, or document, including timecards, is prohibited and will be handled in accordance with the appropriate law and/pr County policy. Personnel Policies and Procedures Sections 13.4 Standards of Conduct. Omission of entries is also considered falsification.”

Another employee noticed on social media, the employee posted they were out of town the day they posted hours for overtime. When the overtime hours were investigated, it was discovered the employee had been falsifying overtime hours. The employee had to pay back the overtime hours identified as fraudulent and was terminated.

Using equipment and stealing fuel for personal use:

A county employee needed to do yardwork and their mower was broken. Their job included mowing grass, so they had access to a County mower. They thought it would be no big deal to use the mower one time at home. No one would notice. In addition, they filled their County gas can with fuel to run the mower at home. It wasn’t long before that one time, became a habit. They brought the mower back every day, so it was not “stealing,” they were just “borrowing” it and would stop when they purchased a mower.

Another employee noticed they were putting the County mower and gas can in their personal truck. They reported it to their supervisor. The incident was investigated, and it was determined the employee had been using the mower and fuel for personal use. The employee had to pay for the gas that was stolen and was terminated.

Stealing money payable to the County:

An employee had become behind on their bills. They had access to County money. Lots of money flowed through every day and they really needed the money. No one would notice if they “borrowed” the money. They would pay it back when they got their finances straight. They knew the department was not really reconciling their deposits to their monthly statements. No one would notice if they “voided” a receipt. The supervisor was not reviewing the voids and did not notice the increased number of voids. It seemed so easy, it continued. They “needed” the money more than the County.

The supervisor noticed something was a little off. The deposits were less than they were in the past, but the work had not slowed. Upon further review, the number of voided transactions stood out and it was identified one employee had the most voids and had not had an issue in the past. Due to the amount of funds suspected of being stolen, it was reported to the Police, who also investigated. It was determined there was sufficient evidence to arrest the employee. The employee was arrested and had to go through the court system, in addition to losing their job.

We share this information because accountability is one of the County’s core values. If you see someone not being a good steward of County resources, please report it. Trust and integrity are essential values for all Henrico County employees. We have a responsibility to provide our citizens a government characterized by accountability and responsibility.

These case studies are based on a combination of real cases in Henrico County but the details have been fictionalized so they do not represent the exact circumstances, and identities can remain confidential.

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We All Play a Role in Fiscal Stewardship

The budget for the 2021 fiscal year (FY2021) that covers July 1, 2020 through June 30, 2021, was first introduced to the Board of Supervisors on March 10, 2020, just six days before the County’s first case of COVID-19. By all measures, the County was positioned to enjoy one of the best budget years in recent history; poised to implement several key initiatives and programs to further cement Henrico’s place as a leader in local government. As we have all come to know, the onset of a global pandemic had significant local impacts on both the health and economic fronts and swiftly changed that outlook. The Department of Finance immediately went to work to recast a budget based on updated revenue projections which anticipated a significant economic recession. Nearly $100 million was cut from that initial budget proposal when compared to the plan that was ultimately adopted by the Board in May.

Every avenue was explored to ensure that all County departments are still able to deliver core services that are needed by Henrico residents and businesses, to limit the financial burden placed on our community to support those programs, and to limit the impacts to our workforce. Some of the strategies included: a delay of cash-funded capital, across the board operating cuts, holding many positions vacant, and removing all new initiatives that were originally planned for FY2021.

Knowing that none of us have all the answers, two additional, non-traditional strategies were also deployed. We established a cross-functional employee workgroup to explore cost-cutting strategies and an email address (budgetfeedback@henrico.us – which remains open) to solicit feedback from the workforce and community. Both avenues proved fruitful. For example, it was an email from an employee that birthed the voluntary retirement incentive program that is anticipated to save more than $1.5 million.

The County’s fiscal plans for this year are ultraconservative and meant to prepare the County in case the pandemic continues throughout the fiscal year. As part of that, appropriations (money that has been made available to departments to spend) are being done on a quarterly – instead of annual – basis. That practice gives the Board of Supervisors, the County Manager, and Department of Finance time to evaluate data in real time and adjust spending/financial plans as needed.

The County has seen some local revenues continue to perform stronger than anticipated. It is still too early to make any longer-term financial decisions based on what we have experienced to date. Our most recent reports show meals taxes for May down 26.5%, occupancy taxes for May down 63%, and sales taxes for April down 9.8%. Our unemployment figures continue to hover far above anything recorded in modern history.

Our team continues to monitor the local economy and has not wavered in the spending freeze, ensuring that we are only making essential purchases, for now. The important thing to remember is that these steps are meant to protect us from what we may not see coming in the future.

What does this all mean for you? We all play a role in fiscal stewardship. Employees like you, who are delivering the front-line services to our residents, see things from a unique perspective. Many of you have ideas about how we could do things better, differently, more efficiently, and more cost effectively. Now, more than ever, is the time to bring those forward. Please email budgetfeedback@henrico.us or call me anytime (804-501-4805). Every dollar we save today is one we can invest tomorrow.

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