4 conversations that must take place with your financial advisor
4 conversations that must take place with your financial advisor!
In retirement income is the key. Without it the ability to maintain your life-style as well as fund the basic necessities is next to impossible.
Unfortunately, though, the rules have changed and not all income is the same in retirement.
When it comes to health coverage costs and Social Security benefits having too much income may not be the best option.
When talking with a financial advisor there are 4 must have conversations that have to take place.
- Health coverage is mandatory in retirement.
Federal rules state that in order to receive any Social Security benefit, a retiree must sign up for Medicare when eligible. Not doing so will automatically lead to a loss of all Social Security benefits.
- Health coverage is based on income.
Due to the Medicare Modernization Act of 2003 certain parts of Medicare, Parts B and D, are subject to income limitations through Medicare’s Income Related Monthly Adjustment Amount (IRMAA).
Those who earn too much income will incur a surcharge on top of Medicare Parts B and D. The surcharges start at 40 percent more of premiums and can be as great as 220 percent more.
- Income is practically everything in a financial plan.
Income is defined as “adjusted gross income plus any tax-exempt interest you may have or everything on line 37 and 8B of the IRS form 1040”.
Some examples are: Wages, Tips, Interest, Social Security benefits, Pension and Rental Income, most Capital Gains, all Dividends and any withdrawal from any qualified tax deferred retirement account.
- Social Security benefits pay for the bulk of these health coverage costs automatically.
Federal regulations state that Social Security benefits will pay for the bulk of Medicare premiums.
According to recent reports these health coverage costs, including Medicare Part D premiums, are expected to consume close to 30 to 60 percent of a person’s Social Security benefit.
Please note: Due to the inflation rates surrounding Medicare those that are earning the maximum amount of income may experience more than a 100 percent loss of Social Security benefits throughout retirement.
The solutions to these 4 points are quite simple:
- The time to calculate how much income you will be earning from any tax-deferred investment is now.
Determine which assets count as income before retirement. Any asset that generates too much income should have a portion of it converted to a Roth.
- Invest into an employer’s Roth 401(k).
Roth accounts generate an income which is Medicare IRMAA free. The downside is that there are taxes today. The upside is that the savings in health costs and in Social Security benefits will out-weigh those costs.
- Generate another form of guaranteed income. Yes, purchase and Annuity!
Due to Medicare premiums being automatically deducted from Social Security benefits the result is that Social Security benefits will, in fact, never really increase throughout retirement.
Generating another form of income is crucial. Using assets in a Roth account to purchase an Annuity is a great solution. This income will help off-set that loss of Social Security benefits and will also not count as income too.
According to Social Security, over 50 percent of all married retirees depending on Social Security benefits to be half of their income. Again, another form of guaranteed income has become critical in being able to maintain a lifestyle throughout retirement.
Having a conversation with a financial advisor is now a must!