Financial Advisor Magazine – Four Rule Changes To Keep In Mind When Planning For Retirement
With the baby boomers entering and eyeballing retirement, roughly 76 million people, planning for the third stage of their life appears to be the one subject that is gaining more ground than ever before.
The issue though, especially now that the federal government has enacted the fiduciary rule, is that for many people planning for retirement, they are missing four very distinct rule changes the federal government imposed decades ago that will impact not only their plans, their income, their Social Security benefits, but specifically their health.
The first rule, believe or not, is everyone has a mandatory expense in retirement:
Due to regulatory changes in both the Program Operations Manual System of Social Security and the Affordable Care Act (ACA), each person must have a form of creditable health insurance.
Under Social Security guidelines, any person who is receiving Social Security benefits must also accept Medicare Part A when eligible. If not, they will forfeit all current, future and even past benefits. The ACA imposes the law in retirement. In order to meet the regulatory requirement of creditable insurance, a person must also accept Medicare Part A or face fines. This is why your tax preparer will ask you, even if you are above 65, if you have health insurance.
In retirement, this means a person must accept Medicare Part A when eligible. Yes, this part of Medicare is premium free for those who qualify, but, unfortunately, the other parts of Medicare, Parts B and D, are not free. They also include late enrollment penalties that are perpetual and compounding.
This leads us to the next regulatory change that was enacted in 2003 under the Medicare Modernization Act. Medicare is means tested, or, in layman’s terms, it is based on income. The more income one has the more one will pay.
Under Medicare’s Income Retirement Monthly Amount Adjustment (IRMAA), a person’s tax returns will be reviewed by Medicare. The IRS supplies them with the data. If one’s tax filing information shows too much income in retirement, then a surcharge will be added to both Medicare Parts B and D premiums.
Thankfully, the brackets for income have been set fairly high, $85,000 for an individual and $170,000 for a couple. But please note, to help offset Medicare’s solvency, among other issues such as last year’s premium changes for some but not others, the brackets that determine who has too much income are subject to change in the next 2 to 5 years. Change, as in reduce, so more retirees are potentially affected.
For those reaching these income thresholds, the first penalty, as of 2016, starts at an extra 40 percent more in surcharges on top of the Medicare Part B premium, and extra $145.20 a year for Part D coverage.