The Impact of Medicare’s IRMAA on Retirement

Medicare IRMAAPlanning to ever retire, if so, you may want to take notice of a federal rule that maybe missing in your  financial plan; Medicare’s Income Related Monthly Adjustment Amount (IRMAA), which happens to place surcharges on top of the current year’s Medicare Part B and D premiums.

Federal rules state that when you retire you must accept Medicare when eligible. Fortunately, if adequately insured, this program is fantastic, but it does come with a cost. Unfortunately, this cost is also based on the amount of income you generate in retirement through IRMAA.

When you retire the IRS will inform Medicare of how much income you are earning, if it is too much then you will be subject to surcharges placed on Medicare Part B and D premiums.

The IRMAA income brackets in 2020 are as follow:

 Individual MAGI Couples MAGI Part B Part D
< $87k < $174k $144.60 Premium (varies)
$87k – $109k $174k – $218k $202.40 (40%) Premium + $12.20
$109k – $136k $218k – $272k $289.20 (100%) Premium + $31.50
$136k – $163k $272k – $326k $376.00 (160%) Premium + $50.70
$163k – $500k $326k – $750k $462.70 (220%) Premium + $70.00
>$500k >$750k $491.60 (240%) Premium + $76.40

For those who reach and remain in each bracket through retirement the costs will mount up as Medicare premiums are inflating higher than what is being planned for. Medicare Part B premiums are expected to inflate by over 5.70% while Part D premiums are expected to inflate by over 5.75%.

To highlight the impact of Medicare’s IRMAA, below is a breakdown of a person who is 55 years old, retiring at age 67 and living until age 90 while remaining in each bracket through retirement:

Income Bracket Part B Part D* Total Added Surcharges
<$85k $167,444 $81,366 $248,810
$85k – $107k $243,375 $95,649 $339,024 $90,214
$107k – $133k $334,888 $118,245 $453,133 $204,323
$133k – $160k $435,401 $140,723 $576,124 $327,314
$160k – $500k $535,798 $163,318 $699,116 $450,306
> $500k $569,264 $170,811 $740,075 $491,265

The impact is not only higher health costs, as another federal law states these surcharges as well as the bulk of Medicare premiums are deducted directly from Social Security benefits.

For those who are married with a “stay at home spouse”, laws state that spouse will receive half of the “breadwinner’s” Social Security benefit, but rules also state that they will receive 100% of the Medicare IRMAA surcharges.

The result: due to the impact of Medicare’s IRMAA, for some, their Social Security benefit will be less than their Medicare premiums.

In retirement income is key, but the real goal should be structuring that income to avoid IRMAA.

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