The rules of retirement have changed
There are 4 distinct federal regulations that have altered how financial plans will impact a person’s health coverage and their Social Security benefit in retirement. Ultimately, the rules of retirement have changed.
1. You have a mandatory expense in retirement.
Due to a regulatory change in the Program Operations Manual System of Social Security, in order for a retiree to receive their Social Security benefit they must also accept Medicare Part A when eligible or else forfeit all current, future and even past benefits.
Unfortunately, the other parts of Medicare, Parts B & D, come with late enrollment penalties that are perpetual and compounding. Once retired and no longer covered by employer’s health plan, a retiree must enroll or face late enrollment penalties.
The Affordable Care Act also mandates that every person must also have some form of “credible” health coverage or face the possible penalty of either a dollar amount or percentage of overall income.
2. Medicare is means tested.
The one mandatory expense that everyone must have is also the one expense that just happens to be determined by how much income you have in retirement. The more you earn the more you will pay.
Currently the surcharges that are added to Parts B & D start at $85,000 for individuals and $170,000 for couples.
3. Social Security benefits will be reduced.
Certain Medicare premiums along with any incurred surcharges will be automatically deducted from any Social Security benefit you may receive.
To see the impact of how health costs affect Social Security please see our post “The impact of health costs on Social Security” (we need the hits).
4. Income is practically everything that you saved for retirement.
Social Security defines income as everything on lines 7 and 2a of the IRS form 1040 or your adjusted gross income plus any tax exempt income you may have.
What is not income: specific Annuities, 401(h) plans, equity withdrawn from a primary residency (e.g. via Reverse Mortgage), Roth accounts, Health Savings Accounts (HSAs), and distributions from certain Life Insurance policies.
By applying traditional financial advice to how retirement has changed many retirees will see an increase in Medicare costs. The other result; their Social Security benefit will be drastically reduced.
The time to prepare for this now.