The rules of retirement have changed and what you don’t know will hurt you!
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.
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. Unfortunately, under proposals from the President, the House Ways and Means Committee and from the Bi-Partisan Policy Center, these brackets will have significant changes come 2016 or 2017. The income levels are expected to drop by as little as 11% for individuals and as much as 46% for couples.
For a quick determination on how much your health care may cost you in retirement please see www.yourretirementcosts.org for a free report.
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 37 and 8b 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What is not income: specific Annuities, 401(h) plans, equity withdrawn from a primary residency (e.g. via reverse mortgage), Roth accounts, health savings accounts (HSAs), and distributions from certain life insurance policies.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 February 2018, the ramifications of these changes may be felt throughout the financial industry. Millions of Baby Boomers may see their Social Security benefits decreased due to their healthcare costs, which may have been increased by their very own income. The required minimum distribution (RMD) will take on a whole new meaning in the near future. For many individuals and couples, RMDs may be responsible for the higher healthcare costs and, as a consequence, a reduced net Social Security benefit.
There are 76 million Baby Boomers heading towards retirement.
Some surveys indicate that less than 10% of Americans have ever factored the cost of their health into any plan, let alone retirement.
The consequences could prove significant, especially once the public realizes that this information is all public record and their financial advisors never informed them or helped them plan for this.