While you are looking at Obamacare, something else just happened to your retirement. Instead of trying to decipher what may happen to investors, the real problem is is what will happen to investors in the future due to legislation that has already been implemented well before Obamacare was even thought of.
There are 3 key pieces of legislation that have to be understood in order to properly plan for retirement:
First:“The Medicare Modernization Act of 2003”. This piece of legislation created Medicare Advantage Plans as well as Part D prescription drug coverage, but what even some our Congress seemed to miss is that it also paved the way for Medicare to be means tested through its Income Related Monthly Adjustment Amount (IRMAA).
- Why you need to know about it:Means testing simply means using your income to determine what you will pay for something. In retirement, your income is now going to be used against you when Medicare determines your premiums.
- The definition of income: “Your adjusted gross income PLUS your tax exempt or anything on lines 38 and 8b of the IRS form 1040”.
- How it will impact you:There are penalties for earning too much income and the penalties are:
- For Medicare Part B: an extra 40% to 220% of premiums.
- For Medicare Part D anywhere from an extra $11.29 a month to $66.60 a month.
- Some examples of income: Wages, Social Security, Pension Income, Rental Income, most Capital Gains, Dividends including Muni Bonds, withdrawals from Traditional IRA’s, (401(k)’s, 403(b)’s, Keoughs, SEPs and most Annuities.
- The problem:Medicare has been historically inflating at over 7% for the last 47 years and now there is a possible chance that you could be paying more not because of your health but because of the income your financial plan generates.
**Oh yeah, certain premiums along with any surcharge will be deducted automatically from your Social Security check, your only source of guaranteed income is not going to be what you thought it was.
Second: “Court case No. 11-5076” or “Brian Hall verse Kathy Sebelius”. Due to the 1993 Procedure Operational Manual for Social Security, in order to collect Social Security benefits you must also accept Medicare as well.
- Why you need to know about it:As you have just read, if you collect Social Security and you do not have credible health insurance through your employer or your spouse’s employer through employment you must accept Medicare and once you accept Medicare there are late enrollment penalties for Parts B & D that start too.
- How it will impact you:You now have a guaranteed expense in retirement which just happens to be determined by your own financial plan.
- The problem:Since Medicare is not free, is means tested (your income is used to determine how much you will pay) and is automatically deducted from your Social Security benefit there is a good possibility that your Social Security benefit will be consumed by this mandatory expense.
And with Medicare inflating at over 7.5% on average while Social Security is only expected to adjust annually, by no higher, than 2.8% there will be income problems for retirees later on in retirement.
Third: “The 2014 Presidential Budget”. The game plan on how the country will pay for itself in the upcoming year (please note that this legislation has not yet passed through Congress as of yet, but it is an indicator on where we may be headed)
- Why you need to know about it: For those that are in or plan on retiring, the Budget, unfortunately, calls for not only an increase in the means testing surcharges, but a decrease in the income limits that will remain constant until “25% of all Medicare beneficiaries” are impacted by this. The other bombshell, this Budget also, calls for a new 15% surcharge on low cost sharing MediGap plans.
- How this will affect you:Simply through a possible increase in your Medicare premiums if you happen to earn too much income or what to be properly insured in retirement when your health is on the line.
- The Problem: According to the Ways and Means Committee and the Bi-Partisan Policy Center, the current means testing surcharges could be increased by 50% while the current income brackets will be lowered by as much as 47%
It is understandable that attention should be focused on the Affordable Care Act, but please also realize that there is already legislation on the books that will impact your bottom line