The buzz in the financial industry is all about Social Security; there are seminars daily on the subject, software programs by the dozens that help people plan for it, and whole practices that are designing themselves around it to build a better retirement for you. However, what is the one little thing that every financial professional seems to forget?
Currently, the rules are mandated by the federal government through the Program Operations Manual System (POMS) of 1993, that in order to receive a Social Security benefit, a beneficiary must also accept Medicare when eligible.
The rule also states that certain Medicare premiums (including Part B and possibly Part D) and any surcharges imposed by Medicare must be automatically deducted from any Social Security benefit you receive as well.
The impact from these rules is simple; when you are trying to calculate your expected Social Security benefit you must realize that your expected Social Security benefit will most likely not be what you thought.
You are probably thinking so what? It’s only going to be a couple of dollars off which won’t break my bank in retirement.
Well… on the surface this may not seem like much of a big deal, as Medicare premiums are not that substantial today. However, once the projected and historic rates of inflation are factored in along with adding any possible surcharges from Medicare’s Income Related Monthly Adjustment Amount (IRMAA) you could quite possibly have a take-home Social Security benefit which has been decreased from as little as 15%, to as much as 125%… or more!!!
What we know from the Medicare Board of Trustees report is not only simple, it just happens to be the most important information your financial advisor refuses to share with you, which is:
- Medicare is inflating at over 7% annually and has been for the last 47 years.
- In 1966, Medicare Part B premiums were initially only $3.00 a month, today (almost 47 years later!) they are $104.90 a month.
- Medicare’s IRMAA surcharges are inflating at the exact same rate of inflation too.
Now factor in the information that we know from the Social Security Board of Trustees, which is:
In 2014 the expected “cost of living adjustment”, or COLA is only going to be 1.5% while the projections for the foreseeable future are only going to be as high as 2.4%.
Ultimately, the one expense that is automatically deducted from your Social Security benefit just happens to be increasing 3 times faster than your benefit…AND WHO IS HELPING YOU PLAN FOR THIS?????????
With the not-so-farfetched possibility of you reaching the IRMAA “surcharge” bracket, (where you will be deemed to be a person of “high net worth”), you could possibly see your Medicare premiums increased by another 40%, to a whopping 260%!
As you can imagine, this will also have a detrimental (but predictable) effect on your Social Security benefit.
The other curve ball, which is something your financial advisor is also neglecting to inform you about, is specifically, these surcharges that are pegged to your income and the sad fact that they are being debated in Congress.
And the debate is not to rid the country of them, but the polar opposite of that; Congress is currently discussing not only increasing the surcharges amounts by at 50% while also lowering the amount of income a person to earn in retirement by 11% for individuals and about 46% for couples.
So again, what does this mean for you?
Your one guaranteed source of income from the federal government (the Social Security benefit that you paid for, incidentally), could be lower and lower each year in the future. It’s not much of a stretch to envision the financial strain this will put on your otherwise carefully-crafted retirement plans.
The simple solutions:
1) Work with a financial professional that truly understands retirement.
Today, the average financial advisor and financial firm just plans for lowering taxes and increasing rates of returns on investments, but, when it comes to planning for your health there are usually crickets chirping instead of real advice.
We at Jester Financial Technologies know that’s not even close to retirement planning, since we know that not only is health care going to be your largest expense in retirement, it happens to be your only mandatory one as well and your health is too important to be ignored.
2) Manage distributions in retirement to keep your income lower than the current and projected surcharge brackets
Currently, these surcharge brackets start at $85,000 for an individual, and $170,000 for a couple. However, as stated previously, Congress is debating lowering these amounts to $60,000 for individuals and $90,000 for a couple, that’s an 11% decrease for individuals and 46% decrease for couples.
And the best way to manage your distributions?
Utilize forms of Medicare-free vehicles such as Roth IRA’s and Life Insurance.
3) Understand that you will also need another form of guaranteed income in retirement since your Social Security is under attack.
This need can be satisfied with a variety of annuity products, coincidentally, the federal government suggests this as well.
It’s time to face the facts – there is an adverse relationship between Medicare and your Social Security benefits and right now, not one financial firm or professional is willing to tell you the truth.