If you are a Medicare beneficiary who has your Part B premiums directly withheld from Social Security (SS), you are safe. Because if you are in this boat, you aren’t required to pay any premium increases at all next year since you legally have a safe haven. You are “held harmless” against increases since you can only experience increases in your Medicare Part B premiums up to the social security Cost of Living Adjustment (COLA), and there was no COLA adjustment this year! We’ve all heard that healthcare costs in retirement are high. We’ve also heard that part of our retirement planning should be to understand our potential costs and budget for them. This is nothing new. What is new is the potential increase in these (already expensive) costs next year.
This is greatly affecting people who are not collecting SS (and paying their Part B premiums directly to SS). Since Medicare is not able to just absorb all those projected increases in 2016 Part B expenses, by law Medicare must collect about 25 percent of Part B expenses from beneficiaries. Because it can’t collect any more dollars from the 70 percent of beneficiaries who are “held harmless,” it reaches the 25-percent ratio by collecting a lot more from people who aren’t held harmless. The trustees projected these people will have to pay much more in Part B premiums next year. Part B premiums are projected to go from $104.90 a month to $159.30 in 2016 – a 52% increase!
The people who will have to pay the higher premiums include new enrollees to Medicare in 2016, people with modified adjusted gross incomes (MAGI) above $85,000 ($170,000 on joint tax returns), and those who pay their Medicare premiums directly to Social Security (because they haven’t yet begun receiving Social Security benefits). People with low incomes who have their premiums paid by their state are also not held harmless, so state budgets would also take a hit next year. [Source: http://www.pbs.org/newshour/making-sense/medicare-heartburn-2016-projected-50-percent-jump-part-b-premiums/ ]
For example, let’s say you are married, and both spouses have decided to delay taking SS until age 70 to take advantage of SS’s delayed retirement credits of 8% per year. You would be subject to this Medicare Part B increase in 2016 since your premiums are not being withheld directly from your SS (since you elected to delay). The question is, over the long run, does it make more sense to continue to delay SS (and earn the delayed retirement credits) OR forgo this and claim SS now to shelter from this Medicare Part B increase?
Now it becomes a math equation. It is very important for individuals and families to understand their break-even age. Your break-even age is the age at which your cumulative lifetime benefits from the two strategies overlap. So if you’re break-even age is 83 that would mean as long as you live past age 83, your total lifetime benefits would be greater by delaying. After determining your break-even age, you can make the most educated decision possible.
As a final note, it is also important to mention that as a result of the Medicare Access and Children’s Health Insurance Program (CHIP) Reauthorization Act of 2015 (the “Doc Fix” law), Medicare premiums for high-income clients will soon increase up to 15 percent for 2018 (based on 2016 modified adjusted gross income). More cost increases, hooray!
Medicare and Social Security planning are not decisions that should be taken lightly as it could mean the difference between hundreds of thousands of dollars over your lifetime. As always, if you do not have the time, energy, interest, or knowledge about this subject matter and how Medicare and Social Security planning are weaved into the overall creation of your financial plan, please consult an objective and credible financial professional to assist you.
Let the Certified Financial Planner™ professionals at Williams Asset Management help with your wealth management needs. Whether you need comprehensive and holistic financial planning or investment management, we can help! We are fee-based, independent financial advisors located in Columbia, the heart of Howard County, Maryland. Schedule your complimentary consultation today by calling (410) 740-0220!
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