Medicare’s Income Related Monthly Adjustment Amount
The Social Security and Medicare systems are becoming a convoluted disaster that are on track to completely destroy Baby Boomers’ retirements.
What is IRMAA
IRMAA is a surcharge on top of your Medicare Part B and Part D premiums for having too much income.
How do you pay for it?
The 4 Rules of Retirement
There are 4 distinct federal regulations or rules that have altered how financial plans will impact both your Social Security as well as your health coverage in retirement that you may not be aware of.
You have a mandatory expense in retirement
Under federal regulations to receive your Social Security benefit you must also accept Medicare Part A when eligible. Failure to do so results in the forfeiture of all Social Security benefits.
Eligibility for Medicare is age 65 or older and no longer have creditable health coverage through an employer or spouse’s employer.
Medicare also includes other types of coverage, Part B and Part D. These two types of coverage do have premiums as well as late enrollment penalties for those who do not enroll when eligible.
Your mandatory expense in retirement is based on your income.
The one thing you must have in retirement, Medicare, just happens to, also, be based on your income.
Within Medicare there is the Income Related Monthly Adjustment Amount or IRMAA. This, simply, is a surcharge added to Medicare Part B and Part D premiums for those who earn too much income while enrolled in Medicare.
The definition of income for IRMAA is extremely broad.
Medicare defines income for IRMAA as “adjusted gross income plus tax-exempt interest”.
Some examples of income that will be used towards IRMAA are:
Social Security, Wages, Tips, Interest, Rental Income, Pension Income, Capital Gains, Dividends and distributions from tax-deferred investment like Traditional 401(k)’s and Traditional IRA’s.
What does not count as income towards IRMAA:
Roth Accounts, Life Insurance, Health Savings Accounts (HSA’s), 401(h) Plans and Home Equity.
The bulk of your Medicare premiums and any IRMAA surcharges are deducted from your Social Security benefit.
Federal regulations state that Medicare Part B premiums (optional Part D) as well as any surcharges due to Medicare’s IRMAA are automatically deducted from any Social Security benefit you may receive.
Medicare premiums, according to the Medicare Board of Trustees, are projected to inflate by over 6.20% annually for the next 8 years (pre-Covid). During this same time the Social Security Board of Trustees is projecting that the cost-of-living-adjustment (COLA) will be no higher than over 2.40% (pre-Covid).
The unpleasant message here is that if Medicare costs were not properly factored into a retirement plan, that retirement plan could very well be worthless.
Get Your Custom IRMAA Proposal!
Sit down with you and fill in some basic information. This information includes things like name, retirement income sources, and tax filing status.
The Medicare IRMAA Calculator software then takes that information and compares it against thousands of up-to-date data points. It selects all applicable data, runs its calculations, and returns an easy-to-read projection of your client’s retirement income and how it’ll be affected by Medicare premiums and IRMAA brackets.
From there you can effortlessly manipulate the scenario with the click of a button. You become the master as you create and view different outcomes by experimenting with variables such as alternative retirement vehicles and withdrawal amounts.