Medicare Mistake #10: Costly Financial Moves when You Retire

In Medicare Mistake #9 we talked about how expensive it can be to go out-of-network in a Medicare Advantage plan and what you can do about it. Similarly, retiring can also be costly with Medicare. In this tenth and final edition of our Medicare Mistakes Series, we’ll address three things you need to know about Medicare in retirement.

Preparing to retire comes with all sorts of unexpected situations. Retiring is a huge life event that can easily make us feel lost or overwhelmed. In the mix of it all is this thing called Medicare, which is our lifeline to health care in our Golden Years. It’s easier than you might think to get hit with costly penalties and unexpected surcharges.

Step 1: Don’t Forget to Enroll in Medicare Part B

In Medicare Mistake #2 we pointed out the various penalties Medicare can impose on you if you do not enroll in certain parts of Medicare on time. If you are retiring from an employer with 20 or more employees and didn’t sign up for Medicare at age 65, you need to signup after you leave your job.

Medicare’s rules say that when your group health planA group health plan is a health plan offered by an employer or employee organization that provides health coverage to employees, their families, and retirees.... coverage ends you have the option to use COBRA to bridge the gap between your employer’s group coverage and Medicare. But, you’ll need to enroll in Medicare Part BMedicare Part B is medical coverage for people with Original Medicare. It covers doctor visits, specialists, lab tests and diagnostics, and durable medical equipment. Part A is for hospital inpatient care.... within eight months of the earliest of either the end of your employment or the end of your group health coverage.

In most cases, you are better off not waiting. As soon as you are enrolled in both Medicare Part AMedicare Part A is hospital inpatient coverage for people with Original Medicare, whereas Part B is medical coverage for doctor visits, tests, etc.... and Medicare Part B you can get Medicare supplement insuranceMedicare Supplements are additional insurance policies that Medicare beneficiaries can purchase to cover the gaps in their Original Medicare (Medicare Part A and Medicare Part B) health insurance coverage.... or join a Medicare Advantage planMedicare Advantage (MA), also known as Medicare Part C, are health plans from private insurance companies that are available to people eligible for Original Medicare (Medicare Part A and Medicare Part B)..... For most people retiring this year, Original MedicareOriginal Medicare is private fee-for-service health insurance for people on Medicare. It has two parts. Part A is hospital coverage. Part B is medical coverage.... and a Medicare Supplement Plan GIf you're turning age 65 this year, Medicare Supplement Plan G is the most comprehensive Medicare supplement you can buy. It's also the most popular. You might be thinking that Medicare Supplement Plan F is... offer the best major medical coverage possible.

Step 2: Contest the High-Income Surcharge

Most people pay the same amount for their Medicare premiumsA premium is an amount that an insurance policyholder must pay for coverage. Premiums are typically paid on a monthly basis. In the federal Medicare program, there are four different types of premiums. .... But did you know that people with higher incomes pay more?

IRMAA, or income-related monthly adjustment amount, is a federal government surcharge that high-income individuals and couples pay in addition to their monthly Medicare Part B and Part DMedicare Part D is Medicare's prescription drug plan program. Plans are offered by private insurance companies and cover outpatient prescriptions.... premiums.

For 2021, the standard Medicare Part B premium is $148.50 per month. However, for high-income earners, the premium can go as high as $504.90 per month. That’s a big hike.

The way the government determines how much you’ll pay for your Medicare Part B and D is by looking at your IRS return. They don’t look at current year earnings, they look back two calendar years. For instance, Social Security will use tax returns from 2020 to calculate IRMAA in 2022.

During our working years, many individuals and couples will easily go over the income threshold. As a result, the year we retire the Social Security Administration (SSA) will believe we’re over the limit, make an initial IRMAA determination, and send us a notice. The notice will explain:

• That IRMAA will apply,

• What information was used to compute IRMAA,

• What the beneficiaryA person who has health care insurance through the Medicare or Medicaid programs.... can do if the tax information provided by IRS is wrong,

• What the beneficiary can do if SSA used PY-3 information and the beneficiary has a copy of his filed PY-2 tax return,

• What the beneficiary can do if the tax filing status of “Married, Filing Separately” for the tax year was used and lived apart from his spouse for the entire year, and

• What the beneficiary can do if there was an LCE with a reduction in income.

Curiously, the notice does not contain information about the beneficiary’s right to appealAn appeal is an action you can take if you disagree with a coverage or payment decision made by Medicare, your Medicare Advantage plan, or your Medicare Part D plan.... but it does tell beneficiaries to contact SSA within 10 days if the beneficiary believes the information is incorrect. After the tenth day, SSA will apply IRMAA.

You can request SSA revisit its initial decision based on a life-changing event that caused an income decrease, or if the income information Social Security used to calculate your IRMAA is incorrect. Here are the life-changing events that Social Security will consider:

• The death of a spouse
• Marriage
• Divorce or annulment
• You or your spouse stopping work or reducing the number of hours you work
• Involuntary loss of income-producing property due to a natural disaster, disease, fraud, or other circumstances
• Loss of pension
• Receipt of a settlement payment from a current or former employer due to the employer’s closure or bankruptcy

You can request a new initial determination by submitting a Medicare IRMAA Life-Changing Event form. You can also schedule an appointment with your local Social Security office. Be prepared to provide documentation showing your correct income.

Step 3: Be Careful of Your Financial Moves

The year we retire it’s easy to explain and prove to Social Security that our income is not as high as their records show. But, after the first year, it’s more difficult.

Let’s say you want to roll over a traditional IRA to a Roth IRA so you can withdraw the money tax-free. These accounts offer big benefits, but the rules for Roth accounts are complex. One of those complexities is the tax event created when you roll over your account. In the year you shift the money, you must pay tax on the full amount shifted. That shift also plays into SSA’s IRMAA determination.

There’s a similar situation with tax-deferred retirement accounts. When you make a large withdrawal from a tax-deferred account, you’re taking income. The money wasn’t taxed going in, so it needs to be taxed coming out. These withdrawals can push you into higher IRMAA surcharges on both your Medicare Part B and Part D.

Concerned about how your income in retirement will impact what you pay for your Medicare? Call at 1-855-728-0510 (TTY 711) and speak with a licensed Medicare insurance agent.