Medicare decisions are more than medical decisions, they are also financial decisions. Providing your clients this valuable insight will demonstrate your value and distinguish your practice in a crowded marketplace. What follows are a few examples that illustrate how Medicare decisions are also financial decisions affording you opportunities to provide guidance that may lead to a significant financial impact for your clients.
Planning for IRMAA
IRMMA stands for income related monthly adjustment amount. It acts as a monthly surcharge that is likely to apply to your more affluent clients and is determined by their modified adjusted gross income (MAGI) from two years prior. The existence of IRMAA surcharges provides you with many opportunities to help your clients:
The first, and most basic opportunity, is to simply educate and help your clients plan ahead for IRMAA surcharges. For example, note for them that the determination of the surcharge based on the two-year look-back period happens annually, so keeping MAGI down remains a yearly goal, starting when a client approaches age 63. IRMAA planning also provides for a separate opportunity to align with a client’s CPA to plan out their sources of retirement income, which could lead to other mutually beneficial referral relationships.
In planning ahead for IRMMAA surcharges, there are a few income sources included in MAGI of which to be aware:
- Roth Conversions – You may want to encourage clients to complete all contemplated Roth conversions in their early 60s, at least two years before Medicare eligibility.
- Social Security – Because Medicare enrollment age is 65, some clients will not yet be collecting Social Security benefits when they initially enroll in Medicare. Therefore, it is important to anticipate the bump in income when those benefits begin.
- Required Minimum Distributions (RMDs) – RMDs from qualified retirement plans and traditional IRAs must generally begin no later than April 1 of the year following the year in which your clients turn age 72. Therefore, it is important to anticipate the bump in income when those RMDs begin.
Accessing Sources of Income Not Included in MAGI
You are also able to provide value to your clients by helping them strategically withdraw retirement income in a way that does not increase their MAGI and thereby trigger or increase IRMAA surcharges. There are several income sources that do not increase MAGI of which to be aware:
- Life insurance – Clients with a whole life policy may be able to make withdrawals up to their basis and take loans against the cash value of their policy.
- Health Savings Accounts (HSAs) – Clients with money saved in an HSA can use those funds to pay for qualified medical expenses, which include premiums for Medicare Parts B and D, or a Medicare Advantage plan under Part C (though not for a supplemental Medigap policy).
- Roth IRA and Roth 401(k) distributions – In addition to not being taxable, Roth IRAs are not subject to the RMD rules that kick in at age 72.
- Nontaxable Social Security Income – The non-taxable portion of Social Security (never less than 15% of Social Security) is not included in MAGI for purposes of determining IRMAA surcharges.
Planning for What Medicare Does Not Cover
As explained in a separate blog in our Medicare series, Original Medicare does not cover everything. This presents another planning opportunity for you to help your clients analyze their monthly budgets to determine how to most cost-efficiently cover the additional premiums, deductible, copays, and/or coinsurance for non-Medicare covered services.
Possibly the most significant exclusion from Medicare coverage is long-term care (LTC). LTC includes the types of daily tasks that someone used to be able to do on their own, like bathing, dressing, eating, and using the toilet. You can help your clients create a plan for long-term care expenses. For example, you can explore stand-alone long-term care insurance, life insurance with a long-term care rider, or linked benefit long-term care insurance. If someone is uninsurable, other products such as an annuity may make sense.
Planning for healthcare in retirement is likely one of your clients’ top concerns. Medicare planning is a crucial component of that healthcare and consequently should be a critical part of any comprehensive retirement income plan. The Nationwide Retirement Institute® is committed to providing you with the insights, education, and planning resources you need to help your clients make informed, confident choices and help address their concerns within their retirement income plan.