Did You Know You Have A Mandatory Government Expense In Retirement?

By Theresa J. Yarosh,

Board member CGSF 

The first in a series of three articles.

When asked what I do for a living the response I give is that I help people plan for their only government mandatory expense in retirement. 

This is followed up by me with the question of “has anyone discussed this with you?”

The harsh reality is that most people do not realize they have a federally mandated expense in retirement which happens to be Medicare.

In fact, according to SunLife, in its Flying Blind Survey, not only do many people not realize that they have a mandatory expense in retirement, but that less than 10% of those polled have even planned for health costs in any financial plan.

According to federal regulations, anyone who wishes to receive their Social Security benefit must also accept Medicare when eligible. Eligibility is defined as the time when a person is 65 years-old or older and is no longer covered by creditable health insurance through an employer or spouse’s employer.

Failure to accept Medicare at this time will result in an immediate forfeiture of all current, future and even any already accepted Social Security benefits.

This, unfortunately, is not the only regulation that the federal government has implemented when it comes to health costs in retirement as there are three other regulations that you should be aware of.

On top of Medicare being mandatory to receive your Social Security benefit, this exact same expense is also means tested as well.

With the passing of the Medicare Modernization Act of 2003 and the Affordable Care Act of 2010, Medicare was authorized to create its Income Related Monthly Adjustment Amount (IRMAA) brackets.

Ultimately, if you happened to earn too much income in any given year then Medicare will assess a surcharge on top of your current Medicare Part B and Part D premium through IRMAA.

Income is defined as your “adjusted gross income plus any tax-exempt interest you have or everything on lines 37 and 8b of the IRS Form 1040.”

Some examples of income are: Wages, Social Security benefits, capital gains, all dividends and interest (including tax-exempt interest and dividends), and withdrawals from any qualified tax-deferred investment (i.e. a traditional 401(k) or IRA).

The final federal regulation that is not being discussed is the bulk of your Medicare premiums are deducted automatically from any Social Security benefit you will receive.

By law, any Part B premium, possible late fee and any surcharges due to Medicare’s IRMAA will be taken directly from your Social Security benefit.

Therefore, we are starting to see the emergence of a new understanding of retirement planning because the rules are changing due to Medicare. They will affect many of those who are not only in retirement but are also heading towards it.

It is important that we start with a basic overview of what these expenses for those who are aging into Medicare will potentially be. The source for this information is Medicare.gov.  

It should be noted that these are based on national averages and does not reflect a Medicare beneficiary’s state specific carriers for a Medicare Supplemental Insurance Plan and a Part D Prescription Drug Plan premium as well as associated out of pocket costs. In addition, the Part B amount of $134.00 per month is based on the 2018 income levels of $85,000 or less for a single individual and $170,000 or less for a married couple. It should be noted that Medicare is means tested and this means testing is determined by something called the Income Related Adjusted Amounts (IRMAA). Below are the 2018 IRMAA Brackets and their associated means tested amounts.  

When an individual ages into Medicare the 1040 Federal Income Tax return from two years prior is used to determine the IRMAA Bracket and the associated means tested amount or surcharge. Therefore, an individual currently aging into Medicare in 2018 will have the income used from their 2016 Federal Income Tax return to determine their Medicare costs. This income is determined by line 37 and line 8b of your 1040. In addition, we need to understand what is considered income as it pertains to this calculation as is reflected on line 37 plus 8b of the 1040. Below is an overview of what is income. 

It should be noted that if an individual has not yet started taking their Social Security, Medicare will bill them quarterly for their Medicare premiums. Once a Medicare beneficiary begins collecting Social Security the Part B premiums as well as the associated surcharge amounts for Part B and Part D will be deducted from their Social Security check. 

In addition, it is important to understand the impact that increasing Medicare premiums because of inflation will have on an individual’s Social Security check. According to the Social Security Board of Trustees Report, the cost of living adjustment (COLA) for Social Security will be 2.6% for the “foreseeable future.” In 2017 the Cost of Living Adjustment was 2.0% and in 2016 the Cost of Living Adjustment was 0% (Hold Harmless Act). The Hold Harmless Act of 1984 stipulates that no retiree who is enrolled in Medicare and Social Security can see their Social Security benefit decreased due to Medicare increases. This was updated in 2009, making the Hold Harmless Provision only for those who are under Medicare’s IRMAA limits. Those who are subject to means testing (IRMAA) are not protected under the Hold Harmless Provision. According to the 2015 Medicare Board of Trustees Report, the average inflation rate of Medicare is 7.73% and the projected rate of inflation for 2019 through 2026 is 5.89%. For those who are not protected under the Hold Harmless Act will continue to see their Social Security checks decrease as Medicare costs continue to increase. Therefore, it is imperative that higher income individuals and couples explore planning options which will reduce the impact of Medicare costs over-time by utilizing financial strategies that do not trigger Medicare means testing. Below is a list of items which are not considered income for the purposes of Medicare means testing. 

Based on the current projected inflation rate of Medicare, a 50-year-old couple, retiring at age 66, the projected costs, with the inflation rate remaining constant through age 85, would be expected to pay the following based on the current IRMAA Brackets. 

In addition, the Medicare Board of Trustees has added additional income brackets for the year 2026 and beyond. Also, starting in 2028 the associated Medicare Part B and related Part D surcharge amounts will be adjusted to the CPI-U (Consumer AAPrice Index for all Urban Consumers) each year. Once an individual is enrolled in Medicare their cost is determined by the tax return filed two years prior. Therefore, it is important to understand how these costs impact your ongoing Social Security check and the associated purchasing power of that check. Below is the proposed IRMAA Brackets for 2026.  

According to the AARP, almost four in ten workers age 50 and over (38%) are not saving for healthcare costs and many (44%) do not have any plans to do so in the future. It is imperative that individuals and couples consult with a financial professional who understands and specializes in the regulations of health care costs in retirement. For those who are younger than 65 and are beginning the planning process for their future retirement it is critical to review strategies which will reduce the overall impact of these costs in their retirement. In a more broader sense, action must be taken to protect every U.S. citizen as the nation’s economic health in the future depends on it.

Theresa J. Yarosh, CFP®, CLU®, ChFC® has over 20 years of experience in the financial services industry and she specializes in the impact of healthcare costs on retirement plans. She is the founder and president of Macro Wealth Management, LLC as well as the founder and president of Main Street Medigap, LLC. 

Main Street Medigap, LLC offers Medicare Supplemental Insurance plans and Part D Prescription Plans to consumers. In addition, Theresa advises Attorneys, Banks, CPAs and other Financial Advisors as it pertains to Medicare and the impact of those costs on retirement plans. She can be reached at tyarosh@macrowealthmanagement.com or theresa@mainstreetmedigap.com.

Must read re: 2016 presidential campaign

This wonderful piece of writing was recommended to us by poet & author Alice Walker.  We consider it to be the most insightful bit of punditry we came across the whole year.  Written by Professor Richard Behan (Ph.D, UC Berkeley), it was published just before the June primaries, but with the national party conventions underway, we'd like to share it with you now.

The Chaos of a Hillary Clinton Presidency: Corporate Dominion and Open Rebellion

I hold it that a little rebellion now and then is a

good thing, and as necessary in the political world

as storms in the physical……It is a medicine necessary

for the sound health of government. 

—Thomas Jefferson, in a letter to James Madison, January 30, 1787       

If Hillary Clinton occupies the White House her presidency will be unpleasant for her and chaotic for the country. Ms. Clinton will encounter a nationwide rebellion she cannot comprehend and hence will not address.

The rebellion is already underway, and it will continue. It is not a violent, man-the-barricades revolution, but a visible one in which millions of voters in both parties are openly rejecting conventional candidates. They are seeking a radical transformation of American governance.

Ms. Clinton will take office because she gamed the nomination process brilliantly, but she was victimized by classic tragedy. In the most bizarre political season in memory, she was the right person in the right place at the wrong time.

Since Franklin D. Roosevelt’s day only Bill and Hillary Clinton have completed three presidential campaigns, so Ms. Clinton was armed for the fourth with unique experience and savvy: she knew precisely what had to be done, how to do it, and when. She amassed a war chest of hundreds of millions long before anyone else. She recruited 400 superdelegates even before she had opponents. She set up campaign offices in the states with early primaries. And by happy accident or clever arrangement the co-chair of her 2008 presidential campaign, Ms. Wasserman-Schultz, was put in charge of the Democratic National Committee.

When you know a system as well as Ms. Clinton does you know how to game it: she effectively preempted the candidate-space. Of the early prospective candidates, only Governor O’Malley and Senator Sanders moved on into the primaries; she out-polled both of them by monstrous margins.

Ms. Clinton then undertook an orthodox campaign of inoffensive platitudes, defining the issues with customary clichés, and proposing vacuous solutions: doing more for this cause, making improvements in that one, assuring everyone’s access to the American Dream, I’ve been working all my life to benefit the downtrodden, and let’s build on President Obama’s successes.

Her campaign was exquisitely choreographed, but it was a campaign-by-formula, unimaginative and conventional.

Ms. Clinton was in the right place, however. Her two opponents were so far behind they were scarcely visible.

But the moment in time was not hers. By adopting the Obama template for governing, she through-bolted her campaign to the status quo—while a rebellion was stirring among the American people. And if Jefferson’s dictum was correct the rebellion ought to continue, as...a medicine necessary for the sound health of government.

The rebellion would blossom, as Ms. Clinton soon discovered.

The template for governing she adopted is the modus operandi of the “New Democratic Party” that Bill Clinton and she helped construct in the early 1990’s, and Barack Obama nurtured. It masquerades as the champion still of working class America, but it is in fact a centrist, even neoliberal party, awash with corporate campaign contributions, and driven by corporate interests. Rigorous scholarly research documents this, as does a voluminous popular literature.

Ms. Clinton failed to see the nascent political rebellion because she was not tuned to the deeply felt anxieties of nearly every family in the nation—i.e., all but the “One Percenters.” Comfortably within that stratum herself, she was turned instead only to the mechanics of winning the presidency.

Prominent among working families’ anxieties is the loss of wealth and incomes occasioned by the financial crash of 2008 and the off-shoring of 30 million well-paid manufacturing jobs. These events were driven by policies of the Bill Clinton Administration, granting corporate interests priority over the common good, and the Obama Administration expanded on them. The “New Democratic Party” betrayed and abandoned the working families of the nation.

This was not lost on Senator Bernie Sanders, and something similar was soon made apparent to Donald Trump.

No one will accuse Senator Sanders or Mr. Trump of running conventional campaigns. In his very first speech Mr. Sanders acknowledged and Mr. Trump soon discovered the simmering rebellion Ms. Clinton ignored. Tens of thousands of cheering citizens attended Mr. Sanders’ rallies, applauding his call for political revolution. Mr. Trump, in his startling destruction of sixteen opponents, discovered the political patience of Republican voters was exhausted as well. The nascent rebellion burst into the open: huge blocks of voters consciously rejected their respective “establishment” parties.

Mr. Sanders’ vision has far greater clarity and his proposals are far more detailed than Mr. Trump’s. Advocating quantum changes in healthcare, higher education, trade, energy, infrastructure, and taxation policies, he seeks to recapture American democracy, to “make government work for all of us, not just the corporations and the billionaires.” His rebel partisans—nearly half the Democratic Party—display a degree of enthusiasm not seen in years.

Mr. Trump’s mind is not so disciplined as Mr. Sanders’. Linguists say it works in the wild and simplistic ways of a fourth-grader’s, but he intuits the damage done to the domestic economy by the corporate export of American jobs. The idiots in Washington don’t know how to do trade deals. They’re idiots. I know how to do deals. Hell, I wrote a book about it. I know how to do deals.

His intuition is also accurate respecting the Affordable Care Act: it is a triumph of corporate profiteering at public expense.

The reason so many more people have health coverage today is easily grasped. They were forced by law to buy it. Absent the “public option” President Obama quickly surrendered, however, there is no constraint on costs. The insurance, hospital, and pharmaceutical corporations charge anything they please, so the costs to consumers—and corporate profits—are astronomical and rising. Obamacare is a money machine. In Mr. Trump’s vernacular, it is an incredible deal for the health corporations, an incredible deal. But it’s a disaster for the American people. It’s a disaster.

In contrast to Mr. Sanders’ specific prescriptions, Mr. Trump suggests a profoundly generic remedy: Make America Great Again.

For millions of voters this holds great intuitive appeal. We used to be great: America was first in life-expectancy, first in infant survival, first in education, first in health care, first in technology, first in equitable income and wealth distribution, first in home ownership, first in industrial productivity, first in innovation, first in per capita income and wealth, first in reserves of foreign exchange, first in exports, and so on and on. But we don’t win any more.

Mr. Trump’s rebel partisans—more than half of the Republican Party—yield nothing to Mr. Sanders’ in enthusiasm.

A Hillary Clinton presidency, then, would face a national majority of citizens in open rebellion.   Either intuitively or consciously they are incensed with the dominance of corporate political power. This is the template of governance Ms. Clinton helped create, the one in which she is historically and demonstrably comfortable, and the one which finances her campaigns for elected office. Wed to those donors, and locked into this mindset of the New Democratic Party, her presidency could not and would not alter significantly the status quo. Proudly she claims as much: “Let’s not start from scratch,” she says. Corporate dominance would remain unchallenged, the rebellion ignored.

Rebellion scorned will escalate; first to spirited demonstrations we have already seen, conceivably to violence. Only substantive reform can accommodate it.

Reform is neither difficult nor unprecedented. Our history displays a number of means of subordinating corporate interests to the welfare of the American people. More than a century ago—in the “Gilded Age”—the nation faced a similar crisis and dealt with it successfully. And a century before that, effective mechanisms were in place to restrain corporate dominion, even though the threat of it was already visible.

This is what Thomas Jefferson said about the issue: 

“I hope we shall crush… in its birth the aristocracy of our moneyed corporations,    which dare already to challenge our government to a trial of strength and bid defiance to the laws of our country.”

Note Jefferson’s concern was merely prospective, wary of potential. Corporate enterprise was not yet dominant, only pushing to be. At the time, corporations were very strongly circumscribed, to assure their subservience to public well-being. Perhaps Jefferson feared they would escape the control mechanisms early corporations faced:

- they were chartered for a limited period of time, typically twenty years

- they were chartered for a single specific purpose, say to construct a toll road

- the charter could be revoked if the corporation’s behavior violated public interests

- stockholders, directors, and officers of the corporation were personally responsible for the corporation’s obligations or transgressions

- a corporation could not buy or otherwise merge with another corporation

Mr. Jefferson’s fears were realized.

As the 1800’s progressed corporations in America—particularly the great railroads—fought vigorously and successfully to have these constraints relaxed, and all of them were. The corporate structure escaped any meaningful public control.

Eventually, corporations could grow without limit by absorbing others; they could live in perpetuity; they could undertake multiple tasks and change them at will. Personal liability was limited to a pittance, and charter revocation virtually disappeared. Then, in 1866, corporations as artificial persons became legal persons: the Supreme Court case Santa Clara County v. Southern Pacific Railroad extended the rights of U.S. citizenship to corporate entities. They were granted equal protection under the law, their rights protected by the U.S. Constitution. (The grant of legal personhood, Thom Hartmann discovered, was technically illegal, but it has endured. See his book, Unequal Protection.)

By the end of the century, unrestrained corporate enterprise rampaged through the economy—exploiting labor, polluting the environment, concentrating wealth—and dominated the political system. Corporations had learned the art of disguised bribery: financing political campaigns to ensure the passage (or repeal) of legislation in their interests. It was a vivid preview of the conditions we face today.

But their appalling behavior eventually became too egregious to sustain even with graft. A great wave of reformist and anti-trust legislation was enacted. Finally in 1906 Theodore Roosevelt submitted to Congress the Corporate Donations Abolition Act, prohibiting the practice. He signed it into law on January 26, 1907, and that was the end of corporate money flowing to elected officials.

Theodore Roosevelt undertook a revolution, to reclaim American democracy. Perhaps we need a Roosevelt surrogate today.

The Federal Corrupt Practices Act of 1910 superseded and greatly strengthened the abolition law. It specified a further and brilliant means of assuring the independence of elected officials: it put stringent limits on campaign expenditures. If you can’t spend much, there is no need to solicit much, even from individual donors.

History displays, then, determined efforts to foreclose corporate dominance.   But history also shows a failure of political resolve in the late 20th century, because American corporations escaped public oversight and control once more. The Federal Election Campaign Act of 1971 repealed the Federal Corrupt Practices Act and legalized political action committees or PACs. A convoluted trickle of corporate campaign contributions flowed once more. Then two Supreme Court cases opened the floodgates. First Buckley v. Valeo in 1976 and then Citizens United v. FEC in 2010 gave birth to the Super PAC: contributing money, the Supreme Court decided, is a form of free speech.

No longer prohibited but encouraged to seek political dominance, corporations have lots of money with which to speak freely. There are laws they want passed, and others they want repealed, like the Glass-Steagall Act. That law was a firewall protecting the public interest from high-flying finance, but eleven Wall Street banks hated it. Those eleven banks speak with loud voices, having contributed $83,720,000 over the years to the Clintons’ presidential and senatorial campaigns.

Glass-Steagall was repealed during Bill Clinton’s Administration. Doing so was a direct cause of the subprime-mortgage crisis and the economic collapse of 2008. The banks were bailed out with taxpayers’ money and continue to prosper. The American people continue to suffer.

This is now the template. Corporate interests thrive—exploiting labor, polluting the environment, concentrating wealth, and dominating the political system. But the interests of the nation at large languish, and this will not change until governance is returned to democratic processes. Overturning Citizens United and reinstating The Federal Corrupt Practices Act would be an excellent beginning. Overturning Santa Clara County, to rescind corporate personhood, would be an epochal finale.

None of this will ever appear on the radar screen of a Hillary Clinton presidency.

She is indeed a victim of historic tragedy. Even supposing her intentions were worthy, she gamed the nominating process with a first-and-most strategy. But history intervened when the American people clamored for a radical reclamation of democratic governance, something she did not see, does not comprehend, and cannot possibly deliver. The sheer momentum of her campaign has carried her to the edge of success, but her nomination is by no means inevitable. Many states have yet to vote and the Democratic convention promises to be unruly. There is a good chance she will fail. For the good of the nation she must.

We don’t need a Hillary Clinton. This election must be pivotal. We need a Theodore Roosevelt surrogate.