We want you to plan for success. Welcome to Planning Matters Radio. Hi, Peter. Today, three reasons your Social Security check may be lower.
It's a new year and despite a significant increase in the cost of living adjustment for 2023, some people have been really surprised to see a lower Social Security payment this year. So we're breaking down three common reasons why. And the first reason here, Peter, is that you simply earned too much. Yeah. Hold on. Wait, what? I heard about this increase in Social Security and now I've got less.
What in the world is going on here? Not everybody. Most people did receive a raise and were pleased with that. But sometimes we saw a decrease despite the COLA record increase from last year. Why would that happen? Reason number one, you earned too much. Now, there's a couple different parts to this, but we hear a lot about means testing certain benefits.
Right? The evil rich are receiving too much and we need to make sure that they're means tested and they're paying their fair share. Well, these systems, Social Security and Medicare, both are actually already means tested. And in this one particular, we're talking about Social Security. There's two ways in which it's means tested. One is if you are younger than full retirement age, the government gives you the ability to claim and collect Social Security as young as 62 if you need it. But if you are capable and able bodied and out there working and earning an income and collecting Social Security, the government doesn't view that as needing it.
They view that as double dipping. And so if you earn too much and too much, the definition of that is fairly low. It does inflation adjusted this year.
Twenty one thousand two hundred and forty dollars. If you are below your full retirement age and earning more than that, they're going to reduce your Social Security one dollar for every two dollars you earn above that limit. In addition, Social Security can be taxable and the thresholds for that taxation are fairly low. And if you potentially earned more money, including the raise in your Social Security or a distribution from a retirement account, maybe an RMD. If you go over one of those thresholds, then your Social Security could potentially be taxed at a higher rate. And so those are two reasons why you may receive less based on your earnings. OK. And number two, for reasons why you changed your Medicare coverage. Right. And now we're kind of mingling the two benefits of retirement, Social Security and Medicare. A lot of people change plans.
Right. We've got that opportunity during open enrollment once a year to. To evaluate and to consider and potentially improve our plans. Well, a lot of times improved health coverage comes at a slightly higher expense, and that higher expense may surpass the increase that we saw in Social Security and those premiums are deducted right from our Social Security. So the net net effect, it might feel as though we received a reduction in Social Security if we changed our Medicare coverage. OK. And number three on our list, this is a Medicare premium surcharge known as Irma.
Yeah. Again, these benefits are means tested. In fact, that's what Irma stands for. Income related means assessment and adjustment. And it says that if you are earning a certain amount of income, the premiums for your Medicare Part B and Part D coverage can and will be increased. And, you know, the levels for that increase start at what I feel like is a pretty reasonable income for a married couple filing jointly all the way up at one hundred and ninety seven thousand dollars. You would be paying a total cost of around forty seven hundred dollars per year. But your total cost for Medicare, if you got into higher and higher income thresholds, could be as high as a little more than sixteen thousand.
So almost four times the amount for your Medicare coverage, depending on how much income you earn. So, again, the higher your income, the more you might pay and you may receive a reduction in the net Social Security as a result. Now, there are some caveats with Irma that that need some careful examination and planning, especially in the first couple of years of retirement or the years prior to retirement.
You need to carefully examine what your projected retirement or expected retirement income is going to be and then begin to plan carefully. There are some ways that you might be able to circumvent that Irma. OK, so, yeah, let's talk about that. How do you avoid that penalty? Well, withdrawals from already taxed accounts don't count as income, right? If I've got savings built up in a bank that I've already paid tax on and I take a withdrawal, that's not income.
It doesn't count against me. It's it's a withdrawal of money I've already claimed as income. Equally, Roth IRAs don't count as income to work against us in these equations with these benefits.
So if I've got and built up a savings that I've already paid tax on in a Roth IRA account and it's grown and and built over the years, and then I take a withdrawal, that's not going to impact my Social Security and my Medicare premiums. Cash value from life insurance so we can debate the pros cons and the value of cash value life insurance. There are some big believers in it and there are some reasons for that.
There are some people who are against it and there are reasons for that as well. But bottom line, if you've got cash value in life insurance and make a withdrawal loan provision from that cash value, it also does not count against you in these equations for these benefits. So there are three good ways and there are a couple more. So can you apply for an IRMA waiver? You can.
And this one I really like. This is where the government actually seems to understand that, you know, we're human and our situations change. Because Medicare is a system that we intend for the most part to be in retirement. And the income related means assessment looks back two years prior to to gauge your income to see whether it is applied or not. Well, if I'm working in my career and have this high income, that might not be my income once I retire. So the government's going to dig into your business. But if you feel like your income has dropped and you are unjustifiably being assessed with IRMA, then you can make an appeal. And there is some reason and logic here within the government. I don't get to say that often, but there is a way and there seems to be some reasonable understanding and compassion.
In fact, that people's situations change pretty dramatically, including their income when they retire. Right, of course. All right.
Well, Peter, this was helpful to talk through. And if somebody has questions about that waiver or trying to figure out which account to tap then in their retirement, what's the best way to reach you with questions? Yeah, give us a call. 919-300-5886 here at Rishon Planning. You can also email me Peter at Rishon planning dot com.
It looks like rich on planning dot com. And I like the way you mentioned that order of operations, which to tap first, because it's kind of like algebra. There is a order of operations in order to get the correct answer or the most optimal outcome with your retirement.
And there are definitely strategies to make sure that you are tapping it and putting those dollars in the correct order to to optimize things. Great. Yeah, that's good to know. All right, Peter, thank you very much for your time. Always a pleasure.
Thank you. This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional adviser. Any investment and or investment strategies mentioned involve risk, including the possible loss of principal advisory services offered through Brooks own capital management, a registered investment adviser. The judiciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission, which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2023-02-04 12:22:53 / 2023-02-04 12:26:32 / 4
