Michael: I have clients, a married couple where the wife receives $400 a month in Social Security benefits. Her husband has not yet claimed Social Security but will receive $3,900 a month when he claims at age 70. He has a severance package that will pay him $300,000 a year for four years after age 70. Will the wife lose all of her $400 monthly Social Security benefits due to increased Medicare premiums triggered by her husband’s severance package?
MBF: Once the husband claims his Social Security at 70, the wife should step up to a larger Social Security benefit based on up to half of his full retirement age benefit amount (not half of his larger amount at age 70). So she will have a bigger Social Security check to support higher Medicare premiums and surcharges that will be deducted directly from her monthly benefit.
Most retirees pay the standard Medicare Part B premium of $144.60 per month in 2020. But if your modified adjusted gross income is above a certain amount, you may pay a monthly high-income surcharge, officially known as an income-related monthly adjustment amount, or IRMAA. Medicare uses the income reported on your federal tax return from two years ago. MAGI consists of your adjusted gross income plus any tax-exempt interest.
Individuals with a MAGI of $87,000 or less in 2018, and married couples with a MAGI of $174,000 or less in 2018, pay the standard monthly Medicare Part B premium in 2020. People with incomes above those thresholds pay the standard Part B premium plus a high-income surcharge, ranging from $57.80 to $347 per month per person. Premiums and surcharges are per person so couples pay twice as much.
In 2020, a married couple with income between $376,000 and $750,000 would pay $462.70 per month per person for Medicare Part B, which pays for doctors’ fees and outpatient services. Their high income would also trigger surcharges on their Medicare Part D prescription drug plan and they would still need to buy a supplemental Medigap policy to cover the deductibles and co-payment that traditional Medicare does not cover.
If clients’ income subsequently declined, so would their Medicare premiums two years later.
Mary Beth Franklin, a certified financial planner, is a contributing editor for InvestmentNews.
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