planning for Medicare + Social Security

[pugmom]

Hello all,

I will be turning 65 this year, and will be starting on Medicare. I will be taking the UHC supplement, which DH has and which has worked out well.

We are currently living on about $75K per year, which has been mostly savings to avoid paying more for my health insurance. But this money is about to run out, and going forward we will be using IRA and 401K savings.

My SS will be about $2200/mo = $26400/yr. DH's will be even more.. last time I checked it will be about $3000/mo if he does not wait (he is going to be 66 in May).

I was looking at some other threads here about SS and how much will be taxable. It is confusing and we may need to get tax advice. But assuming of COL stays the same we would be making about $101400/yr with our current spending and my SS.

It already seems as though we need to prepare for not only our SS being taxed at the maximum, but all of our withdrawals. I should have added: we have no children and will doubtless have to take more money out in RMDs once we hit 72.

It really seems like we will be spending and being taxed MORE now than we were before.

So my only real question is: is my thinking about (very rough numbers) in the right ballpark? Remember DH's SS will add at least $36000/yr!

I am loathe to pay for tax advice because I am afraid it will be asset-based (%).

Lauren

 

[cathy63]

For a couple who are both 65 or older and married filing a joint return:

$26400 SS
+ $36000 SS
+ $13000 IRA withdrawal or pension
------------
= $75,400 spending money

Federal tax owed = $0 and you actually are not required to file a federal return with your income this low.

If your income increases to $101,400 because you're taking an extra $26K out of your IRAs, you'd have:

$26400 SS
+ $36000 SS
+ $39000 IRA withdrawal
----------------
= $101,400 spending money

Federal tax owed is $4501. In this scenario, $28,270 of your combined SS is counted towards your AGI. Your standard deduction is $26,450, so you're left with taxable income of $40,820.

Does this help?

 

[pb4uski]

Spend some time with https://www.irscalculators.com/tax-calculator

If you have $26,400 of SS and take $54k of IRA withdrawals then your federal income tax would be $5,342... leaving $75,058 left for spending. 85% of your SS will be taxed.

OTOH, if you have $62,400 of SS and take $12,600 of IRA withdrawals then your federal income tax would be $0... leaving $75,000 left for spending. 9.4% of your SS will taxed but the tax would be zero because it is offset by the standard deduction.

But that would be suboptimal... you could have $62,400 of SS and take $18,000 of IRA withdrawals then your federal income tax would still be $0... leaving $80,400 left for spending. 16.7% of your SS would be taxed but the tax would be zero because it is offset by the standard deduction.

However, depending on what your tax deferred assets are even doing the above and paying no tax might be suboptimal if your tax-deferred balances are so high that RMDs at age 72+ will increase your income so your SS will be taxed and you get pushed into a higher tax bracket, so depending on your situation you may be better off taking more out or converting withdrawals beyond your spending needs to a Roth IRA and paying some tax now to avoid paying more tax later. OTOH, if your tax-deferred balances are not high so your RMDs won't be high then don't fret about it.

IIRC first year RMDs are about 4% of your age 72 tIRA balance.

 

[Accidental Retiree]

They should also get the extra deduction for being 65 and older,
so according to that calculator, their deduction for MFJ would be $28.500.

 

[TheWizard]

This is a good case for modelling all the income streams in a spreadsheet, year by year, until both are 72+.

It's fairly simple if 85% of your SS is taxed, as mine is.
Goal of the spreadsheet is to determine amount of Roth conversion to do each year to approximately levelize your AGI from year to year.
A few percent increase in AGI year to year is the goal, not strictly level.

I don't actually try to project future income taxes in my spreadsheet, just my AGI.
But I keep an eye on tax brackets and especially on IRMAA thresholds...

 

[pugmom]

Thanks to all who replied. I know that, financially, we are in good shape, but it still seems like we need to understand this better. I will review your replies. Thank you!

 

[ERObjd]

still on tricare for 3 more years then have to go to medicare, as a retiree will have Tricare for Life which is a medicare supplement (free at least for now to retired military) Tricare for life is is supposed to pay what medicare wont cover.

 

[pugmom]

@pb4uski >>>>if your tax-deferred balances are so high that RMDs at age 72+ will increase your income so your SS will be taxed and you get pushed into a higher tax bracket, so depending on your situation you may be better off taking more out or converting withdrawals beyond your spending needs to a Roth IRA and paying some tax now to avoid paying more tax later.

Yes.

I took a look at the calculator link you provided, and it looks like the "big picture" I was looking for. I did not see that it mentioned ROTH anywhere. But if I did want to convert (say) $25K per year, as far as that calculator goes, it would just look like I withdrew that money from a tax-deferred account, correct?

IOW as long as we pay taxes on it, just as we would if we w/d it for use, there is no difference as far as our taxes...

 

[pb4uski]

^^^ You can see the impact by filling out the page at https://www.irscalculators.com/tax-calculator without any Roth conversions and noting the tax, then add $25k to the Unearned Income box and see how much the tax increases.

And yes, the current year tax impact of tIRA withdrawals is the same whether the money is used for spending or put into the Roth... in both cases the amount withdrawn or converted increases taxable income and the tax is no different.

ETA: above assumes that you have no basis in yout tIRA and all withdrawals are taxable, which is very common... in some situations only part of the withdrawal or conversion would be taxable if taxpayer had non-deductible contributions.

 

[pugmom]

One followup that is (I hope) tangentially related. For the last 5 years after DH retired, we have been living mostly on savings to keep our MAGI low for healthcare cost reasons, as many here doubtless have also.
By the time I reach 65 in September, we will have about $50K still left in non-taxable accounts. It seems like parceling that out over (say) 5 years to allow for (cushion the tax impact of) ROTH conversions each year might be a good strategy. It would not be much each year, but better than nothing.
FWIW we have about $120K in ROTHs already. Very early we made to much money to use them, and therefore arrived late, but I would be happy to put more into them.

 

[wdwwildbill]

Thanks for bring this up. Awesome info for me as well as I will turn 65 in September also !!

 

[RetiredAndLovingIt]

Here is an RMD calculator that might help as well.

https://www.aarp.org/work/retirement-planning/required-minimum-distribution-calculator.html

 

[Rianne]

Cost of Medicare

I searched "Medicare" for previous threads and did not see anything specific to my question. We've totally lucked out with ACA. Our medical out-of-pocket for a year averaged about $2500 for the last 5 years.

Both of us turn 65 this year. Here's what I've gathered. A broker called me yesterday and had all my information. I was like, huh?? Anyway, I let him walk me through the entire process and complexities of medicare. We're working with a local broker who we trust. I'm about 6 months out before Medicare and DH 9 months.

I've decided Medicare + Medigap part G. So, parts A & B run approx. $170. Part D is $7.
Then the G plan is @ $90. He said company rating matters. This price includes international. Dental is approx. $40.

Medicare cost:
$177 A, B, D
$90 G
$40 Dental = $307/month or $3684 a year for just me. $7368 for DH and me.

The benefit is we can go anywhere in the country. Mayo Clinic, Cleveland Clinic, anywhere they accept Medicare. We are tied to our local network under ACA. And there's some international coverage with Medigap.

Does this sound right to those who have Medigap? I'm guessing there are out-of-pocket costs but the broker said this eliminates the $1556 deductible for Part A. And something about $233 and 80/20.

I'm just trying to get my head around our expenses for next year when we start tIRA to Roth conversions. I understand our taxes will be lower b/c DH will stop his consulting which we pay for Medicare and SS as an independent contractor.

 

[finnski1]

I searched "Medicare" for previous threads and did not see anything specific to my question. We've totally lucked out with ACA. Our medical out-of-pocket for a year averaged about $2500 for the last 5 years.

Both of us turn 65 this year. Here's what I've gathered. A broker called me yesterday and had all my information. I was like, huh?? Anyway, I let him walk me through the entire process and complexities of medicare. We're working with a local broker who we trust. I'm about 6 months out before Medicare and DH 9 months.

I've decided Medicare + Medigap part G. So, parts A & B run approx. $170. Part D is $7.
Then the G plan is @ $90. He said company rating matters. This price includes international. Dental is approx. $40.

Medicare cost:
$177 A, B, D
$90 G
$40 Dental = $307/month or $3684 a year for just me. $7368 for DH and me.

The benefit is we can go anywhere in the country. Mayo Clinic, Cleveland Clinic, anywhere they accept Medicare. We are tied to our local network under ACA. And there's some international coverage with Medigap.

Does this sound right to those who have Medigap? I'm guessing there are out-of-pocket costs but the broker said this eliminates the $1556 deductible for Part A. And something about $233 and 80/20.

I'm just trying to get my head around our expenses for next year when we start tIRA to Roth conversions. I understand our taxes will be lower b/c DH will stop his consulting which we pay for Medicare and SS as an independent contractor.

Yes it sounds right to me. DW is on Medicare. I'm too young
We are in NH and she uses Plan G as well. Hers cost $136/month +$8 part D. We don't do the dental plan. Also you husbands could be slightly different as rates for Plan G are gender based as well. His will probably be a little higher.
Edit; Forgot to add.

The $233 is the deductible for part B. Once that is met for the year you would then be responsible for 20% of your cost with medicare paying the rest. However the reason you would get a medigap plan (Such s plan G) is to cover the 20% that Medicare does not cover. Thus the $90/month in your case covers the 20% that they don't pay. I think they call this the donut hole which is why you need (or should want) the Medigap coverage.
Medical bills can quickly add up and 20% of a large number is still large. We would never consider not purchasing a Medigap plan.

 

[pugmom]

Rianne,

DH took the UHC/AARP G plan starting in May of 2021. Since then he has had melanoma and an ACDF surgery and we have not paid one dime more than the part B deductible. So far.

We used Boomer Benefits and they make everything pretty easy.

I turn 65 in September and will do the same plan...

 

[target2019]

One followup that is (I hope) tangentially related. For the last 5 years after DH retired, we have been living mostly on savings to keep our MAGI low for healthcare cost reasons, as many here doubtless have also.
By the time I reach 65 in September, we will have about $50K still left in non-taxable accounts. It seems like parceling that out over (say) 5 years to allow for (cushion the tax impact of) ROTH conversions each year might be a good strategy. It would not be much each year, but better than nothing.
FWIW we have about $120K in ROTHs already. Very early we made to much money to use them, and therefore arrived late, but I would be happy to put more into them.

For just one year comparison, for most of your questions, install TurboTax 2021 desktop version. You did not mention who does your taxes, but I thought I'd mention the What-if Worksheet. With that you can duplicate all of your entries for this year as a scenario. Then it is pretty simple to add Roth conversion and make adjustments to other amounts for this year (2022).

To go further, you can make a 5- or 10-year projection of what you're seeing in the tax program.

 

[teej1985]

I searched "Medicare" for previous threads and did not see anything specific to my question. We've totally lucked out with ACA. Our medical out-of-pocket for a year averaged about $2500 for the last 5 years.

Both of us turn 65 this year. Here's what I've gathered. A broker called me yesterday and had all my information. I was like, huh?? Anyway, I let him walk me through the entire process and complexities of medicare. We're working with a local broker who we trust. I'm about 6 months out before Medicare and DH 9 months.

I've decided Medicare + Medigap part G. So, parts A & B run approx. $170. Part D is $7.
Then the G plan is @ $90. He said company rating matters. This price includes international. Dental is approx. $40.

Medicare cost:
$177 A, B, D
$90 G
$40 Dental = $307/month or $3684 a year for just me. $7368 for DH and me.

The benefit is we can go anywhere in the country. Mayo Clinic, Cleveland Clinic, anywhere they accept Medicare. We are tied to our local network under ACA. And there's some international coverage with Medigap.

Does this sound right to those who have Medigap? I'm guessing there are out-of-pocket costs but the broker said this eliminates the $1556 deductible for Part A. And something about $233 and 80/20.

I'm just trying to get my head around our expenses for next year when we start tIRA to Roth conversions. I understand our taxes will be lower b/c DH will stop his consulting which we pay for Medicare and SS as an independent contractor.

What is a "company rating" and why does it matter?