I didn't know what IRMAA was two years ago. Astonishingly, 80% of advisors we encounter don't either. This lack of awareness can lead to consumers spending over $200,000 in retirement as a couple due to IRMAA. The individuals familiar with IRMAA are typically those aged 65 and older who are already paying the penalty.
What is IRMAA?
- IRMAA stands for Income-Related Monthly Adjustment Amount.
- It is an adjustment to your Medicare Part B and Part D premiums based on your income.
- IRMAA is often termed as a penalty, but technically, it's not a penalty; it's a surcharge based on your income.
Why Should You Care About IRMAA?
When planning for retirement, understanding IRMAA is crucial. It directly impacts the amount of money deducted from your Social Security checks once you turn 65. Here's why:
- Medicare premiums are means-tested. For example, the baseline premium might be $174, but depending on your income, it could be significantly higher.
- This surcharge is often deducted automatically from your Social Security, making it less noticeable but impacting your budget.
Planning to Mitigate IRMAA
Individuals between the ages of 55-65 should actively consider strategies to minimize their exposure to IRMAA. Some strategies include:
- Roth Conversions: Shifting traditional retirement funds to Roth IRAs can help lower your taxable income.
- Using Tax-Free Income Sources: Options like cash value life insurance policies can provide tax-free income in retirement.
Understanding the Income Brackets
| Income Bracket |
Medicare Part B Premium |
Status |
| Less than $206,000 |
$174 |
Married |
| $206,001 - $258,000 |
$244 |
Married |
| Over $258,000 |
Increased Amount |
Married |
| Less than $103,000 |
$174 |
Single |
Advisors, Take Note
- Include IRMAA calculations in your retirement planning software to provide a realistic financial outlook.
- Offer clients strategies to manage and mitigate potential IRMAA charges.
- Educate clients on income streams and how they can impact Medicare premiums.
In conclusion, having a strategic plan in place can mitigate or even avoid unnecessary IRMAA surcharges in retirement. Advisors need to be aware and educate themselves and their clients about IRMAA implications for better financial planning.