When most of us reach age 65 we will need to enroll in Medicare. The cost for Medicare part A is prepaid for almost all of us, but Medicare part B premiums vary based on income. The calculation for this expense is based on “modified adjusted income” from two years before the benefit year.
What this means is that, if our income was greater than $85,000 single ($170,000 family,) we will pay more than the current base premium of $121.80. At the highest level ($214,000 single income, $428,000 family income) we will pay $389.80 per month. The same situation occurs for the Medicare part D premiums which range from $0 surcharge at the lowest level to an additional surcharge of $72.90 at the highest income level. And don’t forget, each charge is per insured!
So what can we do?
First, we can be careful of the income we receive once we are enrolled in Medicare part B. We pay attention to income on which we pay taxes, but we must also keep up with non-taxable income.
Second, we can start planning for this issue well before we are Medicare eligible by considering deferring compensation. There are many opportunities to postpone the receipt of income by using deferred compensation strategies. “Pay me some now, pay me the rest later” can help us position ourselves optimally to limit the surcharges we will face when we enroll in Medicare part B. Additionally, by postponing some of our income we may be able to ease ourselves into retirement more comfortably and put less stress on our retirement nest egg.
Third, depending how we defer this income, we can not only allow it to grow, but we can simultaneously begin accustoming ourselves to lower spending patterns. We all know that we will need more income later so here is a good reason to address this need earlier rather than later.
If a penny saved is a penny earned, then dollars postponed could be an opportunity to increase our financial comfort in later years. Unsure of how to do this? Give us a call at CDA Inc. and we will be happy to help.