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6 Proven Retirement Income Planning Strategies Beginning at Age 62

This article was originally published in, and has been reprinted with permission from, Retirement Daily.

When you contemplate your life, you can usually pinpoint pivotal moments that changed the trajectory of who you are today. Often times, there are one or more magical moments that you will never forget.

In the retirement planning world, age 62 is that moment. Until then, you accumulate assets for some unspecified future date when you will transition from working full time to perhaps part time, and then, in most cases, fully retire. Your primary source of income, i.e., employment, will eventually come to a grinding halt.

Beginning at age 62, several things will begin to quickly unfold that will require you to change your retirement planning mindset from asset to income accumulation. You will need to figure out how to convert the assets that you worked hard to save into a predictable income stream beginning on a specified date, or within a range of dates, that will enable you to match your projected financial needs in retirement. Furthermore, you will need to develop various strategies for creating after-tax retirement income in order to optimize the longevity of your assets for the rest of your life. Needless to say, this is no small task.

This article provides an overview of six proven strategies that can be implemented beginning at age 62 that are at the core of the transition from retirement asset to retirement income planning. Strategies #4 and #5 should be considered before age 62 whenever possible and strategy #6 when applicable. Most important, all potential strategies should be evaluated as part of a holistic retirement income plan.

Strategy #1:  Defer Social Security Start Date

You can start your Social Security retirement benefits as early as age 62 or as late as age 70. Unless you’re no longer working and have no other sources of income or you have a life-threatening illness, it generally isn’t advisable to start receiving Social Security at age 62. This is due to the fact that benefits may be 30 percent less than what they would be at your full retirement age which is between 66 and 67 depending upon the year you were born.

Your Social Security benefits will increase by 8% per year plus cost-of-living adjustments for each year that you defer your start date between full retirement age and age 70. Social Security can be used to insure your, and, if married, your spouse’s longevity risk.

The decision regarding when to begin receiving Social Security retirement benefits should be carefully analyzed, especially if you’re married. In addition to locking in the amount of your benefit, you are also potentially establishing the amount of your spouse’s monthly payment in the event that you die first.

Strategy #2:  Gain Unrestricted Access to Home Equity

As discussed in my 5 Key Financial Metrics When Evaluating a HECM Reverse Mortgage article, housing wealth, although it represents about one half of an average household’s net worth, is often ignored as a retirement income planning tool. There are numerous strategies that can be used to provide readily available tax-free liquidity to pay for planned and unforeseen expenses throughout retirement by monetizing a portion of the equity in one’s home.

Several of the strategies can be used in conjunction with home equity conversion mortgages, or HECMs, the most popular reverse mortgage program. You can qualify for a HECM beginning at age 62. All homeowners age 62 or older with or without a mortgage should evaluate a potential HECM for its ability to provide unrestricted access to an increasing tax-free line of credit without the downsides of a home equity line of credit, or HELOC.

When implemented early and used strategically to unlock illiquid home equity, a HECM reverse mortgage can be used to increase after-tax cash flow at opportune times throughout retirement while providing peace of mind.

Strategy #3:  Reduce Medicare Part B and D Premiums

Medicare Part B and D premiums are determined using modified adjusted gross income (MAGI) from your federal income tax return two years prior to the current year. Assuming you enroll in Medicare when you become eligible at age 65, your MAGI from two years prior, or age 63, will determine your Medicare premiums at 65. 2021 Medicare Part B monthly premiums range from $148.50 to $504.90 per person depending upon tax filing status and 2019 MAGI

Medicare Part B and D premium planning should begin at age 62 when you’re one year away from having your income determine your premiums when you turn 65. You should incorporate the Medicare income brackets into your income tax projections every year for the rest of your life to determine the amount of your projected Medicare Part B and D monthly premiums. Using this information, you can develop strategies to reduce your projected MAGI and associated premiums.

You need to always keep in mind when planning Medicare premium reduction strategies that it’s a year-by-year proposition given the fact that premiums are determined using your MAGI from two years prior to the current year. If your income in a particular year is projected to experience an unusual spike that’s attributable to a one-time or infrequent event that will otherwise optimize your projected after-tax retirement income for several years, it will usually make sense to pay the increased Medicare Part B and D premiums in that year. Examples include a sizable strategic or market-sensitive Roth IRA conversion or an unusual increase in a business owner’s income that will enable a larger qualified business income (QBI) deduction that will result in a large amount of income tax savings.

Strategy #4:  Roth IRA Conversion Window of Opportunity

A multi-year, or staged, Roth IRA conversion strategy is a great example of a retirement income planning technique that should ideally be implemented beginning 20 years before retirement. A ten-year window of opportunity begins at age 62 for doing a Roth IRA conversion, creating a greater sense of urgency for implementing this strategy. This corresponds to the ten years prior to the age 72 commencement of lifetime annual required minimum distributions, or RMDs, from retirement plans.

Roth IRA conversions beginning at age 62 will reduce your annual RMDs for the rest of your life. This can, in turn, potentially reduce your annual taxable income, Medicare Part B and D premiums, taxable Social Security benefits, and net investment income tax. To the extent that this occurs, this will increase after-tax retirement income and contribute to the overall goal of optimizing asset longevity. Reduced RMDs also reduce the survivor’s exposure to the widow(er)’s income tax penalty for couples.

Reduced RMDs can also reduce the value of taxable retirement plan accounts at death and, in turn, reduce taxable income for non-spouse beneficiaries. Given the fact that most non-spouse beneficiaries are subject to a 10-year payout rule for taking distributions from retirement plans and IRA accounts, a reduction in the value of taxable accounts will often result in less tax liability for children and other non-spouse beneficiaries.

Per Strategy #3, taxable income from Roth IRA conversions needs to be balanced against potential higher Medicare Part B and D premiums beginning at age 63. The reduction in RMDs and associated lifetime income tax savings beginning at age 72 can more than offset increased Medicare Part B and D premiums between age 63 and 72 if done strategically.

Strategy #5:  Lock in Sustainable and Potentially Tax-Favored Lifetime Income

The fifth strategy – locking in sustainable and potentially tax-favored lifetime income, has gained in popularity as a result of the virtual demise of corporate pension plans. Besides Social Security, opportunities for receiving a sustainable lifetime income stream with built-in longevity insurance to reduce the risks associated with the stock market have dwindled in the private sector.

Immediate and deferred fixed income annuities are a natural fit for filling this gap in a holistic retirement income plan beginning at any age. Purchase of fixed income annuities takes on more urgency at age 62 due to the fact that the income start date for the majority of fixed income annuities will occur by age 72, leaving less time for deferred growth and increased lifetime income. The income start date is subject to the RMD rules when purchases are made from qualified accounts and traditional IRAs.

Income optimization is the appropriate benchmark that should be used when evaluating fixed income annuities for inclusion in a retirement income plan. The goal is to design a comprehensive strategy that uses the least amount of assets to purchase the greatest amount of sustainable after-tax lifetime income that’s projected to pay for expenses not covered by Social Security, pensions, and distributions from investment and other assets.

Fixed income annuities come in three flavors:  single premium immediate annuities (SPIAs), deferred income annuities (DIAs), and fixed index annuities (FIAs) with income riders. SPIAs and DIAs enjoy a unique income tax advantage when purchased in a nonqualified, or nonretirement account.

Unlike FIAs with income riders that distribute ordinary income that’s fully taxable, SPIAs and DIAs are annuitized. Periodic payments include income and a return of premium, or investment. When held in a nonqualified account, the return of premium portion of each payment, which can be 50% or greater, is nontaxable. Once 100% of one’s investment has been received, future payments are fully taxable.

Strategy #6:  Achieve Sizable Tax Savings and Tax-Favored Lifetime Income When Selling Highly Appreciated Nonretirement Assets

The sixth strategy, although it can be used by anyone at any time, tends to be implemented by individuals in their 60’s. Generally speaking, they’re the ones with highly appreciated nonretirement assets who are looking for a tax-favored lifetime income exit plan. This includes real estate, investment securities, and businesses.

This strategy is designed to reduce or eliminate income tax liability attributable to the capital gain that owners will realize from the sale of the highly appreciated asset by transferring a portion, or all, of the ownership of the asset from one or more individuals to a charitable remainder trust, or CRT, prior to the sale while providing tax-favored lifetime income. A CRT, which is a tax-exempt trust, is a long-standing IRS-blessed strategy when properly structured.

There are six benefits associated with a CRT:

  1. The capital gain on the sale of assets owned by a CRT is exempt from taxation.
  2. CRT funding creates a sizable income tax deduction equal to the projected remainder interest of the CRT that will eventually pass to one or more charities.
  3. The proceeds from the sale of CRT assets can be reinvested to provide a lifetime income stream for the beneficiaries.
  4. Most of a CRT’s annual income will be taxed at favorable long-term capital gains tax rates.
  5. A CRT is an excellent philanthropic tool since the remainder interest of the assets will be distributed to one or more chosen charities following the death of the surviving lifetime income beneficiaries.
  6. CRT assets avoid estate tax.

Six Proven Strategies

The six strategies that are highlighted in this article are proven strategies for creating and optimizing after-tax retirement income that can individually and collectively prolong the longevity of one’s assets in retirement. Each strategy can be implemented beginning at age 62 as part of a holistic retirement income plan.

Deferring Social Security start date (strategy #1) is a time-sensitive strategy. Once you start receiving Social Security, with some limited exceptions, it’s an irrevocable decision that, with the exception of potential cost of living adjustments, will lock in the amount of your periodic and lifetime payments and can also affect your spouse’s payments.

Gaining unrestricted access to home equity (strategy #2) through a HECM reverse mortgage should be implemented at age 62, the qualifying age, whenever possible to optimize the growth of, and after-tax distributions from, the credit line. Planning for reducing Medicare Part B and D premiums (strategy #3), which is an annual strategy, should be implemented beginning at age 62 since income from your federal income tax return beginning at age 63 will be used to determine your Medicare Part B and D premiums when you’re 65.

Roth IRA Conversions (strategy #4) and locking in sustainable and potentially tax-favored income (strategy #5) should be considered before age 62 whenever possible since there’s no restriction on the start date and earlier vs. later implementation can optimize after-tax lifetime income in retirement.

Achieving sizable tax savings and tax-favored lifetime income when selling highly appreciated nonretirement assets (strategy #6) is dependent upon (a) owning highly appreciated assets such as real estate, investment securities, or a business and (b) a desire to sell those assets.

Let the magic begin!


Did Your Medicare Part B Premium Increase 270% in 2016?

Did your Medicare Part B premium increase 270% in 2016 from what you paid in 2015? Assuming that your health status hasn’t changed, how is that possible? What about the fact that there was no increase in Part B premiums for Social Security recipients since there was no cost-of- living increase for 2016 benefits?

Medicare Part B Basic Premium

There are two potential basic Part B premiums in 2016:  a hold-harmless premium and a standard premium. Approximately 94% of Medicare enrollees pay the basic premium with 70% paying the hold-harmless premium and 30% paying the standard premium. The 2016 hold-harmless monthly premium is $104.90 and the standard premium is $121.80.

The hold-harmless premium comes into play in any year in which the Social Security cost of living adjustment, or COLA, is insufficient to cover the amount of the Medicare Part B premium increase. Since there’s no Social Security benefit COLA in 2016, the basic Part B monthly premium remains at the 2015 amount of $104.90 for most Medicare enrollees.

As previously stated, approximately 30% of those paying the basic premium aren’t protected by the hold-harmless provision in 2016, paying the standard premium of $121.80. This group includes Medicare beneficiaries who are also eligible for Medicaid, new enrollees, enrollees not receiving Social Security benefits, and higher-income enrollees.

Medicare Part B Premium Surtax

Medicare Part B premiums, unlike private health insurance premiums, are determined by the amount of your income. Your modified adjusted gross income, or MAGI, as reported on your federal income tax return from two years ago is used to determine the amount of your current year Medicare Part B premium. MAGI is often the same as adjusted gross income for most people.

Once again, the 2016 basic premium is either $104.90 or $121.80, depending upon whether or not you qualify for the hold-harmless provision. You will pay the basic premium if (a) your 2014 filing status was single and your MAGI was $85,000 or less or (b) your 2014 filing status was married filing joint and your MAGI was $170,000 or less.

A surtax known as the “Income Related Monthly Adjustment Amount,” or IRMAA, will be added to the standard premium, to the extent that your 2014 MAGI exceeded the foregoing amounts. If this is the case, your Medicare Part B monthly premium will range from $170.50 to $389.80 depending upon your 2014 filing status and MAGI. The highest premium applies for MAGI over $214,000 for single filers and $428,000 for married filing joint.

Income Spike Can Result in Premium Increase of 270%

Let’s assume that your 2015 Medicare Part B monthly premium was $104.90 and you’re single. This means that your 2013 MAGI was $85,000 or less. Let’s further assume that you sold a rental property in 2014 and realized a capital gain of $200,000 in addition to other income, for total adjusted gross income of $250,000.

Since your 2014 MAGI exceeded $214,000, your 2016 Medicare Part B monthly premium is $389.80. This represents an increase of 272% compared to your 2015 premium of $104.90. You will pay a total of $4,677.60 in 2016, or $3,418.80 more than the total premium of $1,258.80 that you paid in 2015. Welcome to the Medicare Part B premium two-year look back rule.

Medicare Part B Premium Appeal

Medicare has a process in place for appealing Part B premium increases. There are two types of situations that qualify for a reconsideration of the initial determination from Social Security Administration as follows:

  • Tax return is inaccurate or out of date
  • Life-changing event that results in a decrease in modified adjusted gross income

Generally speaking, an abnormal spike in income isn’t appealable. Inaccurate or out-of-date tax return situations include the filing of an amended tax return, correction of IRS information, IRS use of three or more year old data, and a change in living arrangement.

Life-changing events that result in a decrease in modified adjusted gross income include the death of a spouse, marriage, divorce or annulment, spouse or you stop working or you reduce the number of hours that you work, involuntary loss of income-producing property, loss of pension, and receipt of a settlement payment from a current or former employer due to the employer’s closure or bankruptcy.

There’s Always Next Year

If you’ve been paying the basic Medicare Part B premium all along, your 2016 premium amount spiked, and you don’t qualify to appeal your Medicare Part B premium, if it’s any consolation, you will once again pay the basic Medicare Part B premium in 2017 if you didn’t have any abnormal amounts of income included on your 2015 federal income tax return.

Medicare Social Security

Deferring Social Security Helps Pay Medicare Part B Premiums

One of the reasons that many people don’t defer the start date of their Social Security benefits beyond their full retirement age is the belief that their increased benefits will get eaten up by Medicare premium increases.

There are two reasons why this isn’t true:

  1. Social Security benefit increases far exceed Medicare premium increases.
  2. Benefit increases are protected from Medicare Part B premium increases.

Social Security Benefit Increases Far Exceed Medicare Premium Increases

Let’s assume that you’re 65, haven’t started receiving Social Security, your full retirement age (FRA) is 66, and your projected monthly benefit beginning at age 66 is $1,500. Since you’re eligible for Medicare at 65, you will pay your Medicare Part B premiums online, by check, or by credit card. Your premiums will automatically be deducted from your Social Security benefits once they begin.

If you defer your Social Security start date beyond your FRA, which is 66 to 67 depending upon when you were born, your monthly benefit will increase by 8% plus cost of living adjustments (COLAs) for each year that you defer your start date between FRA and age 70. This results in a benefit increase of as much as 32% plus COLAs for individuals whose FRA is 66 who wait until age 70 to begin receiving benefits.

The following table illustrates your projected net monthly Social Security benefit check at various start ages assuming no COLAs, your Medicare Part B premium is $104.90 with a 3% annual increase, and you haven’t elected to have income tax withheld from your check:





Part B


Net Benefit Increase





































Per the table, the annual net benefit increase is 8.3% or 8.4%. Once again, this is assuming no Social Security benefit COLAs. In addition, the annual Medicare Part B premium assumed increase of 3% is conservative given the fact that there have been no increases since 2012 and the average annual increase has been 1.4% since 2007. Furthermore, with the recent signing of the Medicare Access and CHIP Reauthorization Act of 2015, there probably won’t be any increases in Medicare Part B premiums for individuals in low to moderate income tax brackets through 2018 (See Medicare Part B Premiums Increasing Up to 30%).

Benefit Increases are Protected from Medicare Part B Premium Increases

It’s pretty obvious that if you haven’t started receiving Social Security retirement benefits yet, your future benefit increases won’t get eaten up by Medicare premium increases assuming that you aren’t in a high income tax bracket. What happens, however, once you begin collecting benefits?

As previously pointed out, with the recent signing of the new Medicare legislation, Medicare Part B premiums probably won’t increase for individuals in low to moderate income tax brackets through 2018. Absent this change, there’s a “hold harmless” provision in the Social Security Act that was first implemented in 1987 that protects most Social Security recipients from reductions in benefit payments caused by Medicare Part B premium increases.

Specifically, if the increase in the Part B premium in a particular year would result in a reduction in the recipient’s payment compared to the year before, the Part B premium is reduced to ensure that the amount of the individual’s payment doesn’t decline. Higher-income beneficiaries, who are subject to higher Medicare Part B premiums, aren’t covered by the hold harmless provision.

In summary, your decision regarding when to start receiving Social Security shouldn’t be affected by potential Medicare Part B premium increases offsetting increased benefits. Furthermore, once you begin receiving benefits, your benefit increases are protected by law from Medicare Part B premium increases unless you’re a higher-income beneficiary.

Long-Term Care Medicare

Are Healthcare Expenses Included in Your Retirement Plan?

There are a lot of moving parts to consider when doing retirement planning. Pre-retirees have done a good job overall with addressing certain tasks, including estimating monthly expenses in retirement and determining the best time to take Social Security. These two tasks have been performed by 64% and 68%, respectively, of affluent pre-retirees according to the results of a Cogent Reports study, Investor Retirement Income Trends, published earlier this year.

Healthcare is another story. According to the study, only 29% have determined the most sensible Medicare option for their situation and 32% have evaluated financial protection against major health event expenses. In addition, just 24% have evaluated or purchased long-term care insurance.

Projected Retirement Healthcare Costs

In the beginning of 2014, Fidelity estimated that a 65-year-old couple retiring in 2014 would need $220,000 to cover future medical costs. This excludes extended care expenses and only applies to retirees with traditional Medicare insurance coverage. Fidelity has been doing this research for several years, with an estimate as high as $250,000 in 2010.

The Fidelity estimate is probably on the low side. According to an Employee Benefit Research Institute (EBRI) 2013 study, a 65-year-old couple retiring in 2013 with average prescription-drug expenses would need $295,000 to enjoy a 75 percent chance of being able to pay all of their remaining lifetime medical bills and $360,000 to have a 90 percent chance. Like the Fidelity study, these amounts don’t include extended care costs.

The Fidelity and EBRI studies assume average life expectancies. The projected healthcare costs of both studies are less than the amounts that I have calculated using HealthView Services’ HealthWealthLink software as part of the planning that I have done for my pre-retiree clients who have no signficant preexisting health conditions and lead a healthy lifestyle .

HealthView Services promotes its system, which is designed for financial advisors, as the first and only software that calculates precise healthcare cost projections through a client’s entire retirement lifestage. The company uses databases based on more than 50 million claims per year and actuarial projections from experts in healthcare cost modeling. In addition, calculations are based on age, gender, health conditions, state, and selected coverage.

Assuming a 65-year-old couple retiring today in Orange County, California with no preexisting health conditions, no tobacco use, who live to their respective health-adjusted life expectancies of 87 and 89, and have annual income of less than $170,000 each year (Medicare Part B premiums increase with higher income levels), they’re projected to incur annual estimated healthcare expenses totaling $10,000 in today’s costs. This includes $6,700 for insurance premiums and $3,300 for out-of-pocket expenses.

With inflation, healthcare expenses for this couple over their lifetime are projected to total $566,000. Like the Fidelity and EBRI studies, my projections don’t include extended care costs. $386,000, or 68%, of this amount is for health insurance premiums. $198,000, or approximately 50%, of premiums will be paid for supplemental, or Medigap, insurance. Medigap insurance, which is offered by private insurers, helps pay for many items not covered by Medicare, including deductibles, copayments, and coinsurance.

Assuming that (a) you’re paying Medicare Part B premiums to cover doctor’s, outpatient care, durable medical equipment, and many preventive services and Medicare Part D premiums for prescription drugs, or (b) you have a Medicare Part C, or Advantage, plan in lieu of paying for Medicare Parts B and D, and, further assuming that you have Medigap insurance, you need to also plan for out-of-pocket expenses. For my hypothetical 65-year-old couple, they will incur projected out-of-pocket healthcare expenses totaling $180,000, representing 32% of their projected healthcare expenses totaling $566,000. $89,000, or approximately half, of their out-of-pocket expenses are projected to be incurred for hearing and vision.

Don’t Neglect Extended Care Costs

As previously stated, the Fidelity and EBRI studies and my hypothetical 65-year-old couple case all ignore extended care costs. This includes long-term care insurance premiums and out-of-pocket expenses. Extended care can be a huge expense if uninsured given today’s cost and the fact that this type of care is generally not required until the final years of one’s life. Additional variables complicating planning include care setting, region, and length of care.

Let’s assume Jane, the wife of my 65-year-old couple living in Orange County, has no long-term care insurance and requires three years of home health care the last three years of her life. The average annual cost for this care today is $53,000. At age 87, it’s projected to be $101,000, with total projected costs of $311,000. Adding this to the couple’s previous projected healthcare expense total of $566,000 results in total projected retirement healthcare expenses of $877,000.

Should Jane’s care be incurred in a skilled nursing facility instead of at home, the average annual cost of this care today is $90,000. At age 87, this is projected to increase to $324,000, or a total of $1.032 million assuming care is required for three years. Adding in the couple’s other projected healthcare expense total of $566,000 increases their projected total retirement healthcare expenses to a heart-stopping $1.598 million.

We’re Significantly Underestimating Health Costs in Retirement

According to Aviva USA’s 2013 annual Wellness for Life survey of nonretired adults which was done in collaboration with the Mayo Clinic, nine out of ten people expected to spend less than 20 percent of their monthly retirement income on medical and dental expenses. Seven out of ten expected to spend 10 percent or less. According to The Urban Institute, we should be prepared to spend approximately 30 percent of our income on health care expenses in retirement.

Healthcare Planning is a Crucial Part of Retirement Planning

We cannot afford to overlook or underestimate healthcare costs when planning for retirement. It doesn’t matter whether you rely on the Fidelity or EBRI studies or HealthView Services’ calculation methodology as a source of information for projected retirement healthcare costs.

Healthcare planning is a crucial part of retirement planning. The first step is acknowledging and identifying the various components of retirement healthcare costs, including projected amounts of same, customizing them to each of our personal health situations.

Although the projected costs are mind-boggling in a best case scenario, the good news is that there are strategies that are available to plan for them. Sounds like the topic for another blog post.

Long-Term Care Medicare

Are You Depending on Medicare for Long-Term Care Coverage?

I’ve wanted to write this post for a long time, however, I just haven’t gotten around to it. Over the years, clients and others I’ve talked to have been reluctant in initial conversations about long-term care planning to consider the purchase of long-term care insurance (LTCI) because they thought that Medicare will take care of them.

Let’s put it this way, if you’re part of this school of thought, you experience a long-term care event, and you don’t have LTCI, you’re in for a big surprise. A large part of the problem is that most people don’t know what constitutes a “long-term care event,” let alone how this compares to what Medicare will cover.

Long-Term Care Event

In order to qualify for benefits under a tax qualified LTCI policy, which represents 95% of policies sold today, you’re required to be certified by a qualified health professional as having a chronic illness that will last for at least 90 days whereby the illness must result in you:

The six ADL’s include bathing, dressing, eating, continence, toileting, and transferring.

Will Medicare provide benefits for either of these two situations? It’s not likely, and, if there’s coverage, it will be limited as far as number of days, dollar amount, and type of coverage.

Custodial Care

The majority of long-term care expenses are for custodial, or personal, care, none of which is covered by Medicare. Custodial care is designed to assist a person who has limited ability to perform daily activities due to deficiencies in physical and/or cognitive functions. It’s provided to help someone with his or her ADL’s or instrumental activities of daily living (“IADL’s”). IADL’s are the cognitive functions pertaining to comprehension, judgment, memory, and reasoning. Activities include shopping for personal items, managing money, using the telephone, preparing meals, managing medication, and doing housework.

Medicare Event

Medicare wasn’t designed to handle significant long-term care expenses. Medicare only covers medically necessary care with the focus on medical acute care, such as doctor visits, drugs, and hospital stays. There are three qualifications that you must meet in order to receive Medicare benefits:

  • Have had a recent prior hospital stay of at least three days
  • Admitted to a Medicare-certified nursing facility within 30 days of your prior hospital stay
  • Need skilled care, such as skilled nursing services, physical therapy, or other types of therapy

Medicare Benefit Period and Benefit Amount

If you meet these strict requirements, none of which are necessary to qualify for LTCI benefits, Medicare will pay for some of your costs for up to 100 days. Medicare will pay for 100% of your costs for the first 20 days, with the cost being shared for the next 80 days. In 2013, you’re required to pay the first $140 per day and Medicare pays any balance for days 21 – 100.

Home and Other Care Services

In addition to skilled nursing facility services, Medicare will pay for various services when your doctor says they are medically necessary to treat an illness or injury. If you’re unable to perform ADL’s and/or IADL’s that’s unrelated to the treatment of an illness or injury, Medicare won’t provide any coverage for home and other care services.

The home and other care services that Medicare covers, some of which are for a limited number of days, include part-time or intermittent skilled nursing care, physical and occupational therapy, speech-language pathology, medical social services, and medical supplies and durable medical equipment. Once again, custodial services aren’t covered.

Are you depending on Medicare to be your long-term care plan? If so, you may want to revisit your plan.

Medicare Roth IRA

Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? – Part 3

We learned three important things in Parts 1 and 2 of this blog post regarding the potential impact of a Roth IRA conversion on one’s Medicare Part B premium:

  1. 1. The amount of income from the conversion can increase one’s Medicare Part B annual premium by more than $3,000 if single or more than $6,000 if married and both individuals are eligible for Medicare.
  2. The premium increase, if there is one, will occur two years after the year in which the income from the conversion is included on one’s income tax return.
  3. Assuming a 2010 conversion, the premium increase, if there is one, will occur in 2013 and 2014 if the “Default” method is used to report the conversion or in 2012 if the “Election” method is used.

To illustrate, let’s assume that you’re married and you’re both eligible for Medicare, your 2008 Social Security Administration modified adjusted gross income (“SSA MAGI”) was $165,000, and your Medicare Part B premiums are being withheld from your Social Security checks. Per last week’s post, each of your 2010 monthly Medicare Part B premiums would be $96.40. For both of you, this would be $192.80 per month, or $2,313.60 per year. Let’s further assume that your total 2010 Roth IRA conversion income was $540,000 and there have been no other changes to your income since 2008.

Assuming that you went with the default of reporting 50% of your Roth IRA conversion income in 2011 and 50% in 2012, your 2013 and 2014 MAGI would be $435,000 ($165,000 + 50% of $540,000), placing you in the top Medicare Part B premium level per the table in Part 1 of this post (joint return with income above $428,000). Let’s assume that you instead elected to report 100% of your Roth IRA conversion income on your 2010 income tax return. In this case, your 2012 MAGI would be $705,000 ($165,000 + $540,000) and your 2013 and 2014 MAGI would revert to $165,000.

How much would your Medicare Part B premium be over the next several years? As stated above, it depends upon the year(s) in which the income from your 2010 Roth IRA conversion is reported on your income tax returns. The following table shows the amount of a married couple’s Medicare Part B 2010 – 2015 annual premiums unadjusted for future premium increases, assuming base MAGI of $165,000 and 2010 Roth IRA conversion income of $540,000:


Roth Conversion Income Reported 2011 and 2012

Roth Conversion Income Reported 2010



















While the amount of the 2010 Roth IRA conversion of $540,000 used in the above example is on the high side, it drives home the point that potential increases in Medicare Part B premiums need to be considered in a Roth IRA conversion analysis for Medicare-eligible individuals. Furthermore, if you do a Roth IRA conversion in 2010, it could increase your Medicare Part B premium amount for two years by more than $3,000 if single and by more than $6,000 if married and both individuals are eligible for Medicare.

Medicare Roth IRA

Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? – Part 2

Last week’s blog post, Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? began a discussion of how Medicare Part B (medical insurance) premiums are calculated. As discussed last week, of importance is that Social Security Administration (“SSA”) will use the income reported on your federal income tax return from two years prior to the current year to determine the amount of your Part B Medicare premium. Also of importance is the distinction between IRS’ and Social Security Administration’s definition of “modified adjusted gross income,” or “MAGI.”

IRS uses MAGI for various purposes, including calculation of allowable real estate rental losses, deductibility of IRA contributions, and qualification for certain tax credits, to name a few. Prior to 2010, it was also used to determine eligibility for Roth IRA conversions. From 1998 through 2009, only taxpayers with MAGI of less than $100,000 were eligible to convert a traditional IRA to a Roth IRA. For purposes of Roth IRA conversion eligibility determination, income attributable to the conversion was excluded from the calculation of MAGI. There are several adjustments, both negative and positive, made to “adjusted gross income,” or “AGI” to arrive at IRS’ definition of MAGI.

When SSA determines MAGI, the calculation is much simpler than the one used by IRS. SSA’s MAGI calculation increases AGI by tax-exempt interest income and that’s it. Since AGI includes income from Roth IRA conversions, unlike IRS’ pre-2010 Roth IRA conversion eligibility MAGI calculation which excluded income from the conversion, SSA includes Roth IRA conversion income in its MAGI calculation.

What does this mean if you’re a Medicare-eligible individual contemplating a Roth IRA conversion in 2010? Any income resulting from a Roth IRA conversion will be added to your other income to determine the amount of Medicare Part B monthly premium that you will pay two years after the year the Roth IRA conversion is included in your income. Your Medicare Part B premium amount could be greater for either one or two years depending upon whether you use the “default” or “election” method for reporting your 2010 Roth IRA conversion income.

Since Medicare premiums are based on SSA’s calculation of MAGI from your tax return two years prior to the current year and since the default for the reporting of 2010 Roth IRA conversion income is the deferral of 50% of the income to 2011 and 50% to 2012 (See In Which Tax Year(s) Should You Include Your 2010 Roth IRA Conversion Income? – Part 1), depending upon the amount of conversion income, your Medicare Part B annual premium assuming that you are married and both eligible for Medicare could increase by more than $6,000 in both 2013 and 2014 for a 2010 conversion. Alternatively, if you elect to report 100% of the income from your conversion in 2010, your Medicare Part B annual premium could increase by more than $6,000 in 2012.

Next week we will look at an example of how a 2010 Roth IRA conversion can directly impact the amount of your Part B monthly premium.

Medicare Roth IRA

Will Your Medicare Premium Increase If You Do a Roth IRA Conversion? – Part 1

It’s always amazing to me how one thing in life leads to another. This phenomenon is so true when it comes to the Roth IRA conversion series of blog posts that I’ve been writing and publishing since the beginning of the year, with the first post, Year of the Conversion, published six months ago on January 11th. As an example of the “one thing leads to another” phenomenon, the idea for last week’s post, Got Dormant 401(k)? Consider Converting to a Roth IRA came about as a result of writing the previous week’s post, Don’t Forget About Your SEP-IRA for Roth IRA Conversions.

This week’s post is yet another example of the “one thing leads to another” phenomenon. The second to last paragraph of Got Dormant 401(k)? Consider Converting to a Roth IRA discussed various factors to consider when contemplating the Roth IRA conversion decision. Included in the list of factors was the affect of the conversion on Medicare premiums. Since this is an important consideration for anyone 65 years of age or older who is evaluating a Roth IRA conversion, I am devoting this week and the next two week’s posts to this topic.

For those of you unfamiliar with Medicare insurance premiums and how they’re calculated by Social Security Administration (“SSA”), first some background regarding Medicare insurance premium amounts. There are two types of Medicare premiums: Part A and Part B. Both premium amounts are subject to change each year.

Part A is for hospital insurance. Most people don’t pay a monthly Part A premium because they or a spouse has 40 or more quarters of Medicare-covered employment. The amount of Part A premium is currently $254.00 per month for people having 30 – 39 quarters of Medicare-covered employment and is $461.00 per month for people who are not otherwise eligible for premium-free hospital insurance and have less than 30 quarters of Medicare-covered employment.

Part B is for medical insurance with a basic monthly premium that is currently either $96.40 or $110.50 per month for individuals who file an individual return with modified adjusted gross income (“MAGI”) of $85,000 or less or individuals who file a joint return with MAGI of $170,000 or less. The monthly premium is $96.40 for individuals who have their Part B premium withheld from their Social Security benefits and is $110.50 for all others. The 2010 Part B monthly premium for higher levels of income is as follows:

2010 Part B Monthly Premium

Individual Return With Income

Joint Return With Income


$85,001 – $107,000

$170,001 – $214,000


$107,001 – $160,000

$214,001 – $320,000


$160,001 – $214,000

$320,001 – $428,000


Above $214,000

Above $428,000

What’s important to keep in mind is that SSA will use the income reported on your federal income tax return from two years prior to the current year to determine the amount of your Part B Medicare premium. As an example, the income reported on your 2008 federal income tax return will be used to determine your monthly Part B premium in 2010. If your income has decreased since 2008, subject to meeting certain criteria, you may request that the income from a more recent tax year be used to determine your premium.

Part 2 will discuss the distinction between IRS’ and SSA’s definition of “modified adjusted gross income” and how this affects the Medicare Part B monthly premium amount. Part 3 will provide an example of how a 2010 Roth IRA conversion can directly impact the amount of your Part B monthly premium.