Month: May 2022

But I’m not rich, IRMAA

What is IRMAA?

The Income Related Monthly Adjustment Amount (IRMAA) is an additional premium (aka surcharge, aka more money) you have to pay on top of your Medicare Part B standard premium (currently $170.10) and your Part D premium, if your Modified Adjusted Gross Income (MAGI) exceeds certain income levels.  MAGI is your adjusted gross income (AGI – line 11 of your 1040) plus any tax-exempt interest (line 2a of your 1040).

IRMAA (for 2022) starts out at an additional $68/month for Part B and an additional $12.40/month for Part D for married filing jointly earning over $182,000 and less than $228,000. The maximum, per month, is $408.20 and $77.90 for those earning over $750,000. (Note – they are likely not reading this…)

Social Security sends you an IRMAA letter if you are going to owe IRMAA premiums. You will get it soon after Medicare enrollment when you first sign up. You can also get the IRMAA letter late in the year if they will assess you for the next year.

The full breakdown of filing statuses, incomes, and IRMAA premiums is here https://secure.ssa.gov/poms.nsf/lnx/0601101020

Rich or not

Regardless of your actual wealth, Social Security and Medicare will look at the latest income level they have for you from the IRS.  Typically, that is from 2 years prior.

You may be rich enough for IRMAA even if you see yourself as a humble retiree just making it. One scenario is right as you retire and your 1040 showed a couple of high (over $182,000) earning years prior to retirement.

Another scenario might be a DIY! You might cause yourself some windfall that places you over the limit by selling an asset or winning a lottery. This could be selling assets that have appreciated (stocks, investment real estate) or taking a large distribution from your 401(k) or IRA.

Some real, painful, cases

One tragic case was when an acquaintance of mine had a family member with cancer.  As you may know, medical insurance does not cover everything and this person ended up owing medical providers a significant bill.  They took out large sums from their IRA to pay the bill and, bingo, got hit with IRMAA.

In another case, I heard of someone who cashed in an annuity as part of their income plan.  They would not need all the money in the current year, but wanted to simplify their investments. Bingo, they hit IRMAA.

In another case, a friend did well income-wise and found out right after retirement and going on Medicare that he would be paying not only Part B, but IRMAA, too!

So, how can I avoid IRMAA – planning

The easiest way to avoid IRMAA is to plan your income.  If the income that generated the IRMAA is not as a result of a ‘life changing event’ you are likely going to have to pay the IRMAA. So, let’s look at ways to avoid IRMAA without your life changing.  Income and expense planning are your best friends here.

I like to lead with expense planning – find out how much money I will need for the current year, including things like mortgage, Medicare premiums, property taxes, food, gas, and the rest of my expense list. Basically, we build an annual family budget.

Once you know how much you plan to spend, look at where the money is coming from, including regular savings, Social Security, annuities, pensions, and tax-favored money (IRA, 401(k), etc.)

Watch the income at least quarterly so that you know where you are relative to quarterly tax payments, tax rates, and the IRMAA limits throughout the year.

On the income side, remember my friends who cashed in the annuity policy.  Their goal was account simplification. Unfortunately, the simplification cost them.  Their solution might have been to take the annuity money early in the year and then take smaller amounts from the other accounts as needed to meet their income plan.

The friend with the medical expenses might have been able to do a short term house second mortgage and then pay that off over a few years from their IRA while avoiding the IRMAA limits.

A wish? Wedding, car, trip?

If you know that you will have a large expense coming up that you will be funding, consider increasing your income withdrawals for a year or two prior to the year the money is needed so that you avoid IRMAA each year, but the money is all there the year it is needed.

So, how can I avoid IRMAA – life changing event

From my perspective, the most likely way to be relieved of IRMAA after it has been assessed is to have a ‘life changing event’. If you had a ‘life changing event’ you may be able to appeal. Per Social Security, life changing events include:

A Life-Changing Event (LCE) can be one or more of the following eight events:

Death of spouse (HI 01120.010);

Marriage (HI 01120.015);

Divorce or annulment (HI 01120.020);

Work reduction (HI 01120.025😉

Work stoppage (HI 01120.030);

Loss of income-producing property (HI 01120.035);

Loss of employer pension (HI 01120.040); or

Receipt of settlement payment from a current or former employer (HI 01120.043).

If you have a life changing event, you can appeal to Social Security using a form SSA-44. Work stoppage, such as retirement or being laid off, is a big one.  Make sure that you use the Social Security reason first, then amplify as needed.  Example – “I had a work stoppage because I retired on May 30th, 2022.”

Fine points

Remember that if IRMAA is assessed, it will apply to each spouse’s Medicare premiums, if married.

Don’t wait.  If you are assessed IRMAA and you can appeal, do so immediately.  If you wait you will have to pay the higher premiums until your appeal is approved, then Medicare will not bill you until your overage is cleared.  Also, if you wait to long, your appeal may be denied because it was filed too late.

Share, please.

Please share your IRMAA tips in the comments!

Actions you can take include:

If you have not seen the “Why you should read this blog…WIIFY” post, it’s here https://nosurprisesretirement.com/2017/07/09/first-blog-post/

Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email.

A Felon, Plumbing, and Risk Management

Risk and management

In my pre-retirement life, I spent a number of years as a project manager.  One of the key functions of project management is risk management. Project manager or not, risk management is an uncomfortable activity that starts off with denial.  However, denial is not a viable risk management strategy. Project managers and regular people benefit from risk analysis and planning. Risk analysis means identifying risks and assessing how bad they can be. After analysis, you determine the strategy to use.

The risk management strategies include:

Avoidance – avoid the risk so that it does impact you. Example: not going to the park when thunderstorms are predicted.

Mitigation – minimize the potential for risk impact.  Example: using a licensed plumber to install a new water softener rather than DIY.

Transfer – hand off the risk to another entity who can absorb it. Example: homeowners insurance for fire, storms, and liability.

Acceptance – accept the risk and whatever damage it does.  Example: not insuring your old car for collision.

A cabin

I have a friend who owns a vacation cabin in northern Minnesota. Every year they winterize it and as part of that process they drain the water and put anti-freeze in the drain traps of the sinks, toilets, and tubs.  This way there is no water in the pipes or fixtures to freeze, expand, and cause plumbing leaks.

The felon

Several years ago, around the end of December, we had a local felon try to commit suicide by running his car into an electric pole at high speed.  He lived, only minor injuries, but we had our power and heat go out for several hours while the power technicians completed repairs. No heat in Minnesota means that eventually your house will be cold. Potentially cold enough to freeze water, and your pipes.

Fortunately, in this case, we ended up getting power back before it got too cold.

Risk assessment

The winter power outage shook me out of my denial and I analyzed my risk of water pipes freezing. The probability of risk happening was low. The impact of the risk happening would be high, as we would not have water and when it warmed up again, we could have leaks in the walls and damaged porcelain.

We had already transferred the risk with homeowners insurance. But, was that enough? No, because if we froze there was the potential that a lot of our neighbors would freeze also.  That would cause a huge demand for plumbers and fixtures as the heat came back on, so we could end up with leaks, broken fixtures, and a long wait for a fix, even if insurance would pay for the damage.

We decided that we needed the additional strategy of mitigation.  We could not avoid the risk as we have no control over the weather and no control over power outages.

Mitigation

If we mitigated the risk, we might be able to manage the problem with only a minor inconvenience. 

I looked at the plumbing and planned what we would drain if freezing was imminent.  Turn off the water at the meter, then open faucets and flush toilets from upper to lower floors. Drain the hot water heater. We have a floor drain in the basement.

After watching my friend winterize the cabin, I followed his plan and purchased 4 gallons of RV antifreeze to put in the drains (sinks, tubs, showers) and toilets (tank and bowl). He puts in about 2 cups per drain.

I would then turn off the water softener and switch off the water to it.  I would pack the city water connection in blankets to insulate it as long as possible.

Expected result

While I hope that no one would be damaged in a case like this, I would expect to be able to turn the water back on when the power is back with no issues.  At worst, I would have a relatively small repair at the city connection.

Because a lot of people would not have mitigated their plumbing, we would not be in competition for fixtures, pipes, or plumbers and so be back up and ‘running’ quickly after the event.

Good news

The RV antifreeze has been sitting on the garage shelf for a couple of years now, so we have not had to worry.  But we’re ready.

Share, please.

Please share your risk handling tips in the comments!

Actions you can take include:

If you have not seen the “Why you should read this blog…WIIFY” post, it’s here https://nosurprisesretirement.com/2017/07/09/first-blog-post/Questions, comments, or suggestions for retirement surprise areas you want to know more about?
-Leave a comment
-Use ‘Contact’, above, to send an email