At the end of Friday's Fiscal Fridays, right after an hour of Medicare questions, my dad left the room with a picture worth keeping. Medicare, he said, is "just one room in your house."
This time of year, it's easy to think about nothing but your health plan. The letters are in the mailbox, the ads are on TV, and the Annual Enrollment Period runs October 15 through December 7. Medicare feels like the whole house.
It isn't. Your income lives in that house too. So does your plan for passing things on to your family. And the rooms are connected in ways most people don't see until something leaks from one into the next.
How the rooms connect
Here is the example that came up on the show. A couple sells a rental property. Great year, big check. Two years later, their Medicare premiums jump by hundreds of dollars a month, and they have no idea why.
The reason is a surcharge called IRMAA. Your Part B and Part D premiums are based on the income on your tax return from two years earlier. So a decision in the income room shows up, two years later, as a bill in the Medicare room. The same thing can happen with a big IRA withdrawal, a Roth conversion, or the year your required minimum distributions start, which for most people today is age 73. (We wrote more about how IRMAA works and what your first RMD can do to it.)
None of that is bad news. It's just better news when you see it coming.
The once-a-year walk-through
David's advice was simple. We spring clean our houses every year. It makes sense to do the same with your plans. Here is what that walk looks like, room by room.
The health room
- Check that your doctors are still in your plan's network for next year.
- Check that your drug list is accurate: the right names, the right strengths, the right pharmacy.
- Look at what a bad year would cost you, not just the monthly premium.
- Do it before December 7, not on December 7.
The income room
- Know where next year's money is coming from: Social Security, pensions, withdrawals.
- Flag any big one-time events coming up, like selling a property or converting an IRA, and ask what they mean for your Medicare premiums two years out.
- If your income dropped because of a life change, like retiring or losing a spouse, you may be able to ask Social Security to lower your surcharge using Form SSA-44.
The family room
- Pull up the beneficiaries on your IRAs, 401(k)s, and life insurance. These accounts pass to whoever is named on the form, regardless of what your will says, so an old form can quietly undo a newer plan.
- Make sure the people who would need to find things know where they are.
- Have the conversation. David asked the room when they last sat down with their kids and talked it through. His guess was that everybody has thought about it and almost nobody has done it.
Why it matters now
Fall is when most people think hard about only one room. That's understandable. But the best time to walk through all three is while you already have the folder out.
If you'd like help with the walk-through, that's what we do every day: healthcare, retirement income, and inheritance planning, under one roof. Call us at (602) 281-3898.
And if you missed the show, the next Fiscal Fridays is Friday, November 20, in our Scottsdale studio. Come be in the room.
Disclaimer: The information in this article is for educational purposes only and does not constitute tax, legal, or investment advice. Tax laws change frequently, and individual circumstances vary. American Retirement Advisors does not provide tax or legal services. Before making any tax-related decisions, consult a qualified CPA, tax attorney, or financial planner who can evaluate your specific situation.