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High earners need to watch out for Medicare surcharge

High earners need to watch out for Medicare surcharge
Some high-earning retirees are surprised to find out how much extra they will be required to pay in surcharges for Medicare. (Getty Images / iStockphoto)

Dear Liz: When I retired at age 70, I anticipated receiving the maximum available Social Security benefit payment because I had paid in the maximum tax for my entire career. I did not anticipate the heavy hit my spouse and I would take in monthly income-adjusted Medicare “premiums.” (I say “tax” is a more appropriate description.) We now pay over $500 per month each, or more than $12,000 per year! I know I am blessed to have the income I have in retirement, but that is because we were thrifty and worked hard and saved.

Answer: Many high-income retirees are unaware of “IRMAA,” or Medicare’s income-related monthly adjustment amounts, so they can come as a bit of a shock. These adjustments begin when modified adjusted gross income exceeds $85,000 for singles or $170,000 for couples. At that level, Medicare recipients pay an additional $53.50 for Part B, which covers doctor’s visits, and $13.30 extra for Part D prescription drug coverage, on top of their regular premiums. (Regular premiums for Part B are $134 a month, while premiums for Part D vary by the plan chosen.) The adjustments increase as income rises until they max out at $294.60 for Part B and $74.80 for Part D when modified adjusted gross income exceeds $160,000 for singles or $320,000 for couples.

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Medicare Part A, which covers hospital visits, remains free for all Medicare beneficiaries.

That $12,000 a year may feel like a lot, but healthcare is expensive in the U.S. Annual premiums for employer-sponsored family health coverage reached $18,764 last year.

Wife should get her name on deed

Dear Liz: My daughter, who is a stay-at-home mother of two, recently bought a home with her husband. They have been married seven years. I recently discovered that her name isn’t on the deed to the home. I don’t know why, but it doesn’t sound good to me. What are her potential issues?

Answer: The issues depend on where she lives. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.

If your daughter lives in one of those, assets acquired during marriage, including a home, are generally considered community property owned equally by both spouses. Her husband, ideally, should place her on title via a deed to reflect true ownership or place it in a trust to provide for his wife. However, if her husband should die without bequeathing her the property, the home could go to probate proceeding, and the wife would have to provide proof that it was community property to receive all of it, says estate planning attorney Jennifer Sawday of Long Beach.

In other states, different rules apply. Typically assets held in one person’s name are that person’s property. If the husband has a will, he could leave the house to your daughter — or not. Should he die without a will, she could wind up sharing ownership of the house with others, such as children from a previous marriage.

Keeping an eye on your financial planner

Dear Liz: I’m a fee-only financial planner with a quick comment regarding the investor who complained about a financial advisor who ran up a huge capital gains tax bill. I’ll bet that the vast majority of the gains came from selling the person’s initial investments to re-position them according to the advisor’s recommendations. That seems most likely given the gains seemed to be huge (implying the current investments had been in place for a long time) and the client’s balance didn’t seem to grow much at the same time. Of course, that’s not necessarily an excuse — accounts with unrealized capital gains need to be handled very carefully by an advisor. And you are dead-on with the main point of your response: Giving an advisor discretionary trading status is risky. I would add to that the client doesn’t seem to know the advisor’s investment strategy, so that’s another disconnect. I’m glad that fee-only gets a lot of positive comments in the financial press, but you’re correct that you still need to move with caution.

Answer: Advisors are in an unenviable position when they’re trying to fix a portfolio that hasn’t been properly diversified over the years. Big gains build up because the investor doesn’t want to sell and pay capital gains taxes. By refusing to sell some winners occasionally, though, those winners can comprise an ever larger share of the portfolio, making it more and more risky. A concentrated portfolio can fall more in a bad market and gain less in a good one than a portfolio that’s properly diversified.

So the advisor may have been doing what needed to be done, but the fact that the investor didn’t understand what the advisor was doing or why indicates a breakdown in communication, at the very least. No one should give an advisor blanket permission to trade an account without understanding the advisor’s strategy and being willing to monitor how it’s being carried out.

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