Understanding IRMAA: Protecting Your Retirement Income

What is IRMAA?

Have you ever heard of IRMAA? If you’re nearing Social Security age or already receiving it, this could impact your finances significantly. IRMAA stands for Income Related Monthly Adjustment Amounts. Essentially, your Medicare costs depend on your income. Earn above a certain threshold, and you’ll find yourself paying more. It’s another way the government means-tests, taking more if you have more. This trend isn’t slowing down, and it’s something to consider carefully during your income and tax planning.

The Impact of IRMAA on Your Finances

You might think you have an average retirement income. But one unexpected withdrawal from an IRA or a similar “never been taxed” account can suddenly increase your Medicare premiums by thousands. The same goes for selling an asset with gains or making a Roth Conversion. A single wrong move, and you’re out more money. But don’t worry, there are loopholes and strategies to navigate this. If you’re expecting a bump in income and need some guidance, reach out—I’m here to help. Social Security and the taxes on it can be complex, and a professional’s advice can make all the difference.

Understanding the IRMAA Brackets

It’s crucial to know the IRMAA brackets to avoid unexpected costs. For 2024, the brackets are:

• Individual income up to $97,000 or joint income up to $194,000: No IRMAA.
• Individual income between $97,000 and $123,000 or joint income between $194,000 and $246,000: You pay an additional $82.50 per month.
• Individual income between $123,000 and $153,000 or joint income between $246,000 and $306,000: You pay an additional $207.90 per month.
• Individual income between $153,000 and $183,000 or joint income between $306,000 and $366,000: You pay an additional $333.30 per month.
• Individual income between $183,000 and $500,000 or joint income between $366,000 and $750,000: You pay an additional $458.70 per month.
• Individual income above $500,000 or joint income above $750,000: You pay an additional $525.50 per month.

Understanding these brackets can help you make informed decisions about withdrawals and other income that may affect your Medicare costs.

Refinancing Your Retirement: Seize High Interest Rates

When to Refinance Your Retirement Funds

We’ve all heard about refinancing a mortgage when interest rates drop. Simple, right? But did you know you should be doing the opposite with your retirement funds when interest rates are high? Many retirees have safe money accounts like bonds, fixed annuities, CDs, and money markets. Interest rates fluctuate, and managing these accounts is crucial. When rates rise, it’s time to move out of the old and into the new. Think long-term: where can you lock in these historically high rates?

The Benefits of Long-Term Thinking

However, people often struggle with commitment. They see a favorable one- or two-year rate and jump on it, not considering the future when these come due. Instead, locking in longer-term rates could be more beneficial. For instance, banks may offer less for longer rates, but insurance companies might offer much more. Refinancing your retirement can significantly boost your income or your nest egg’s growth, or even both!

Imagine having $300,000 in a fixed annuity or CD earning 2-3% annually. That’s about $6,000 to $9,000 a year. If you refinance into a product offering 5-6%, you could earn $15,000 to $18,000 annually—an extra $9,000 to $12,000 each year! Over time, this move can result in tens of thousands more in your portfolio. Even if your investments aren’t due yet, consider the penalty for early withdrawal. Moving to higher rates now might be worth it before the Fed lowers them again. If this sounds confusing, don’t worry—I’m here to assist you.

Proactive Home Maintenance: Plan for Future Expenses

P.S. Speaking of planning, let’s step away from retirement for a moment. Homeowners, this is a perfect time to take a slow, very slow walk around your home. Look at your foundation, roof, siding, windows, doors, landscaping, lawn, septic system, trees, fencing, and more. Take note of any wear and tear or potential issues. Surprises are no fun, so plan ahead for these expenses. Preparing now can save you stress and money down the road.