Retiring and signing up for Medicare?  A Premium Challenge may be just what the “doctor” ordered for your finances

April 12, 2022 by

Briaud Financial Advisors

If you are in this situation, you are probably being bombarded with “information” on Medigap and Advantage plans (often referred to as Medicare Part C, however it is provided through insurers).  Of course, this is an important decision you will need to make. However, another factor to consider as you retire that gets little mention – What will your actual Medicare premiums be?

Briaud Retiring and signing image

If you are age 65 or older and retiring this year, you will need to sign up for Medicare Parts A (hospital coverage) and part B (medical insurance) through the Social Security Administration. You will also need to sign up for Part D (prescriptions).  This will be done through an insurance provider. Medicare Part A is free. The standard Part B premium for 2022 is $170.10 for participants with income up to $91,000 for individuals and $182,000 for married couples. Medicare Part D varies by insurer. However, if you have earnings higher than $91,000 single or $182,000 married, you will be charged an income-related monthly adjustment amount (IRMAA) by Medicare for Parts B and D, as shown in the table below. 

To calculate your premiums, the Social Security Administration (SSA) uses the modified adjusted gross income (MAGI) from the most recent tax return the IRS has provided them.  For 2022, that is your 2020 tax return that was filed in 2021.  For 2023, the SSA will use your 2021 return. MAGI is the total of your adjusted gross income plus any tax-exempt interest you received.

As you can see, higher incomes cause your Medicare premiums to increase by an Income Related Monthly Adjustment Amount from $80.00 to $486.10 additional per month.  That’s $960 to almost $6,000 additional annually.  Total premiums ranging from approximately $2,600 lowest to roughly $6,800 per person annually. 

At this point you are probably thinking, ‘Okay but my income will be lower in 2022 and 2023 due to my retirement.  Do I still have to pay the higher premiums?’ This is where the Medicare Challenge comes in.  The Social Security Administration will consider adjusting your Medicare premiums if your income will be lower due to one of the following life-changing events.

  • You married, divorced, or became widowed.
  • You or your spouse stopped working or reduced your work hours. 
  • You or your spouse lost income-producing property because of a disaster or other event beyond your control.
  • You or your spouse experienced a scheduled cessation, termination, or reorganization of an employer’s pension plan.
  • You or your spouse received a settlement from an employer or former employer because of the employer’s closure, bankruptcy, or reorganization.

If your 2022 modified adjusted gross income (MAGI) will be lower than your 2020 or 2021 MAGI due to retirement (or one of the other causes listed above), you can file Form SSA-44 Medicare Income-Related Monthly Adjustment Amount – Life-Changing Event to request a premium reduction for 2022.  Note however that if your 2022 MAGI ends up being the same or higher than 2020 (or 2021 if that is the higher year), they will make you pay back any premium reduction you received. Also note that if you are married and both covered under Medicare, each of you will need to file the form with Social Security.  You will also need to provide documentation supporting your projected 2022 and 2023 MAGI. Supporting documentation would include the date of your separation from work/retirement date and a reasonable calculation of your expected income for 2022 and 2023. 

As an example, let’s look at a Bob and Jane. Bob, a professor, retiring at the end of spring semester, May 31, 2022 and will be age 70 at the time. Jane retired several years earlier.  He and Jane were covered by the university health plan and did not need to sign up for Medicare until he retired.   Their MAGI from their 2020 tax return was $242,495.  Using the 2022 premium table, their part B premiums would be $340.20 per month per person. They would also pay an extra $32.10 per person on top of their premium for Medicare Part D due to the high income.  For the two of them, the total monthly part B premiums would be $680.40 per month, $8,164.80 annually and the total monthly part D surcharge would be $64.20 per month, annually $770.40.

Assuming that Bob and Jane make below $182,000 in 2022 given his retirement in May, by filing Form SSA-44, we are able to save Bob and Mary $340.20 per month, $2,041.20 total in 2022 (6 months of premiums). 

Even though Form SSA-44 will ask for your income in 2022 and 2023, you will need to file a second Medicare Challenge for 2023 if your 2021 MAGI has you in a higher bracket than your expected 2023 MAGI would.  Social security only takes into consideration one year at a time for a Medicare Challenge.  

As such, we filed a second Form SSA- 44 for Bob and Jane to adjust their 2023 Medicare premiums.  In 2022 Bob had 5 months of salary.   Bob had no wages in 2023 which further reduced their income due to the life-changing event in 2022. If we had not filed the second form it is likely that SSA would have calculated their 2023 premiums based on the 2021 MAGI, $246,548.  

This is one of many ways we help our clients. If you would like to learn more about how we can help you with your financial future, give us a call 979-260-9771 or click here to schedule your free consultation today.


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