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Medicare Cost are Increasing and How You Can Save Now
October 12, 2020
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Medicare Cost are Increasing and How You Can Save Now
Have you got a letter that sounds something like this? “Thank you for being a loyal customer of XYZ insurance company. Your new rate is $XXX.XX.” Some Medicare recipients are seeing increases as high as 25% this year. If this is you and you want to learn more about how you can save now keep reading…
It seems like you’re the type of person that likes making sure they are getting the best value for their money. Congratulations. So, if you're like me, you are seeing a lot of advertisements this time of year regarding Medicare open enrollment period. So, what exactly does that mean, and how does it affect you?
If you live in the state of Illinois, they are referring to the ability to enroll, change, cancel, or switch Medicare Advantage Plans and drug programs between October 15th and December 7th. Missing this election period means you could be stuck with a less than ideal plan for another whole year. This is why so many American’s consider this time of the year an important time to review all of your Medical and insurance options even the ones you can change outside of this window, like a traditional Medicare supplement plan.
Medicare Advantage VS Medicare Supplements
So what is the difference between a traditional Medicare Supplement Plan and Medicare Advantage? The traditional Medicare supplement plans utilizes original Medicare Part-A which covers hospitalization and inpatient care. It also uses Medicare Part-B which covers your patient Medical coverage.
There are many different types of co-pays and deductibles with Medicare. For instance, Medicare itself only pays for instance 80% of your outpatient covered expenses. While that may sound good, who is left paying the other 20%? You are, unless you have a supplement plan which will cover the majority of those other expenses.
Medicare Supplements
With a traditional Medicare Supplement Plan, you can go to any doctor, anywhere in the country, that accepts Medicare. If they accept Medicare, they will take your Medicare Supplement Plan, no matter who it's with. Also, if you are looking at traditional Medicare supplement plans, for example comparing a plan G with one company to another, its pretty easy. Why? By law, they all have to offer the same basic medical benefits. The only differences between them is price, customer service, rate increase history, and possible fringe benefits, which many find to not be a major purchasing factor. Doing a thoughtful analysis on which plan is best for you is important and getting the best rate is easy with our professional rate tools.
Drug Coverage
Now with original Medicare in addition to a supplement you will want to get Part-D coverage. Part-D is offered through private insurance companies and can help you pay for prescription drugs. Many find this section difficult to understand and hard to shop around. Over the last decade the biggest mistake we have seen is seeing individuals shop this section based on monthly premium cost or just going with companies they “like”. That strategy can cost you thousands of dollars a year. The best way to evaluate this is to take an inventory of all the medications you take, the dosage and frequency, and use Medicare’s tools to compare plans based on “total annual cost”. Without this you will pay more for your drugs than you should. If you need help with this contact us and we can help.
Medicare Advantage Plans
Medicare Advantage Plans by contrast are a type of Medicare health plan offered by a private Insurance company that contracts with Medicare to provide all your Part A and Part B benefits, essentially replacing Medicare. Most Medicare Advantage Plans also offer prescription drug coverage. If you’re enrolled in a Medicare Advantage Plan, most Medicare services are covered through the plan. Your Medicare services aren’t paid for by Original Medicare. With this you may have a lower premium, but here's the main catch: with a lot of those types of plans, you may have out-of-pocket co-pays, along with high deductibles. Also, you will probably be limited to more of an HMO or PPO type of enrollment, where you are limited to the doctors that you can go to within your own local area. Not all doctors who work with regular Medicare have to accept advantage plans. So, if you're a retiree that travels a lot, you probably want to stay away from Advantage plans, where you may not be fully covered if an incident happens outside of your network of Doctors.
The Take Away
The truth is… This is hard, comparing plans is confusing. Did you know you will pay the same monthly rate whether you work with a professional or not? So how would you know for sure what type of plan is best for you at this particular time? Feel free to use our more than a decade of experience in helping clients navigate this confusing terrain. Click HERE
to schedule your 15-minute virtual consultation and we can help answer that question.
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If you’re confused by your 401(k) plan, you aren’t alone. According to a J.P. Morgan 2021 Defined Contribution Plan Participant Survey, 401(k) investors are “overwhelmed and unsure about the various aspects of retirement planning.”¹ In fact, 52% feel they are presented with more plan information than they can absorb.² Perhaps this is why 51% of 401(k) participants do not take time to read all the investment information provided by the plan.³ 401(k) plans may be confusing, especially when you’re presented with a packet written in industry jargon and told to hurry up and make a decision about your financial future. Understanding exactly what you’re enrolled in and why can be as easy as asking these 5 questions of your HR department or plan provider. Read More...
Let's talk about income sources. Which ones are the most tax efficient and as a bonus a few inefficient tax strategies just to be aware of. For the purpose of today's discussion we are not going to bring wages into play here. We are talking strictly about investment income sources. Income Source #1 ROTH IRA Income is the first and most obvious choice here. The benefit of the ROTH IRA if your not aware, (which is okay if your not - we are all about education here) is that you put your money in after you have already paid taxes but anything in the account grows tax free and can be taken out tax free in retirement. There are some nuances you have to be aware of like you must wait to take your distribution until you have had the account for 5 years you must be 59.5 years old but there are also some nuance early allowances like access to your principle portion at any time. But when it comes down to the general tax fee income it is really hard to beat the benefits of a ROTH IRA . We can discuss future pro and cons at another time. Income Source #2 Dividends Stock Income can be a very tax efficient income source for a lot of people. Now to offer some clarity here we are only talking about dividend income from stocks not held in any type of IRA or other qualified plan. The big advantage here is that "qualified dividends" are taxed at Long Term Capital Gains Rates which if you read our blog-post on that HER E , you would know have some major tax advantages. For Single filers you would pay 0% from $0 to $40,000 of income. You would pay 15% from $40,001 to $441,450 and 20% from $441,451 or more. For married filers you would pay 0% from $0 to $80,000 of income. You would pay 15% from $80,001 to $496,600 and 20% from $496,601 or more. As an example a married couple with $170k in income would be in the 24% tax bracket normally but in the 15% bracket on their dividends that were qualified . That is a pretty hefty amount of income taxed at very low rates. It is important to realize this style of investing does carry market risk and you will want to make sure this fits your overall goals and risk tolerance before diving in. Income Source #3 Real Estate Income can offer some wonderful tax advantages. Investing directly in rental real estate is a great way to leverage your wealth and get tax advantaged income but with prices at record highs this may not be the best time for that. The easiest way to invest in real estate is through publicly traded REIT funds that trade on the stock market. The main disadvantage of these types of holdings is volatility. Publicly traded REITs often have a high correlation to the stock market, which may be the opposite of what you are trying to achieve with this type of investment. Instead, consider looking into non publicly traded REITS. They often have a much lower correlation to the stock market as they are not traded like stocks. They get most of their value from the underlying real estate itself and not stock market share prices. But what about the tax advantaged income? The main advantage to rental real estate income is passthrough depreciation. That depreciation is given back to you as a tax deduction in the form of "Return of investment capital", meaning that portion of your income isn't really taxed right now. So lets say you got $20,000 a year in rental income but had $15,000 in depreciation or "Return of investment capital" that would mean you are only paying taxes on $5,000 of income on a $20,000 income source. How great is that. But there is a downside too. That depreciation lowers your cost basis which can increase your long term capital gains taxes if not planned for as part of your overall financial plan. If you want to talk about if real estate makes sense for you click below to schedule a time to chat. Income Source #4 Life Insurance holds many unique tax advantages. Much like the ROTH IRA you put those dollars in after tax. Like a ROTH it grows tax deferred and the distributions can also be tax free just like a ROTH but that is where the similarities stop. Unlike a ROTH there are no contribution limits or age restrictions or holding requirements. Some types even protect your cash value from loss while others are directly invested in the stock market. From a tax perspective here is what makes this strategy so unique. We already talked about distributions being tax free but did you know when you borrow money from your life insurance as income the income you take could still earn interest??? Since it is being taken out as a loan against the account the money stays invested. If you earn an average return of say 7% but only pay 4-5% in interest you are actually making 2-3% a year on income you already took out of your account. How great is that. That is called positive arbitration. The best part is your income is tax free and when you die your beneficiaries also get the remaining balance tax free as well. Income Source #5 Social Security Income can be one of the most tax efficient sources of income in retirement. If you have ever attended one our classes on Social Security planning you may know some of this already but for those that haven't or need a recap lets dive in. Social security can be anywhere between 0% taxable all the way up to 85% taxable. But the unique thing is that social security is never 100% taxable. So at now point will 100% of your check count towards you adjusted gross income for tax purposes. How cool is that. Now how much if it that is taxed is based on provision income. If you missed last weeks video on that click HERE . But basically the lower we can get your provisional income the less taxes you pay on your Social Security which could end up being a big deal long term. These are some of the most tax efficient income sources and when planned for properly you could very well live your life free of the burden of the tax man . However, there are few sources that are not so tax efficient. Not so efficient income Sources IRA/401k Income - Yes you are reading this correctly because IRA dollars are pretax, they have never been taxed before meaning that it is very likely that 100% of that income source is taxed at your federal tax rate. Really the only way to get around this is to fall into the 0% tax bracket which may be hard for many Americans. But don't loose hope just yet. If you have IRAs/401ks talk to us about how advanced planning may help get you to that 0% or 12% rate even with an IRA/401k. Mutual Funds - One of the reasons mutual funds are so tax inefficient is because of internal turn over ratio and what I call phantom income tax. Basically if you own a mutual fund and it sells some of the holdings within the fund at a profit throughout the year you are liable for the taxes on that gain even though you didn't directly sell anything yourself. Believe it or not this can cause unintended consequences like putting you in a higher tax bracket affecting your Social Security income, IRA income etc. Certain ETF's - Certain ETF's also fall pray to this phantom income tax and may have the same unintended consequences. So can you, or should you utilize any of these top 5 Most Tax Efficient Income Sources? I hope this helps making that decision but if you still need helping figuring things out, click the button below to schedule a time to talk.