Medicare payroll deductions are 1.45%, double that if you’re self-employed and there’s no cap on earnings, i.e. no limitation thresholds. All Americans pay the same per dollar earned into the Medicare program. Some view this as a tax, others view it as a contribution into their medical coverage when they become age 65 and throughout their retirement. But that’s where the equality or fairness ends.
The U.S. tax code is a marginal-progressive tax bracket system that increases as certain income thresholds are achieved, a system has been around for over a century. But few understand that Medicare premiums are means tested. Most eligible Medicare recipients are paying the minimum of $135.50 a month, married couples double that at $271 assessed for 2019. But affluent seniors may be paying up to $460.50 a month, wealthy married couples $921.00 a month for the same benefits. And the real revelation is that the calculations for earnings go back two years! A fact that few financial advisers are aware of and not to mention the public at large.
Over the last 15 years, retirement planning has embraced strategies to maximize Social Security, but little to no planning regarding Medicare. Most affluent seniors experience sticker shock when they first learn of their excessive premiums and wonder why their financial adviser didn’t plan for the rate hike two years before they turned age 65. Wealthy seniors could be paying up to $7800 each year for two years because they didn’t manage their income before age 65. Medicare is one of three federal programs (Social Security & the HECM program) that need to be included in a comprehensive retirement plan.
Medicare planning is a critical component in retirement and should be discussed with an expert in the field.
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