Financial Fingerprint: How to Approach Your Retirement Questions presented by William D. Connor, Financial Advisor at Meld Financial.
DEFENSE WINS RETIREMENT™: How to Shift Your Strategy From Growth to Income presented by Kyle Whittington, CFP®, President at Meld Financial. The webinar will be held on August 24th at 3:00 PM Central Time. There is no cost to attend, but you must register in advance.
Social Security Monthly Benefit Increase
Social Security recipients will receive a 1.6% cost-of-living adjustment (COLA) beginning in January. This is an increase of 1.2% less than the 2.8% in 2019. The 2020 COLA equates to $16 per $1,000 in benefits. The average retiree on Social Security current receives $1,473 per month which means they will receive $24 more in 2020.
Since 1975, automatic cost-of-living adjustments (COLA) for Social Security recipients occur when there is an increase in inflation as measured by the Consumer Price Index for Wage Earners and Clerical Workers (CPI-W). Increases in Social Security benefits occur when there is an increase in the average CPI-W for the third quarter (i.e. Q3 2019) when compared to the third quarter of the last year (i.e. Q3 2018) in which a COLA was made. However, the CPI-W is based on the spending habits of people who work, not retirees, and therefore does not necessarily properly reflect the increase in costs retirees pay for such things as medical expenses and housing.
Social Security Taxable Wage Base COLA
The maximum amount of earnings subject to the Social Security tax for workers who pay FICA tax will increase to $137,700 in 2020 from $132,900 in 2019. This increase is based on the national average wage index which rose 3.6%.
New Social Security Earnings Test Limit
Individuals who receive Social Security benefits prior to their Full Retirement Age (age 66 for people born between 1943 and 1954), are subject to what is known as the Earnings Test. If these individuals earn more than the earnings limit of $18,240 in 2020 (increased from $17,640 in 2019), the Social Security Administration (SSA) will deduct $1 from benefits for every $2 earned over $18,240. People turning Full Retirement Age (FRA) in 2020 are subject to a higher earnings limit of $48,600 in 2020 (increased from $46,920 in 2019) up until the month they turn FRA. If these individuals earn more than $48,600 prior to the month they turn FRA in 2020, the SSA will deduct $1 from benefits for every $3 earned over the limit. Once they reach FRA, they can earn as much as they want with no deduction in benefits. For more details on the earnings limit and how it’s computed, see Social Security Administration website.
Medicare Premium Increase
The Centers for Medicare & Medicaid Services (CMS) announced the 2020 Part B premium that covers physician and outpatient services will increase 6.7%. The 2020 standard Part B premium will be $144.60, an increase of $9.10 from $135.50 in 2019.
Medicare Deductibles for 2020
The Medicare Part A (hospitalization) deductible for “spell of illness” increases to $1,408 from $1,364 in 2019. A “spell of illness” means that the recipient did not return to the hospital for the same illness for a period of 60 days. The annual Part B deductible increases to $198 from $185.
Medicare Premiums & IRMAA
The Medicare Part B and D (prescription drugs) premiums you pay are based on your Modified Adjusted Gross Income (MAGI) as reported on your tax return two years ago. Therefore, your 2020 premiums will be based on your 2018 tax return. MAGI is the sum of your Adjusted Gross Income (line 7 on your 2018 Federal tax return) plus your Tax Exempt Interest (line 2a).
Income Related Monthly Adjustment Amount (IRMAA) premiums were implemented for higher income taxpayers beginning in 2007, with the amount of premium paid tiered based upon the amount of MAGI. For the first time since 2007, the income tiers will be adjusted for inflation. Single taxpayers whose MAGI is over $87,000 (previously $85,000) and married filing joint taxpayers with MAGI over $174,000 (previously $170,000) will pay an additional premium known as IRMAA. The Part B IRMAAs have increased, but the Part D IRMAAs have decreased for 2020.
The table below lists the Part B premiums and D IRMAAs for 2020.
|2018 MAGI Single Taxpayers||2018 MAGI Married Filing Joint Taxpayer||Part B Premium||Part D IRMAA|
|$87,000 or less||$174,000 or less||$144.60||$0|
|$ 87,001 – $109,000||$174,001 – $218,000||$202.40||$12.20|
|$109,001 – $136,000||$218,001 – $272,000||$289.20||$31.50|
|$136,001 – $163,000||$272,001 – $326,000||$376.00||$50.70|
|$163,001 – $500,000||$326,001 – $750,000||$462.70||$70.00|
|Above $500,000||Above 750,000||$491.60||$76.40|
Appealing IRMAA Premiums
Since your 2020 Medicare premium and related IRMAA will be based on your 2018 tax return, you may have had a life changing event that will allow you to submit an appeal to not pay, or reduce the amount, of your IRMAA. Appeals are submitted to the Social Security office on form SSA-44. You can personally take the completed form to your local SSA office or mail it. If you take it, you can register to see a representative and wait your turn, or drop it in their “lock box” typically located near the entrance. The following “Life Changing” events qualify for an IRMAA appeal:
- Death of Your Spouse
- Work Stoppage
- Work Reduction
- Loss of Income-Producing Property
- Loss of Pension Income
- Employer Settlement Payment
To Determine Your 2020 Social Security Benefit and Medicare Premiums
The Social Security Administration mails an annual COLA letter to beneficiaries each year, typically in mid-to-late November. The letter will provide details about your 2020 benefit, including your new Social Security amount, Medicare premiums, IRMAA, if applicable, and voluntary income tax you’ve elected to have withheld. In December you will be able to find out what your 2020 Social Benefit and related Medicare premiums will be by logging on the Social Security website at www.ssa.gov/myaccount. If you haven’t already established an account on the ssa.gov website, I strongly encourage you to do so. Establishing an account will not only let you see your Social Security and Medicare related benefit information, but it will also help keep your Social Security number and related information secure. When you establish a “myaccount”, you will also establish several security questions and set up the second entry security for the SSA to text or email you a security code each time you try to enter the site. If you have not already established an SS account, simply follow the steps in the SSA publication “My Social Security, How to Create an Online Account” to get yours set up.
Questions About Your Social Security or Medicare Benefits?
Please feel free to contact me if you have any questions about your Social Security or Medicare benefits. I’ll be glad to help you any way I can.
Patricia L Burris, CFP®
Vice President, Corporate & Retirement Plan Services