There are 4 Rules of Retirement that will impact both your financial plans as well as as your Social Security benefit. These 4 Rules of Retirement have two specific truths:
- They are all federal regulations.
- Traditional financial planning will never mention any of them.
The 4 Rules of Retirement are:
Rule 1: You have a mandatory expense in retirement.
Under federal regulations to receive your Social Security benefit you must accept Medicare Part A when eligible. Failure to do results in the forfeiture all current, future and even past Social Security benefits.
Eligibility for Medicare is:
- Being 65 years of age or older
- No longer having creditable health insurance through an employer or spouse’s employer.
Thankfully Medicare Part A is premium free, but unfortunately, there are other parts of Medicare, Parts B & D. These two parts have late enrollment penalties that are perpetual and compounding for those who do not enroll once eligible.
Compounding this regulation is also the Affordable Care Act (ACA). The ACA states that you must have creditable health insurance as well or face potential penalties.
Medicare defines creditable health insurance as any plan that insurers 20 or more people during the year. Unfortunately, this definition renders any private health insurance and COBRA as ineligible.
The result – you must sign up for Medicare.
Rule 2: Your only mandatory cost in retirement is based on your income.
The more money in retirement you have the higher your Medicare premiums.
Rule 3: The definition of income for IRMAA is extremely broad.
Medicare defines income for IRMAA as “your adjusted gross income plus any tax-exempt interest you may have”.
Some examples of income that will be used against you:
Social Security / Wages / Tips / Interest / Rental Income / Pension Income / Capital Gains / Dividends and distributions from any tax-deferred investment like your Traditional 401(k).
Rule 4: Your Social Security benefit will pay the bulk of your Medicare premiums as well as IRMAA.
Under federal regulations Part B premiums (optional Part D) as well as any surcharges due to IRMAA are deducted from any Social Security benefit you may receive.
- The Medicare Board of Trustees projects Medicare premiums to increase by over a 6.20% for the next 8 years (pre-Covid).
- The Social Security Board of Trustees projects that the cost of living adjustment (COLA) will be no higher that 2.40%.
Because of these 4 Rules of Retirement:
- You have to enroll into Medicare
- The cost of your Medicare is based on your income. The higher the income the higher your costs
- Income is practically everything in your financial plan.
- Your Social Security is in jeopardy due to your own financial savings.