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Welcome to How to Retire on Time, a show that answers your retirement questions. Say goodbye to the oversimplified advice you've heard hundreds of times. This show is about getting into the nitty-gritty so you can make better decisions as you prepare for retirement. Text your questions to 913-363-1234 and we'll feature them on the show. Don't forget to grab a copy of the book, How to Retire on Time, or check out our resources by going to www.retireontime.com.
Hello, and welcome to how to retire on time. A show that answers your questions about all things retirement, including income, taxes, Social Security, health care, and more. This show is an extension of the book, How to Retire on Time, which you can grab today on Amazon or by going to www.how to retire on time.com. My name is Mike Decker. I'm the author of the book, How to Retire on Time, but I'm also a licensed financial adviser, insurance agent, and tax professional, which means when it comes to financial topics, we can pretty much talk about it all.
Mike:Now that said, please remember this is just a show. Everything you hear should be considered informational as in not financial advice. If you want personalized financial advice, then request Your Wealth Analysis from my team today by going to www.yourwealthanalysis.com. With me in the studio today is mister David Frandsen. David, thanks for joining me today.
David:Yes. Thank you for having me.
Mike:David's job here is he'll be reading your questions that you've submitted in, and I'm gonna do my best to answer them. Now you can send your questions in right now or really anytime during the week to 913-363-1234. Save that number in your phone. So when you think of it, you can remember and submit the question then. That number again is 913-363-1234.
Mike:Or you can email them to hey mike@howtoreontime.com. Let's begin.
David:Hey, Mike. I'm 65 and looking at my health care options. What do you recommend?
Mike:Okay. Yes. It's open enrollment season. So a very timely question. Yeah.
Mike:And for those who are aware of what happens, basically, October 15th through, I think, December 7th for most plans.
Mike:I do not work for the Medicare agency. I'm not a government employee. I don't represent them, in any way. This is my opinion as I try to strategically help people understand what's offered there and understand their lifestyle legacy goals and then mesh the 2 together. Let me say that a little bit differently.
Mike:David.
David:Yeah.
Mike:What's your family health like?
David:My family health?
Mike:Yeah. I mean, are people generally healthy? Do they grow old and die? Are they dying with strokes and and diabetes and all that at the earlier on? Like, what I'm gonna put you on the spot here.
Mike:What what's your family health like?
David:Yeah. Generally, everybody's pretty healthy. Yeah. Everybody's lived a long time, and, everybody currently in my home is healthy. So we're we're pretty blessed in that way.
Mike:So that means we can take that information and incorporate it with your plan. Mhmm. Some people just have bad genetics. Sorry. You just you you end up that way.
Mike:You can't choose who birthed you.
David:Right.
Mike:Right? You're given a set of genetics. And so these things matter. Now in addition to your family health, genetics, diet, and exercise, these are factors that could influence your health care decision. You also want to incorporate what you're doing when it comes to your tax planning, your income planning, because these also could play a factor.
Mike:So in in health care, depending on which plan you do, traditional supplement or advantage, you might have different limits or different amounts of money you could spend in a catastrophe or not a catastrophe or normal visits. And so let's say that if there's a catastrophe, and you just gotta spend more money and all of your money is in, let's say, an IRA account or pretax account, and you just got higher medical bills, well, what do you do? You have to take it out of there. Like, that creates a tax issue Yeah. Which could then bump you up into maybe, a higher tax bracket.
Mike:Now you've got IRMAA surcharges, and this house of card starts to fall apart, and you just end up paying more in multiple ways. This is why I can't say it emphatically enough. Health care planning is not an isolated event. Most people that deal with this area of retirement, senior benefits, I believe is the technically the correct term to use here, is not an isolated thing yet. So many people that are gonna call you, they're probably already calling you.
Mike:Hey. We'll We'll help you pick out the plan. We'll help you do this. We'll help you do this. Well, you know, talk to me.
Mike:Talk to me. Talk to me. They're inundating you with calls and emails right now, buying lists and just seeing what they can get. They're not tax professionals. They're not licensed financial advisers in most situations.
Mike:And they might not understand the full scope of what is at stake here. So here's how to address it. And I'm gonna give it high level here first, and then let's talk about some of the definitions of traditional Medicare benefits supplement and advantage. You put your lifestyle plan together and you understand how are you gonna generate income? What does your income look like?
Mike:At what level it is? Are you on the limit there of IRMAA? So for couples, it's around just over 200,000. If you spend more than 200,000 of taxable events, not income. Right?
Mike:Taxable events, so, like, income from a pretax account.
David:Okay.
Mike:You could cross over to Irma. You need to know these things. For a single person, it's just over a 100,000 of taxable income. And when I say taxable income, if you take income from a checking account, it's not really income. It's not taxable.
Mike:These things matter. But when you understand that dynamic, then you can start to say, you know, I'm pretty close to the limit here. Let's say you want a 180,000 of income overall in retirement. You got some from pension. You got some from Social Security, and then you have some from your portfolio.
Mike:Because you're close to the limit, you're gonna be limited on your IRA to Roth conversions unless you wanna go over to IRMAA. And you're also at risk of going into that IRMAA surcharge category if a major catastrophe happens. These are things that people don't think about, And it matters. Because if you wanna get more out of your hard earned money, you do it through efficiency. You can't control the market, but you can control your strategies.
Mike:So let's define just in a couple of ways here. The different plans. Everyone basically pays for part a and part b.
David:Right.
Mike:Doesn't matter what you choose. You're gonna pay that. No way around. I I mean, I guess there's there's no way around it if you if you enroll and you're supposed to enroll at 65.
David:That's right. Yeah.
Mike:K. And quick asterisk here. If you're working past 65, you still need to enroll in part a and defer part b and d and everything else. Okay?
David:Okay.
Mike:So assuming that you're retired and you've turned 65, really, you've got 3 categories. You have traditional the traditional plan. Let's define that one first. In the most simple terms possible, you've got part b, which can help with your your doctor visits, your checkups, your basic functionality. Okay?
Mike:And then you have part d. Part d is is for medications, drugs, basically is what's going on there. And even if you don't take medications and you turn 65, you may want to consider signing up for part d anyway. Because if, let's say, 2, 3 years later, you need medication, it's very expensive. If you sign up for part d later, you will be penalized for the rest of your life.
Mike:So sometimes it makes sense to just sign up for part d right now and just have that kind of baked in there. And and there's a a simple cost analysis that could be done with that. So that's your basic traditional, plan, and you're gonna pay roughly and this changes, double check these numbers, but around 20% of whatever the cost might be is kind of the rule of thumb. So there's no limit. If you have large expense bills, you could pay a fortune.
Mike:Mhmm. You know, there's always exceptions to these things. But generally speaking, if you have a very expensive medical situation, you could pay a lot of money because 20% of a lot of money is still a lot of money.
David:Right. Yeah.
Mike:K. Then you have your supplement plans. Now the supplement plan in, again, the most simple definition I can think of. And please know this is an informational conversation. Do your research.
Mike:Dive into the details. This is intended to start the conversation. A supplement plan is intended to basically have a very small deductible, like couple $100 maybe is the the most that you would pay in deductibles in medical costs, and then you're pretty much covered. I say pretty much not, you know, in everything. Right?
Mike:This isn't going to cover long term care costs. This is medical costs. This is health insurance. But the supplement plan, you're paying a higher premium every single month. So there's some benefits there.
Mike:Let's just take the difference between the 2 traditional. You're paying, let's say, 20% of whatever the costs are. There's no limit on that. But, hey, you know, if you don't have an expensive medical year, you don't have a lot of medical costs, you might save some money. If you're sick, the supplement plan might be better for you, even though you're paying monthly premiums and they're a higher premium than any of the other plans.
Mike:Your deductible, your out of pocket expense in in some sense, your deductible is the technical term here, is very limited. So really, it it helps protect it. That that's like paying for insurance, basically. K? And it's important to note with supplement plans, when you turn 65, you can join a supplement plan and not be denied.
Mike:But if you're 67, 68, if you've already been on one of the plans and then you try to change into a supplement plan, you can be denied. That's often misunderstood. K. So there's some nuance in that. And this is again why the planning is important.
David:Right.
Mike:Insurance is not an investment. It is transferring risk. Which risks do you want to transfer and how much are you willing to pay for that transference of risk? That's the simplest version about how to approach this. Now the last one are the advantage plans.
Mike:Now the advantage plans are a way to where you don't really pay money for advantage plan. I mean, maybe you do. Just you gotta look at the details. But the advantage plan is basically saying, alright. We're gonna put a cap of maximum out of pocket amount.
Mike:You cannot spend more in medical costs above the amount. Let's say 36100 in a year. So you put a cap on there in case you have a an accident, a horrible stroke, a horrible heart attack, whatever it might be. There's a cap expense in there. And it also helps kind of maintain this, what we're used to, you know, access to the doctors and an eye vision.
Mike:You're kind of selecting these other benefits that you might need. All 3 of them. When people give me absolutes, oh, well, I no one should ever do this or that. That's bad advice. Everyone's different and everyone wants something different.
Mike:Each of these plans are gonna make sense for a very specific person for a very specific situation. So this is a very broad generalization, but I wanna give you at least some context of what it could look like. So if you just are healthy, you don't really see doctors much. Like, it's just you're concerned about you don't wanna pay money and you don't think you're gonna have many medical expenses. Maybe the traditional makes sense.
Mike:You're taking some risks there. Right? Because you're not capping your expenses. But in some sense, you could just go down the traditional route and that would be fine. The supplement plan for people that are sick or have family history of just being very sick or not doing well.
Mike:Yeah. If you're sick, if you don't care about diet and exercise, which some people just do not care about diet and exercise. They do not care how unhealthy they are because in their mind, they can just fix it with a pill.
David:Right.
Mike:There are many people out there like that. The supplement plan may be better for you because you're gonna pay a premium for that, but you're really sheltering a lot of these costs. And that depends on how sick you really are. There's some maybe it's not that big of a deal. Again, everyone's different.
Mike:Sure.
David:And
Mike:then the advantage plans are kind of a nice in between. If you're gonna cap the maximum out of pocket expense, you could do some planning around. And what I like about that max out of pocket expense is, let's say, you would normally have 50,000 of medical costs in 1 year and your max out of pocket was 36100, you're not getting forced into a higher tax bracket. You're not getting forced accidentally into IRMAA. You see how the dots are connecting here?
Mike:Yes. You can do more deliberate planning so that if a medical situation happens, you're protecting not only your medical costs, but your tax planning. It's all connected. And what's right for you is gonna be different than what's right from someone else. I will say this as well.
Mike:This is a concern of mine. There have been some significant shifts in these plans, specifically the advantage and supplement section. Mhmm. Where some plans aren't paying a commission anymore. And my concern is I believe all agents are people that are pleasant.
Mike:They're fun to talk to. I believe they they do try to do their best. But I'm concerned about people getting convinced to go into a different plan so that they can get a commission even though it's basically the same thing when the other plan might just be a little bit less money. I know there are regulations out there that say you're supposed to put your the best interest first. I know the suitability process.
Mike:I know it's out there. It's it's well intended. But my concern is the rationalization of, well, I they said they wanted this, and so I want this way. Yeah. Rationalizing the suitability side of it because some commissions could not be paid out if you just maintain certain things.
Mike:So be very wary of that. We brought Medicare senior benefits in this whole conversation in house because we we started to not trust referring out to other people. We also believe that your health care costs are a part of your health care planning, are a part of your tax planning, your income planning, and so on. So if you wanna have a more comprehensive conversation in open enrollment season right now, whether you're turning 65 or you are 65, and maybe you've been working with the same agent for years. Fine.
Mike:If you wanna have a comprehensive conversation about how your senior benefits plans, your options affect the rest of your plan or how your plan affects these different plans, how it all affects each other, and you wanna see it on paper, give us a call. Go to www.yourwealthanalysis.com right now. That's www.yourwealthanalysis.com. You can text keyword analysis, that's analysis, to 913-363-1234. That's analysis to 913-363-1234.
Mike:And you'll fill out a few questions, and then you'll, you'll be able to schedule a call with with me or David Mhmm.
David:To
Mike:where we can walk you through your options, your your benefits, and really thread the needle of how it's all connected and how you can make a more deliberate decision in open enrollment, not just on your health care plans, but your tax planning, your Social Security optimization, your income planning, your growth planning, your legacy planning, and the list goes on and on and on. If you wanna really have a nice comprehensive holistic conversation, request that analysis today. That's www.yourwealthanalysis.com or text analysis to 913-363-1234. And, yes, we can actually help enroll you in whatever plan makes sense to you. That's all the time we've got for the show today.
Mike:If you enjoyed the show, consider subscribing to it wherever you get your podcast. Just search for how to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you may not even know exist. Explore strategies that may be able to help you lower your overall risk while potentially increasing your overall growth and lifestyle flexibility. This is not your ordinary financial analysis.
Mike:Learn more about Your Wealth Analysis and what it could do for you regardless of your age, asset, or target retirement date. Go to www.yourwealthanalysis.com today to learn more and get started.