• Figure Medicare cost in your retirement planning
    February 24,2013
     

    How many articles have you seen (or even read) about the importance of saving for retirement? Maybe a hundred or more? On that note, over the years, how many articles have I written espousing the importance of planning for your nonworking golden years? Many — so many that I have lost count.

    Retirement planning is important. Very important.

    I could stop here (noting this would easily be my shortest column) but there’s more to the story than just planning. The other side of the story is taking the money out of all those savings vehicles.

    The true golden age, the age the bell tolls for all of us, is 70. At that age, you will have to take your required minimum distributions out of your IRA and the taxable portion of Social Security benefits. If you have a pension, that’s the age you may need to start taking distributions.

    Add all that up and you may find yourself with taxable income that could put you in another income bracket for Medicare. And if you jump a bracket with Medicare, the additional premium cost is permanent.

    If your adjusted gross income is above one of the five Medicare limits, you could see your Medicare Part B premium go up more than $600 a year. That’s per person. When you retire and are relying on unearned income, $600 or $1,200 for two people in a household in your annual budget is a lot of money.

    While Medicare Part A is a must for anyone who is over 65 and collecting Social Security (actually it’s required) and is free, Medicare Part B is no freebie and it’s tied to your taxable income.

    Naturally, we all need income in our retirement years and I would not encourage you not to save just to avoid paying taxes. The point here is to save and save wisely.

    There are ways to manage your savings and avoid costs during retirement that will deplete your income and may hamper all the plans you have for retirement, such as travel and all those interests you haven’t had time to take up because you have been busy working.

    That is the point of retirement after all, isn’t it?

    So here’s a few ideas. I am not a great fan of life insurance other than term insurance. When you are young and if you have others who rely on you for income and living needs, term insurance is really a must-have.

    Whole life insurance, however, is a way to amass savings. The distributions you take are tax-free and do not count in your adjusted gross income calculation for Medicare premiums.

    Same for Roth IRAs. Remember, a Roth IRA has no minimum required distributions. The money in a Roth goes in after taxes so it comes out in distributions tax-free. Ditto on health savings accounts. The money in them comes out tax-free when you use the distributions to pay for health expenses and Medicare premiums count as a health expense.

    It’s important to really think about diversifying your retirement savings and make sure you have some that will come to you in retirement that are tax-free. Save for retirement; just save with an eye on taxes; not just what it saves you today during your working years but what it will cost you when money may be tighter.

    That way, you may be able to have the best of both worlds, money to spend in retirement and a low tax bill.



    Karen Paul is a financial consultant in Burlington.

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