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Dec 15, 2021 | Insurance Consulting, Q&A, Tax Planning & Preparation

How does my income affect my medicare premium?

Tags: Medicare, Tax Strategy
If you are retired and age 65 or older, you are likely enrolled in Medicare, the Federal health insurance program that provides hospital (“Part A”), medical (“Part B”), and prescription drug (“Part D”) coverages. While you typically do not pay Part A premiums, you do pay Medicare Part B and D premiums. Often, you pay these via a direct deduction from your Social Security benefits. In addition, premiums are adjusted annually for inflation.

HOW ARE MY PREMIUMS DETERMINED?

While there are base premiums for Medicare coverages (for 2022, Part B is $170.10/month; Part D premiums vary), you may pay more based on the income reported on your tax return. See the table below as an example (the higher your income, the higher the amount). The Social Security Administration (SSA) calls these additional amounts your income-related monthly adjustment amount (IRMAA) and bases them off of your Modified Adjusted Gross Income (MAGI) on your most recent federal income tax return.

Your IRMAA is determined annually. This means if you are subject to IRMAA in 2022, you may not be subject to IRMAA in 2023 if your income has decreased, bringing your MAGI below the thresholds. Likewise, if you had a qualifying “life-changing event” and your income decreased, you should contact the Social Security Administration.

WHAT SHOULD I CONSIDER WHEN IT COMES TO MY IRMAA?

When evaluating your overall financial situation, including your tax strategy and investment-related transactions, consider the potential impact your MAGI may have on your IRMAA to avoid unexpected surprises. Our team can assist you in understanding your MAGI, how your investments affect your MAGI, and options for lowering your MAGI.

Social Security and its related programs are very complex. We highly recommend contacting the SSA or visiting your local office to address your individual situation. We are also able to address any questions you have.

Additional information about Medicare premiums and IRMAA can be found in the following links:

Medicare.gov – Your Medicare Costs

Social Security Administration – Rules for Higher Income Beneficiaries

Author: Marc Verdi, CPA/PFS, CFP® | Director of Tax & Financial Planning
Written: December 15, 2021

How Retirement Accounts and Taxes Affect How Much You Need

A retirement nest egg of $1,000,000 in a traditional 401 k is not the same as $1,000,000 in a Roth account or taxable brokerage account. Taxes can significantly change how much retirement income you actually get to spend.

Account types and taxation:

  • Pre-tax accounts (traditional 401(k), traditional IRA): Withdrawals from 401(k)s and traditional IRAs are typically taxable as ordinary income
  • Tax-free accounts (Roth IRA, Roth 401(k)): Qualified withdrawals are generally tax-free
  • Taxable accounts (joint brokerage, trusts): Subject to capital gains taxes

Retirement income may still be taxable, including traditional 401(k)/IRA withdrawals and Social Security taxation. Required minimum distributions from an individual retirement account or employer sponsored retirement plan start at age 73 under current law, potentially forcing higher taxable income and affecting Medicare premiums.

State income taxes differ significantly. Virginia and South Carolina tax retirement income (though SC offers some exemptions), while Florida and Arizona have no state income tax. Relocating in retirement may affect your gross income needs after tax.

Tax-aware withdrawal strategies—such as blending withdrawals from traditional and Roth accounts, realizing capital gains strategically, or performing Roth conversions before RMD age—may help optimize your financial situation. However, tax laws and brackets can change. Working with a team that integrates investment management with ongoing tax strategy and preparation, like Godsey & Gibb’s in-house CPA team, can help keep your retirement plan and tax advice current. Consult your tax advisor for guidance on your particular investment and account structure.

Pitfalls of Popular On/Off-Track Benchmarks

Widely-referenced age-based retirement savings goals suggest you have: 1x your annual salary saved by age 30, 3x by 40, 6x by 50, 8x by 60, and 10x by age 67 to maintain your current lifestyle in retirement if you plan to retire at this traditional retirement age. A common guideline is to save between 10% and 15% of your annual pretax income for retirement, assuming a 40- to 45-year working career.

This framework was developed by Fidelity Investments internal research around 2014 and used in part as a marketing tool. Certain assumptions—such as social security accounting for 35% of one’s retirement income—are inapplicable to many affluent retirees. The framework was validated for incomes between $50,000 and $300,000, another indication it doesn’t apply to everyone.

Common pitfalls that distort how much money someone thinks they need:

  • Underestimating healthcare costs

  • Ignoring inflation’s impact on living expenses over 25+ years

  • Assuming very high future results from investment strategies

  • Not planning for long-term care or surviving spouse needs

A retirement calculator can help gauge whether current retirement savings and asset allocation align roughly with targets, but complex situations—business owners, large concentrated stock positions, potential inheritance—usually benefit from professional modeling. Investing involves risk, and actual investment results will vary.

At Godsey & Gibb, we frequently review progress towards retirement with clients and adjust their savings plan as markets, tax law, and personal financial goals evolve.

A retired couple strolls hand in hand through a serene park, surrounded by lush greenery and blooming flowers, enjoying their time together in nature. Their relaxed demeanor reflects the joys of retirement, a time when they may also be considering aspects of their healthcare, such as Medicare premiums and the impact of modified adjusted gross income on their medical insurance costs.

Why a Personalized Retirement Plan and Ongoing Professional Guidance Matter

How much retirement income you need is not a one-time calculation. It’s a moving target influenced by markets, inflation, health, tax legislation, family needs, and personal goals. To start saving effectively for retirement, you may benefit from a plan that adapts.

A personalized retirement plan typically includes:

  • A detailed retirement budget and spending map

  • Investment strategy aligned with investment objectives

  • Tax strategy coordinated with distributions

  • Estate and legacy planning (wills, trusts)

  • Risk management (insurance, long-term care planning, survivor income planning)

Developing the plan is only half the work. Executing the plan—making investment changes, tax decisions, and distribution adjustments year by year—is equally complex. Many retirees find that working with financial advisors who can delay retirement decisions strategically, coordinate employer match optimization while still working, and manage the transition is valuable.

Godsey & Gibb’s model brings financial planners, portfolio managers, and CPAs under one roof so that tax strategy, investment management, retirement income planning, and estate considerations can be coordinated. We focus on helping clients understand how much retirement savings they may need given their current age and goals, leveraging expertise in all the necessary areas of complexity.

If you’re in the Richmond, Greenville, Jacksonville, or Phoenix areas, consider a conversation with a fiduciary financial planner to refine your own directional retirement number. With thoughtful planning, periodic review, and the right advisory team, we strive to help clients approach their retirement years with greater clarity and confidence about how much income their savings may support.

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Information contained herein is for general educational purposes only and is not intended to be substituted for personalized investment, financial, tax, or legal advice as individual situations can vary. The use of charts, graphs, formulas, and other illustrations are not intended to be used independently to guide investment decisions or to determine which securities to buy or sell, or when to buy or sell them. Information was obtained from sources considered reliable, but no representations or warranties are made to its accuracy, timeliness, suitability, or completeness. Statements expressed are opinions of certain Godsey & Gibb Wealth Management personnel and are subject to change without notice. Forward-looking statements expressed herein are subject to change due to shifts in the market and economic conditions. Full disclosure: https://www.godseyandgibb.com/disclosure/

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