#10 – How To Maximize Social Security And Medicare With Mary Beth Franklin

Wes Moss [00:00:50]:
Mary Beth Franklin, welcome back to Money Matters. The question around Social Security, and I was doing a planning session with someone who’s a teacher in the state of Georgia. They put in a lot of year. They’re going to get to their 30 years soon. So we were looking at are they a teacher that is going to be impacted by their pension or not in this case. Fortunately, this teacher has also paid into Social Security, so should be fine when it comes to getting their Social Security, but could have some government pension offset, I believe, if it comes to having her spouse. But we’re going to get into that in just a minute. Why don’t we start with this? So the essence of today’s show is to speak with a foremost expert on Social Security.

Wes Moss [00:01:38]:
We all want to know how to maximize it. If you’re single, you want to maximize it. If you’re a couple, you have to be a little more strategic to think about maximizing it. There’s all sorts of things that go into the decision of when to flip the switch with Social Security. And I think we, maybe the two things I want to start with is Social Security going to be here? Because when you’re doing planning, and even if this is for high net worth families that have a million, 2 million, $3 million, $5 million, as much as Social Security as an amount, it’s poo pooed for two reasons that I see. One, oh, it’s not that much, so I’m not going to count on it. And two, it’s not really going to be there, so I’m not going to count on it. However, if you’re facing the facts, if you start to look at Social Security planning, the numbers can be pretty big, meaning three, $4,000 a month for one spouse and two, three, four for another spouse.

Wes Moss [00:02:35]:
I mean, that’s big money. If you’re thinking about a couple, can be three, four, five, $6,000 in a month, every month, adjusted for inflation for the rest of your life. It’s not something to dismiss, is my point. So let’s start with, and I think about the update, another change I noticed, Marybeth, is on the Social Security statement that I downloaded in the section, I think it’s called. It’s going to be here or there for me. Section. Is Social Security going to be there for me? I remember it being they essentially said you should get $80 for every $100 you’re promised, which seemed like a little. Even if the trust fund quote runs out in 2034, which seems like a little bit of an improvement, I remember it saying 70 or $0.75 on the dollar, is Social Security going to be there for us?

Mary Beth Franklin [00:03:31]:
Well, let’s start with the big picture. Yes, I firmly believe Social Security will be there for current and future retirees. Will there be some changes? Probably. Will it affect everybody? Not sure about that. If you look historically, Congress very seldom cuts benefits for existing or near retirees who have baked these numbers into their retirement income plans. Congress tends to make changes that take effect in the future. For example, maybe if you’re 50 years old as opposed to 65 years old, maybe there may be some change in your benefit when you get to your full retirement age. I think what we’ll see is a combination of maybe Social Security payroll taxes will increase either the percentage rate that both employees and employees pay, perhaps the maximum amount of wages that can be taxed, that could change the taxable wage base.

Wes Moss [00:04:40]:
They could keep pushing that higher.

Mary Beth Franklin [00:04:42]:
Right. And let me explain a little history of how Social Security is funded and where the challenges are. Right now, basically every one of us, about 95% of american workers pay into Social Security. They pay 7.65% of their wages into Social Security. The majority of that is funding Social Security. A little piece of that is funding Medicare. And then their employer matches that contribution. That’s your payroll tax up to about how much?

Wes Moss [00:05:18]:
Because that number keeps going up and up and up and up every year, right.

Mary Beth Franklin [00:05:22]:
That taxable wage maximum goes up each year with inflation, and for 2024, it’s $168,600. Now, that’s compared to the previous year of $160,200. So an increase of more than $8,000. That means most people are going to be paying the same amount of FICA taxes as last year, unless their income is like 160,000 or over. Now they’re going to be paying FICA taxes on more of their income than they did last year. But say you make $500,000 a year, you are only paying those payroll taxes up to the taxable maximum, $168,600. So this is one of the big challenges. When Social Security went through its last major reform in 1983, and when Social Security was truly in danger of not being able to pay full benefits for the first time, the congressional members tweaked the taxes, the FICA taxes, and they said back then, as long as 90% of US wages were being taxed for FICA payroll taxes, Social Security will never run out of money.

Mary Beth Franklin [00:06:46]:
The problem is so many people make so much more than that taxable wage base. Now say you’re making 170,000 plus you are not paying FICA taxes on those excess wages as a result of this great income inequality. Now we are only taxing about 83% of total US wages.

Wes Moss [00:07:10]:
Again, this was back in what year did they.

Mary Beth Franklin [00:07:12]:
1983, the last time there was major reform.

Wes Moss [00:07:15]:
So in 83, their assumption was a little off. They thought they’re getting to 90% of income. They’re really only getting to 83, is your point?

Mary Beth Franklin [00:07:24]:
They were at 90 back then. But the difference is wages, salaries. Wages have increased so much in those past 40 years, and the taxable wage base has not caught up with it. So so many people, a chunk of really wealthy wage earners, are not paying taxes on those excess earnings. So that’s taxes that is not funding Social Security. If we let that float back up, you would probably be taxed on your 1st $250,000 of wages as opposed to $168,000.

Wes Moss [00:08:00]:
So right there. So it wasn’t necessarily a miscalculation in. I always think of the discalculation tables. Yeah. The actuarial issue is on longevity. It’s not a longevity progression that has made the Social Security trust fund start to run low. Now, however, it was relative to when we started, wasn’t there originally kind of miscalculating longevity, and now you’re saying they miscalculated income a little bit.

Mary Beth Franklin [00:08:32]:
I don’t think they miscalculated. I think two things happened over the last 40 years, Silicon Valley and hedge funds. No one expected so many people would be making so much money that wasn’t being taxed.

Wes Moss [00:08:44]:
Got it. Okay, that makes sense. So if you think about this reservoir of money that is the Social Security trust fund, when you read your statement, and it clearly is trying to address the worry that so many Americans have that it just, quote, won’t be there. When they say it could run down to the zero, meaning the reservoir of money by the year 2034, I believe it says that’s when the system, again, if nothing changes if they 100 miles an hour into a brick wall goes away. The reason we would still have $0.80 on the dollar of what your, quote, promised paycheck would be per month is because. Why?

Mary Beth Franklin [00:09:27]:
Because of the ongoing payroll taxes. There would be enough money coming in from everybody paying their payroll taxes to fund about 80% of promised benefits. Again, let me give a little history lesson here. Back in 1983, when Social Security was in danger of not being able to pay full benefits for the first time, that bipartisan commission on Social Security, run by a guy who, at the time, most people had never heard of Alan Greenspan. Long before he was chairman of the Federal Reserve Board, he chaired this bipartisan commission on Social Security. And the Greenspan commission did a lot of really smart, forward looking things. One of the things they said is, wow. In 1983, looking ahead to the retirement of the massive baby boom generation, let’s raise taxes, payroll taxes now, and bring in more money than we need now, and stockpile that excess money in what we’ve come to know as the trust funds.

Mary Beth Franklin [00:10:31]:
So from about 1983 to about 2010, we were collecting extra FICA tax revenues and stockpiling it. We didn’t meet it.

Wes Moss [00:10:41]:
So it was growing.

Mary Beth Franklin [00:10:42]:
The reservoir was growing, growing to like $3 trillion growing. And that reservoir, the trust fund, was also earning interest on that money. When we get to 2010, two things happened. It was the beginning. The first wave of baby boomers started to retire, which meant they’re not working, they’re not paying FICA taxes, their employer is not paying FICA taxes. And we had the great Recession. A lot of people lost their jobs. You lose your jobs, you’re not paying FICA taxes, your employer is not paying FICA taxes.

Mary Beth Franklin [00:11:15]:
So for the first time, the ongoing FICA tax revenues were not sufficient to pay all promised benefits. So that’s when we started tapping the interest that the trust fund had earned. And that worked for another eleven years when we got to 2021, now we’re in the midst of the coronavirus pandemic. A lot of people aren’t working, and a lot more baby boomers have retired and started pulling money out of the system. So for the first time, FICA tax revenue, interest on the trust fund, not enough to pay all promised benefits. 2021 is the first time we started tapping the actual trust funds. We are drawing down those reserves to help pay benefits. If Congress does nothing between now and approximately 2034, that date changes.

Mary Beth Franklin [00:12:05]:
From time to time, the trust funds, the excess tax revenues, will run out, but there would still be enough money from ongoing FICA payroll tax revenues to pay about 80% of promised benefits. Now, I don’t foresee that happening. Social Security is the most popular, most successful federal program in history, and Americans, regardless of their income, really care about it. Does Congress really want to tick off 70 million voters by saying, I’m going to cut your benefits? I don’t think so. But the sooner they act, the less drastic the changes will have to be.

Wes Moss [00:12:49]:
So let’s go with this. I also think that here we are in a new year, and a fair amount of relatively confusing rules have the window on those has closed, making Social Security a little bit more straightforward. I really want to talk about how we can think through getting the most out of it, maximizing it. But let’s start with what are some of the, I used to call this the spousal switcheroo, or the spouse saves you, where you could take a suspended benefit, take half of your spouses, then jump to a higher level over time. All of that. I don’t know what you called that, or what your terminology is for that, but the window for that is gone at this point.

Mary Beth Franklin [00:13:37]:
Effectively, yes. Up until about 2016, from about 2000 to 2016, there were opportunities, particularly for married couples, or in some cases, divorced spouses who had been married at least ten years, to get a little clever with their claiming strategies. Once upon a time, when someone reached their full retirement age, they could file for benefits for the purpose of triggering a benefit for their spouse. And then that same worker could suspend their benefits so they wouldn’t get their own benefit, but the spouse would, and.

Wes Moss [00:14:14]:
Their own benefit file and suspend.

Mary Beth Franklin [00:14:16]:
Yeah, right. So that disappeared in 2016. So take that out of your head for a while. There was another opportunity for people who were born before 1954, and I always stress that because I was born in 1954, so I couldn’t do it. But it said that if one spouse claimed a benefit, then the other who was born before 1954 could say to Social Security, pay me only as a spouse. In other words, give me half of my husband or wife’s full retirement age benefit, while mine continues to grow up until age 70, and then I will switch to my maximum benefit. The last people who could take advantage of what I called a restricted application for spousal benefits. Those last eligible people turn 70 in 2023.

Mary Beth Franklin [00:15:12]:
So effectively, this has gone away because your maximum Social Security benefit is achieved at age 70. So there’s really no point to delaying benefits beyond that.

Wes Moss [00:15:22]:
More with Mary Beth Franklin, straight ahead. How does setting the goal to have income for a lifetime sound? It’s not a trick question. Many happy retirees create income for a lifetime, and it’s something that’s called income investing. It’s a way to harness the power of many different forms of cash flow, including rent, royalties, dividends, distributions and interest. If you’d like help with income investing, you can reach capitalinvestmentadvisors@yourwealth.com. That’s your wealth. The theme of your ebook is maximizing for folks. And I want to help people think through this because obviously the next big question is time.

Wes Moss [00:16:09]:
Because Social Security now, I think, does a better job than they have in the past of showing a chart. It’s a sideways bar chart that says, hey, you can take two grand if you’re 62, or you could take 7% higher than that if you wait till you’re 63 and another seven and a quarter percent if you wait till 64. So it shows you the amount if you delay and delay. But then you’re also foregoing that money for that period of time. And so you’re betting on a little longevity. How long does it take me to make up for the year I waited? Or the two years or five years or up to what, eight years? Right? We could take social at 62, or we could delay all the way to age 70. And there’s not a perfect answer there, but let’s talk that through. So let’s start with just a simple, let’s say I’m single.

Wes Moss [00:16:59]:
I’m approaching 62. I’m thinking about Social Security. Should I take, and I did the math on this, 2000 today or at 62, or wait to take the 28, $42,840 tomorrow or in five years, which, by the way, I calculated that as about an 11.9 year break even. How do you think that through?

Mary Beth Franklin [00:17:27]:
Well, for the single people, it’s pretty straightforward, because your Social Security benefit is based on three factors, your average lifetime earnings, which they take, your top highest 35 years, the age when you claim benefits. And the big question is, are you still working? So my number one rule is, because a lot of people don’t understand this, if you continue to have earnings from a job or self employment and you claim Social Security before your full retirement age, you are going to at least temporarily lose some or possibly all of your Social Security benefits, because there’s this earnings cap, and this year, if you make more than about $22,000 a year, Social Security is going to start taking away some benefits, a dollar in benefits for every two over that limit. So to say, you make about $60,000 a year or more. Don’t do it. Just don’t claim Social Security. You will not get any benefits.

Wes Moss [00:18:35]:
However, Mary Beth, is there a provision where Social Security will add back what you actually. But they do it over your lifetime, what you were penalized?

Mary Beth Franklin [00:18:48]:
You.

Wes Moss [00:18:49]:
Is there an add back? Yeah, is there an add back?

Mary Beth Franklin [00:18:52]:
If you claim benefits before your full retirement age and you continue to work and you lose some benefits due to excess earnings? Okay, so let’s say roughly, the earnings cap is $22,000 this year, and you make 42,000. That’s 20 over the limit. And they’re going to withhold one dollars in benefits for every two over the limit. So they’re going to hold back $10,000 and they’re going to do it all up front. So let’s say you were supposed to get $2,000 a month in benefits. They are going to withhold the first five months, so they hold on to all those $10,000 before they start paying you benefits. Now, once you get to your full retirement age, they’re going to look at your earnings record and say, hey, John, I see that you claimed benefits early at 62. That was five years before.

Mary Beth Franklin [00:19:44]:
Your full retirement age is 67, and you took a 30% haircut up front because you claimed early. And in addition, we withheld $10,000 a year over those five years because you made too much money. We will readjust your benefits now that you reach full retirement age to reflect the money that you lost due to the excess earnings, but not the money you lost because you claim early, just the money that you gave up due to excess earnings. So, yes, in a sense, you could claim benefits early. You could lose some to the earnings cap. Those benefits would be restored, but it.

Wes Moss [00:20:26]:
Takes a long time to get them back.

Mary Beth Franklin [00:20:28]:
Accounting nightmare. Because, let’s say you claim benefits early, and Social Security is going to say, hey, do you plan to keep working? You figure, I won’t say anything. They’ll never notice. Well, they do match your records to your tax records, and it may take several years, but then they might send you a letter that said, oops, look like we overpaid you $30,000. We’d like that back right now to lump sum. You really don’t want to get into that situation, so avoid it in the first place. If you plan to keep working, don’t claim benefits early unless, see, you’re working part time, you’re driving for Uber, and you’re making $20,000 a year. That’s less than the annual earnings cap.

Mary Beth Franklin [00:21:08]:
Okay, you go ahead and do it.

Wes Moss [00:21:09]:
Yeah.

Mary Beth Franklin [00:21:10]:
Reduce benefits and not lose any because you’re not making too much.

Wes Moss [00:21:14]:
You look at your Social Security statement, let’s say you’re in your 40s. I’m still hanging on my forty s and it says my full retirement age is 66 and it gives me my number that it’s expected to pay. I think the question a lot of folks have, particularly the younger you are, is that there’s a line in there that says, provided you continue to pay in and earn a similar amount of money, is that extremely relevant or not as relevant? Because by the time you’re in your 40s, usually you’ve gotten your 40 quarters, you’ve already qualified. But how does that work?

Mary Beth Franklin [00:21:51]:
Again, your Social Security benefits are first yet to be eligible. And you do that by working for essentially at least ten years, getting the maximum four credits per year. To get the full 40 quarters, you need 40 credits to be eligible for a future Social Security benefit. But that doesn’t tell you how much you’re going to get one. It depends on what are your average lifetime earnings. And they look at your top 35 years of earnings.

Wes Moss [00:22:21]:
Maybe you worked 40 years, top 35. Okay.

Mary Beth Franklin [00:22:24]:
Right. They’re going to drop out the bottom five. If you worked in the years you were delivering newspapers, remember those? Or flipping burgers. So they’re going to take your top 35 years and average that out using a formula to calculate your average index monthly earnings. And then they apply a benefits formula to that. But say you stayed home and took care of your kids and you only worked 20 years, they’re still going to divide by 30. 515 of those years are going to be zeros. So when they divide by 35, your average lifetime earnings are going to look lower and consequently your benefits are going to be lower.

Mary Beth Franklin [00:23:03]:
But the advantage is any year that you continue to work, regardless of your age, regardless of whether you’re already receiving benefits, that adds to your work history. And if it boosts the formula, then your benefits will automatically increase in the future. I can say that has happened to me over the last few years, even though I’m beyond full retirement age because my recent earnings had been higher than one of the years dues. In the original 35 years calculation, my benefits automatically increase each year, not just due to the cost of living adjustments, but due to the fact that my average lifetime earnings have increased.

Wes Moss [00:23:45]:
No kid now that I did not know. Wow, that’s amazing.

Mary Beth Franklin [00:23:52]:
You’ll get a notice, usually around October, that says based on your recent earnings, we now owe you an extra $25 a month. And we’re going to give you a lump sum for $360 for the first nine months or whatever. And going forward, we’ll add that extra $25 a month so you don’t have to do anything. It’s automatic.

Wes Moss [00:24:15]:
Even if you claim at 66 and your average earnings is 100 grand, and then you work another four years and you make a bunch of money, and now your average earnings is 105,000, they will adjust it higher even though you’ve already left the gates, if you will.

Mary Beth Franklin [00:24:34]:
Right. And here’s another thing to keep that’s really cool.

Wes Moss [00:24:36]:
I did not know that we talked.

Mary Beth Franklin [00:24:38]:
About the maximum taxable wage rates in this year. 2024. It’s 168,600. If I make that amount or less, I’m paying taxes on every dollar I earn. If I make more than that, I’m not paying taxes on the excess.

Wes Moss [00:24:54]:
Okay, you’re right.

Mary Beth Franklin [00:24:55]:
Your benefits are based on how much you earned up to the taxable wage base each year. And remember, way back when that was a lot lower. It might have been 28,000, it might have been 40,000. So it was how much you earned and paid taxes on up to the taxable wage base each year.

Wes Moss [00:25:16]:
So really, going from 100 or making 80 to making 160 could move the meter going from 150 to a million. Barely does anything right.

Mary Beth Franklin [00:25:27]:
And the other thing to keep in mind is the closer you are to retirement age, the more accurate that Social Security estimated benefit is going to be because they have more years of data to calculate. Yeah. So let’s say I’m going to stop working at 64, but I’m not going to claim my benefits till 67. I’m not working those last three years. It’s probably not going to have a huge impact on my eventual benefit. But if I desire, I am part of the fire movement and I am going to retire at 45. And my estimated benefit statements, assuming I’m making my current earnings through age 67, my future benefit is going to look a lot different.

Wes Moss [00:26:13]:
So really that line, which is, hey, assuming you keep working, that matters. That matters, particularly when you’re young. So your advice here is that, and I wholeheartedly agree with that sentiment of only work part time up to age 66 and claim Social Security if it’s under the cab, under, let’s say, 20 grand a year. But if you’re still working, typically it’s not a great idea to claim Social Security until you’ve hit 66. All right, let’s talk about Cola. Let’s talk about cost of living inflation. Major issue in the United States. Major issue for retirees, I think it’s like, as an investor, it’s kind of this perennial issue that we’re solving for.

Wes Moss [00:26:53]:
We’ve got to outpace inflation. We’ve got to protect our purchasing power. It laid dormant, though, for many years. It was almost as though inflation, if it were Godzilla, it’s roaming the earth. We’re all worried about it. We’re all fighting against it. And then Godzilla got frozen in a glacier for about a decade. So it was gone.

Wes Moss [00:27:11]:
Oh, there’s no Godzilla. And then we had the tidal wave of money from the pandemic. It melted the iceberg, and Godzilla roams the earth again. Target number one for retirees, inflation. Last year the cola was 8%. The cost of living, just for acute, it was like over 8%. This year, I think it’s 3.2. The question I have will be, does that, first of all, that shows up right away in the new year on the very first check, January.

Mary Beth Franklin [00:27:40]:
Yes, you’re correct. This year, 2024, the cost of living adjustment was 3.2%. And while that’s less than half of the previous year’s cola, which was 8.7%, that was the largest increase in more than 40 years.

Wes Moss [00:27:54]:
87. Yeah.

Mary Beth Franklin [00:27:56]:
One of the great value of Social Security is not only does it last the rest of your life, but it is cost of living adjusted. So any year that there is inflation as measured by a specific Social Security formula, then your benefit check will automatically go up starting that following January. So with your first check in January, you will get that 3.2% increase. Now, a lot of people think, oh, this is political. They’re manipulating the numbers. No, they’re not. It’s a very straightforward calculation. They look at the average consumer price index for the third quarter of the previous year compared to the third quarter of the current year.

Mary Beth Franklin [00:28:40]:
And if it increases, that’s the amount that the benefits will increase the following year.

Wes Moss [00:28:47]:
A lot of financial planning software will ask you to input almost all financial planning long range will look at inflation rate. Of course, that’s kind of variable, one of the biggest variables you can solve for. But then there’s typically another column that’ll say, are you increasing XYZ income stream for inflation, or is it going to stay flat? Are you going to increase your Social Security for inflation at 100%? Or is it going to be only half of that? Has there ever been an issue or a time when Social said, we’re only going to give you partial cola increase?

Mary Beth Franklin [00:29:27]:
Prior to 1975, there was no automatic cost of living adjustment. It had to be legislated every year by Congress. And even then, that was a very tricky vote. It became automatic in 75. And this formula was created the third quarter average of the CPI one year over the other. And that would create the cost of living adjustment. There’s been three or four times over the past 20 some years where there was no measurable inflation and consequently there was no cost of living adjustment. When you look back over the past 20 years, the average cost of living adjustment was about two and a half percent.

Mary Beth Franklin [00:30:10]:
And I think that’s a fairly safe number projecting forward that if I’m using X amount as my client’s estimated Social Security benefit, you could probably inflate that at about two and a half percent and be consistent with the historical average. The bigger issue for retirees tends to be health care costs, which tend to inflate at a much higher rate. And I think most advisors would be safe doing it at about 5% a year.

Wes Moss [00:30:39]:
For health care costs, we’re talking all things Social Security today and Medicare, with none other than my favorite expert on the topic, Mary Beth Franklin. So let’s talk about healthcare, Medicare, Medicaid and Irma, which is kind of somewhere in between. This is how much your Social Security payment is impacted by your earnings. Well, really it’s how much your earnings are impacting your Medicare premium or your Medicare part B and D. So let’s start with just quick overview, Medicare, Medicaid, just a quick definition for our listeners, the difference between those two.

Mary Beth Franklin [00:31:23]:
Yeah. People often confuse Medicare, which is the health, government run health insurance program for people 65 and older, as well as certain people on disability, versus Medicaid, which is essentially medical welfare for the poor. The only reason older people get confused about Medicaid is that is what ends up paying most nursing home bills when people run out of money. So the only point in retirement you’re thinking about Medicaid is this, all the money I’ve saved all my life for retirement. Now I’ve gone into a nursing home and I have blown through all my money. Medicaid is going to pay my bills.

Wes Moss [00:32:09]:
But it’s also going to Medicaid for a Medicaid approved nursing facility. Right?

Mary Beth Franklin [00:32:16]:
Only after you ran through all of your money. So this is not money buys you choices. And if you have money earmarked, that if you need to go into some sort of facility in your later years, if you have money to pay to get into the facility of your choice where your family members can come visit you, and you’re going to get excellent care, that’s a much better choice than saying I have no money left if I can get into a nursing home facility that might be 250 miles from my nearest relative. But it’s going to be paid by Medicaid. My bills are going to be paid, but it’s going to be a very.

Wes Moss [00:32:59]:
Basic existence, which again, in the confusing part here, I think that you mentioned is that Medicaid pays for a lot of assisted living, right?

Mary Beth Franklin [00:33:10]:
Assisted living, nursing, not assisted living, usually nursing homes.

Wes Moss [00:33:14]:
Nursing homes. Nursing homes. See, this is why it’s confusing. But Medicare doesn’t pay for any nursing homes whatsoever. It doesn’t pay for assisted living.

Mary Beth Franklin [00:33:23]:
Think of Medicare. The easiest way to think of Medicare is while most of us are working, we get health insurance through our employer. When you retire, most retirees are getting Medicare through the government, through Medicare. That’s their health insurance. But it’s like everything else. Medicare has gotten very complicated over the last few years. And let’s start with the basics, A, B, C and D. At Medicare, a covers your hospitalization.

Mary Beth Franklin [00:33:55]:
It’s quote, premium free because you paid for it your whole life through your FICA taxes when you’re working, Medicare Part B is what covers your doctor’s bills and your outpatient services, et cetera, that has a monthly premium. This year, most people will pay roughly $175 a month for their Medicare Part B premium. And if you are receiving Social Security, that Medicare Part B premium is deducted directly from your Social Security check. Depending on your income, however, you might be paying a whole lot more for that exact same Medicare part B services because of something known as Irma that you mentioned. It stands for income related monthly adjustment amount. Irma, it’s a hurricane for your health care costs and retirement.

Wes Moss [00:34:50]:
Sounds like a hurricane.

Mary Beth Franklin [00:34:51]:
Yeah, basically. And they look at your last available tax return. So this year, 2024, Social Security and Medicare are looking at your 2022 tax returns.

Wes Moss [00:35:05]:
And if you’re single, last available. Great point, because you haven’t filed for 2023 yet. You’re always looking back two years. Okay.

Mary Beth Franklin [00:35:14]:
And so for 2024, looking at your 2022 tax return, if you’re single and your modified adjusted gross income, which is basically your AGI, everything on your tax return, plus any tax exempt interest, if you invested in Munich, if that combined is $103,000 or less, you’re good. You’re paying the standard monthly part B premium. Married couple twice that, your joint income is $206,000 or less, you’re good. You’re paying the standard premium. You go one dollars over 103 and 1206 and one now you’re into the first IRma bracket. There’s five brackets. Worst case scenario, you could be paying over $500 a month for Medicare part B per person. So if you’re both over 65, that’s times two.

Mary Beth Franklin [00:36:08]:
And that’s just for your Medicare part B. If you’re in traditional Medicare, you still have to pay a Medigap policy and you probably have a drug plan. And your Medicare part d drug plan also has an ARMA surcharge on it. So for your really high income people, I’m talking with joint incomes of $750,000 a year or more, single incomes of 500,000 or more. These people are paying over $15,000 a year in premiums before they see a doctor or fill one prescription.

Wes Moss [00:36:40]:
That’s just Medicare part B. And D is Irma. Oh, it’s B and D. Okay.

Mary Beth Franklin [00:36:47]:
Right.

Wes Moss [00:36:47]:
So again, over 750 for a couple. That’s when you get almost 600 a month per person. So that’s, you get to almost one, $200 a month. But to your point, just looking at these categories and how much the expense jumps for retirees, you go from about $175 a month, which is the standard that most people pay, to 244. So it’s $69 more per month. So that’s times twelve. That’s $800, $828 if you make one dollars above that cap.

Mary Beth Franklin [00:37:22]:
I always say when I do my taxes, I am very aware of the Irma brackets. And as a self employed person, I have flexibility with my taxes. For example, how much I put in my solo 401 plan that can bring my net income adjusted gross.

Wes Moss [00:37:40]:
Yeah, I wanted to quickly, you said something about municipal bond income.

Mary Beth Franklin [00:37:44]:
Uni bond interest is considered tax exempt except is added back with your AGI when it comes to calculating your Irma premiums.

Wes Moss [00:37:56]:
Right. It’s not taxable, but it counts towards Irma. Do you count that in the 2700 plus rules? That’s not even.

Mary Beth Franklin [00:38:05]:
Yeah, it’s probably in there. Yeah.

Wes Moss [00:38:07]:
What about part C? So A is hospitalization, B doctors, office visits, et cetera. D, we can always remember that. D for the drug plan, part C. Yeah.

Mary Beth Franklin [00:38:17]:
So think of it this way. If you’re in what they call original or traditional Medicare, you have Medicare part A, Medicare part B, you can add a drug plan if you want, that’s d, and then you’re going to have a lot of deductible and co payments. So most people buy what they call a Medigap policy, private insurance to fill the gap, also known as a supplemental plan. Other people choose to get Medicare in a bundled situation, it used to be called Medicare C. It’s more commonly known as Medicare advantage. You still have to sign up for parts A and B. But at this point, rather than getting your Medicare services through the government, you’re getting them through a private health insurer. It tends to be a network.

Mary Beth Franklin [00:39:01]:
Medicare Advantage plans often will say there are zero premium plans. In other words, you’re still paying your part B premium that’s deducted from your Social Security check to the government directly. Any additional premium or very low premium for that Medicare Advantage plan. And the Medicare Advantage plans often have a lot of extra. Hey, we’re including your drug coverage in here. Hey, we’re going to cover your hearing aids, vision and dental that traditional Medicare doesn’t cover. Hey, we’re going to give you a silver sneaker membership to go to your local gym. But you have to use providers in our network and you have to get prior approval in most cases for specialists.

Mary Beth Franklin [00:39:45]:
And gee, I’m sorry, you have cancer and you want to go to MD Anderson in Houston, but not in our network, you can’t. So that’s the trade off.

Wes Moss [00:39:53]:
So I usually Medicare Advantage, that’s the bundled Medicare advantage through a healthcare provider. That is, if it’s in the plan. If it’s in the network, does that cover the 20% of the bills that don’t necessarily get paid? So isn’t it about an 80% coverage, the other 20 covered by that?

Mary Beth Franklin [00:40:17]:
Generally Medicare covers about 80% of approved costs. And then your Medigap policy or your Medicare Advantage plan will make up the difference. So in many cases having traditional Medicare and a Medigap plan may be more expensive on a monthly basis from a premium standpoint compared to a Medicare advantage plan. But almost all your costs are going to be covered and your insurance is good. Almost any place in the country that’s going to accept Medicare.

Wes Moss [00:40:55]:
Your Medigap Medicare policy, is that synonymous with a Medicare supplemental plan? You use those two together?

Mary Beth Franklin [00:41:03]:
Yeah, correct. You’re filling the gaps with the supplemental plan so you can call it a Medigap plan, a Medicare supplement. Now Medicare Advantage plans, some of them are very good and comprehensive. They just differ wildly depending on where you live. It’s a very geographic specific plan.

Wes Moss [00:41:25]:
For example, who leads where? Like who’s in the southeast? Is there somebody on the west coast?

Mary Beth Franklin [00:41:30]:
I can’t answer that. There are people who just specialize in these plans. But the issue becomes if you say, hey, I’m going to go to a Medicare Advantage plan, but I go to Florida or Arizona for three months every winter. I want to make sure my Medicare advantage plans is covered there. It may, it may not. That’s a question you want to ask.

Wes Moss [00:41:51]:
For example, though, in the state of Georgia, and again, I don’t do Medicare or supplemental Medicare plans for a living, I talk to a lot of providers that help people figure this out because it is so complicated. But for example, in the state of Georgia, you hear of the, I guess it would really be the part c that people are choosing, the supplemental part where you can go plan f g h I j. That’s the complicated part where sometimes it is really helpful for you to go and speak to a Medicare consultant that can help you find the right choice there.

Mary Beth Franklin [00:42:29]:
I think it’s an excellent idea before people reach age 65 to reach out to a professional. But you also want to ask them questions. For example, some of these Medicare benefit specialists will only deal in Medicare Advantage plans and will not be able to tell you your choices under traditional Medicare. If you want a Medigap policy, a supplemental policy, you want someone who will be able to address your questions under both systems to see what’s the best for you. I usually tell people if you travel around the country a lot, when you make your initial Medicare decision, you’ve got this choice, I’m going to stick with original Medicare and a Medigap policy or am I going to go the Medicare Advantage route? I usually tell people if you can afford it, stick with original Medicare and buy the best Medigap policy you can afford, which right now is a G plan that’s the most comprehensive, tends to be the most expensive because if things change in the future, gee, I can’t afford this monthly expense anymore. My prescription drugs have changed and things like that you can trade down in policy. It’s really hard to trade up. Gee, I’m going to start with Medicare Advantage because I’m really healthy now at 65 and then at 75 I have all these health problems.

Mary Beth Franklin [00:43:55]:
I want to go back to original Medicare. Well, now you have to medically qualify when you are first eligible for Medicare at 65, three months before your 65th birthday, your birthday month, three months afterwards, that’s called your initial enrollment period. You can choose any Medigap policy you want. They can’t turn you down. There is no medical underwriting in that initial enrollment period once, but only that.

Wes Moss [00:44:21]:
One time, the three months prior to the 65th birthday and the three months after as you’re signing up. And you can do it anywhere in that window. No medical qualification. If you want to go out and get the full blown G plan for your Medicare supplement.

Mary Beth Franklin [00:44:37]:
And once that initial enrollment period has ended, you can try to switch policies, but now you’re subject to medical underwriting. Gee, you got diabetes. Yeah. You got a high cholesterol, high blood. We don’t want you. So I always tell people to buy the best insurance they can afford in the beginning and it’s going to be easier to trade down. They’ll take you, somebody will take you, but it might not be the plan of your choice.

Wes Moss [00:45:03]:
More with Mary Beth Franklin straight ahead. If we think about trading down going to Medicare Advantage, which may be less coverage, it makes sense that you can go from a G plan quote down to a Medicare advantage. But it’s real tough. Let’s say it’s 75. If you’ve got some issues to go from a lower supplemental plan or a Medicare advantage plan and say, now I want the cream of the crop, now I want the Cadillac plan, which is G, then you have to medically qualify is what you’re saying, correct.

Mary Beth Franklin [00:45:37]:
So that’s why your initial enrollment period is so important. One, assuming you are not still working and have group health insurance and work, you must enroll in Medicare during that seven month initial enrollment period. Or if you delay and enroll in Medicare later, now you’re going to pay a lifetime delayed enrollment penalty every month for the rest of your life. That’s a whole nother story.

Wes Moss [00:46:02]:
Well, okay, say that one more time. Say the lifetime delayed enrollment. Say, that got you real quick again.

Mary Beth Franklin [00:46:10]:
When you turn 65, you have these seven month initial enrollment period three months before your 65th birthday, your birthday month, three months afterwards. During that seven month initial enrollment period, you can enroll in Medicare. Sign up for A and B. If you’re going to go for a supplemental plan, you get a supplemental plan. You get a drug plan. If for some reason you waited, for whatever reason, gee, you didn’t know how to sign up and you sign up at 75 years late, there is a delayed enrollment penalty of 10% per year for every year you were eligible to enroll and did not. So if you waited till 75 years late, you’re going to pay an extra 50% per month every month for the rest of your life of your part b premium because you delayed enrolling.

Wes Moss [00:47:01]:
Whoa. So if you’re on a one year, round the world Robin sabbatical and you just forget to sign up and you would do it the year later, it’ll be 10% more onto your Medicare part B and d premium.

Mary Beth Franklin [00:47:16]:
That’s the part B, the delayed enrollment penalty for part D is 1% per month, so it’s technically 12% a year.

Wes Moss [00:47:23]:
12%, mom.

Mary Beth Franklin [00:47:25]:
And by the way, if you’re on that round the world cruise, Medicare does not operate outside the US border. So now you’ve got the quandary of, okay, I’ll sign up for Medicare at 65 because I have to, but I can’t use it on the round the world cruise. So I still need some sort of travel insurance for that round the world cruise.

Wes Moss [00:47:46]:
So for the retirees that say, I’m going to go to live in a quaint little town in the coast of Mexico and there’s 70, Medicare is not going to help from a healthcare perspective.

Mary Beth Franklin [00:47:59]:
Correct.

Wes Moss [00:48:00]:
What does that person typically want to be doing? And by the way, what if you miss a year? Well, let’s say you go abroad for two years, 69 to 71. If you’re living in another countries, you’re still paying your Medicare, but it doesn’t work if you’re in a quaint little town on the coast of Mexico. So you have to get some other.

Mary Beth Franklin [00:48:26]:
Usually because I used to write a lot about people retiring abroad and Mexico, for example, has excellent health care that’s very inexpensive. And usually people who are going to San Miguel Allende are going to either just pay out of pocket or be part of the Medicare, part of the mexican health insurance plan, where frankly, most of the doctors there were trade in the US.

Wes Moss [00:48:50]:
Anyway, I guess you really have no choice of stopping to pay because your Irma just takes it right out of your social, have a, you can’t really press pause.

Mary Beth Franklin [00:49:04]:
Right. And also people say, well, I think I’ll sign up for Medicare Advantage because then I won’t have to pay the Irma, right? Wrong. If your income is higher, whether you’re in traditional Medicare or Medicare Advantage, you’re still paying that excess charges on top of your basic Medicare part B premium.

Wes Moss [00:49:24]:
So again, if you don’t enroll, you’re going to pay a 10% penalty per year or 12% for drugs.

Mary Beth Franklin [00:49:30]:
And the one exception, there is an exception. If you continue to work and have group health insurance through your current employer or are covered through your spouse’s current employer. We’re not talking retiree health benefits, but current group health insurance, you can delay enrolling in Medicare penalty free until after that group health insurance ends. So people who are still working and have health insurance, they don’t have to enroll in Medicare at 65.

Wes Moss [00:50:04]:
Are there any big changes coming to Medicare in the foreseeable future in 2024, over the next several years? Like we’re looking at maybe with Social Security, with tweaking the numbers of the tax, do we see anything big coming with Medicare?

Mary Beth Franklin [00:50:19]:
They’ve been tweaking some of the benefits, like particularly in the Medicare Advantage plans. Gee, if you need a ride to the doctor, we can supply that as part of your plan. Know things around the edges, but nothing major that I’m aware. Again, I only, I don’t profess to be the Medicare expert. I know enough about Medicare as its costs relate to Social Security, but I would not be in the position to advise somebody of, gee, this is the Medicare supplemental plan you should buy, or this is the Medicare Advantage plan you should go into. You really do need a benefits expert for that.

Wes Moss [00:50:59]:
Biggest mistake for Medicare, biggest mistake for Social Security that people make, I think.

Mary Beth Franklin [00:51:08]:
Just not being informed. A lot of people will take Social Security at 62 because they can, and that’s what their parents did. And yet they didn’t realize, well, I could get so much bigger of a benefit if I waited or Jesus, doesn’t make sense because I’m still working Medicare, frankly, it’s so complicated. I think it makes Social Security look streamlined. So many choices involved. And I think it really helps to work with a benefit specialist when you’re making that decision, and I do say buy the best coverage you can afford in the beginning, you can always trade down really hard to go in the.

Wes Moss [00:51:46]:
Other direction with Social Security. How readily available are the folks of the Social Security you mentioned? There’s something like 60,000 employees for Social. Do you recommend going in and sitting down looking at options with a Social Security person when you’re ready to do that? Or is that something that people.

Mary Beth Franklin [00:52:08]:
No. Okay, tell us why security has so much information available online. It’s like drinking from a fire hose. But if you’re just basically applying for retirement benefits, do it online. You go right to the homepage at SSA Gov and you’ll see start an application and you just follow the prompts. It’s your name, address, birth year, Social Security number, et cetera. And it will tell you everything you need to know. And then you’ll get a follow up phone call.

Mary Beth Franklin [00:52:37]:
I think that’s the cleanest way to do it. Now, if you’re a widow or widower and trying to collect survivor benefits, you can’t do that online. You’re going to have to contact Social Security and probably go in in person. There are certain documents they need to see, death certificates, marriage license, all that sort of thing. Social Security has been struggling for the last, I’d say, decade with underfunding, understaffing, and increased demand. I mean, face it, you know, boomers are turning 65 at the rate of 10,000 people a day and have been since about 2010. At the same time, Social Security’s budget was virtually frozen, and they have attrition. A lot of their employees are retirement age.

Mary Beth Franklin [00:53:23]:
They need more money to train.

Wes Moss [00:53:26]:
They’re retiring, too.

Mary Beth Franklin [00:53:27]:
Exactly. To answer all the questions of the public. And for about the last five or more years, we have had a series of acting commissioners who are like babysitting the agency. They’re doing the best they can, but they really don’t have that clout as leaders. We have, for the first time in many years, a Senate approved new Social Security commissioner that was sworn in on January 19. His name is Martin O’Malley. I’ve spoken to him. I think he’s a great appointment.

Mary Beth Franklin [00:54:02]:
He was a two time mayor of Baltimore. He was a former governor of the state of Maryland. His expertise is in data management and customer service, and that is his focus. Don’t ask this guy, what are they going to do about the trust funds? That’s not his problem. Congress has to do it. His goal is to make sure that the 800 Social Security number 807 721213, is answered in a timely fashion. He is there to make sure that the backlog of disability hearing cases will continue to diminish. He is all about getting the right people in the job to answer the public’s questions and get them the benefits they have paid for all their lives through their FICA taxes.

Mary Beth Franklin [00:54:51]:
And I am very excited that he’s in this position, and I expect great things from him.

Wes Moss [00:54:56]:
From Martin O’Malley, two other topics I want to briefly cover, taxes and disability insurance. Let’s start with DI. I do have families that I’ve worked with, I’ve worked with over the years that had things happen and they weren’t able to continue work through an injury or a sickness. But it seems like it can take a really long time for somebody to get Social Security disability insurance. What’s that process? What do those benefits typically look like? Percentage on a monthly amount.

Mary Beth Franklin [00:55:30]:
Well, think of Social Security as a three pronged system. If you die, there’s a benefits for your survivors. It’s like life insurance. If you retire, you get retirement income on a monthly basis, like an annuity. And if you become disabled due to an injury or an illness and you can no longer work and you are approved for Social Security disability benefits. Because this is on a case by case basis, retirement is straightforward. You apply for benefits. You get it based on your average lifetime earnings and the age when you apply disability is, oh, let’s review the medical records.

Mary Beth Franklin [00:56:09]:
Let’s review the accident reports. It can take two years to get approved for disability. But if you are approved for disability, then they’re going to backdate those benefits to the time of when they approved you. Now, unfortunately, a lot of people die waiting to be approved for a disability benefit. If you are approved for disability, let’s say you’re 55 years old and had some sort of accident and you can’t work anymore. While I don’t know the ins and outs of all the formula calculations, the concept is roughly you would get the equivalent of your full retirement age benefit even though you’re in your fifty s. And then once you reach your full retirement age, your Social Security disability automatically changes into a Social Security retirement benefit, but the amount remains the same. But if you are approved for Social Security disability, in many ways it’s like Social Security retirement.

Mary Beth Franklin [00:57:13]:
If you have a spouse of retirement age who maybe has no work history of her own, but you’re collecting a disability benefit, she may be entitled to a spousal benefit based on your disability benefit. If you have minor dependent children in your household and you’re receiving disability, they would be able to receive a Social Security dependent benefit. So the bottom line is it’s there for people who can no longer work, who have to stop working before their full retirement age. But it’s highly personal as far as if you’ll be approved, how long it will take, how much.

Wes Moss [00:57:54]:
You’re definitely case by case basis, you’ve got to go in, you’ve got to apply, they review your file and it can again take two years before they approve or disapprove.

Mary Beth Franklin [00:58:04]:
And that is one of the things Social Security has been working on because you can imagine during the pandemic when all their 60,000 employees are working from home, there is this huge backlog in cases and they’re trying to whittle away at that backlog.

Wes Moss [00:58:19]:
How about taxes? When I always think of one of the other determinations and we didn’t talk much about this, is that I think about what is your tax rate when you start to collect Social Security. And if somebody in the house is working and you’re at a super high tax rate, then you’re not keeping as much of the Social Security because it does go ultimately to your overall income. Now I know in certain states there’s different rules around state income tax and exemptions, but what is the general purview around your Social Security, intact or not.

Mary Beth Franklin [00:58:58]:
Well, Social Security benefits are taxable once your income crosses a certain threshold, but the thresholds are so incredibly low because they were set in 1983 and they were never indexed for inflation. So if you’re single and your combined income exceeds $25,000, now part of your Social Security benefit is going to be taxed. What is your combined income? It’s your adjusted gross income, which is essentially everything on your tax return. And that adjusted gross income includes half of your Social Security benefits. And now we’re going to add the other half of your Social Security benefits and any tax exempt interest you had on investing in muni bonds. And all that together is called your combined income or your provisional income. And if your combined income exceeds 25,000, if you’re single and 32,000 if you’re married, filing jointly. Now, you get into this formula of calculating how much of your Social Security benefits are going to be taxed at your ordinary tax bracket.

Mary Beth Franklin [01:00:08]:
And a worst case scenario, up to 85% of your Social Security benefits can be taxed.

Wes Moss [01:00:15]:
Right. So it’s, again, for most people, most of their Social Security benefit per month is going to be taxed, period. And then states are going to be different.

Mary Beth Franklin [01:00:26]:
Yeah. The majority of states do not tax Social Security benefits, like 22, 23, whatever. And that’s been evolving over the years. There are about trying to think maybe 1214 states that do tax at the state level, and some of them are tied to income. Some of them, it’s a street tax.

Wes Moss [01:00:46]:
Again, this is such a, I always feel like we’re going to nail everything down. I always think of this as like we’ve got this tornado of information and we’re going to capture it all in this vitamix blender, and we’re going to just keep it all here and it’s going to solve everyone’s Social Security questions and problems. And I think it will to some extent, or at least solve a portion of your questions and the big overview. And I think we absolutely did that today. The other thing that when I think about these rules is when you explain them, because you’re one of the greatest of all time in explaining Social Security in a way that we can digest it. It’s just that three days from now, I’m going to say to myself, wait, what did Mary Beth Franklin say about that piece? What was the rule around divorce? Second husband? Wait, what did she say? So what’s the resource where people can go find you 24/7 well, two things.

Mary Beth Franklin [01:01:46]:
One, my own website is marybethfranklin.com pretty easy to remember. And on that website I have a lot of free articles that explain Social Security benefits, whether you’re single, married, divorced, widowed, families with minor children, that sort of thing. You can also buy my ebook there, which is called maximizing Social Security benefits. Or you could go directly to maximizingsosecuritybenefits.com to purchase my ebook. It’s 29 95 and it’s an ebook. It means you download it and if you choose to print it out. But I don’t believe anybody should have to read 300 pages about Social Security where some of my colleagues have written extensive tomes on the subject. Mine’s about 50 pages.

Mary Beth Franklin [01:02:33]:
Tells you everything you need to know, and if you don’t want to read that many, you just go right to the section that says single, married, divorced, widowed and find the information that you need for you.

Wes Moss [01:02:44]:
Mary Beth Franklin who knew Medicare would be so interesting to talk about? You can find me money matters team. Easy to do so@yourwealth.com. That’s your wealth. Have a wonderful rest of your day.

Mallory Boggs [01:03:03]:
This is provided as a resource for informational purposes and is not to be viewed as investment advice or recommendations. This information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. The mention of any company is provided to you for informational purposes and as an example only, and is not to be considered investment advice or recommendation or an endorsement of any particular company. Past performance is not indicative of future results. Investing involves risk, including possible loss of principal. There is no guarantee offered that investment return, yield or performance will be achieved. The information provided is strictly an opinion and for informational purposes only, and it is not known whether the strategies will be successful. There are many aspects and criteria that must be examined and considered before investing.

Mallory Boggs [01:03:51]:
This information is not intended to and should not form a primary basis for any investment decision that you may make. Always consult your own legal, tax or investment advisor before making any investment tax, estate or financial planning considerations or decisions. Investment decisions should not be made solely based on information contained herein.