Category Archives: Retirement

Premiums, deductibles and copays will be higher—Medicare changes for 2022

Market Watch 11/29/2021

This article is reprinted by permission from NerdWallet

Open enrollment for Medicare goes from Oct. 15 to Dec. 7 each year, when Medicare beneficiaries choose their coverage for the next plan year. As Medicare enrollees contemplate their choices for 2022, here are overall Medicare changes to keep in mind.

Original Medicare costs are going up

Original Medicare includes Part A and Part B. A separate Medicare drug plan, called Part D, is also available. Here’s how deductibles, premiums and coinsurances are changing in 2022:

Medicare Part A (hospital insurance)

Although most Medicare beneficiaries don’t pay a premium for Medicare Part A, those who do will see higher costs, paying $499 a month in 2022, up from $471 a month in 2021. This premium applies to you if you worked and paid Medicare taxes for less than 30 quarters. If you worked and paid Medicare taxes for 30 to 39 quarters, you’ll pay $274 a month for Part A in 2022, up from $259 in 2021. If you paid Medicare taxes for 40 quarters or more, you won’t owe a premium.

The Part A inpatient hospital deductible is increasing to $1,556 in 2022 for each benefit period, up from $1,484 in 2021. Coinsurance is also rising as follows:

  • Hospitalization days 1 to 60: Members pay $0 coinsurance for each benefit period.
  • Hospitalization days 61 to 90: Members pay $389 coinsurance per day for each benefit period, up from $371 in 2021.
  • Hospitalization days 91 and up: Members pay $778 coinsurance per every “lifetime reserve day” after day 90 for each benefit period, up from $742 in 2021. Members get up to 60 lifetime reserve days over the span of their life.

Coinsurance for skilled nursing facility care will remain at $0 for days 1 to 20 for each benefit period, and will be $194.50 per day for days 21 to 100 of each benefit period in 2022, up from $185.50 per day in 2021.

All Medicare members pay a Part B premium, and that is increasing to $170.10 per month in 2022, up from $148.50 in 2021. You may pay a higher premium, depending on your income. For example, those who file taxes individually with a modified adjusted gross income of more than $91,000 (or those who file joint tax returns with a modified adjusted gross income of more than $182,000) will pay an additional $68 to $408.20 per month on top of the Medicare Part B premium.

The Part B deductible is increasing to $233 in 2022, up from $203 in 2021. Once you meet your deductible, you generally will pay 20% of Medicare-approved costs for Part B services.

Medicare Part D (prescription drug coverage)

The average Medicare Part D premium in 2022 will be $33 per month, versus $31.47 in 2021. Those with higher incomes will pay more: Those who file taxes individually with a modified adjusted gross income of more than $91,000 (or those who file joint tax returns with a modified adjusted gross income of more than $182,000) will pay an additional $12.40 to $77.90 per month on top of their Part D premium.

Medicare Advantage plan ratings are higher

Medicare Advantage is a bundled alternative to Original Medicare that includes all the coverages of Medicare Part A, Part B and usually Part D. Medicare Advantage plans, also called Medicare Part C, often include additional benefits, such as some cost help with dental, vision and hearing care, fitness memberships, over-the-counter allowances and meal delivery.

Each year, the Centers for Medicare & Medicaid Services assigns every Medicare Advantage plan a star rating, ranking each plan from best (5 stars) to worst (1 star). These ratings are based on plans’ quality of care and measurements of customer satisfaction, and those ratings can change each year.

In 2022, the average star rating for Medicare Advantage Prescription Drug plans is 4.37, compared to 4.06 in 2021. In fact, 68% of Medicare Advantage plans that include prescription drug coverage have received an overall rating of 4 stars or higher for 2022, compared to 49% in 2021, according to the CMS.

Medicare Advantage premiums are lower

The average premium in 2022 for Medicare Advantage plans will be $19 per month, versus $21.22 in 2021. (Note: Medicare Advantage members are still responsible for the Medicare Part B monthly premium, which is $170.10 in 2022.)

More people are projected to enroll in Medicare Advantage in 2022 as well: The CMS estimates 29.5 million people will sign up, compared to 26.9 million in 2021.

There are 3,834 Medicare Advantage plans available in 2022, up 8% from 2021. Of the 2022 plans, 59% are health maintenance organization, or HMO, plans, and 37% are preferred provider organization, or PPO, plans.

Making plan changes

Changes you make during Medicare open enrollment will take effect on Jan. 1. During this open enrollment period from Oct. 15 to Dec. 7, you can switch from Original Medicare to Medicare Advantage, or vice versa, or switch from one Medicare Advantage plan to another one.

If you discover that you’ve erred in your plan choice after the enrollment period ends, there’s a Medicare Advantage open enrollment period from Jan. 1 to March 31. During this time, you can do the following:

  • Switch Medicare Advantage plans.
  • Return to an Original Medicare plan, with the option to join a Part D prescription drug plan.

During Medicare Advantage open enrollment, you can’t switch to a Medicare Advantage plan if you’re enrolled in Original Medicare. Additionally, if you return to Original Medicare, you might not be able to buy a Medigap policy. Your coverage will begin on the first day of the month after you request a plan change.

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Kate Ashford writes for NerdWallet. Email: Twitter: @kateashford.


Smart withdrawals can reduce taxes, extend your nest egg in retirement

11/29/2021  Market Watch

There’s plenty written about saving for retirement, but not so much about how to spend what you’ve saved: A Google search produced more than 15 times as many results for “how to save for retirement” as for “how to withdraw money during retirement.”

And indeed, you can save and invest for retirement over a working lifetime—40 to 50 years. But you also may have to rely on retirement savings for 20 to 30 years and how you withdraw that money can make a big difference in how long your nest egg lasts.

The conventional wisdom holds that you should withdraw from your nonretirement financial assets first, then your tax-deferred accounts (IRAs and 401ks) and then whatever tax-exempt accounts (like Roth IRAs) you might have. That seems sensible because, first of all, it’s easy to implement, and by not withdrawing from IRAs or 401ks now, you allow them to grow and delay paying taxes on them until you absolutely have to.

But more research shows that’s not an optimal strategy, since it doesn’t account for the impact of higher-than-anticipated taxes, especially when people wait to take Social Security. Less well known but more tax-efficient retirement-spending strategies can, by reducing the tax hit on your withdrawals, actually extend the life of your next egg, and that could mean the difference between running out of money and leaving something to your heirs.

Greg Geisler, an accounting professor at the Kelley School of Business at Indiana University, has studied retirement withdrawal (or “decumulation”) for years. In a recent paper, he and other researchers compared several strategies, particularly looking at their long-range tax efficiency.

Taxes, Geisler told me in a phone interview, are often overlooked in planning withdrawals from retirement accounts. Most people assume that taxes will drop when they get older and leave the workforce. And they sometimes do. But the big surprise comes in retirees’ early 70s, especially if they wait until 70 to take Social Security and until 72 to start withdrawing required minimum distributions (RMDs) from their IRAs, 401ks and other traditional tax-deferred retirement accounts. That increase in income can push them into a higher tax bracket.

“They look at their tax returns and they go, ‘Oh my goodness, I’m in the 22% or 24% or 32% tax bracket,’” Geisler said.

The reason for this is the “tax torpedo,” in which “provisional income”—which includes withdrawals from tax-deferred retirement accounts—and Social Security benefits can push marginal tax rates 50% to 85% higher. That’s how people who have fairly modest incomes find themselves paying taxes at a much higher rate than they expected.

“Tons of retirees who have a pretty good amount of Social Security and [retirement accounts they’ve built up] over the years, they’re all in the 22% bracket, every single year, once they get to age 72 and older,” Geisler said. And the tax torpedo may push 22% federal marginal rates as high as 40.7% once 85% of Social Security benefits are taxable.

So, people may have to dig deeper than they expected into their nest eggs to pay those unanticipated taxes, making it more likely they run out of money. But you can avoid that, Geisler said, with a tax-efficient strategy.

In the years from 65 to your early 70s, before you take Social Security and RMDs, you should consider tapping into your nonretirement accounts to sell appreciated stock, funds or ETFs to cover living expenses. Then, withdraw money from your tax-deferred accounts and shift the funds into a Roth IRA. But make sure both of these moves keep your taxable income below $40,400 if single and $80,800 if married, filing jointly (after taking the standard deduction of $14,250 and $27,800, respectively, if the taxpayers are over 65). Below that general threshold, capital gains are taxed at 0% while income is taxed at 12% on the federal level.

By spending profits in nonretirement accounts and shifting money into tax-free Roth accounts, you can keep your taxable withdrawals at a minimum later on by tapping into the pool of tax-free money you’ve built up in the early retirement years. (If you need the cash flow, however, you should consider taking money from your IRA or 401(k) rather than funding the Roth, said Geisler.)

Such a strategy, according to Geisler’s paper, can extend the lives of retirement nest eggs by up to 11% or three years. “It’s not just saving a little money on taxes,” said Geisler. “It helps your whole nest egg last longer.”

Of course, many people don’t have the assets or flexibility to make this strategy work, and because taxes are so individual, please consult your tax adviser and perhaps a financial adviser who has expertise in tax planning first.

But taxes are often a forgotten aspect of a neglected part of retirement planning, and they may have a bigger impact on retirement security than you’d think.