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Joe Anderson
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As President of Pure Financial Advisors, Joe Anderson has led the company to achieve over $2 billion in assets under management and has grown their client base to over 2,160 in just ten years of the firm opening. When Joe began working with Pure Financial in 2008, they had almost no clients, negative revenue and no [...]

Alan Clopine
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Alan Clopine is the CEO & CFO of Pure Financial Advisors. As CEO he currently leads Pure Financial Advisors along with our executive team. As CFO he is responsible for the financial operations of the company. Alan joined the firm about one year after it was established. At that time the company had less than [...]

Published On
October 19, 2021

How to calculate your modified adjusted gross income (MAGI) for Medicare IRMAA, calculating your Social Security benefit when you’re planning to FIRE (that is, reach Financial Independence and Retire Early), calculating family Social Security benefits when you have minor children, and devising a strategy to qualify for the Obamacare Affordable Care Act subsidy. Plus, doing Roth conversions prior to early retirement, and untangling stock options, long-term incentives, and restricted stock units.

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Show Notes

  • (00:52) How is MAGI Calculated for IRMAA – the Medicare Income-Related Monthly Adjustment Amount? (Robert, MN) 
  • (08:56) Family Social Security Benefits and the Affordable Care Act Subsidy (Edward, VA)
  • (15:51) Calculating Social Security When Planning FIRE: Financial Independence, Retire Early (Marcos, Kansas City) 
  • (22:28) Roth Conversion Strategy Before Early Retirement (Annie, TX) 
  • (33:01) Long-Term Incentives (LCIs), Stock Options, and Restricted Share Units (RSUs) (Tim, PA) 

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Listen to today’s podcast episode on YouTube:

Transcription

It’s all calculations and acronyms today on Your Money, Your Wealth® podcast 348. PDQ here, Joe and Big Al will explain how to calculate your MAGI for IRMAA, that is, your modified adjusted gross income for the Medicare Income-Related Monthly Adjustment Amount, how to calculate your Social Security benefit when you’re planning to FIRE, that is, reach Financial Independence and Retire Early, and calculating your family Social Security benefit and a strategy for the Obamacare subsidy. Plus, doing Roth conversions prior to early retirement, and untangling stock options, LTIs and RSUs, those are long-term incentives and restricted stock units. Let’s get into it ASAP. I’m producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

How is MAGI Calculated for IRMAA – the Medicare Income-Related Monthly Adjustment Amount? (Robert, MN)

“Regarding IRMAA, I would like to know the process of making an appeal. To make it easier to understand my question, let’s say I have MAGI of 200k in 2019 and again in 2020 and again in 2021. Then I retire the end of 2021 and my MAGI goes to 40k in 2022 before making any Roth conversions. I am 65 in December 2021 and will start Medicare in January 2022. For my Part B and D premium, Medicare looks back to my MAGI in which year? I think the answer is 2019 since I am told they would figure the premium December 2021. So, first, is that correct?

Then, let’s say I get the premium bill the end of December this year and they base it on 2019, and I want to file an IRMAA appeal since I anticipate 40 k MAGI in 2022. What is the time window to file this appeal? 60 days or what? Let’s say they approve the appeal for my proposed 40k MAGI but I end up doing some Roth conversions of 100 k during 2022. Does Medicare catch up with me in 2024 and say I owe them money for under reporting or do they have some way to do it sooner?

Let’s say in 2023 I have another 140 k MAGI, am I still operating off the first appeal that they granted me until 2025 when they look back another 2 years?

On the other hand, if I overestimate my MAGI on the first appeal and I overpay premiums, is there any way to recapture what I overpaid? Some Medicare broker told me you can never get any money back, true?

In summary, does my appeal I make in late December 2021 or early 2022, and if approved, give me 2 years of paying the appealed premium until they catch up with me 2 years later? Thank you.

Andi: Can I amend my question? I wondered about which tax year to look back for IRMAA appeal. If I am going to start drawing Medicare in 2022, now it appears Medicare looks at my 2020 earnings that are found on 2021 tax return; can you ask them if this is correct?  I had assumed it was the 2019 earnings, but I think that is incorrect. Also, I am single, so that is taken into account. Thank you. Robert”

If you or someone you know or love is approaching Medicare age, we are hosting a live Medicare Made Clear webinar tomorrow, Wednesday October 20 at noon Pacific time. Get all your Medicare coverage questions answered live, in real time, for free, by Jeffrey Riego and Diane Gaswirth from United Healthcare Medicare Solutions. You’ll learn the As, Bs, Cs and Ds of Medicare coverage and costs, coverage options in addition to original Medicare, enrollment times and delayed enrollment penalties, cost saving tips and resources. Just click the link in the description of today’s episode in your podcast app to go to the show notes and sign up, and don’t forget to share the link with anyone who is getting ready to make decisions about Medicare. Do it ASAP! This free webinar is tomorrow at noon Pacific. 

Family Social Security Benefits and the Affordable Care Act Subsidy (Edward, VA)

“I’m an avid listener of financial podcasts and don’t think I’ve heard anyone talk about this subject so here goes: I am 53 years old and my wife is 40. We have a one-year-old son. I recently read that there are Social Security benefits for children of retired persons along with benefits for the spouse of a retired person who is caring for a child. When I turn 62 (my wife will be 49 and our child will be 10), it seems like a no brainer to take SS benefits early since my child (who will then be 10 years old) can collect a 50% SS benefit based on my full retirement benefit until he turns 18 and my wife can also collect a 50% SS benefit based on my full retirement benefit until our son turns 16. This will more than double our family SS benefit for years 62-68 and still provide a nice bump for 2 additional years until my son turns 18. Am I missing anything here? I realize this section of the SS code doesn’t affect too many people but anyone who has a child in their late 40’s or early 50’s could benefit from this knowledge.

Another question: In retirement, I will be collecting a public school pension of $70,000/year plus my age 62 Social Security along with getting health insurance through my school system until age 65 for myself – my wife and son will be on their own for health insurance since my wife will not be working. Her only income would be the 50% SS benefit she receives until our son turns 16 (she’ll receive that for 6 years). Should we file our taxes separately so she can qualify for Obamacare subsidies? Thank you for all your information, expertise, and humor.”

Calculating Social Security When Planning FIRE: Financial Independence, Retire Early (Marcos, Kansas City)

“Dear Andi, Big Al, and Joe, I’m 47 and looking to FIRE at 57. I’m trying to figure out a realistic estimate of my monthly social security benefit at full retirement age 67. I know that my current estimate from ssa.gov will not be accurate since I plan to stop working full time at 57. I was able to plug in my social security earnings from ssa.gov and estimated a few years to get me to my top 35 years of earnings. I was able to calculate AIMÉ and PIA. My question is: Would this be the best number I would give my financial advisor when evaluating monthly income in retirement? Thanks. PS I drive an Expedition and have a wiener mix and German shepherd rescue dogs!”

Make sure you get as much Social Security as you’re legally entitled to receive: download the Social Security Handbook for free from the podcast show notes at YourMoneyYourWealth.com. This 48 page guide is packed with information on recent changes to the Social Security system, how benefits are calculated, figuring out the best time to collect your benefits, working while taking Social Security, spousal, survivor and ex-spouse benefits, taxation on your Social Security and more. That said, if you need more personalized help, an assessment from a CERTIFIED FINANCIAL PLANNER professional on Joe and Al’s team at Pure Financial Advisors is free too. Download the Social Security Handbook and sign up for a free assessment in the podcast show notes. Just click the link in the description of today’s episode in your favorite podcast app to get there.

Roth Conversion Strategy Before Early Retirement (Annie, TX)

“Hello Pure Financial Crew.  You guys have the best financial podcast. I have been a loyal listener for six months.  My husband and I are 44 and 45. We got a late start to our retirement planning but are trying to catch up. We have no debt including our home.  We drive a Ford Focus 2016 and Honda Civic 2013.  We have three kids 18, 17 and 11 and three dogs.  I need help coming up with a retirement plan. I want to go part time at age 50 and retire at age 60. Hubby wants to work full time until age 60 and then retire as well. We currently net $120,000. We have:

  • IRA $86,000
  • ROTH IRA $72,000
  • 401K 162,000
  • Brokerage $15,000

Until I reach age 50, we will contribute yearly:

  • ROTH IRA $12,000
  • 401k $19,5000
  • ROTH 401k $4,800
  • Brokerage $6,000

At age 50 we will stop all contributions except for $4,800 to my husband’s Roth 401k. At age 50, I want to start conversions.  Our income will be $80,000. How much do you recommend I convert?  I want to convert over 10 years until age 60.

Do you recommend I change my 401k contributions now to Roth 401k contributions?  Do you recommend I change my allocations now and add more monies into the Brokerage?  We are 100% in stocks and primarily invest in the FZROX and FZILX. We currently live on $4,000/ month and are saving the rest.  We are comfortable with that amount and believe we can live on that during retirement as well. Can you help us fine-tune our plan? God bless and thank you in advance.  Your loyal Texas listener, Annie”

Long-Term Incentives (LCIs), Stock Options, and Restricted Share Units (RSUs) (Tim, PA)

“Hello Andi, Al and Joe, I love your show, I think you put out great content spit-balling people’s financial situations. I have learned a lot about these real-world questions. I started watching your youtube channel and now switched to the podcast so I can listen while driving in the car or exercising.

I have a question about employee LTIs (long-term incentives). My wife is a highly compensated employee, making base $250,000/year. She receives an additional yearly cash bonus and LTI. The LTI is roughly 25-40% of base salary. She has the option of RSU (vested 100% after 3 years) or restricted stock options (10-year option) for the LTI. When she first started receiving LTIs, we opted for stock options. But we have since chosen to receive RSUs for the last ~5 years. We changed for the guarantee and simplicity of RSUs. Can you spit-ball whether RSUs are the right choice? What things should we consider when selecting RSU versus stock options? Is there anything we can do to lessen the tax hit when the LTIs vest?

Some background: We are 43 and 41 years old. We max out my wife’s 401k, both Roth IRAs and family HSA. Currently have $1,200,000 (401k), $200,000 and $150,000 (Roth IRAs), $15,000 (HSA) and $400,000 (cash and brokerage). I drive a Volvo XC90 and no pets.”

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Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this broadcast and does not represent that the securities or services discussed are suitable for any investor. Investors are advised not to rely on any information contained in the broadcast in the process of making a full and informed investment decision.