By Angie M. Stephenson, CPA, PFS, CFP, and Michael J. Dinan, CFP
CPAs understand that sometimes minor changes to a client’s financial situation can go a long way in helping with their cashflow needs. Sometimes it’s finding a small additional source of income. Perhaps it is shedding a nagging little expense that isn’t so little when you look at it over the course of a year. Other times, it’s as simple as paperwork. If you have clients that are eligible for Medicare, read on to learn more about one of those simple, yet little-known, changes that can work wonders.
When a client reaches the age of eligibility for Medicare, the premiums they pay on a monthly basis are based on a specific set of factors.
The amount is based on the retiree’s modified adjusted gross income (MAGI) from two years previous to the date the premium was set. For example, Medicare premiums starting in January 2022 will be based on the MAGI from their 2020 tax return. For a newly retired individual, the premium they’ll have will likely be based on their preretirement income levels.
Income levels change, though. For older clients eligible for Medicare, income levels often change downward. Here are a few contributors:
Taking these kinds of transitions into account, Medicare allows individuals to adjust their premium because of “life-changing events” that alter their income (Form SSA-44).
This may seem trivial – some extra paperwork to fill out for a client or a tip to note in case it seems relevant. However, this small matter can make a big impact in the life of a client as they age.
Medicare premiums per month in 2021 ranged from $148.50 per person to $582 per person, based on the MAGI from two years prior. As you can see, there is a difference of several hundred dollars each month that potentially could be added to your client’s cashflow.
Those who have gone through a major life transition in the recent past may have much different income levels than just a few years ago. For those clients with a reduced income as life has changed, lower Medicare premiums could have a reasonably beneficial effect on the amount of funds they have available to spend in their monthly budget.
Here’s the part that is often overlooked, though: the life-change forms are not a one-time only. Anytime a client goes through one of the established life changes listed, they can complete a new form. The SSA-44 forms are managed by the Social Security Administration, so all changes are applied directly to a client’s Medicare monthly premium.
The most common life event that every client will likely go through is retirement. As wages from a paycheck come to an end, generally the retirement income from Social Security, investment earnings, and a possible pension plan may result in less income during retirement.
If an individual goes through a divorce – an occurrence that is on the rise in the older client demographic – it is likely they will need to file an SSA-44 as their income may look very different.
Some clients may continue to work part-time or with reduced hours even in retirement. As those circumstances change and affect income, this also opens an opportunity to have the Medicare premium adjusted.
Helping your clients take advantage of their life changes with regard to Medicare premiums can result in reasonable savings and help with cash flow. As a guide and trusted adviser for your clients, this is a valuable way to assist them.
Angie M. Stephenson, CPA, PFS, CFP, is partner, senior wealth advisor, and chief operating officer for Domani Wealth in Lancaster, Pa. She can be reached at firstname.lastname@example.org.
Michael J. Dinan, CFP, is partner and senior wealth advisor for Domani Wealth in Lancaster, Pa. He can be reached at email@example.com.
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