The Rules of Retirement

There are 5 rules or regulations set by the federal government that will impact your overall income in retirement and they are:

  1. To receive Social Security benefits, you must also enroll into Medicare.
    1. If you no longer have creditable health coverage through an employer or spouse’s employer and you are 65 years old or older you must enroll into Medicare.
    1. Failure to enroll will result in forfeiting all Social Security benefits.
  2. Your Social Security benefit pays the bulk of your Medicare costs automatically.
    1. Part B premiums as well as any IRMAA surcharges are automatically deducted.
    1. Part D and Part C premiums are optional.
  3. Your Social Security benefit is taxable if you have too much income.
    1. Individuals who earn over $32,000 may have up to 85% of their benefit become taxable.
    1. Couples who earn over $44,000 may have up to 85% of their benefit become taxable.
  4. Your income determines your Medicare costs.
    1. If you make too much money you will pay more for your Medicare through the Income Related Monthly Adjustment Amount (IRMAA).
  5. Income for IRMAA is practically everything in a traditional retirement savings account.
    1. Everything on lines 2a and 11 of your 1040 IRS form counts towards IRMAA
      1. Examples: Traditional 401(k), Social Security, Wages, Capital Gains.

How these 5 Rules WILL impact the “traditional” retirement

Rule #1: You have to have Medicare and Medicare is not free in fact it not only costs $3,700 a year for Part B and D but it is also inflating by over 6.00% and will continue to do so for years to come.

Rule #2: Your Social Security benefit is projected to only receive a 2.40% cost-of-living adjustment (COLA) for years to come. Your Social Security will never really keep up with inflation.

You pay for Medicare with your Social Security.

Rule #3: Because of withdrawals from your “Traditional” 401(k) your Social Security benefit will be taxed each year. Your Social Security benefit will never keep up with the rate of inflation.

Rule #4: You will be forced to take money from your “Traditional” 401(k) each year thru the required minimum distribution (RMD). This will increase your income towards IRMAA.

Rule #5: Your retirement savings if still in “traditional” nvestments will only increase your tax obligations as well as your Medicare premiums.

You will have to take more and more out of your savings to keep up with the rate of inflation each year.

You will run out of money sooner than you projected.

Illustrations detailing the impact of the 5 Rules of retirement

Example: Person A is 60 years of age today and they:

  • Plan on retiring at age 67
  • Have earned over 35 years of working a wage equal to $75,000
  • Will receive a Social Security benefit in the first year of retirement will equal = $31,746
  • Will receive a Social Security COLA of 2.4%

The Social Security benefit because of Rules #1 and #2 won’t increase throughout retirement

Example if Person has $250,000 in a “Traditional” 401(k) today:

The Social Security benefit will decrease because of Rule #3

Example if Person A enters the 1st IRMAA Threshold

The Social Security benefit will decrease further because of Rules # and #5

The Power of Roth Accounts and Life Insurance

Currently, under federal law, the main sources of income that you can have that do NOT count towards taxation of Social Security or IRMAA are Roth Accounts, Non-Qualified Annuities and Life Insurance.

All are funded with after tax dollars and if structured correctly when monies are withdrawn, they are completely tax-free. Throughout retirement you will have more income from Social Security

Conclusion to the 5 Rules of Retirement:

Because of the 5 federal regulations tax-deferred assets can only lead to more taxation and less income throughout retirement.

By ensuring that your income stays under the tax guidelines of Social Security and Medicare your income has the potential to grow as you age.

Your health is your greatest asset…you should plan for it today.

Dan McGrath
The Integrity Life Brokerage
📞 617-894-8043 (text preferred)
✉️ dan@theintegritylb.com

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