Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation, or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
[00:00:17] Speaker B: Welcome to all Things Financial, the show that helps upgrade your financial literacy. Trey Peterson and Yellow SE Coutts are retirement planning specialists here to provide a unique and conservative approach to managing your money. Now here are your hosts, Trey Peterson and Yellow Se Koots.
[00:00:37] Speaker A: All right, good morning. Welcome to the all things Financial podcast. Trey Peterson and Yellowstein Coots coming at you where I'm actually really excited this morning. We're going to talk about maximizing your spending power in retirement, how your Social Security inflation and Medicare impact a retirees budget. Yellowstone, we've been teaching Social Security and Medicare classes for over nine years now. Do you think we know a little about the topic?
[00:01:04] Speaker C: Yeah. Yeah, I think we do.
Gosh, almost a decade. Geez.
[00:01:09] Speaker A: Almost a decade, man. We should like, we should be experts by now. Hopefully we are welcome. If you've never joined our show before, we're out of Burnsville, Minnesota. We have two offices, one here in Burnsville, one in St. Louis Park. Guardian Wealth Strategies, all things financial and Guardian tax are the companies that we work with and manage and we're partners of. We've got some really great things going on. We're really excited about talking about Social Security and Medicare today. So one of the things I'll say really quickly is whether you need financial planning insurance, whether you need estate planning, whether you need tax strategy. Either our company or our partner companies handle all of those things. And today we're going to touch specifically on Social Security and Medicare. I think Social Security is one of those levers that people have in retirement that they think is synonymous with retiring, meaning that you retire and you turn it on. And thats kind of the name of the game. And one of the things we want to talk about today is all of the different options around Social Security. Maybe why delaying your Social Security is the right thing, or maybe youre planning on delaying, but based on your financial objectives and your expenses, you should actually be trained on early. So really looking forward to talking about the pros and cons of taking it early, delaying it, and maybe bringing up a lot of the common mistakes that we see people make when it comes to Social Security and Medicare. But we have a quote this morning. Yelsey, you want to start off with our quote of the day?
[00:02:38] Speaker B: And now for some financial wisdom. It's time for the quote of the week.
[00:02:47] Speaker C: Yeah. So this one's from Will Rogers. And Will Rogers says, I don't make jokes. I just watched the government and report the facts. Gosh, how timely is that? Did he come up with that like yesterday?
[00:02:59] Speaker A: So good. Yeah, yeah, it's, it was true then, and it's true. That's for sure. Well, let me give you an overview. I touched on it lightly, but we're going to talk about Social Security and Medicare and how they're facing financial troubles. We're going to talk about retirement spending in what we call the u curve. We're going to be talking about inflation and how it's impacting not just the average american, but specifically retirees. And then we're going to talk about annuity awareness month. I had somebody ask me the other day, they said, sounds like maybe you guys use a lot of annuities. And I said, actually our average client has 25% or less of their money in an annuity. And so we're definitely not annuity guys. But we do believe in using all the best tools when it comes to safe money, risk money. And we found that annuities can have a place in your portfolio depending on your goals. So we'll talk about are they a fit for you? It may or may not be, of course, depending upon your risk level, depending upon your risk tolerance and what your goals and objectives are. So covering a lot today. Yellowstone, what do you want to start with?
[00:04:07] Speaker C: Let's just jump right into Social Security. I think it's one of the biggest and most important decisions that people have to make. A lot of times people focus on little transactional details and those are important too. You can certainly make mistakes when it comes to transactions and making a decision on the investments that you have or where to pull from first or different things like that. But I don't think any of those things. I think they all pale in comparison to the importance of getting Social Security right.
It's not just a decision. It's not just a transaction. You're making a decision that's probably going to be the decision that you make for the rest of your life. Very few people turn on their Social Security benefits and turn them off. You can certainly do a withdrawal application. You can do it within twelve months of receiving your first Social Security check, but you'd have to pay everything back. So most people don't take them up on that option. When you file for that benefit, you are making a 2025 or 30 year decision. In many cases so we just want to make sure that people treat their Social Security benefits as seriously as they would, maybe their pension benefits or their 401K distributions or putting together an income plan, because for most people, and I have a quote from, I think it's from one of the directors of the Social Security Administration, and he talks about how over 50% of people rely on Social Security, and that's what keeps them afloat. It's what keeps them being able to pay their expenses for the month, over 50% of it. And I can't remember what the exact figure is, but it also talks about people who rely on it exclusively. Now, obviously, you don't want to be in the situation where Social Security is the only source of income you have, and unfortunately, some people are in that position. But there's a huge percentage of people that rely on Social Security only. So we want to make sure that we spend the time that this topic deserves. And we spend the time and we talk about it accurately because there's also a lot of misinformation out there on this topic.
[00:05:57] Speaker A: Yeah, absolutely. Well, one of these we also want to talk about is some of the challenges. So as of right now, Social Security is only fully funded until 2034. So what does that mean if they don't make any changes? Your Social Security is only funded at 76%, which means that you're going to get a 24% pay cut on your benefit if they don't make those changes. Now, a lot of you have done this. Many of you have. Maybe not. If you have not gone to SSA dot gov comma, set up an account with setting up a username and a password where you can print off your report at any time. We highly recommend that when you go online, you'll notice based on your year of birth, it decides when your full retirement ages, and that's sometime between ages 66 to 67. If you're born in 1957, that full retirement age, not if you were born in 1957, you're kind of right in the middle, where your full retirement age is 66 in six months. But one of the things that I do want to assure you in is right now, there's over 11,000 baby boomers retiring every single day in the United States. Think about how many that is. And I really believe that the Social Security and our officials are going to protect the Social Security for those that are in retirement. And it's not because they love you, it's not because they care about you, but it's because as of today, you still have the largest voting base, which I just think that if either party tries to reduce your Social Security, they're going to be voted out. And so what they're likely to do is take Social Security away from guys like Yellowstone. I people that are 20, 25, 30 years away from retiring and protect it for those of you who are currently receiving it or are part of that baby boomer generation, but one of the things we want to talk about is maximizing Social Security benefits, y'all say. What do you want to say on that?
[00:07:44] Speaker C: Well, I just, I love how you talked about the silver tsunami without actually saying that, but I think that's what you're referring to. So, yeah, I think this year over 30 million boomers are going to be retiring, reaching age of 65 this year. And it's the biggest group of boomers retiring yet. So, I mean, when it comes to Social Security, it's really simple. We have a Social Security trust fund and that fund is basically made up of people who are paying in and it's depleted based on people who are collecting. So the question is how many do we have paying in versus how many we have collecting? And for over 30 years, Social Security actually ran surplus three decades where the trust fund was intact. And Trey, actually, we have a trustees report that comes out every year. And the most positive thing thats happened in a very long time for Social Security is the most recent trustees report that came out. And it actually shows that the Social Security Trust fund is a little healthier than what we initially thought. So its actually going to run out in 2035. And this is recent news. I think Ryan mentioned it just two weeks ago for the first time. So it's actually running out in 2035 and then it's actually a little bit healthier too, in terms of the percentage of benefits that we're going to be able to maintain. After 2035, it jumped up from 76% to 83%. That's really good news, especially for folks that are relying on it, right, taking a huge pay cut. And I mean, the 2035, that's eleven years from now. In eleven years, imagine knowing that, hey, whatever you're receiving from Social Security, you're going to get a 20% pay cut. Thats not very positive news. Now for many of our clients, of course, we help them.
Whenever were doing planning, income planning, retirement planning, whenever were putting together our projections, we take that into account just like we would your RMD's, just like we would potential inheritance. We want to make sure that whenever were making decisions or wherever were making projections, were taking into account all of these factors because theyre all important.
[00:09:40] Speaker A: Right. Well, one of the other things that, one of the big questions that you and I get often is Trey yellow saying, do I start my benefit as soon as I retire or aren't you like late yet? One of the things that most experts recommend is delaying your benefit as long as you can. And that's for three reasons. Number one, there's a guaranteed income of growth, right? So if you look from age 62 to 66, it gets a guaranteed 6.25% a year from age 66 to 70, your benefits growing at a guaranteed 8%. The second reason is it has a cost living increase. We call that the Cola. The ten year average on the cola is 2.75%. And while you may say, hey, thats not keeping up with inflation, and it may not be, it is helping fight inflation, which is significant. If you look at those that have private pensions that maybe they retire, its 1000 a month or 2000 or 3000 or 5000, but in five years and ten years and 20 years, that doesn't have the same buying power. The third reason why you would consider delaying Social Security, because one of the mistakes that I see a lot of people make is they sit down with their wife at IoP red Perkins on a Saturday morning and they say, hey, in a year or two years or five years when we retire, you're going to have 2200 a month from Social Security. I'm going to have 2700 a month from Social Security. We're going to have that $3,000 a month pension. We're going to pull $3,000 a month from the IRA. And they're looking at what the take home is as a gross amount. But they don't realize that all of those different income sources are taxed differently. And depending upon what you turn on and in what order, there are formulas that actually could cause you to pay more in taxes by pulling from the wrong buckets in the right, excuse me.
[00:11:22] Speaker C: In the wrong order.
[00:11:23] Speaker A: So three reasons to delay your Social Security. Number one, that cost of living increase. Number two, you've got the guaranteed rate of return. And number three, a good portion of your Social Security is tax free at minimal. At least 15% of that benefit gives you more tax free income. And if you don't already know this, the name of the game in retirement is income. And it's not just generating income, but it's creating as much tax free income as possible. And Social Security is one of those levers that potentially can give you more tax free income than any other source other than a Roth account of course, now, one of the reasons why you would start Social Security early is maybe a lack of retirement nest egg. Maybe you didn't save as much as you hoped you would, or maybe you had a divorce that caused you to lose half of your retirement. One of the things that you and I have talked about, yellow say, is that when we see people work hard for years and decades and save and save, and unfortunately, one of the most devastating things that can happen to a retirement plan is divorced because, well, now there's one of you instead of two of you. You're not sharing costs with somebody on housing, on vehicles and all those different things. So we've seen people go from being in great standing for retirement and then one, two or five years before there's a divorce, and now all of a sudden they have to work an extra three, five, maybe even the rest of their life because the divorce was so financially devastating. Now, honestly, I'm not saying don't stay married just based on finances, but I'm saying these are things that you want to think about and how you take your Social Security plays a role if you're looking at benefits, if one of you passes, if you're single, if you're divorced. And so those are some of the things that are really important in considering on when and how to take your Social Security benefit.
[00:13:14] Speaker C: Yeah. And I think the same can be said for death. Right. If one of you does pass away, a lot of times people make the mistake and they think that, hey, our expenses are going to get cut in half. One of us is no longer here, half the cost, right.
That doesn't happen. We've seen this happen and play out so many times where the expenses actually stay about the same.
Maybe Jen's not spending $500 on beer anymore every month, but for the most part, you still have the same expenses. Groceries might go down a little bit, but what happens is your income could get cut in half. Now, obviously, this depends on your Social Security benefits to begin with. Sometimes couples have benefits that are very different from each other and sometimes they're about the same. So it really just depends on your situation. But you can imagine somebody losing two or $3,000 a month from a Social Security benefit or even a pension. Maybe if you haven't elected to have spousal continuation on that pension. So now you have a lot less income. Expenses are about the same, but you're no longer in the broader married filing jointly tax bracket. You're now in the single tax bracket. So you have a lot less income. You're paying more in taxes on it and expenses are about the same. That's not a recipe for success. So, you know, when we look at Social Security and making sure that we're integrating that in the rest of your planning, we have to make sure that we're making good decisions. And by good decisions, I mean don't make any rash decisions or decisions based on fear. You know, according to the 2023 Nationwide Retirement Institute survey, 75% of people believe that Social Security will run out in their lifetime. Now, obviously, we've looked at the Social Security Trust fund, and we've just talked about the fact that in 2035, that's when it potentially will be depleted. So you can see why that statistic is a very real one and very scary one, especially for folks that are very close to retirement. But it's important not to be hasty, making sure that you take everything into account and that you integrate Social Security with all the other sources of income that you might have in retirement.
Right.
[00:15:14] Speaker A: Well, I think the big thing, I would say, and then we can move on, is one of the mistakes we see a lot of people make is. And it makes sense. You know, you've spent 30 to 40 plus years saving as much as you can to grow that nest egg as large as you can. And so now, all of a sudden, your paycheck stops, which I know for many people is a very scary time, because you've received a paycheck every week or every weeks, or maybe you paid monthly for the last several decades, and now, all of a sudden, you're going to go touch a bucket of money that you're no longer contributing, that you've trained yourself your whole life never to touch. That's a unique feeling. But one of the things that you and I have seen is we've seen that we've even heard financial advisors teach to recommend their clients take Social Security right away to delay touching the nest egg, when in fact, they're not giving that advice for the families they serve, they're giving it for them. I've personally heard advisors say, tell your clients to take their benefit as early as they can, because if they do, they're going to need less of their retirement assets, and you and I can get paid on more of their money for a longer period of time. So I just want to say, nobody cares about your money more than you do. It's really important that when you're getting advice, make sure you're talking to somebody that is a holistic planner. I think one of the other things that I see a lot, and I probably have this conversation almost weekly, is with a couple that they haven't. Financial advisor that's been a great generalist. And what do I mean by that? Their advisor is trained in purchasing investments that are designed for accumulation, but they're not working with a retirement planning specialist. And now they're in a new season of life. And the needs they have for the advice they're getting is changing, but the advice they're getting is the same because they have a generalist. And it's really just like seeing a doctor. You probably have a family doctor, like my family and I have. But if you have something that comes up with your hand or your foot, or like, my son had a brain tumor, we didn't stick with the general doctor. We went to a brain, or what they would call as a neurological specialist. Right. We went and we saw a doctor that is one of the top in the midwest for removing brain tumors. So it's the same way with your retirement. The things that you've done in the past may not be the same things that are going to help you in the future. So make sure, of course, it doesn't have to be us. We're not the only holistic planners. Even though I like to think we're the best, I would recommend getting a second opinion from somebody who specializes specifically in Social Security, Medicare, and making sure that, you know, when do I draw down on my assets? When do I take from the IRA? When do I take from the Roth account? When do I touch the brokerage account? Because it's not just pulling from the bucket when it's easiest. It's knowing what orders to take money in and depending upon if the market's up, if the market's down, and doing some planning for how you toll over the next year. Over the next three years, I've had so many people send out me and they go, I'm so frustrated because my advisor will tell me that they're not a tax planner, and I go to my CPA and they'll tell me what I should have done last year. But I don't have anybody telling me what I should be doing to save money in the future on my taxes. Well, you need a strategist, not a tax preparer. And if you've never sat down with a tax strategist before, I want to encourage you to take advantage of a complimentary analysis done by Maya and Yellowstone here at Guardian. You can reach out to us at Treya wealth or Yellowstone, and we'd be happy to sit down and walk through with you to show you are there things you can be doing that you're not already doing. Because one of the things that we're passionate about, and I'll hand it back to you, say, is I want to see more of your money go to your kids and your grandkids or to that church of that charity that I do to Uncle Sam. And I think we're so blessed to live in America. I want to pay my taxes. I want to pay every dollar that I owe, but I do not want to leave a tip on the table. And we want to help our listeners do the same. Yellowstone, what's next?
[00:19:18] Speaker C: Yeah.
So, just to piggyback on one point that you made, so Social Security does receive that cost of living adjustment that's announced every October. Your benefit is adjusted by the following January.
But that only applies to those who have reached Social Security eligibility starting at age 62. So today, right now, my Social Security benefit, anyone else who hasn't attained the age of 62, that entirely depends on the number, number of credits you've earned and how much you've paid into the system. It's only once you reach the age of 62 that that cost of living adjustment, whether or not you've turned on your benefit, is applied to your Social Security. And then that delayed retirement credit that Trey was referring to after full retirement age, that 8% delayed retirement credit where your benefit can grow in addition to the cost of living adjustment. And that's why we've seen over the last couple of years, in periods of high inflation, that cost of living adjustment plus the 8% growth has really resulted in a large amount of increase for those that have a Social Security benefit. But the other thing to consider is, you know, if you have a benefit that's $1,000, maybe you don't care so much about the cost of living adjustment. But imagine if you have a $3,000 benefit, you're going to receive more dollars per cost of living adjustment. And a lot of times when we, when we give people ideas on how and when to file, a good way to consider is this. Every dollar you receive from Social Security is a dollar you don't have to take from your 401K, from your IRA. In fact, as Trey mentioned, probably you're paying less in taxes on every dollar from Social Security compared to almost any other source, unless it's your checking account or your Roth IRA. So at most, 85% of that dollar will be taxed on the federal level, but potentially quite a bit less than that. So you want to consider whenever you're looking to file, if you're married, maybe one of you has the larger of the two benefits, maybe delaying on that one. Right. So that, so that at some point you have more money coming from Social Security. And as I like to put it, more money from Social Security is less money from other sources. And possibly you end up paying less in federal income taxes and state taxes too.
[00:21:20] Speaker A: Yeah, absolutely. Okay. If you've never done this, I'm not sure if it's encouraging or not, but it does give you more knowledge. So if you've never gone to usclock.org, www.USD.org, it'll show you basically by the second the amount of debt that our country is adding, the us national debt. So we just printed this off, so I'm sure it's even higher. But as of this morning, the us national debt was over $34,791,000,000,000 and it was climbing. And it's still climbing. I say that to say is at some point taxes are going to have to go up. You know, yellow say, you and I were talking about this, actually, Ryan and I were talking about this for class last night, but you may or may not know this, but the highest tax rate that we've ever seen in the United States, yellow say, you know the answer. It's like 90%, 90%. So you hear people complaining about, you know, the 10%, the 12%, the 22, the 24, the 36% tax bracket and the highest tax bracket we've added as it was, 90%. I'm not saying we're going to 90%, but I am saying that whoever gets sent, whether it's Republicans or Democrats, with almost $35 trillion in debt, we're going to have to pay this off somehow. And I think it's increase in taxes. I also think that it's not just an increase in taxes, but they're talking about specifically increasing taxes on retirement accounts. And the reason they're doing that is there's a gentleman named Ed Slot. By the way, if paying taxes or minimizing tax in retirement is important to you, I want to encourage you, if you're taking notes, write down Ed slot. Sl o t t. Who's Ed slot? He is a CPA and probably the leading authority in America on paying the least amount of taxes on your 401k, your 403, B, your TSP, your 457, your solo four hundred one k. And what Ed Slot says, he says, imagine you go to get a mortgage and you go to Wells Fargo. And the guy at Wells Fargo says, hey, good news, we've approved you. Here's a million dollar loan to go buy that dream house that you've been wanting forever. And then you ask the gentleman at Wells Fargo, you go, hey, quick question. What is my interest rate? Good news that I'm approved, but what's the interest rate? Imagine he says to you, hey, don't worry about the interest rate. You were approved for the loan. Go borrow that money. Buy that dream house. When you go to sell or when you pass in your kids, your beneficiaries go to sell your home, we will let them know what the interest rate was. What are you going to say? So, probably something pretty strong, like, heck, no. Or maybe a little stronger. That's what our pre tax retirement accounts are. Uncle Sam has said, Trey Yellow say, put this money away. We'll even let you write it off on your taxes to lower your tax bill. But when you go make money out, we are going to let you know how much of it is yours. Yes, that's right. I was showing a couple last night that if they are in the 35% tax rate on her $500,000 401k, she's going to keep like 335,000 of it. The government house, 100, 2165 thousand of it is theirs. They just haven't taken it yet. And then I showed her that doesn't even include the RMD's. Those are required minimum distributions that are going to hit in the future. So have you taken a look at how much of your 401k is actually yours? Do you have a plan of what you're going to do when those RFS hit? You all say, I can't tell you how many families I sit down with, how many individuals I sit down with. And when we do some forecasting for retirement, they've never had a conversation around required minimum distributions in 20, 30, 40 years of saving. If you've never had that conversation with your advisor, you need to be having that conversation if you're within ten years of retirement. And we'd love to have that conversation with you. You all say anything to add on that?
[00:25:26] Speaker C: I think you covered that well. I think our next topic, though, is Medicare.
So we often joke whenever someone in the office has to cover Medicare that we've drawn the short straw because, my friend, well, we're in this together, so you're going to have to contribute to this, too. So the reason why we bring up Medicare is there's a lot of things that we do that we recommend, and really a lot of it is optional. You don't have to plan. You don't have to try to make better decisions. You don't have to be strategic.
Obviously, we'd recommend that you would. There's a lot of good advice that we can offer. We can really help you make good decisions. But Medicare isn't one of those optional topics. Medicare for everybody. Unless you meet one of four exceptions, everybody has to apply for traditional Medicare, Medicare part A and Medicare part B. That's the Medicare that's provided to you by the government. And unfortunately, just like Social Security, Medicare also has a go broke d, if you will. So Medicare is also funded by people who are paying into the system. A portion of your FICA taxes goes towards Medicare. But at the age of 65, everybody has to file for their traditional medicare unless you meet, as I said, one of four exceptions. And one of those exceptions is if you were born on the first of the month, you get to start a month early. If you've been receiving Social Security disability for 24 months, on the 25th month, you're automatically enrolled into Medicare Part A and B.
And then the other exception, actually there's one for if you have certain conditions that you've been diagnosed with, then you can be enrolled into Medicare. But the final exception, the one that we have questions on all the time, is what if I'm still working, if I'm still working, or potentially if my spouse is working and I have health insurance coverage through either my own employment or my spouse's employment, do I need to enroll into any parts of Medicare? And the question is, I'm sorry, the answer is no, you don't, as long as you have credible coverage. And that's really the key word, credible as defined by Medicare, which basically means at least as good as what Medicare is offering you. You don't have to enroll into any parts of Medicare. Aside from those four exceptions, you have to enroll at the age of 65 and they give you seven months to do that. You have three months before your 65th birthday, the birth month you turned 65, and three months after your 65th birthday to enroll into Medicare. And the reason why that's important is, and I really want to highlight this because we've seen so many people make this mistake, is if you don't enroll when you're supposed to enroll. So like the premium this year is about 174 bucks. If you didn't enroll, you were supposed to enroll in 2024, they're going to give you a 10% penalty. So they're going to add $17 to your monthly premium for Medicare part B for the rest of your life. And that doesn't change. It's a permanent penalty. So we want to make sure that you get it right. I mean, you can imagine somebody who maybe doesn't enroll for several years, years, and that penalty continues to grow. So even though $17 a month doesn't seem like a lot, obviously over time that ends up being quite a bit of money, but it's a mistake that's easily avoidable. So we want to make sure that you're aware of that. But in terms of Medicare, currently, I think last year it covered over 66 million people that are on Medicare. And, Trey, what would you say are some of the biggest things that we noticed that, or at least some of the things that people seem to be a little bit averse to meeting with somebody, sitting down with someone. Sometimes ive heard people say, hey, well, if I go directly to the insurance company, I can save myself some money. And when we say insurance company, we mean when you shop out Medicare Advantage or Medicare supplemental plans and ill get to why you might want to do that in just a minute. But what are some of the biggest things youve heard people say?
[00:29:01] Speaker A: Well, I think a lot of people dont realize when you sit out with a Medicare specialist, you dont write them a check. Youre actually not indirectly paying them. In fact, if you sat down with Christine in our office, who's one of the best in the Medicare field, she's independent, she's going to do what's best for you. Your cost is the same as if you go and try to figure it out yourself. I've shared this before, but when I was in high school, I wrestled for one of the top wrestling programs in the nation. So Apple Valley, Minnesota, we ranked second in the country three out of four years. And I'll never forget, we had 34 wrestlers in the varsity room, between JB in varsity. So the high school wrestling room, and we had 17 coaches and like eleven of them at some point were all Americans, which is just insane. Most, most wrestling programs only been at one. And my individual coach, so there was one coach for every two wrestlers, my buddy Jake Drawley and I had a guy named Chuck Langless, and ill never get coach Langless said to me, he said, trey, you dont have to be the best at everything in wrestling. He said, because you have a coach in this room that whatever wrestling move you want to learn, whatever thing that you need to get better at, somebody in here is one of the best in the country at that thing. So I said, you don't have to be the best at everything. But you need to know somebody who is. And that's one of the big shortcuts to life. And not only did that advice help me become a successful wrestler, but it helped me become successful as a husband, as a dada, and in business. Because one of the things I've learned is if I want to have a great marriage, I just have to sit down with people that have great, successful 2030 plus year marriages. If I want to be a successful dad, I need to sit down and go to lunch with somebody that's a successful mom or dad and learn how did you parent your kids where you have a great relationship? Well, all of these things are the same when it comes to Medicare. You should learn about it. You should try to understand some of it. But you need somebody who's helped hundreds of families choose the right plan for them based upon your health, based upon your budget, based upon your goals, based upon if you travel or not. And the best way to do that is to sit down with somebody who's a medicare specialist and who would be an expert. In my opinion, that would be somebody that's been in the industry for five or more years and they've served more than 100 families. Why do I think that matters? Because yellow said, well, we love helping people make the right decisions. One of the things that we see a lot is people make costly mistakes. And I hate when I see people that they've saved, well, 30, 40 years, and then they try to do this on their own. And the hard thing with Medicare is if you started incorrectly, you can cost yourself penalties that you'll have to pay for years to come. It's not just easy to correct it. It's not just easy to fix it. If you start wrong, you can get on a path where you literally will pay penalties for years to come. We talk a little bit about that.
[00:31:58] Speaker C: Yeah. So the penalty, of course, for not starting at the right time. But the other biggest penalty, I would say this is even bigger. And something that most people aren't even aware of is Medicare is a means tested program, so your income determines your premium. Part a comes at no cost. Part b is what I mentioned, $174, approximately. But it only goes up from there. And it really just depends on how much income you've had. And not even this year. They look at your income from two years ago. Maybe there's a chance you haven't filed your taxes yet this year. Maybe you filed an extension, but probably you did two years ago. So they look at your income from two years ago and they say, hey, that determines how much you have to pay. And it's called the Irma surcharge. Irma, irmaa income related monthly adjustment amount.
So the surcharge is very real. And the way that most people experience that is they look at that and they say, hey, well, two years ago, I was still working. My income was way up here. But now Im retired. Now my income that doesnt represent my income for this year, maybe the year that youve turned 65. So there actually is an Irma waiver form that you can submit and you can apply to have your premium reduced, essentially asking Medicare not to look at your income from two years ago, but to look at your income from today, which might represent what your income actually is. So those are the two ways that your Medicare could end up being quite costly. But in the not so obvious way, Medicare ends up being costly because poor decisions are made, because Medicare, traditional Medicare was provided for you from the federal government, may not be enough. And here's what I mean. Part a, it's not a substitute for a long term care plan. You only have so many days that are available to you, inpatient days. And some of those are lifetime usage days that you can't get back. Right. Once you use those, that's it. And then Medicare stops paying.
Another condition is recovery and recuperation. Right.
If you're not recovering anymore, Medicare is not obligated to pay. And oftentimes that's when people experience that where Medicare Part A is no longer paying for their inpatient care, but Medicare part B, it's 80 20 coverage. And a lot of people are used to 80 20 coverage. But there's one big difference in your healthcare plan. With your employer, theres probably a maximum out of pocket. Theres a cap. Eventually you pay a certain amount, and now the insurance company will pay the rest. There isnt such a cap when it comes to Medicare part B. Medicare part D is 80 20 coverage without a maximum out of pocket. Theres no limit to what that 20% can be. And we had somebody a couple of years ago that was talking about how after five rounds of keto or maybe some other catastrophic event that happens, that 20% can end up being excessively expensive, right. It could end up really making a difference in your retirement plan overall. And that's where people turn to insurance companies and they say, hey, how do we bridge the gap? How do we shore up some of these deficiencies in traditional Medicare? And really, that brings you to two options. You have your Medicare advantage plans and you have your Medicare supplemental or Medigap plans. And what trey mentioned in terms of costly mistakes, I think this is the biggest one that people make. Nine times out of ten, when people come in to meet with Christine, they've probably heard of a Medicare Advantage plan. They've maybe even shopped out a few different Medicare advantage plans, but they haven't heard of a Medicare supplemental plan. And really that's the second side of the coin.
And really the biggest reason why it's a problem is it's only guaranteed to you during your initial enrollment period. So if you decide that, hey, you know what? I don't think I want the supplemental plan. You can't go back to it later without going through underwriting. And the insurance company has the right to deny you. That's why it's important to look at it upfront. Right. When you're eligible for Medicare during your initial enrollment period, looking to see, does it make more sense for me to go to an advantage plan or a supplemental plan? And by the way, advantage plans, they shore up some of the deficiencies in Medicare and they start at a zero premium. There's no cost to it. Potentially, if you wanted to go with the cheapest option, right?
Literally, if you really just wanted to shore everything up as best as you can and not having, without having to pay any additional dollars, you can have an advantage plan that doesn't cost you anything. Now you might want to have a better advantage plan. You might want to have some of the additional benefits that are available, some of the advantage plans. And by the way, all the commercials that you see late night commercials on Medicare, they're only talking about advantage plans. It doesnt mean its the best plan for you. I think here in Minnesota its about 50 50. Half the people have an advantage plan, half the people have a supplemental plan.
Really the biggest difference, and im just going to talk about this very broadly with broad strokes here, an advantage plan will be similar to you turning everything over to an insurance company, whether thats Blue Cross, Blue Shield, United Humana, whatever company youve chosen, youve turned everything over to the insurance company. So now when you show up to the doctors, you're not going to hand them your Medicare card. You're going to give them your insurance company card, and that's who's going to be covering your health care, the insurance company you've selected with a supplemental plan or a Medigap plan. It's a little bit different. Well, the Medigap plan, you keep your traditional Medicare, you show up to the doctors, you hand them your Medicare card, but in addition to that, you also hand them the insurance company because you actually, it's in, it's in the name. Right. Medigap. It's covering that gap that Medicare won't cover that 20%. That's what you're paying the insurance company to cover for you. Essentially, you're 100% covered, but it's going to be partly by Medicare and partly by the insurance company that you've selected. So I know that I'm going through this quickly, and there's a lot of nuance and a lot more details that this topic would probably require, too. And thats why we have Christine in our office. Shes our Medicare specialist, nine to five. Thats what shes doing. Shes helping people shop it out and help them make good decisions. Because on the supplemental side, whatever plan youve chosen, thats probably what youre going to maintain. On the advantage side of things, if you choose a Medicare Advantage plan, that plan deserves to be shopped out annually. Theres numerous articles, and it doesnt matter what side of the aisle youre on, that talk about how much average, on average americans can save if they simply shopped out their plans annually. There's an annual open enrollment period from, I think it's October 15 to December 7, where every year you get a chance to look at your plan to make sure it's still the best plan for you. And sometimes we hear people say, well, you know, all of my medications, they're in the formulary of whatever company they chose. It doesn't mean that they're at the same cost. Every company is required to have a medication for every therapeutic category, but it doesn't mean they have them at the same cost. It doesn't mean they have every type of medication as well. So you want to make sure that you sit down with somebody like Christine to make sure that the market hasn't changed in a way that maybe the company that you selected last year isn't even competitive this year. So these are important conversations that you have to have in terms of Medicare and of course, Social Security.
I think that this brings us to close to the end here. We really just wanted to dive into Social Security and Medicare. We know that sometimes those topics, they really go hand in hand. And really, a lot of times when you're deciding on your Social Security benefit, you're also probably looking at making decisions in terms of Medicare, too, because you're getting ready to retire. And what we found with Medicare is even though you might have credible coverage beyond the age of 65, that allows you to maintain your employer plan once you've retired, Cobra is not considered credible coverage. So for those of you who think you might be able to maintain that via Cobra, unfortunately, it's not considered credible coverage because it's not related to active employment. Even though Cobra, the plan that you have is exactly the same as you had while you were working because you're no longer actively employed, Medicare does not consider that credible. So whenever you eventually do retire, you're probably considering making those decisions together, right when you're going to file for Social Security and when you're or what type of plan you're going to choose in terms of your Medicare Advantage or Medicare supplemental plan. So we want to make sure that you have all the resources you need, that you have an expert that is available to answer any questions you might have and hopefully put together a solution that matches all of your goals and objectives and is the best plan for you in our office. In terms of Social Security, Ryan handles a lot of the planning there. He puts together more reports than anybody I know, giving everybody a good, better best because you have to maintain that flexibility in life and life doesn't always cooperate. And then, of course, on the Medicare side, as Trey mentioned, Christine, that's what she does. And we'd be happy to sit down with you, happy to take a look at your specific circumstance and help you, like I said, answer any questions and help guide you in the right direction. So with that, I think we're going to close it out and we look forward to next week's episode 17.
[00:40:46] Speaker B: Thanks for listening to all things financial. You deserve to work with retirement planning specialists who care about your money and take a unique approach to your financial and retirement needs. Visit allthingsfinancial.com and set an appointment today.
