Maximizing Social Security? It may be hazardous to your healthArticle added by Dan McGrath on August 14, 2014
Dan McGrath

Dan McGrath

Windham, NH

Joined: April 03, 2013

Social Security, the million-dollar seminar that is running through the financial industry like three-day-old sushi, is arguably the biggest thing to happen since Pets.com or the average baby boomer learning about call options. It would seem every single financial firm in the country has some sort of presentation, booklet, sales concept and/or strategy to help people plan accordingly for something that is really not that difficult to plan for.

Do the math; if a person gets it right, if they restrict the application then suspend and file and then receive total consciousness, the average person will make an extra $340,000 at maximum over the course of 30 years in retirement. Even better, according to T. Rowe Price’s online Social Security calculator, the difference in taking the benefit at age 62, which will give you a lower amount but an early start, will total to be about $634,392 over 30 years. And if you delay and take at age 70, then you will receive over that 30 years a max of $845,856. That is screwing the man for $211,464 over the course of retirement. A pretty good number when you look at it, especially if we break that down even further. We can see that all this work and all this detail added up to $19.31 a day. Hey, at least you can go to a movie everyday on the man if you like.

Now, please understand that that there are other strategies within Social Security that can help you “screw the man” even more. In fact, there are 81 combinations that can be used to claw every last cent out of Uncle Sam’s pocket and into yours — and, trust me, there are plenty of financial firms and professionals that will line up to show you these strategies. But here is where the fun part comes in: Each and every one of these firms and/or “professionals” will conveniently neglect to tell people some real hard truths about this new financial planning phenomenon.

Our government is way, way, way ahead of this, and it is waiting to make an example out of you. What the experts on retirement are neglecting is this: In order to receive your Social Security benefit, you must accept Medicare when eligible. The costs associated with Medicare premiums are not only determined by how much income you are earning, but they are also automatically deducted from any benefit you may receive. Oh, and here is the spoiler alert: The more income you have, the higher your health costs are (Medicare premiums). Just to pour more salt on the wound, Social Security benefits are considered income when calculating your health costs! Are you still thinking you pulled a fast one the government?
Ultimately, the more income you have, the more you are going to pay for your health coverage. The more money you pay for your health coverage, the less Social Security you will receive. It’s really that simple. The cherry on top? You are still going to be taxed on the income you never receive due to the fact that the government just increased the Medical deduction rate to 10 percent of adjusted gross income.

Now, many retirement planning experts will be quick to state that the Medicare income brackets, better known as the income-related monthly adjustment amounts (IRMAA), are set too high for the average person to be impacted. But, what they are neglecting to tell you is that:
  • Income is practically everything, including the interest and dividends from your savings and investments. So when you reach 70½ years and you take your required minimum distribution (RMD) from your tax-deferred traditional 401(k), IRA or other qualified tax-deferred retirement accounts, that income counts towards Medicare. By the way, life insurance and specific annuities, like SPIAs and DIAs, are fantastic solutions to controlling your health costs and saving your Social Security, but don't hold your breath on anyone telling you that.

  • The IRMAA brackets are slated to be lowered in 2016 or 2017. How convenient! That is just in time for the oldest baby boomers to reach the magical age of 70½. Coincidence?

Yes, Social Security planning is important, but compared to the greatest asset that you have, which is your health, it just may be hazardous. Instead of trying to maximize an income source that will eventually lead to higher health costs and taxes, the simple solution would be either to: 1.) fund a life policy with an LTC/chronic care rider, if you are young enough to build cash value; or 2.) at retirement, look to a non-qualified SPIA or DIA to generate income.

Another great solution is to look to a Roth conversion just before retiring and take the proceeds to fund an annuity that has a LTC/chronic care rider. Yes, there will be taxes upfront , but the 20+ years in retirement will be free of health care-related stress.
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