Maximizing Social Security Benefits: Get the Most Out of Medicare and Pay Less in Taxes: Part 2

This is Part 2, of a 3-part series on Maximizing Social Security Benefits, Getting the Most Out of Medicare, and Paying Less in Taxes. To start from the beginning, check out Part 1 here.

 

In your working years, you are contributing 6.2% of your pay to Social Security, and your employer is matching that, so 12.4% of what your income would be is being contributed into Social Security. That’s a pretty big amount. If you are self-employed, you pay the employees part and the employer’s part, so 12.4%.

 

It is extremely important to have an opportunity to make decisions on how to maximize Social Security and decrease the taxes on it.

 

If you make over $137,700 annually, then you don’t pay Social Security taxes during your working years on any amount above that^[1]https://www.ssa.gov/benefits/retirement/planner/maxtax.html. There is a domino effect that goes along with your Social Security that can impact many different things like Medicare, insurance, other income, your overall benefits, and more.

 

There are a lot of things to consider when you make the choice of when to take Social Security. 

 

Getting the Most Out of Medicare 

 

Medicare is national health insurance program for people over 65, certain people with disabilities and people with ESRD (End Stage Renal Disease).^[2]https://www.medicare.gov/what-medicare-covers/your-medicare-coverage-choices/whats-medicare

 

If you’re already taking Social Security, you’re automatically enrolled in Medicare Part A (Hospital Insurance) and B (Medical Insurance). If not, then you’ve got some decisions that you need to make. Again, think about the tax impact.

 

What you pay into Medicare is not a set amount for every U.S. citizen, and every person who has worked, and every person who is a beneficiary of that. What you will pay for Medicare is based on your reported income the two years prior to your enrollment. It won’t change after that, so deciding when to enroll can be a critical decision point.

 

In 2020, the Medicare tax rate is 1.45%^[3]https://www.irs.gov/taxtopics/tc751, which your employer matches with another 1.45%, so almost 3%, is being paid to cover the benefit of your Medicare when you’re in your retirement years.

 

You pay Medicare tax on everything you earn, no matter how much. So, you want to make sure when you retire; you get the benefit you paid for. If you are a higher income beneficiary, that’s a good thing. Good planning will maximize your income as well as minimize your taxes and what you pay in for Medicare.

 

Medicare Part B: What You Need to Know. 

We all want to make as much money as we can, and although it’s not the same for everyone, you’re likely going to pay more for Medicare Part B if you are a high-income earner. There are certainly ways to plan, so you can pay the least amount that is legal and get the most amount of benefit.

 

Medicare premiums are based on what we call MAGI. Modified adjusted gross income^[4]https://www.investopedia.com/terms/m/magi.asp. This is a place where we strongly recommend seeking professional advice. If you have a CPA, an accountant, or if you’re good at that yourself, consider that this is what the government uses to determine your eligibility savings.^[5]https://www.healthcare.gov/income-and-household-information/income/#magi That’s the total adjusted gross income plus even tax-exempt income.

 

There are ways to benefit through dividends and interest from things that are tax-exempt, but they do count towards the income you’re going to have for the year. Even that tax-free income, depending on where it’s from, can impact how much you’re going to pay for Medicare.

 

In 2020, if you file as an individual and make up to $87,000 annually, what you’re going to pay for standard B coverage for Medicare is about $144.60 a month.^[6]https://www.cms.gov/newsroom/fact-sheets/2020-medicare-parts-b-premiums-and-deductibles If you are married, filing jointly and your income is up to $174,000, you will also pay $144.60 per month.

 

As you begin to earn more, you pay more. If you’re an individual earning more than $500,000, or a couple earning more than $750,000 annually, you could pay $491.60.^[7]https://www.medicare.gov/Pubs/pdf/11579-medicare-costs.pdf That’s a substantial difference.

 

Again, making sure you know where that income comes from, planning ahead (especially those few years leading up to age 65), is not just something good to know, it’s key to guaranteeing you’re not leaving money on the table, missing out on benefits, or overpaying.

 

Integrating Social Security Benefits into Your Retirement Income Planning 

 

Knowing how to integrate Social Security benefits into your retirement income plan can play a key role in your overall financial strategy.

 

According to Bloomberg^[8]https://www.bloomberg.com/news/articles/2019-06-28/americans-lose-trillions-claiming-social-security-at-the-wrong-time, some Americans leave up to $100,000 of benefits on the table due to bad planning. The Social Security Administration can help you up to a point, but they’re not there to do the complicated work of maximizing your Social Security, minimizing your Medicare payments, and creating an overall retirement income plan.

 

For that, you need to connect with a financial advisor who will work with you to make sure all of your options have been considered before making decisions.  

 

At Beacon Capital Management, we’ll help guide you in making the decisions that are right for you. Schedule a call with us today. 

 

 

This is Part 2, of a 3-part series on Maximizing Social Security Benefits, Getting the Most Out of Medicare, and Paying Less in Taxes. To continue learning about how to make the most of your retirement benefits, move on to Part 3.

 

To learn more about how to integrate Social Security benefits into your retirement income plan, download our FREE Social Security Guide.