Saving money on health care costs during retirement

Retirement health care expenses are a growing concern for retirees. Rising health care costs and the accompanying inflation factor create a growing need for advanced planning related to preparing for these costs. Currently, inflation for Medicare Part B is around 8% and Part D is around 7%.

Health care and Medicare expenses are one of the largest expenses, even more than recreation and housing costs combined. Consumers often get confused when it comes to the right amount to plan for on the “Medical Expenses” line in their household budgets. Many don’t realize that a person’s Medicare premiums are affected by their yearly income. Understanding one’s MAGI (Modified Adjusted Gross Income) and implementing strategies to plan around certain income thresholds can positively affect health care expenses in retirement.

Here’s an example: A married couple who moves their tax bracket one lower threshold can save $70,000 over their lifetime. How can planning make that happen?

Non-qualified annuities, health savings accounts, permanent life insurance, reverse mortgages, ROTH IRAs are all ways to reduce taxable income. Required Minimum Distributions (RMDs) occur when an IRA owner is forced to begin making withdrawals from his IRA in the year he turns age 70 ½. Using strategies to reduce IRA balances before retirement, such as ROTH conversions, early withdrawals, and QLACs (qualified longevity annuity contracts) are ways to reduce the amount of funds that must be withdrawn from IRAs. according to RMD rules and therefore reduce tax. income.

Annuities that are in the payout phase use a tax base called the “Exclusion Ratio” – this simply means that the payment someone receives is treated partly as “investment return” and partly as “taxable interest”. Annuities can accept lump sum deposits and generate guaranteed income for life with potentially strong benefits from a tax planning standpoint. On the permanent life front, cash value in life insurance contracts can often be accessed tax-free through a policy loan provision. Finally, reverse mortgages create funds that are not subject to state and federal income taxes.

Health Savings Accounts are becoming a notable tax planning tool. They have “triple tax advantages” and, if implemented early, can create a tax-free pool that can be used to finance health care expenses later in life.

Finally, tax planning goes hand in hand with investment planning. The combination of tax and investment planning can create real savings in your retirement years. Retirement is primarily about income rather than growth. Controlling spending, with taxes and health care front and center, can put more spendable money in retirees’ pockets to help them enjoy their retirement years.