Health care expenses can be a significant cost in retirement. This is no different for the LGBTQ+ community. What is different for members of the LGBTQ+ community is that they may be more likely to be unmarried, and therefore subject to higher Medicare premiums.
My colleague, Nick Prigitano, CFP®, wrote a detailed blog on Medicare in his Financial Planning for your 60s column. That article covers a lot of the details of when to enroll and what plan should you choose. I want to focus this article on the cost of Medicare premiums.
Most people pay the standard Medicare Part B premium rate ($148.50 per person, per month, for 2021), plus a monthly premium for a Medicare supplement plan and prescription coverage to cover the costs that Medicare does not. However, if your income is over certain limits, you will pay $59.40 - $356.40 more per month, per person for Part B Medicare coverage in 2021 plus an additional $12.30 - $77.10 per month, per person more for Part D Medicare prescription drug coverage in 2021!
Note that the income that determines your Medicare Part B or D premium is two years prior to the current year. For example, 2021 Medicare premiums are based on your 2019 tax return income. Now, if you had a life-changing event such as retiring from your job, divorce, marriage, death of your spouse and a few other exceptions, you can file a Form SSA-44 to avoid the increased Medicare premium in that year.
These higher Medicare premium rates can impact unmarried LGBTQ+ individuals at much lower levels than married people. For example, if you are filing your taxes married filing jointly, your income can reach $176,000 before you have to pay an additional $59.40 per month in Medicare Part B premiums (and $12.30 per month in additional Medicare Part D premiums). If you file your taxes “Single”, that limit kicks in at $88,000! That makes doing partial Roth conversions, incurring capital gains or taking IRA or 401(k) distributions or even collecting Social Security extra expensive, if you don’t consider the impact that additional income will have on your Medicare premiums for the following year!
An unmarried LGBTQ+ couple with retirement income of $150,000, all earned by one of the partners, results in a monthly Medicare Part B premium of $386.10 for that partner, PLUS an additional $51.20 per month for Part D prescription drug coverage. The lower income partner, in this case with little income, would pay the base rate of $148.50 per month. Compare that to a married couple’s (LGBTQ+ or otherwise) premium of $148.50 per month each for the same household income. That is an extra Medicare premium (or tax, since its in place for only one year) of $288.80 per month, or $3,465.60 per year!
When calculating the tax cost of financial planning strategies, make sure you factor in the extra Medicare premium “tax”.
Jennifer Climo, CPA CFP® is a senior advisor at Milestone Financial Planning, LLC, a fee-only financial planning firm in Bedford NH. Milestone works with clients on a long-term, ongoing basis. Our fees are based on the assets that we manage and may include an annual financial planning subscription fee. Clients receive financial planning, tax planning, retirement planning, and investment management services, and have unlimited access to our advisors. We receive no commissions or referral fees. We put our clients’ interests first. If you need assistance with your investments or financial planning, please reach out to one of our fee-only advisors