Several readers have asked what I was referring to when, in my post announcing that I’ll not shut down Time Goes By, I mentioned a nasty Medicare/Social Security regulation that will dramatically reduce my benefits next year.
You are right to ask. It is something everyone needs to know so you don't learn the hard way as I have, and can plan for it.
For reference in understanding how nasty this is, here is my recent financial background:
After a year of unfruitful search for work, in 2005 I put my New York apartment on the market to be able to move to a less expensive city. Another year passed, unemployed, while I upgraded the apartment for sale, went through showings for longer than anticipated and waited out a three months’ lag between sale contract and closing. So in the end there was a total of two years accumulation of debt. (All the savings I once had was gone from a previous period of unemployment that had lasted 14 months for which I was still paying off credit cards at the time of the second layoff in 2004.)
I had owned my Greenwich Village apartment for 23 years and it sold, happily, for a lot of money. The real estate agent took a six percent bite of the sale price, and paying off the mortgage and debt took another 20 percent or so. Still, I could comfortably buy my new place in Portland, Maine, a car, pay the several thousand in moving expenses with some left over to invest.
The purpose of the investments is not income, but safety and modest growth so that should I become ill or disabled, there is money to care for me.
Because I own my apartment and my car outright and have no debt, my Social Security benefit has covered my monthly costs with a small amount left over for frills. It’s about 20 to 25 percent of what I was earning in my later working years and I live close to the bone. Everyone can use more money, but my needs are few and I don’t feel deprived.
And so it went until the letter arrived from the Social Security Administration (SSA) almost two weeks ago. In case you don’t know, here is how Social Security works with Medicare:
- There is no cost for Medicare Part A.
- The premium for Medicare Part B is set at the beginning of each year and is the same for everyone. In 2008, it is $96.40.
- The Medicare Part B premium is deducted from beneficiaries’ monthly Social Security benefit.
Simple enough, right? Except, here is that nasty little exception, as explained in the letter I received from SSA:
“Medicare law requires some people to pay a higher premium for their Medicare Part B based on their income.”
In the letter, there is a table with columns for: Filing Status; MAGI (I know, it sounds like a seasonal gift, but it means, “modified adjusted gross income”); and the Monthly Adjustment to the Part B premium at various levels of income.
The tax return on which this year's “adjustment” is based is two years old – 2006, the year, in my case, when due to the sale of my New York home, I showed a humongous adjusted gross income.
If you are older than 55 when you sell your primary residence, you are allowed a deduction for capital gains tax purposes of up to $250,000, all of which I took in 2006. Even so, I paid tens of thousands of dollars in capital gains that year.
[By the way, for many years all capital gains tax on the sale of a primary residence was waived, one time only, as long as the money was reinvested in another home within a specified period of time. We have President Clinton to thank for removing that waiver.]
And now, NOW – the Social Security Administration is reducing my benefit by increasing my Medicare Part B premium at the highest level imposed - by nearly $2000 over the year 2008. That doesn’t sound like much, but in my case, it covers the “frills” I mentioned including veterinary care for the cat, birthday gifts, unexpected expenses that turn up such as, perhaps, a repair bill for the boiler, dental work or a plumbing problem.
According to SSA, this premium increase can be adjusted downward under certain circumstances, which they list, and none of which I meet. Beyond that, according to the letter,
“We cannot make a new decision if your income has gone down for a reason other than those listed above, such as receiving a one-time income from capital gains. [emphasis added]
Here is how that regulation should be written: “…such as receiving a one-time income from capital gains, excluding the sale of your primary residence.”
Many people, when or sometime after they retire, sell the home they have lived in for decades. Even without the housing price inflation of recent years, they are likely to have a one-time, giant income spike due to the sale. Although its purpose is not to cover living expenses, I have the cushion of that modest investment account if I can’t find work next year, but many people do not.
I mentioned in my return-to-blogging post that I was struck by how mean politicians are in their legislation and this Medicare regulation qualifies. After having settled into retirement and based living arrangements on a known Social Security benefit, to cut it so drastically is shockingly callous and a hardship for elders.
If downsizing your home or selling anything else of substantial value is part of your retirement plan, you must take this regulation into account as you plan your retirement budget. It’s no fun being surprised.
[At The Elder Storytelling Place today, Sharon McKinney explains how a chance encounter with a past lover can be bittersweet in Going Up the Stairs.]