Guest Blogger: Darlene Costner
Trickle Down Celebrity Ageism

A Nasty, Medicare/Social Security Regulation

category_bug_journal2.gif 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.]


Comments

Geeeeeeez, they really are out to get you. I just got a letter re: Medicare and I'll be damned if I can figure it out. I'm not stupid but I don't understand doublespeak.

This reminds me a bit about my dad's adventure in the double taxation of his military/disability pension. (Now resolved hopefully.)

Everyone should look into the FairTax plan at FairTax.org, btw.

We need simplicity in these areas of our lives.

Yes, this is a hard economic turn for you. I am sorry you got trapped in a regulation that was really made to clipped those with consistently high incomes as well as SS.
There is a real injustice for those living at the margins of "poor" and just "making it."

But, as I understand it, this $2000 bill will only be charged for this year. After that the SSA should be looking at your 2007 taxes, right?

Fortunately, I sold my Seattle condo right after disability retirement at a reasonable profit just as the market was rising and before I was finally eligible for SSA-disability Medicare.

My much greater problem with Medicare is the close to criminal Plan D program. My only hope is that as the masses of Boomers retire and face the rip-offs and inconsistencies in this drug program, pressure will be brought to bear to change it.
In the meanwhile I am moving next year from NC to IA where Plan D medicines are over 100% less. This is even better than WA where drugs would have cost 200% MORE!

I hope the comment above was correct..that this is a one time charge and they will consider your 2007 income for the Medicare B amount next year.
I was unaware that the one time Capital gains exemption was no longer in effect. That will be a big hit for us..my husband and I are both 63 and have owned this home since 1983. We have no plans to move anytime soon, but an illness for either of us could force the sale of the home.
I also find it disturbing that someone with such a successful career as yours would be cast aside in your later years. :::sigh:::

That's why I always insist that the best investment anyone can make is to pay the least amount of tax possible. Very few investment vehicles can match up to the impact of our taxes on us.

Olivia and Tissi:

Yes, it is one year only and in my case, if necessary, I can dip into my investment account.

But many people who may live in parts of the country where housing prices are not as inflated as New York or have other expenses, don't have that option.

Like you, Tissi, I, too, did not know the full capital gains deduction for primary residence had been rescinded until my accountant sent me my finished tax return for 2006, last year. I nearly passed out; the amount I owed was more than I made in a year for much of working life.

I had made all my financial plans based on having that deduction. As you point out, Olivia, the regulation is meant for those with consistently high incomes year after year, but it is badly written.

For most "ordinary" people, their one major investment in life is their home and they shouldn't be penalized, when their working years are over, with a tax more appropriate to the wealthy.

Thank you very much for this information. I'm sure I will fall into this situation at some point.

I am in my 4th year retired from teaching high school. Although I am legally allowed to go back and sub, or teach full time, I can not, in my heart, do so. I loved teaching, but not the discipline, stress and top down sudden changes. I know I could earn a lot of $$ if I swallowed my pride and went back, but I can't do it. I want to travel more and renovate my house though, so I began gardening for people for $. It is backbreaking work, but I love it. If I could find something else for half days, no nights or weekends, I'd grab it. Don't need the $ really, but need to feel good and busy. Wish there was a good 60 plus Canadian employment site for professionals wanting a flexible schedule. Glad to know you are back, Ronni. I still believe there is s job out there with your name on it. Yes I know I could work minimum wage store jobs or tele sales, but I don't want to work beside teens or listen to their soap opera lives. Been dere, done dat.

I am in my 4th year retired from teaching high school. Although I am legally allowed to go back and sub, or teach full time, I can not, in my heart, do so. I loved teaching, but not the discipline, stress and top down sudden changes. I know I could earn a lot of $$ if I swallowed my pride and went back, but I can't do it. I want to travel more and renovate my house though, so I began gardening for people for $. It is backbreaking work, but I love it. If I could find something else for half days, no nights or weekends, I'd grab it. Don't need the $ really, but need to feel good and busy. Wish there was a good 60 plus Canadian employment site for professionals wanting a flexible schedule. Glad to know you are back, Ronni. I still believe there is s job out there with your name on it. Yes I know I could work minimum wage store jobs or tele sales, but I don't want to work beside teens or listen to their soap opera lives. Been dere, done dat.

Wow, I would not have thought about what that means either. I just thought they excluded profit on a one-time deal on a property one had lived in and allowed you to not invest the total amount to avoid taxes and now see (thanks to your column) that it is up to a certain amount which with inflation, will mean most people will end up paying taxes given not many homes haven't inflated to funny money values over the last years. Thanks for the information as I'd have been ignorant of this also. They really are out to get the middle class in anything they do-- both parties.

Ronni, even the one-time capital gains exemption that Pesident Clinton changed had a $125,000 (for a single person) limit on it.

http://query.nytimes.com/gst/fullpage.html?res=9B02E1D7153DF931A1575AC0A960958260&sec=&spon=&pagewanted=all

At the time this was thought to have a positive effect.

You're right though, this is a poorly written law. For most seniors their home is a major part of their retirement portfolio and it needs to be protected from capital gains taxes. Or, at the very least, those capital gains need to be protected from Medicare.

Wow, I'm glad I sold my house before I retired.

It makes me hope that we die before we try to sell and move.

Gosh, you poor Americans. I feel so sorry for you. Your country doesn't look after it's elderly do they. I live in Australia and it truly is the "lucky" country.

It sounds as though America is even worse at caring about people than the British government. Politicians make noises about listening and finding solutions at election time but once they are in power the only thing that matters to them is money - how to spend ours and how to increase their own incomes.

Thanks, Ronnie,

Though my mother and I are relieved that your situation is not something that we have to worry about, we are totally pissed that this is on the books. I don't know how much press this change got when it went through but if it was anything like the 'thought crime bill' it wasn't much. I am so totally disappointed that Clinton signed this atrocity.

I'm so sorry, Ronni. Who needs this along with aching joints?

This just proves that no one in Washington thinks of the unintended consequences of the legislation they pass. Or, if they do, they don't care as long as it sounds good at the time.

Ronni - I am glad you are not closing down TGB!!! That is the good news and this article, wow - such bad news. BUT I STILL SAY GOD BLESS AMERICA even with all her failings...inorder to retire and now move we took a reverse mortgage on our home which paid all our bills and gave us a line of credit...too bad "kids" no inheritance but since we never made the "big money" our only asset is helping to secure the fact that we can not live on SS alone.

Thanks for explaining all of this, Ronni. Just another example of our wonderful government at work FOR THE PEOPLE!
It's not just the elderly getting hit with stuff like this, trust me. My son just went through a nasty divorce and custody battle. To determine child support, they based it on both their salaries for 2005....she made zero (is a hair dresser, but didn't work) he made a very good salary. That "very good" salary has now cost him giving 60% of it to the ex-wife for child support. Needless to say, he'll be back in court in April after she files taxes for 2006, of which she worked.
It's little things like your situation that NOBODY bothers to tell us....so thanks for sharing this. Because the government/state sure doesn't.

Good to be reminded of this tax situation should the day come when I might sell my house.

I'm truly sorry you got clobbered so, and unexpectedly, too. Even if only one tax year is affected, that can make a significant difference in the reserves needed to generate future income -- especially when there is no regular salaried job for the following years to try and make up the loss.

I think we need to keep communicating to our Congresspeople a demand for taxing/legislation that preserves instead of destroys the middle class in this country. We in the U.S.A. are beginning to remind me of so many South American countries where a middle class doesn't exist -- you either live in poverty or you exist in a extrememly wealthy upper class.

Ouch! It seems the more that Congress "helps" the people, the more inequities result. After reading what happened to you, I'm ashamed to have been annoyed when I got the same letter and discovered I'd wind up with $5 less each month.

Ouch, that smarts. Thanks for clueing us in on this, Ronni. I wouldn't have thought of this either.

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