King & Wood, P.A.

Estate Planning to Serve Today’s More Complicated Life

“Traditional estate planning often assumes a conventional family structure, but modern relationships demand more nuanced approaches.”

The plan of simply leaving everything to a surviving spouse, relying on the unlimited marital deduction to protect against any estate taxes at the first death, works for some families. However, when this is the only strategy, heirs receive an unwelcome tax surprise when the second spouse dies. A recent article in The National Law Review, “Estate Planning Mistakes—2025 Annual Refresher—Part 2,” reviews this and other estate planning matters.

The marital deduction strategy could be vulnerable to different jurisdictional approaches if one of the spouses is not a U.S. citizen or the estate includes overseas property. Foreign property regulations or citizen-based taxation systems could unravel a straightforward marital deduction strategy. A Qualified Domestic Trust (QDOT) might be considered for international estates.

To work properly, the QDOT must meet specific requirements. A U.S. trustee must immediately pay any estate tax if the principal is distributed, and special withholding is required for distributions to the non-citizen spouse. If the estate is valued at over $2 million, a bond or letter of credit for 64% of the initial QDOT value must be furnished by a bond or letter of credit, or a U.S. bank must be the trustee.

For domestic estate planning, using a credit shelter trust, sometimes referred to as a credit equivalent bypass trust, could solve taxes at the second spouse's death. The trust takes assets out of the taxable estate, and while funding is limited to the estate tax credit amount, this type of trust could create significant long-term tax savings.

Asset allocation takes more than a simple division of assets. One heir may have a substance abuse problem, while another enjoys a highly lucrative career. Different maturity levels and financial responsibility must be considered when dividing assets to achieve the testator’s goals of caring for the family. A trust may be needed to provide limited support to the individual who can’t manage money, while another may be in a high tax bracket and prefer assets to be passed on to grandchildren.

Today’s family could be traditional, blended, include non-traditional partnerships or children conceived through assisted reproduction or surrogacy. Without addressing these different definitions of families, partners, and children, some family members could be unintentionally excluded from family trusts or qualify as decedents under prior estate planning documents. Definitions of familial relationships and explicit provisions may need to define “issue” and “descendants” to protect family members, while preventing unintended claims.

Documentation and record management is a cornerstone of estate administration. However, it typically receives little attention during the estate planning process. Having to reconstruct assets based on poorly maintained records causes headaches and additional expenses for heirs. Secure storage solutions need to be considered.

Digital vaults are growing in use. However, they must be carefully vetted to ensure that sensitive information is both protected and, at the same time, accessible to the right person. Your estate planning attorney will have recommendations for safely storing documents, whether in a fire-and-waterproof safe at home or online.

Your life and your family may look very different from your parents’ or your grandparents’ lives. However, your estate plan can reflect modern life and serve to protect all of your loved ones.

Reference: The National Law Review (Dec. 9, 2024) “Estate Planning Mistakes—2025 Annual Refresher—Part 2”

What Kind of Medicare Plan Should You Have?

“If you’re thinking about retiring, or are already covered by Medicare, you might be overwhelmed by all the choices out there.”

It’s no wonder people make poor choices about their plans, which can be disastrously expensive since the older we get, the more we need healthcare. A recent article from The Wall Street Journal, “The 5 Biggest Mistakes People Make When Picking a Medicare Plan,” takes a look at the mistakes people make, how to make better choices and which plans are recommended.

Underestimating the costs of traditional Medicare is one of the biggest mistakes. Traditional Medicare, which the government offers, has three parts: A, B, and D. Part A covers care for inpatient hospital services, among other things, and Part B is for physician services. Part D is for prescription services.

The appeal of traditional Medicare is the ability to visit any hospital, doctor, or healthcare provider without a referral or prior authorization of services. If you have doctors you trust, do a lot of domestic travel, need care in different places, or think you might benefit from a treatment a private insurer may deny, this is your best choice.

Many people don’t even consider the options when choosing traditional Medicare. Instead, they allow it to be chosen for them. If you claim Social Security before age 65, which nearly half of Americans do, the Social Security Administration automatically enrolls you in traditional Medicare when you turn 65. It’s the path of least resistance. However, this might not always be the best fit.

The flexibility of the plan comes with certain costs. Part A premiums are often zero for those who have worked for at least ten years. However, Part B carries premiums based on household income. If your household modified adjusted gross income exceeds about $370,000 (or individually more than about $180,000), those premiums can rise to more than $500 a month per individual.

With traditional Medicare, a hospitalization has a $1,600 deductible. A hospital stay longer than 60 days comes with a $400 co-payment daily, and a skilled nursing facility stay of more than 20 days will cost $200 a day. You’ll also be responsible for 20% of the Medicare-approved cost of physician services during the hospital stay.

Another big mistake is underestimating the costs of Medicare Advantage plans. Medicare Advantage is an alternative to traditional Medicare. First, you sign up for Parts A and B, and then you can sign up for a Medicare Advantage plan, also known as Part C. This option is a bundle of A, B, and D, delivered by private insurance companies approved by Medicare. Some plans do not include prescription drug coverage, so you must check carefully.

Medicare Advantage companies are paid a fixed amount of money monthly by the government, so they have an incentive to reduce costs by providing better coverage for medicines that will keep you out of the hospital, However, there are coverage issues. Zero premiums apply to Part A and D, meaning you still pay the Part B premium.  The cost savings on out-of-pocket costs apply only if you stay in network. If you go out of network, your care can quickly become extremely expensive. The in-network and out-of-network distinctions limit where you can get your medical care. If you need access to a certain hospital or healthcare provider and they are not in the network, there may be better options for you.

Choosing traditional Medicare without Medigap, supplemental insurance sold by private companies helps traditional Medicare beneficiaries pay for cost-sharing in Parts A and B. Nearly 10% of those who chose traditional Medicare don’t have supplemental coverage.

Neglecting to get prescription coverage is another big and expensive mistake. You aren’t automatically enrolled in Part D—you must proactively select this plan covering prescription drugs. You have only 63 days after your initial enrollment in Medicare to enroll in Part D. If you miss this window and don’t have any other drug coverage, your Part D premium will be permanently higher.

Finally, many people feel this is too confusing to manage on their own, so they turn to a broker, which makes sense. You should know brokers work on commission, receiving payment from insurance companies. Make sure to ask your broker how they are paid, ask about the plans they are not telling you about and whether or not the discounts you are being offered at sign-up will go away in a year or so.

Reference: The Wall Street Journal (Aug. 15, 2023) “The 5 Biggest Mistakes People Make When Picking a Medicare Plan”

What Kind of Medicare Plan Should You Have?

“If you’re thinking about retiring, or are already covered by Medicare, you might be overwhelmed by all the choices out there.”

It’s no wonder people make poor choices about their plans, which can be disastrously expensive since the older we get, the more we need healthcare. A recent article from The Wall Street Journal, “The 5 Biggest Mistakes People Make When Picking a Medicare Plan,” takes a look at the mistakes people make, how to make better choices and which plans are recommended.

Underestimating the costs of traditional Medicare is one of the biggest mistakes. Traditional Medicare, which the government offers, has three parts: A, B, and D. Part A covers care for inpatient hospital services, among other things, and Part B is for physician services. Part D is for prescription services.

The appeal of traditional Medicare is the ability to visit any hospital, doctor, or healthcare provider without a referral or prior authorization of services. If you have doctors you trust, do a lot of domestic travel, need care in different places, or think you might benefit from a treatment a private insurer may deny, this is your best choice.

Many people don’t even consider the options when choosing traditional Medicare. Instead, they allow it to be chosen for them. If you claim Social Security before age 65, which nearly half of Americans do, the Social Security Administration automatically enrolls you in traditional Medicare when you turn 65. It’s the path of least resistance. However, this might not always be the best fit.

The flexibility of the plan comes with certain costs. Part A premiums are often zero for those who have worked for at least ten years. However, Part B carries premiums based on household income. If your household modified adjusted gross income exceeds about $370,000 (or individually more than about $180,000), those premiums can rise to more than $500 a month per individual.

With traditional Medicare, a hospitalization has a $1,600 deductible. A hospital stay longer than 60 days comes with a $400 co-payment daily, and a skilled nursing facility stay of more than 20 days will cost $200 a day. You’ll also be responsible for 20% of the Medicare-approved cost of physician services during the hospital stay.

Another big mistake is underestimating the costs of Medicare Advantage plans. Medicare Advantage is an alternative to traditional Medicare. First, you sign up for Parts A and B, and then you can sign up for a Medicare Advantage plan, also known as Part C. This option is a bundle of A, B, and D, delivered by private insurance companies approved by Medicare. Some plans do not include prescription drug coverage, so you must check carefully.

Medicare Advantage companies are paid a fixed amount of money monthly by the government, so they have an incentive to reduce costs by providing better coverage for medicines that will keep you out of the hospital, However, there are coverage issues. Zero premiums apply to Part A and D, meaning you still pay the Part B premium.  The cost savings on out-of-pocket costs apply only if you stay in network. If you go out of network, your care can quickly become extremely expensive. The in-network and out-of-network distinctions limit where you can get your medical care. If you need access to a certain hospital or healthcare provider and they are not in the network, there may be better options for you.

Choosing traditional Medicare without Medigap, supplemental insurance sold by private companies helps traditional Medicare beneficiaries pay for cost-sharing in Parts A and B. Nearly 10% of those who chose traditional Medicare don’t have supplemental coverage.

Neglecting to get prescription coverage is another big and expensive mistake. You aren’t automatically enrolled in Part D—you must proactively select this plan covering prescription drugs. You have only 63 days after your initial enrollment in Medicare to enroll in Part D. If you miss this window and don’t have any other drug coverage, your Part D premium will be permanently higher.

Finally, many people feel this is too confusing to manage on their own, so they turn to a broker, which makes sense. You should know brokers work on commission, receiving payment from insurance companies. Make sure to ask your broker how they are paid, ask about the plans they are not telling you about and whether or not the discounts you are being offered at sign-up will go away in a year or so.

Reference: The Wall Street Journal (Aug. 15, 2023) “The 5 Biggest Mistakes People Make When Picking a Medicare Plan”

How Does an Irrevocable Life Insurance Trust Work?

“Life insurance is often a cornerstone of a comprehensive estate plan, particularly when an estate consists of largely illiquid assets.”

Irrevocable Life Insurance Trusts (ILITs) are a common planning tool. However, buying the policy at the wrong time, leaving out Crummey withdrawal rights and ignoring administrative costs are commonly made mistakes. Being aware of these snares is important to make the ILIT effective, says a recent article titled “Irrevocable Life Insurance Trusts in Estate Planning: Common Pitfalls” from Think Advisor.

Purchasing a new policy outside of the ILIT is a commonly made error. If you purchase a new life insurance policy and then transfer it to the ILIT, the death benefit will be included in your estate for estate tax purposes if you die within three years of the transfer. This undoes any estate tax advantages of the insurance policy and the trust.

IRS Section 2035 causes estate tax inclusion for anyone who transfers or otherwise gives up power over a life insurance policy within three years of death. However, there are ways to address this. If you first establish and fund the ILIT first, so the ILIT is the entity purchasing the policy directly, the death benefit is excluded from your estate regardless of how long you live after the purchase date.

Another error concerns the “Crummy Protocol.” Unless or until the premiums on a life insurance policy are fully paid or are self-sustaining through a draw on the cash surrender value, the insured must make gifts to the ILIT to pay for the premiums. People often like to use their annual gift tax exclusion to make contributions. However, to qualify the gifts for the annual gift tax exclusion, the beneficiaries of the ILIT must have the right to withdraw certain amounts transferred into the ILIT.

Failing to include the required withdrawal rights may eliminate the ability to offset gifts by the annual exclusion right. Even if the ILIT includes Crummey withdrawal rights, you won’t be able to take advantage of the annual gift tax exclusion if the beneficiaries are not informed of their withdrawal rights each time an eligible contribution is made to the ILIT.

Your estate planning attorney will advise you as to how this occurs from a procedural perspective. You’ll want them to review it before it is signed to confirm it includes Crummey withdrawal rights and to help you establish procedures for providing the requisite notice and waiting the required period each time a gift is made.

Lastly, ILITs often have limited assets since they may only be funded with the insurance policy and the amount needed to pay the premiums. Therefore, if the ILIT has any administrative expenses, like accounting, legal or trustee funds, there may be insufficient assets in the ILIT to pay them.

If you pay the expenses directly, they will be considered as making a gift for gift tax purposes, because you will be deemed to have first transferred to the ILIT any amounts paid on its behalf. Avoid this issue by funding your ILIT with the necessary money to pay premiums and administrative costs. If the class of beneficiaries holding Crummey withdrawal rights is broad enough, this may be done solely through annual exclusion gifts.

Reference: Think Advisor (Sep. 29, 2022) “Irrevocable Life Insurance Trusts in Estate Planning: Common Pitfalls”

How Does an Irrevocable Life Insurance Trust Work?

“Life insurance is often a cornerstone of a comprehensive estate plan, particularly when an estate consists of largely illiquid assets.”

Irrevocable Life Insurance Trusts (ILITs) are a common planning tool. However, buying the policy at the wrong time, leaving out Crummey withdrawal rights and ignoring administrative costs are commonly made mistakes. Being aware of these snares is important to make the ILIT effective, says a recent article titled “Irrevocable Life Insurance Trusts in Estate Planning: Common Pitfalls” from Think Advisor.

Purchasing a new policy outside of the ILIT is a commonly made error. If you purchase a new life insurance policy and then transfer it to the ILIT, the death benefit will be included in your estate for estate tax purposes if you die within three years of the transfer. This undoes any estate tax advantages of the insurance policy and the trust.

IRS Section 2035 causes estate tax inclusion for anyone who transfers or otherwise gives up power over a life insurance policy within three years of death. However, there are ways to address this. If you first establish and fund the ILIT first, so the ILIT is the entity purchasing the policy directly, the death benefit is excluded from your estate regardless of how long you live after the purchase date.

Another error concerns the “Crummy Protocol.” Unless or until the premiums on a life insurance policy are fully paid or are self-sustaining through a draw on the cash surrender value, the insured must make gifts to the ILIT to pay for the premiums. People often like to use their annual gift tax exclusion to make contributions. However, to qualify the gifts for the annual gift tax exclusion, the beneficiaries of the ILIT must have the right to withdraw certain amounts transferred into the ILIT.

Failing to include the required withdrawal rights may eliminate the ability to offset gifts by the annual exclusion right. Even if the ILIT includes Crummey withdrawal rights, you won’t be able to take advantage of the annual gift tax exclusion if the beneficiaries are not informed of their withdrawal rights each time an eligible contribution is made to the ILIT.

Your estate planning attorney will advise you as to how this occurs from a procedural perspective. You’ll want them to review it before it is signed to confirm it includes Crummey withdrawal rights and to help you establish procedures for providing the requisite notice and waiting the required period each time a gift is made.

Lastly, ILITs often have limited assets since they may only be funded with the insurance policy and the amount needed to pay the premiums. Therefore, if the ILIT has any administrative expenses, like accounting, legal or trustee funds, there may be insufficient assets in the ILIT to pay them.

If you pay the expenses directly, they will be considered as making a gift for gift tax purposes, because you will be deemed to have first transferred to the ILIT any amounts paid on its behalf. Avoid this issue by funding your ILIT with the necessary money to pay premiums and administrative costs. If the class of beneficiaries holding Crummey withdrawal rights is broad enough, this may be done solely through annual exclusion gifts.

Reference: Think Advisor (Sep. 29, 2022) “Irrevocable Life Insurance Trusts in Estate Planning: Common Pitfalls”

Should You have a GRAT?

“It took a lot of hard work and dedication to acquire your wealth. You want to transfer as much of it as you can to your beneficiaries. As a result, having a large estate means you’ll have to pay quite a bit in gift and estate taxes.”

Estate planning includes using various methods to reduce gift and estate taxes, as described in a recent article titled “Grantor Retained Annuity Trust Questions Answered” from Entrepreneur. GRATs are one type of irrevocable annuity trust used by estate planning attorneys to reduce taxes.

An annuity is a financial product, often sold by insurance companies, where you contribute funds or assets to an account, referred to as premiums. The trust distributes payments to a beneficiary on a regular basis. If you have a Grantor-Retained Annuity Trust (GRAT), the person establishing the trust is the Grantor, who receives the annuities from the trust.

The GRAT payments are typically made annually or near the anniversary of the funding date. However, they can be made any time within 105 days after the annuity date. Payments to the GRAT may not be made in advance, so consider your cash flow before determining how to fund a GRAT. For this to work, the grantor must receive assets equal in value to what they put into the GRAT. If the assets appreciate at a rate higher than the interest rate, it’s a win. At the end of the GRAT term, all appreciation in the assets is gifted to the named remainder beneficiaries, with no gift or estate tax.

Here is a step-by-step look at how a GRAT is set up.

• First, an individual transfers assets into an irrevocable trust for a certain amount of time. It’s best if those assets have a high appreciation potential.
• Two parts of the GRAT value are the annuity stream and the remainder interest. An estate planning attorney will know how to calculate these values.
• Annuity payments are received by the grantor. The trust must produce a minimum return at least equal to the IRS Section 7520 interest rate, or the trust will use the principal to pay the annuity. In this case, the GRAT has failed, reverting the trust assets back to the grantor.
• Once the final annuity payment is made, all remaining assets and asset growth are gifted to beneficiaries, if the GRAT returns meet the IRS Section 7520 interest rate requirements.

The best candidates for GRATS are those who face significant estate tax liabilities at death. An estate freeze can be achieved by shifting all or some of the appreciation to heirs through a GRAT.

A GRAT can also be used to permit an S-Corporation owner to preserve control of the business, while freezing the asset’s value and taking it out of the owner’s taxable estate. Caution is required here, because if the owner of the business dies during the term of the GRAT, the current stock value is returned to the owner’s estate and becomes taxable.

GRATs are most beneficial in transferring large amounts of money to beneficiaries, while paying little or no gift tax. A GRAT allows you to give a beneficiary more than $16,000 without triggering a gift tax, which is especially useful for wealthy individuals with healthy estates.

There are some downsides to GRATs. When the trust term is over, remaining assets become the property of the beneficiaries. Setting a term must be done mindfully. If you have a long-term GRAT of 20 years, it is more likely that you may experience serious health challenges as you age, and possibly die before the term is over. If the assets in the GRAT depreciate below the IRS’s assumed return rate, any benefits of the GRAT are lost.

Reference: Entrepreneur (March 17, 2022) “Grantor Retained Annuity Trust Questions Answered”

Will Social Security Get a Raise in 2022?

“Last year, the Social Security Administration announced that seniors would be getting their largest cost-of-living adjustment, or COLA, in decades. Fueled by rampant inflation, Social Security benefits are in line for a 5.9% boost this year.”

The COLA increase in Social Security is welcomed by seniors depending upon their benefits but the timing varies, says the article “Social Security Benefits Get a 5.9% Raise This Year--Here's When You Should See That Extra Money” from the Lincoln Journal Star. Here’s what you can expect.

The first benefit check or automatic deposit should arrive with the 5.9% COLA. However, the timing depends upon your date of birth. If your birthday falls between the first and the 10^th of the month, those benefits should arrive on the second Wednesday of the month, so by January 12, you’ve should have received your first Social Security benefit with the COLA.

What if your birthday is between the 11^th and 20^th of the month? Benefits should arrive by the third Wednesday of the month. That’s a raise on January 19.

And if your birthday is late in the month, between the 21^st and 31^st, expect your benefits on the fourth Wednesday of the month—that would be January 26.

A caveat—if you’re collecting Social Security but have not yet enrolled in Medicare, then you’ll see a monthly increase of 5.9%. However, if you’ve enrolled in Medicare Part B and pay premiums directly from your benefits, your increase will be less. This is the push me—pull you of Social Security COLAs.

Medicare Part B premiums have increased, from $148.50 in 2021 to $171.10 in 2022, a total increase of $21.60. So, while you may have hoped for a true 5.9% increase, subtract the COLA from your premium hike to see what monthly benefit you’ll really get.

The annual deductible for all Medicare Part B beneficiaries is $233 in 2022. That’s a $30 increase from the $203 annual deductible in 2021.

Yes, this is the biggest COLA increase in a long time, as we have been in a low inflation environment for a very long time. If possible, it would be wise to take your COLA increase and set it aside to create or enhance a financial cushion. However, when living costs for everything from food to gas keep going up, it’s simply not possible for most people to save.

The reason this year’s COLA was so large is because of the high inflation rates from the third quarter of 2021. If inflation had been less, so would have been the increase. We don’t know what the future of Social Security will be, or what future COLAs will be. However, if at all possible, building in a little security of your own is the best recommendation.

Reference: Lincoln Journal Star (Jan. 7, 2022) “Social Security Benefits Get a 5.9% Raise This Year--Here's When You Should See That Extra Money”

What is the Purpose of an ILIT?

“Life insurance is a sophisticated financial product, with as many variations and permutations as there are creative insurance companies (there are many) and creative insurance planners (there are even more).”

Life insurance falls into two categories: life insurance and death insurance. Life insurance is used to take advantage of the tax-free returns that qualifying insurance products enjoy under federal income tax laws. There is a death component. However, the main purpose is to serve as a tax-deferred investment vehicle. Death insurance is used to provide financial security for loved ones after the owner passes, with little or no regard for tax and investment benefits.

Using both types of life insurance in estate planning can be a complicated process, but the resulting financial security is well worth the effort, as reported in a recent article “Keeping an Eye on ILITs” from Financial Advisor.

The Irrevocable Life Insurance Trust is a somewhat complex trust structured under state trust law and tax strategies under federal income tax laws. ILITs have been tested in court cases, audits and private letter rulings, so an estate planning attorney can create an ILIT knowing it will serve its intended purpose.

Life insurance in an ILIT is owned outside of the estate and enhances the after-estate tax wealth for the surviving spouse and heirs. Because the trust is irrevocable, the transfer of ownership is permanent.

The annual insurance premium is typically paid by the insured to the ILIT, subject to “Crummey” withdrawal powers, named after a famous case, which gives named people the power to withdraw all or a portion of the contributed premium amounts within specified periods. The time frame depends on the trust—usually it’s 30 or 60 days, but sometimes it’s annually.

There are many nuances and details.  The ILIT lets an insured buy life insurance “outside of their estate” for estate tax purposes, lets the person treat insurance premiums as non-taxable gifts under the annual exclusion provisions and provides safety and security to the beneficiaries.

The ILIT is often used as part of a buy-sell agreement for privately held family businesses to make it possible for the business itself or business partners to buy out the equity of a deceased partner. The payment obligations may be funded by the proceeds from life insurance. In some cases, each partner buys a traditional insurance policy in an ILIT. The estate planning attorney working on a succession plan can provide advice on the most effective way to use the ILIT.

Another use for the ILIT is for wealthy families with illiquid assets, like an art collection or a large real estate portfolio. An ILIT holding a life insurance policy with a death benefit lets the beneficiaries use the proceeds to pay estate tax liabilities, without dipping into their own or the estate’s assets. The investment returns of the ILIT increase the policy owner’s wealth substantially, without increasing their taxable estate.

Reference: Financial Advisor (December 1, 2021) “Keeping an Eye on ILITs”

What Is the Social Security Increase for 2022?

“A large 5.9% cost-of-living adjustment is coming to Social Security beneficiaries in 2022. That means the average monthly retirement benefit will go up by $92 per month. Exactly how much more money you will see may depend on the amount of Medicare Part B premiums.”

The Social Security Administration has announced a record-high COLA (Cost of Living Adjustment) for 2022, and recipients are eager to calculate just what this means for their monthly Social Security benefit. How to estimate the increase is the focus of the article “Social Security cost-of-living adjustment will give average retirees $92 more a month in 2022. How to estimate how much you’ll get” from CNBC.

The COLA for 2022 for Social Security or Supplemental Security Income (SSI) will be 5.9%. More than 64 million Americans will see their benefits increase in January, as will about 8 million recipients of SSI benefits.

The annual adjustment is based on inflation. While this is the highest increase since 1982, consumer prices have gone up as well, so the extra may not go very far. Experts say the average increase will be about $92—from $1,565 in 2021 to $1,657 in 2022. However, every beneficiary will see a different size of increase, mainly due to Medicare Part B premiums.

Payments for Medicare Part B are usually deducted directly from monthly benefits. Not everyone has Medicare Part B coverage, especially if they are still covered under an employer health plan or if they haven’t yet reached Medicare eligibility, age 65 for many.

The standard Medicare Part B premium is projected to be up by ten dollars from $148.50 to $158.60 per month, but rates have not been officially announced.

For those who are not covered by Medicare Part B, multiply the monthly benefit by 1.059 to approximate benefits for next year.

If you are covered by Medicare Part B, subtract $10 from the same calculation to get close to what your monthly payment for 2022 might be.

But—there’s always a “but”—people with incomes above certain levels will pay more for Medicare Part B. This is because of the Income-Related Monthly Adjustment Amount, or IRMAA. A new table for Medicare Part B premiums for 2022 has not yet been released.

Social Security and SSI beneficiaries will be notified by mail in December, and the information will also be available on the My Social Security website.

New benefits for 2022 won’t be calculated for those covered by Medicare until after premiums for next year are announced. Those changes will be available, once they’ve been completed at Medicare.gov.

Reference: CNBC (Oct. 22, 2021) “Social Security cost-of-living adjustment will give average retirees $92 more a month in 2022. How to estimate how much you’ll get”

When Social Security Makes the Most Sense

 

“When should you sign up for Social Security? It is a good question. Many seniors grapple with that decision, and understandably so, since the age at which you claim benefits will dictate how much money you will receive each month during retirement.”

There’s an unfortunate tendency to focus on how to get the most out of Social Security in total benefits, but that’s not always the right approach to determine when to apply for Social Security. Everyone has the same eight-year window—from age 62 to 70—when they can start applying for benefits, as explained in the article “Why Claiming Social Security at 65 Is a Smart Bet” from The Motley Fool. The year you were born determines when Social Security sets your Full Retirement Age, or FRA.

Whether you take Social Security at age 62, which is the earliest you can take it, or at 70, after which you’ve maxed out on monthly benefits and there’s no reason to delay, depends on many different factors. For example, do you expect to live a long time based on your family history? If so, it may make sense to wait. However, if you have a number of health conditions and expect to have a shorter life span, then take your benefits early and enjoy them—you earned them.

The most common age for starting Social Security benefits is at age 62. A much smaller percentage of seniors wait until age 70 to collect benefits. Doing so locks in a higher benefit for life, but if you don’t live much longer than 70, the benefit doesn’t matter quite as much.

Going from one extreme to the other points to a choice in the middle: age 65. That’s when Medicare kicks in. Some people get these benefits confused. They think that once they are eligible for Medicare, they are eligible for full Social Security benefits. This is not true. However, 65 is still a good age to start taking Social Security benefits for a few reasons.

• You’re not taking Social Security at the earliest age possible, so you have had two years for your benefits to increase.
• You’re not taking Social Security at the latest age. Therefore, if you don’t live into your 90s, you’ll still have had those years to enjoy the fruits of your labor.

The numbers-crunchers at Social Security work to make sure that everyone gets the same lifetime benefits, regardless of when they file. The logic is simple: claim early, and get a smaller benefit, possibly for a longer lifetime. Delay your claim, and the same amount of money in total will come to you, just in fewer payments.

There is another advantage for claiming Social Security around the same time you switch over to Medicare. Your Part B premiums will be directly paid from Social Security benefits. That means you’ll have some protection against rising premiums. That’s because of what’s known as the “hold harmless provision.” It is a provision that attempts to limit how much of a bite Medicare premiums can take out of Social Security benefits. It’s not a perfect solution, but it’s a little bit of a help.

Reference: The Motley Fool (July 10, 2020) “Why Claiming Social Security at 65 Is a Smart Bet”