2020 changes for social security and medicare: what ...learn social security • how benefits are...

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2020 Changes for Social Security and Medicare:

What Clients Need to Know

By Elaine Floyd, CFP®Director of Retirement and Life PlanningHorsesmouth

What’s new for 2020

• Social Security cost-of-living adjustment (COLA)• New earnings test thresholds• New taxable wage base • New bend points: higher PIAs for maximum earners• Window closing for restricted application• Part B Medicare premiums, new IRMAA thresholds• The latest Social Security reform proposals

1. Social Security cost-of-living adjustment

• Checks going up by 1.6%• May be partially offset by Medicare premium “catch-

up” for those with low benefit amounts• All PIAs raised by COLA, whether or not benefits

have started

3

2. Earnings test thresholds

• $18,240 pre-FRA year• Benefits withheld $1 for $2

• $48,600 FRA year• Benefits withheld $1 for $3

• First-year monthly earnings test• $1,520 pre FRA• $4,050 FRA year

4

3. Maximum wage base for 2020: $137,700

• Additional earnings (or lack thereof) may affect the PIA• Statement estimate may be off

• Early retirees: send to Retirement Estimator (www.ssa.gov/estimator) or ballpark $100-$200 less than statement shows

• Continued earnings make a bigger difference for clients with less than 35 years of earnings (but later earnings always count for more than earlier earnings so everyone who works can improve their benefit)

5

http://www.ssa.gov/estimator

4. New indexing factors and bend points

• Average wage index up 3.62%• Higher PIA for maximum earners turning 62 in 2020

6

7

Average Indexed Monthly Earnings (AIME) for baby boomer born in

1958

Maximum earnings since 1980

$4,487,212 in total indexed earnings ÷ 420 months =

$10,683 AIME

8

Example of benefit formula for max earner• Baby Boomer born in 1958 – turns 62 in 2020• Maximum Social Security earnings every year since age 22• AIME = $10,683• PIA formula:

• $960 x .90 = $864.00• $4,825 x .32 = $1,544.00 ($5,785 - $960 = $4,825)• $4,898 x .15 = $734.70 ($10,683 - $5,785 = $4,898)• Total = $3,142.70

PIA = $3,142.70Amount worker will receive at full retirement age

5. Window closing for restricted application

• Strategy: Receive spousal benefit while own benefit builds delayed credits to age 70

• Phaseout: Only those born before January 2, 1954 are eligible• Everyone eligible will be FRA by end of 2019, but strategy not expiring:

can still do it up to age 70• Remember…

• Must not have previously filed for benefits• Other spouse must have filed• Other spouse need not be born before 1954

• See my Aug. 3, 2017 newsletter: “How To File a Restricted Application”• Does not apply to survivor benefits

9

Trust fund balance on 12/31/18: $2.895 trillion

2019 results• Total income: $1.062 trillion• Total expenditures: $1.059 trillion• Net increase in assets: < $ 3 billion

Trust fund balance on 12/31/19: $2.897 trillion

10

6. OASDI Trust Fund still growing (barely)

Source: Social Security Administration, Office of the Chief Actuary

11

Long-term projections: without reform, benefits fall to 80% in 2034

Source: 2018 OASDI Trustees Report

Source: 2019 OASDI Trustees Report

Cost: Scheduled but not fully payable benefits

Income

Expenditures: Payable benefits =income after trust fund exhaustion

in 2034

Cost: Scheduled and payable benefits

Payable benefits as percentof scheduled benefits:2017-2033: 100%2034: 80%2092: 74%

Cost: Scheduled but not fully payable benefits

Chart1

200020002000

200120012001

200220022002

200320032003

200420042004

200520052005

200620062006

200720072007

200820082008

200920092009

201020102010

201120112011

201220122012

201320132013

201420142014

201520152015

201620162016

201720172017

201820182018

201920192019

202020202020

202120212021

202220222022

202320232023

202420242024

202520252025

202620262026

202720272027

202820282028

202920292029

203020302030

203120312031

203220322032

203320332033

203420342034

203520352035

203620362036

203720372037

203820382038

203920392039

204020402040

204120412041

204220422042

204320432043

204420442044

204520452045

204620462046

204720472047

204820482048

204920492049

205020502050

205120512051

205220522052

205320532053

205420542054

205520552055

205620562056

205720572057

205820582058

205920592059

206020602060

206120612061

206220622062

206320632063

206420642064

206520652065

206620662066

206720672067

206820682068

206920692069

207020702070

207120712071

207220722072

207320732073

207420742074

207520752075

207620762076

207720772077

207820782078

207920792079

208020802080

208120812081

208220822082

208320832083

208420842084

208520852085

208620862086

208720872087

208820882088

208920892089

209020902090

Income

Scheduled

Payable

Calendar Year

0.1262

0.104

0.104

0.1272

0.1055

0.1055

0.129

0.1089

0.1089

0.1259

0.1103

0.1103

0.1252

0.1105

0.1105

0.1279

0.1116

0.1116

0.1279

0.1106

0.1106

0.1286

0.1133

0.1133

0.1273

0.1155

0.1155

0.131

0.1304

0.1304

0.1251

0.1344

0.1344

0.1268

0.1352

0.1352

0.1289

0.1383

0.1383

0.1283

0.1395

0.1395

0.1293

0.1398

0.1398

0.1295

0.1397

0.1397

0.1298

0.1394

0.1394

0.1301

0.1391

0.1391

0.1303

0.1396

0.1396

0.1305

0.1413

0.1413

0.1307

0.1437

0.1437

0.1311

0.1465

0.1465

0.1313

0.1497

0.1497

0.1315

0.1529

0.1529

0.1316

0.1559

0.1559

0.1318

0.1588

0.1588

0.132

0.1615

0.1615

0.1321

0.1641

0.1641

0.1323

0.1664

0.1664

0.1324

0.1683

0.1683

0.1325

0.1701

0.1701

0.1326

0.1715

0.1715

0.1327

0.1725

0.1725

0.1327

0.1733

0.1327

0.1328

0.1738

0.1328

0.1328

0.1741

0.1328

0.1328

0.1743

0.1328

0.1328

0.1743

0.1328

0.1328

0.1742

0.1328

0.1328

0.1739

0.1328

0.1328

0.1736

0.1328

0.1328

0.1732

0.1328

0.1328

0.1728

0.1328

0.1328

0.1724

0.1328

0.1328

0.1721

0.1328

0.1328

0.1719

0.1328

0.1328

0.1716

0.1328

0.1328

0.1714

0.1328

0.1327

0.1711

0.1327

0.1327

0.171

0.1327

0.1327

0.1708

0.1327

0.1327

0.1707

0.1327

0.1327

0.1707

0.1327

0.1328

0.1707

0.1328

0.1328

0.1708

0.1328

0.1328

0.1709

0.1328

0.1328

0.1711

0.1328

0.1328

0.1712

0.1328

0.1328

0.1714

0.1328

0.1328

0.1715

0.1328

0.1328

0.1716

0.1328

0.1328

0.1716

0.1328

0.1329

0.1717

0.1329

0.1329

0.1718

0.1329

0.1329

0.1719

0.1329

0.1329

0.172

0.1329

0.1329

0.1722

0.1329

0.1329

0.1724

0.1329

0.1329

0.1727

0.1329

0.133

0.1729

0.133

0.133

0.1733

0.133

0.133

0.1735

0.133

0.133

0.1738

0.133

0.133

0.174

0.133

0.133

0.1743

0.133

0.1331

0.1746

0.1331

0.1331

0.1749

0.1331

0.1331

0.1751

0.1331

0.1331

0.1754

0.1331

0.1331

0.1757

0.1331

0.1332

0.176

0.1332

0.1332

0.1764

0.1332

0.1332

0.1768

0.1332

0.1332

0.1772

0.1332

0.1332

0.1776

0.1332

0.1333

0.1779

0.1333

0.1333

0.1783

0.1333

0.1333

0.1787

0.1333

0.1333

0.1791

0.1333

0.1334

0.1794

0.1334

0.1334

0.1798

0.1334

2012

YearIncomeScheduledPayable

200012.62%10.40%10.40%

200112.72%10.55%10.55%

200212.90%10.89%10.89%

200312.59%11.03%11.03%

200412.52%11.05%11.05%

200512.79%11.16%11.16%

200612.79%11.06%11.06%

200712.86%11.33%11.33%

200812.73%11.55%11.55%

200913.10%13.04%13.04%

201012.51%13.44%13.44%

201112.68%13.52%13.52%

201212.89%13.83%13.83%

201312.83%13.95%13.95%

201412.93%13.98%13.98%

201512.95%13.97%13.97%

201612.98%13.94%13.94%

201713.01%13.91%13.91%

201813.03%13.96%13.96%

201913.05%14.13%14.13%

202013.07%14.37%14.37%

202113.11%14.65%14.65%

202213.13%14.97%14.97%

202313.15%15.29%15.29%

202413.16%15.59%15.59%

202513.18%15.88%15.88%

202613.20%16.15%16.15%

202713.21%16.41%16.41%

202813.23%16.64%16.64%

202913.24%16.83%16.83%

203013.25%17.01%17.01%

203113.26%17.15%17.15%

203213.27%17.25%17.25%

203313.27%17.33%13.27%

203413.28%17.38%13.28%

203513.28%17.41%13.28%

203613.28%17.43%13.28%

203713.28%17.43%13.28%

203813.28%17.42%13.28%

203913.28%17.39%13.28%

204013.28%17.36%13.28%

204113.28%17.32%13.28%

204213.28%17.28%13.28%

204313.28%17.24%13.28%

204413.28%17.21%13.28%

204513.28%17.19%13.28%

204613.28%17.16%13.28%

204713.28%17.14%13.28%

204813.27%17.11%13.27%

204913.27%17.10%13.27%

205013.27%17.08%13.27%

205113.27%17.07%13.27%

205213.27%17.07%13.27%

205313.28%17.07%13.28%

205413.28%17.08%13.28%

205513.28%17.09%13.28%

205613.28%17.11%13.28%

205713.28%17.12%13.28%

205813.28%17.14%13.28%

205913.28%17.15%13.28%

206013.28%17.16%13.28%

206113.28%17.16%13.28%

206213.29%17.17%13.29%

206313.29%17.18%13.29%

206413.29%17.19%13.29%

206513.29%17.20%13.29%

206613.29%17.22%13.29%

206713.29%17.24%13.29%

206813.29%17.27%13.29%

206913.30%17.29%13.30%

207013.30%17.33%13.30%

207113.30%17.35%13.30%

207213.30%17.38%13.30%

207313.30%17.40%13.30%

207413.30%17.43%13.30%

207513.31%17.46%13.31%

207613.31%17.49%13.31%

207713.31%17.51%13.31%

207813.31%17.54%13.31%

207913.31%17.57%13.31%

208013.32%17.60%13.32%

208113.32%17.64%13.32%

208213.32%17.68%13.32%

208313.32%17.72%13.32%

208413.32%17.76%13.32%

208513.33%17.79%13.33%

208613.33%17.83%13.33%

208713.33%17.87%13.33%

208813.33%17.91%13.33%

208913.34%17.94%13.34%

209013.34%17.98%13.34%

2012

Income

Scheduled

Payable

Calendar Year

Slide 9

YearIncomeScheduledPayable

200012.62%10.40%10.40%

200112.72%10.55%10.55%

200212.90%10.89%10.89%

200312.59%11.03%11.03%

200412.52%11.05%11.05%

200512.79%11.16%11.16%

200612.79%11.06%11.06%

200712.86%11.33%11.33%

200812.73%11.55%11.55%

200913.10%13.04%13.04%

201012.51%13.44%13.44%

201112.68%13.52%13.52%

201212.89%13.83%13.83%

201312.83%13.95%13.95%

201412.93%13.98%13.98%

201512.95%13.97%13.97%

201612.98%13.94%13.94%

201713.01%13.91%13.91%

201813.03%13.96%13.96%

201913.05%14.13%14.13%

202013.07%14.37%14.37%

202113.11%14.65%14.65%

202213.13%14.97%14.97%

202313.15%15.29%15.29%

202413.16%15.59%15.59%

202513.18%15.88%15.88%

202613.20%16.15%16.15%

202713.21%16.41%16.41%

202813.23%16.64%16.64%

202913.24%16.83%16.83%

203013.25%17.01%17.01%

203113.26%17.15%17.15%

203213.27%17.25%17.25%

203313.27%17.33%13.27%

203413.28%17.38%13.28%

203513.28%17.41%13.28%

203613.28%17.43%13.28%

203713.28%17.43%13.28%

203813.28%17.42%13.28%

203913.28%17.39%13.28%

204013.28%17.36%13.28%

204113.28%17.32%13.28%

204213.28%17.28%13.28%

204313.28%17.24%13.28%

204413.28%17.21%13.28%

204513.28%17.19%13.28%

204613.28%17.16%13.28%

204713.28%17.14%13.28%

204813.27%17.11%13.27%

204913.27%17.10%13.27%

205013.27%17.08%13.27%

205113.27%17.07%13.27%

205213.27%17.07%13.27%

205313.28%17.07%13.28%

205413.28%17.08%13.28%

205513.28%17.09%13.28%

205613.28%17.11%13.28%

205713.28%17.12%13.28%

205813.28%17.14%13.28%

205913.28%17.15%13.28%

206013.28%17.16%13.28%

206113.28%17.16%13.28%

206213.29%17.17%13.29%

206313.29%17.18%13.29%

206413.29%17.19%13.29%

206513.29%17.20%13.29%

206613.29%17.22%13.29%

206713.29%17.24%13.29%

206813.29%17.27%13.29%

206913.30%17.29%13.30%

207013.30%17.33%13.30%

207113.30%17.35%13.30%

207213.30%17.38%13.30%

207313.30%17.40%13.30%

207413.30%17.43%13.30%

207513.31%17.46%13.31%

207613.31%17.49%13.31%

207713.31%17.51%13.31%

207813.31%17.54%13.31%

207913.31%17.57%13.31%

208013.32%17.60%13.32%

208113.32%17.64%13.32%

208213.32%17.68%13.32%

208313.32%17.72%13.32%

208413.32%17.76%13.32%

208513.33%17.79%13.33%

208613.33%17.83%13.33%

208713.33%17.87%13.33%

208813.33%17.91%13.33%

208913.34%17.94%13.34%

209013.34%17.98%13.34%

Slide 9

Income

Scheduled

Payable

Calendar Year

Slide 8

YearOASDI

2000216%

2001239%

2002263%

2003288%

2004305%

2005318%

2006335%

2007345%

2008358%

2009353%

2010357%

2011353%

2012347%

2013341%

2014334%

2015328%

2016321%

2017314%

2018306%

2019296%

2020284%

Slide 8

OASDI

Calendar Year

12

https://www.ssa.gov/oact/solvency/provisions/index.html

13

https://www.ssa.gov/oact/solvency/index.html

Social Security 2100 Act

• Would increase first bend point multiplier from .90 to .93• Would base cost-of-living adjustments on the CPI-E (expected to increase COLA by

0.2 percentage points per year)• Would increase the special minimum PIA• Would replace current taxation thresholds to $50,000 for single individuals and

$100,000 for couples. Would not be adjusted for inflation• Would withhold OASDI taxes on income over $400,000. A “second AIME” would be

created to credit these earnings, with a 2% multiplier• Would gradually increase the payroll tax rate from 12.4% to 14.8% for 2042 and later• OAS and DI trust funds would be combined

14

Would restore full solvency

15

7. New Medicare numbers for 2020

• Part B base premium: $144.60• IRMAA income brackets adjusted for inflation• Medigap Plan F closed to those turning 65 after

2019—i.e., must pay Part B deductible• Part D donut hole closed in 2020

16

Monthly premiums for Parts B & D Including Income Related Monthly

Adjustment Amounts

17These do not include premiums for Medicare Advantage or Medicare supplement plans

MAGISingle

MAGIJoint

MAGI Married

filing separately

Part B monthly premium paid to

Medicare

Part B income-related

adjustment amount paid to

Medicare

Part D monthly premium (average)

paid to insurer

Part D income-related

adjustment amount paid to Medicare

Total Parts B & D

premium

≤ $87,000 ≤ $174,000 ≤ $87,000 $144.60 $0.00 $40.00 $0.00 $184.60

$87,001 -$109,000

$174,001 -$218,000

$144.60 $57.80 $40.00 $12.20 $254.60

$109,001 -$136,000

$218,001 -$272,000

$144.60 $144.60 $40.00 $31.50 $360.70

$136,001 -$163,000

$272,001 -$326,000

$144.60 $231.40 $40.00 $50.70 $466.40

$163,001-$499,999

$326,001-$749,999

$87,001-$412,999

$144.60 $318.10 $40.00 $70.00 $572.70

≥$500,000 ≥$750,000 ≥$413,000 $144.60 $347.00 $40.00 $76.40 $607.40

Medicare deductiblesAmount You Pay

• Part A - $1,408 per spell of illness• Part B - $198/year

• Waived for some preventive services such as flu shots, some mammograms and Pap smears, bone mass tests, prostate screening, diabetes tests, some others

• Part D – $435/year

18

Part D drug plans

• Donut hole closing in 2020, but Medicare’s standard drug plan design not relevant anymore

• Find a drug plan that meets client’s needs based on the medications they take

• Find cheapest drug plan if not taking drugs• Go to www.medicare.gov/find-a-plan

19

What to do now

• Become the go-to expert on Social Security and Medicare• Learn the rules• Teach the public• Recommend strategies• Follow up with seminar attendees

20

• 76% of future retirees who currently work with – or plan to work with – an advisor say they would likely switch and find an advisor who could advise on Social Security. (Nationwide

Retirement Institute)

The Advice Opportunity: Boomers in the pipeline

22

1946 Boomers started claiming in 2008, finished claiming in 2016

23

20162008

1954 Boomers entered the claiming pipeline in 2016, will finish in 2024

24

2016 2024

1962 Boomers will enter the claiming pipeline in 2024, will finish

in 2032

25

20322024

3 to 4 million Boomer prospects enter the claiming pipeline every year

They need help deciding when to claim Social Security and how to manage the

rest of their retirement assets

26

2016 2024 2024 2032

Boomer spike coming

27

Learn Social Security

• How benefits are calculated• How to maximize benefits• Rules for spousal and survivor benefits• Benefits for divorced people• How and when to switch from one benefit to another• How the earnings test works in the first year

28

29

https://www.horsesmouth.com/store/888-336-6884

https://www.horsesmouth.com/store/

Learn Medicare

• When you can, should, or must enroll in Medicare• How Medicare works with employer plans• How supplemental insurance works• Who pays the IRMAA and how you can help clients

avoid it• How to help clients transition to Medicare at

retirement

31

32



Teach Social Security and Medicare

• Seminars• Workshops• Classes

• Baby boomers (general)

• Couples• Women• CPAs

34

Updated Social Security presentations

35



Updated Medicare presentations

36



Recommend Social Security strategies

• How to maximize benefits• When to claim• Discuss other issues: retirement income planning,

insurance, investments

37

Recommend Medicare strategies

• When to enroll: avoid coverage gaps and late-enrollment penalties

• Which plan is best? Original Medicare or Medicare Advantage?

• Estimate health care costs, avoid or reduce the IRMAA

• Discuss long-term care

39

www.horsesmouth.com/meddem

Savvy Social Security and Medicare Workshop

Tampa: February 27-28Las Vegas: March 19-20

Join Horsesmouth’s Director of Retirement and Life Planning Elaine Floyd as she teaches you the rules and claiming strategies you need to know.

Sign up at www.horsesmouth.com/ssworkshop20Elaine Floyd, CFP®

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�2020 Changes for Social Security and Medicare:�What Clients Need to KnowWhat’s new for 20201. Social Security cost-of-living adjustment2. Earnings test thresholds3. Maximum wage base for 2020: $137,7004. New indexing factors and bend pointsAverage Indexed Monthly Earnings (AIME) for baby boomer born in 1958��Maximum earnings since 1980��$4,487,212 in total indexed earnings ÷ 420 months =�$10,683 AIMEExample of benefit formula for max earner5. Window closing for restricted application6. OASDI Trust Fund still growing (barely)Long-term projections: �without reform, benefits fall to 80% in 2034Slide Number 12Slide Number 13Social Security 2100 ActWould restore full solvency7. New Medicare numbers for 2020Monthly premiums for Parts B & D Including Income Related Monthly Adjustment AmountsMedicare deductibles�Amount You Pay�Part D drug plansWhat to do nowSlide Number 21�The Advice Opportunity: �Boomers in the pipeline�1946 Boomers started claiming in 2008, finished claiming in 20161954 Boomers entered the claiming pipeline in 2016, will finish in 20241962 Boomers will enter the claiming pipeline in 2024, will finish in 20323 to 4 million Boomer prospects enter the claiming pipeline every year��They need help deciding when to claim Social Security and how to manage the rest of their retirement assetsBoomer spike comingLearn Social SecuritySlide Number 29Slide Number 30Learn MedicareSlide Number 32Slide Number 33Teach Social Security and MedicareUpdated Social Security presentationsUpdated Medicare presentationsRecommend Social Security strategiesSlide Number 38Recommend Medicare strategiesSlide Number 40Slide Number 41Savvy Social Security and Medicare Workshop

2020 changes for social security and medicare: what ...learn social security • how benefits are...

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