by Brian Swerdlow
Many federal retirees are eligible to receive Social Security benefits as early as age 62. However, some choose to wait until their full retirement age (FRA) to claim their benefits.
The full retirement age for those born in 1958 is currently 66 years and eight months, rising to age 67 for individuals born after 1959. In 2024, the average monthly Social Security retirement benefit is around $1,900. Some government retirees also enroll in Medicare when they apply for Social Security. Medicare has its own separate costs, particularly for those affected by the Income-Related Monthly Adjusted Amount (IRMAA).
Medicare Costs for Federal Retirees
Federal retirees may enroll in Medicare Part A (Hospital Insurance) and Part B (Medical Insurance) at age 65. Since most have paid into Medicare during their working years, there is no premium for Part A. However, there is a premium for Part B, which covers doctor visits, outpatient care, and other services. In 2024, the standard Part B premium is $174.70, typically deducted from a retiree’s Social Security benefits.
Unfortunately, not all Medicare Part B beneficiaries will pay the standard premium. Retirees with higher incomes are subject to IRMAA, which can increase the monthly premium. For a married couple enrolled in Part B, this could mean paying a significant amount each month. Understanding IRMAA and its implications is crucial for federal retirees, empowering them to make informed decisions and avoid these additional costs.
What is IRMAA?
The Income-Related Monthly Adjusted Amount (IRMAA) was introduced in 2007 under the Medicare Modernization Act to adjust Medicare premiums based on income. Initially, it only applied to Medicare Part B but was expanded in 2011 to include Part D (prescription drug plans) under the Affordable Care Act. IRMAA affects those whose Modified Adjusted Gross Income (MAGI) exceeds specific thresholds, causing them to pay a higher percentage of Medicare Part B premiums.
While the federal government generally covers about 75% of Part B costs, IRMAA reduces this subsidy for high-income beneficiaries. Depending on their income, retirees could pay anywhere from 35% to 85% of their Part B premium costs.
IRMAA in 2024: Key Income Thresholds
For 2024, IRMAA applies to individuals whose MAGI (based on their 2022 tax return) exceeds $103,000 or $206,000 for married couples filing jointly. Medicare beneficiaries falling into higher income tiers may see substantial increases in their Part B premiums. The surcharges start at $69.90 per month for Part B, pushing the monthly premium up to $244.60. This example demonstrates how even a tiny income difference can trigger IRMAA costs.
Consider the following example:
Example:
Carl, a federal retiree, filed his taxes as a single person and reported a MAGI of $103,000 in 2022. He owes the standard 2024 Medicare Part B premium of $174.70 per month. Meanwhile, Noreen, another federal retiree who filed as a single, reported a MAGI of $103,001—just $1 over Carl’s. Because her income exceeded the threshold, she must pay an additional $69.90 in IRMAA surcharges, bringing her total monthly Part B premium to $244.60.
IRMAA and MAGI: What Federal Retirees Need to Know
The key to avoiding or minimizing IRMAA surcharges is understanding how the IRS calculates MAGI. MAGI is a measure of income used to determine various tax benefits and is calculated by adding back certain deductions to your adjusted gross income. It includes adjusted gross income (AGI) plus any tax-exempt interest or dividends from investments, meaning that federal retirees investing in tax-free municipal bonds won’t avoid IRMAA. Even Social Security benefits, capital gains, and other income sources contribute to MAGI, and once retirees turn 63, their MAGI begins to impact Medicare premiums two years later, at age 65.
Strategies to Mitigate IRMAA Costs
There are several strategies federal retirees can use to reduce the impact of IRMAA:
- Plan Taxable Income Carefully: Since IRMAA is based on income from two years prior, federal retirees should plan their withdrawals and income sources wisely to avoid crossing the MAGI thresholds.
- Consider FEHB and Medicare Advantage Plans: Many federal employees’ health benefits (FEHB) plans offer cost-saving opportunities, particularly for retirees also enrolled in Medicare. Certain FEHB plans eliminate out-of-pocket costs for services covered by Medicare, and some offer partial reimbursement of Medicare Part B premiums.
- Additionally, Medicare Advantage (MA) plans available through FEHB often provide $0 out-of-pocket costs for approved services and offer generous reimbursements for Part B premiums. This combination of lower out-of-pocket expenses and premium reimbursement can make MA plans a particularly cost-effective option for many federal retirees.
- Monitor Income Tiers: Since even a small increase in income can push retirees into a higher IRMAA tier, federal retirees should be vigilant about any financial moves that could raise their MAGI. You can identify ways to keep your income within desirable limits by enlisting the services of a financial advisor with government benefits expertise. Your advisor can help you proactively plan for IRMAA.
Conclusion
IRMAA can be a costly surprise for federal retirees, but with careful planning, it’s possible to minimize or avoid these extra Medicare premiums. By understanding how IRMAA is calculated and taking advantage of FEHB options, federal retirees can better manage their healthcare costs and protect their hard-earned Social Security benefits.
