May 01, 2020

Shell Retirees: Why Income Matters for Your Medicare Premiums

Medicare Premiums: Why Income Matters

  As we grapple with the effects of COVID-19 has had on the economy and, specifically, the energy sector you may be considering what a transition to retirement or a different opportunity may look like. If the lead-up to retirement is all about saving money through your Provident Fund, Benefit Restoration Plan, and/or your Global Employee Share Purchase Plan,  retirement is all about making that money last. That means avoiding surprise expenses and managing your nest egg wisely. Fortunately, retirees have a range of programs to help them cut costs as they get older – few more universally used than Medicare.   However, the way you manage your assets in retirement could result in you paying more than expected for Medicare coverage, which could impact the health of your retirement. Let’s take a look at how Medicare premiums work and how you can avoid paying more than necessary for coverage.  

A Quick Look at Medicare

  Odds are you’re familiar with Medicare, but we’ll go over it quickly now. Medicare is a national health insurance program that provides health coverage for older Americans and those managing disabilities and some chronic conditions. It’s offered by the Social Security Administration and provides coverage for 44 million beneficiaries across the nation.   Don’t know if you qualify for Medicare coverage? If you or your spouse are 65 years or older and are US citizens, there’s a good chance you do. Thankfully, you don’t need to guess: Talk to your retirement advisor or visit to check your eligibility.  

About Your Premiums

  Everyone receiving coverage through Medicare pays Medicare premiums. These premiums may come as a bill or, for those receiving Social Security benefits, are deducted directly from your SS benefit payment. There are four parts of Medicare coverage: A, B, C and D. Today, we’ll focus on Parts B and D – your medical insurance cost and your prescription drug coverage, respectively.   Medicare Plan B and D premiums are calculated on the basis of your Modified Adjusted Gross Income (MAGI), and there’s a yearly amount everyone has to at least pay. For 2019, that number is $135.50. Any individual with a MAGI of $85,000 or less than will be on the hook for that amount. Anyone with an income of $85,000+ will pay additional premiums based on the table, below. (Note that being married has an impact, too. You can see those rates on the table as well.)

Modified Adjusted Gross Income (MAGI)

Part B monthly premium amount

Prescription drug coverage monthly premium amount 

Individuals with a MAGI of $85,000 or less Married couples with a MAGI of $70,000 or less
 2019 standard premium = $135.50
    Your plan premium
  Individuals with a MAGI above $85,000 up to $107,000 Married couples with a MAGI above $170,000 up to $214,000
 Standard premium + $54.10        
Your plan premium + $12.40      
  Individuals with a MAGI above $107,000 up to $133,500 Married couples with a MAGI above $214,000 to to $267,000
 Standard premium + $135.40
Your plan premium + $31.90
  Individuals with a MAGI above $133,500 up to $160,000 Married couples with a MAGI above $267,000 to to $320,000
 Standard premium + $216.70
Your plan premium + $51.40
  Individuals with a MAGI above $160,000 up to $500,000 Married couples with a MAGI above $320,000 up to $750,000
 Standard premium + $297.90
Your plan premium + $70.90
  Individuals with a MAGI equal to or above $500,000 Married couples with a MAGI equal to or above $750,000  Standard premium + $325.00 Your plan premium + $77.40
  Retirees – even those with significant assets – often enjoy a low premium, since they tend to have little actual income. However, there are many things that a retiree can do while retired that will result in a higher MAGI. If not managed carefully, you can bump yourself into a new bracket without realizing it, which can spell trouble for your retirement trajectory.  

The Bracket Problem

  Let’s say you’re an unmarried 65-year-old retiree with a MAGI of $85,000 and are enjoying Social Security benefits. You decide to withdraw a sum of money from your IRA. You receive your hard-earned money and you don’t think much of it afterward. However, because you’re less than 70.5-years-old – the age at which the IRS makes you begin withdrawing those funds – that withdrawal is counted as income. So, when your next Social Security check arrives, you’re surprised to find it’s less than before. Your withdrawal has bumped you into a higher MAGI bracket, thus raising your Medicare premiums, which are then deducted from your Social Security benefit. For those relying on Social Security to live, this can be a real hit to their security.   IRA withdrawals aren’t the only action that can cause this. Roth conversions, investment payouts, royalties, stock options, taxable bonds, and some dividends can all add to your MAGI – and you won’t get any notice. Banks assume you understand the consequences of your retirement actions, so it’s important to think before you make a move.  

In a New Bracket

  There’s a chance you’re here because you’ve recently bumped yourself into a higher premium bracket and want to make sense of your new expenses or figure out what to do. First things first: recalibrate your spending accordingly. There are many ways to cut expenses in retirement and we always recommend playing it safe and keeping bandwidth in your budget for emergencies and necessities.   Then, you can either reach out to the Social Security Organization and explore your options or get in touch with your retirement advisor to talk things through. As is typical in retirement, not everything is easily walked back. At the least, these options will get you moving in the right direction.  

Covered, Confidently

  So, what’s the secret to staying in your Medicare bracket? Ultimately, it’s planning and awareness. When you retire from Shell, you need to think about the far-reaching consequences of everything they you do in retirement. That can mean balancing a lot of spinning plates, which can be a tall order as you get older. Our team understands the intricacies of, not only your Shell benefits, but a healthy retirement plan and works with Shell retirees across America to help them live out their later years with peace of mind. Partner with Baird and start taking control today.        

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