I’ve just gone through the IRMMA experience. Medicare wanted to charge the top IRMMA amount based on our 2020 income; I filed a form to have it recalculated based on 2021 income which removed the IRMMA altogether. Social Security informed me that the IRS can’t find our 2021 return (!) but they removed the IRMMA based on the info I provided. I suspect that when they calculate next year’s premium the IRMMA might pop back up again unless they find our return, so I might have to go through this process again soon. It was a pain, but now I know what to do and who to talk to.
4 Likes
Thanks for the explanation. I am a fair number of years away still, so my knowledge is sketchy, at best.
Did you file electronically? If so, I wonder why the IRS cannot locate your return. I mean, I don’t really wonder b/c it’s the IRS!
I mailed my college son’s simple return one year, only to later learn that the IRS does not scan the paper returns, but instead keystrokes the info. CT does scan so they process much more quickly.
Best of luck with your appeal.
1 Like
Yes, we filed electronically, on time, and received a refund. So it’s there somewhere!
1 Like
Our CPA has our returns and we have his firm deal with the irs so we rarely have to. It’s great peace of mind for us. He keeps electronic copies.
IRMAA is looked at each year.
I’ve heard of people planning their withdrawing of retirement funds such that they withdraw a lot one year and then hardly anything the next, to help keep Medicare costs down.
I’m still trying to figure out if we will even take Medicare (part B), because we have great insurance and I’m not sure it’s worth the cost.
4 Likes
That’s the good strategy.
Be sure to read your insurance policy. We have great insurance too, which we have continued while having Medicare. it covers whatever Medicare doesn’t. Since H retired, it became secondary for him and once i reached 65, secondary for me as well.
We have opted to keep our family plan policy plus Medicare A & B. We rarely pay anything out of pocket and all our providers are in network and continue to provide care for us.
I started on Medicare in September, 2022, and I also filed an IRMAA appeal. I was successful in my appeal to have my IRMAA be based on our projected 2022 income. I will just need to follow up with our 2022 tax return once that is completed.
I know that I will need to file another appeal for 2023 IRMAA, and maybe even years beyond that.
DH will start Medicare in July, 2023, and we will definitely be watching the timing of withdrawals and Roth conversions in regards to IRMAA, but we are not going to let the tax tail wag the dog.
3 Likes
Funny you should state that. I know a lot of clients and advisors who feel / treat it that way. As a practitioner for over 30 yrs, I have learned that being an FA marries math with the human condition. The math part is really easy. The human condition part not so much. Almost like being a financial psychologist. For many issues, there are no right answers (i.e. pay off the mortgage early or invest the difference). The value of a good FA is their knowledge of the vast financial industry tied to the ability to provide/communicate solutions to an individual’s “unique” issues. All tempered by their philosophy and risk tolerance. The mortgage example explores several issues. How do they feel about debt? How do they feel about risk? How does that change as they age? Based on their worldview, some should pay it off while others should maintain the largest mortgage possible and let their investments or life insurance pay it off upon death. If it’s just about math, the ladder may make sense.
I frequently tell my new clients /prospects that my job is simply to “transform their fear and confusion into confidence and clarity”. In order to do that I educate them on many themes.We use a process (that I created) that simplifies the planning conversation and better aligns a client’s assets with their goals (and keeps them aligned through the various life stages of money). Could someone do this all themselves? Sure. But I’ve found most don’t want to, don’t know enough, don’t whatever. I basically become their personal CFO.
It’s not rocket science and if interested, one could learn the necessary issues surrounding taxes, asset protection, retirement planning, etc. But they could also learn the issues to do their own taxes, wills / trusts, or change their oil! Guess what, some do and that’s great. I’ve actually told clients to leave (politely) or not taken them on in the first place if they are simply seeking a “market beater”. Managing money is about a lot more than picking fund X v. Y. If that’s all they want, they should work with a discount broker or whatever venue to drive down fees. Frankly they could easily just do it themselves with Vanguard, Schwab, etc.
But there’s a lot more to strategy and planning. I work with folks from all walks of life. Professionals, Senior Execs, Academics / Professors, Small Business Owners, Engineers, Teachers, and your kitchen table rank and file. Regardless of education or occupation, you’d be amazed at what they don’t know regarding finances. Or maybe you wouldn’t as I don’t know much about many of their trades and basically need my kids to set up my phone 
6 Likes
I’m curious about this. What is the worldview of your clients that would make not paying off their mortgage preferable?
Equity isn’t just a home ownership thing. It comes in lots of forms. They could invest and increase their total equity outside their home (not my choice but some prefer that). Have the ability to write a check to pay off their mortgage whenever they want but see better use of the money. Maybe invest in other real estate that brings in income. All kinds of possibilities. Again, about the individual. Basically, lost opportunity cost by paying off on time or early. Some are serial refinancers and put the funds to work.
2 Likes
I think that’s a hugely important function! The best advisors keep their clients from hurting themselves. It takes a lot of faith and fortitude to stick with a plan. I think financial psychologist is a great term.
I also think clients should take any pitch about beating the market as a red flag. Most though, in their innocent ignorance, don’t know what they don’t know, so they are east to prey on.
6 Likes
I can answer the mortgage question (from at least one perspective). We had 7 years left on a 10 year mortgage (at 2%), and we decided to refinance to a 30 year because rates were so low, and I thought we could do better investing the difference in the market.
So about 18 months ago, we refinanced to a 30 year at 2.25% (and were paid almost $15k to do so with credits offered!!), and have been directing the difference between the two payments into taxable investments. I can honestly say this is the only time, in my life I’m pretty sure, that I ended up [accidentally] having timed a choice that well. Our mortgage payment is very low, inflation has made locking that rate in look brilliant, and we are getting the chance to increase our investments at a relatively low price due to stock market gyrations.
If i was buying a house right now and had a mortgage of 7%, I definitely would be looking to pay that down before investing more money elsewhere.
These choices have a lot to do with the individual math in each situation, but also if you are someone who will actually direct the difference into other savings, or if you are someone who will increase consumption instead. What can be the right choice for one person can be a terrible choice for another.
ETA: We also have about 20 years left before retirement so our timeline is still pretty long.
10 Likes
It’s all about the individual and their comfort. I used the mortgage issue specifically because I get asked this a lot and my answer is always, “it depends”. I’m sure that frustrates some but it really does. Have a friend who had (emphasize had) a paid off house and about 18 months ago tapped in to about 500k to invest. Personally I thought he was crazy but he has an appetite for risk and has actually done quite well. Another buddy leverages his properties to buy more rental properties. Really no different than paying off mortgage vs. investing the difference into other things. He just gets rent (and appreciation) vs. liquid market returns / dividends. Not for me but it works for him. Different strokes.
1 Like
In your example, that’s mostly the math, which I understand. It was the “worldview” word that @rickle1 used that piqued my interest. I have written on here about a friend who has refinanced at least three times, taking money out each time to, as she says, “invest in her asset.” The asset is her home. She uses the house as an ATM. She doesn’t invest the money she takes out in the traditional sense – to get larger returns in the market or to buy investment properties. She uses the money on a new roof, landscaping, AC unit. To me, it feels like she doesn’t have the savings to repair her house as needed.
1 Like
@Youdon_tsay I sort of get the worldview idea, because while we didn’t take any cash out of our property, we briefly considered doing so (to buy another property mortgage free…just FYI, other property very inexpensive so we aren’t talking huge amounts here).
However, while that would have actually been an even more brilliant money move (especially looking back in the rearview) - our risk tolerance didn’t match that money move. We didn’t want the bother of two properties upkeep, figuring out if we wanted to rent the second property out, etc etc etc. And having more than 50% of our mortgage paid, the idea of increasing our debt wasn’t appealing to me.
Now, when it comes to consumption choices, as with your friend’s choice to remodel/repair her home through refinancing…well, I’m not a huge consumer in general so it doesn’t make sense to me either. Except in the sense of some people look at money and its uses differently, and my choices are probably equally illegible to them. Heck, I still have the hideous tile backsplash in my kitchen that was there when we bought our house almost 10 years ago. The only thing wrong with it is aesthetic, so until we are ready to remodel the whole kitchen, I am happy to live with it and save the money. 
@Youdon_tsay - we had ongoing discussions with our financial planner about when would be the right time to pay off our mortgage. We did not have a huge mortgage since we have been in our house a long time and when we finally paid it off it was in a year we had done incredibly well with investments so it made sense.
We are slowly redoing our home now and have decided to just do things room by room so that we can pay for new things out of current earnings as we don’t want to take equity out of our house to do this. It means we have ongoing projects going on for a long time, but H and I are comfortable doing it this way.
2 Likes
I might be able to give an example of the “worldview” part, at least 1 version.
We really liked the idea of retiring without a mortgage, even though we had a pretty low mortgage rate. I know plenty about finance (multiple related degrees), and know I probably could have invested and done better, but no mortgage was still part of our plan.
If we found a perfect home in a retirement destination and we had to take out a small loan, we MIGHT consider it, but prefer not to have a mortgage.
3 Likes
Great example. In my worldview, once we pull the trigger on retirement I’ll want it to be as simple as possible. No debt, predictable income, etc. In fact I don’t really put much care in to the total nest egg, but rather the income produced. To that end, I shifted some of my assets to dividend stocks, and annuity based income streams (can turn on the income later - and again, just a piece of it). I “cobbled” together, between social security and annuities, a guaranteed income, added some predictable income via dividends (not yield, actual distributions - could care less about yield as that’s a function of stock price. I care about what they actually pay. Of course can change but there are “aristocrats” stocks and closed end funds that have paid the same or increased payment for a LONG time). That gives me a nice base (kind of pension like) and then I can pull from the balance of a decent portfolio. I also have some health issues and will likely pass at least ten yrs prior to my spouse, so I “invested” in life insurance. I don’t mean the cash value (although I’ve done that as well for tax diversification). I mean the actual death benefit. A dollar of premium will provide way more guaranteed, after tax returns than putting that in the market. Again, my “worldview” wanted guarantees. So we’ll have plenty for us both to live on and then whatever is spent down will be replenished with death proceeds. I call it spend and replace. And if I live much longer than expected, we’ll still have plenty. Everyone’s priorities are different. That’s what I meant by worldview.
6 Likes
There is some value in simplicity. Even if having a mortgage is advantageous (e.g. you got it at a low enough interest rate that the interest rate is lower than the rate of return on alternative investments, or the rate of inflation, is now), having to remember the monthly payment is just one more thing to remember to do. The same with loans for cars or other things if you could buy them without loans. On the investment side, some investment acts require more maintenance and ongoing attention (e.g. buying on margin, short selling, options, futures). Real estate requires non-financial maintenance as well as dealing with property tax and insurance. Some types of investments may result in a significantly greater tax preparation burden.
2 Likes