The earlier you begin planningfor Social Security and Medicare contingencies and strategizing toreduce the impact of government benefit erosion on yourself, themore choices you will have. (Photo: Shutterstock)

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Like the proverbial fluttering of the butterfly's wings that mayeventually combine to create a great hurricane, recent changes toMedicare and Social Security rules have gathered into a perfectstorm that potentially affects the retirement security ofmillions.

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Seven new requirements and administrative actions enacted overthe past three years, each considered on their own to have littleimpact, add up to a significant erosion of the value of Medicareand Social Security benefits both to current and futureretirees.

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Three types of rule modifications have been responsible foreating into retirees' finances:

  1. Medicare means testing (which determines how much a beneficiarywill have to pay for Medicare Part B and Part D premiums, based onincome).
  2. Social Security cost-of-living adjustments (COLAs –benefit increases to account for inflation).
  3. Social Security claiming strategies (that is, a beneficiary'sability to apply for, but defer receiving benefits to increasetheir future value).

The changes were initially intended to affect only wealthierAmericans, but because some of these changes involved eitherreducing income thresholds or putting off automatic increases tothe thresholds, the combined result is to push the impact to lowerincomes.

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With the new rules affecting their purchasing power, retireeshave seen either no increase to their Social Security benefit orhave had their increased monthly retirement overshadowed by higherMedicare premiums.

Effects of new rules on retirees, future retirees

Future middle-income retirees may find themselves in higherMedicare premium brackets because the indexing to inflation of themeans-testing thresholds has been deferred by Congress to increasethe longevity of Medicare and Social Security trust funds.

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It will not be unusual for retirees to experience lifetimebenefit losses from $37,000 to $57,000 or more due to these“insignificant” changes.

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Unfortunately, these piecemeal changes will not result in thelong-term reform that will be needed to preserve the value andaffordability of Medicare for average retirees in the upcomingyears.

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Politics seems to be getting in the way of developingcomprehensive, equitable solutions. Until the issue is addressed,it will be important for both current and future retirees tocarefully examine their own situations and seek strategies tomaximize value.

Proactive measures to take

This short article only summarizes some of the generalchallenges retirees and active employees may face in retirement.Here are several important steps to consider:

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1.  Review your financial circumstances and retirementplans with a competent financial advisor. Depending on your age,there may be savings and investment approaches that can help offsetor reduce inflationary and government policy impacts.

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2. Seek the advice of a tax professional to understand how bothpre- and post-retirement income may impact your tax liability andcosts for Medicare premiums. Again, there may be ways to minimizehow much of your income goes to the government.

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3. Consider the breadth of options for your retiree healthinsurance. There are lower cost alternatives with MedicareAdvantage plans in many areas, and premiums for Medicare supplementplans can vary a lot. It pays to shop around, and Medicareexchanges can assist with finding affordable coverage to meet yourneeds.

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4. Take an active role in discussing these financial securityissues with the above professionals. Ask specific questions abouthow Social Security and Medicare rules will affect your ownsituation so that you are sure an advisor is addressing theconcerns.

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The earlier you begin planning for Social Security and Medicarecontingencies and strategizing to reduce the impact of governmentbenefit erosion on yourself, the more choices you will have.

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We don't know how future legislation and regulation of federalentitlement programs could affect us. But that's why it is soimportant for us to take control of the things we can and obtaintrusted advice from those who have expertise and remain current onthese issues.


Nick Gedestad is with Keenan &Associates. Since starting at Keenan & Associates, Nick hasfocused on providing education and solutions for retirees of publicagencies, community college districts, and school districts in thestate of California. During this process, Nick has worked withagencies of all sizes to understand their retiree strategy anddevelop economic models to find unique solutions to individualgoals.

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