Getting to and from the Moon is a big deal! While not in the same league, so is retiring from the federal government. NASA astronaut Neil Armstrong did it (the Moon) in 1969. And the other, two years later, when he retired after decades of military-federal service. In fact, at the time of his retirement, former fighter pilot Armstrong had been with NASA for 24 years. At the time of his giant step for mankind he was a GS-16, step 7 civil servant earning $30,054 per year.
Short answer: Both require considerable thought, if you want to wind up in the best, safest place possible! Retiring from government presents some (mostly good) problems. The longer you work, the bigger your annuity. The longer you delay taking your Social Security benefit the bigger it will be. But the current federal retirement program (FERS) has lots of moving parts. People who understand them — or who find somebody that does — can do very nicely. Case in point: We recently heard from a high level fed, call him Ed, who is a master planner. He’s a TSP millionaire who started in a low-paying custodial job. He’s a planner who knows when he’s out of his league. He asked for help. I, in turn, passed the buck. I handed it off to benefits expert Tammy Flanagan. She can be reached at Tammy@retirefederal.com. She’s a retired fed who now runs a full-time business advising federal and postal workers about their careers. And maximizing their lifetime retirement income. While she normally charges for her services, she agreed to tackle Ed’s complex situation to help others wrestling with the when-to-retire problem. This is the “simple” version of what she found:
Ed is planning to retire at the end of October 2024, at age 66 with 43 years of service that includes military and federal civilian service covered under the FERS retirement plan. He is currently insured with CareFirst BlueChoice, Inc., Standard Health Blue Self Only at a monthly rate of $375.05 ($173.10 / biweekly). Although qualified for Social Security, he is planning to delay receiving his benefit possibly to age 70. In addition to his FERS retirement, Ed is also eligible for a disability pension from the Department of Veterans Affairs which includes some medical benefits.
Here are his questions regarding Medicare and FEHB:
Medicare Part A (hospital insurance) helps pay for inpatient care in a hospital or limited time at a skilled nursing facility (following a hospital stay). Part A also pays for some home health care and hospice care.
Medicare Part B (medical insurance) helps pay for services from doctors and other health care providers, outpatient care, home health care, durable medical equipment, and some preventive services.
- When will I be eligible to enroll in Medicare A & B?
- If you have medical insurance such as coverage under FEHB or other group health plan based on your or your spouse’s current employment, you may not need to apply for Medicare Part B at age 65. You may qualify for a “Special Enrollment Period” (SEP) that will let you sign up for Part B during:
- Any month you remain covered under the group health plan and you or your spouse’s employment continues.
- The eight month period that begins with the month after your group health plan coverage or the employment it is based on ends, whichever comes first.
- Here is additional information about enrolling in Original Medicare (Parts A & B):
- If you are receiving Social Security retirement benefits, you will be enrolled in Original Medicare (Part A and Part B) during your initial enrollment period that begins three months before your 65th birthday month and ends three months after for a total of seven months.
- If you are not automatically enrolled, you can sign up for Part A any time after you turn 65. Your Part A coverage starts six months back from when you sign up or when you apply for benefits from Social Security (or the Railroad Retirement Board). Coverage can’t start earlier than the month you turned 65.
- With Social Security’s online application, you can sign up for Medicare Part A (hospital insurance) and Part B (medical insurance). Because you must pay a premium for Part B coverage, you can turn it down.
- If you don’t enroll in Medicare Part B during your initial enrollment period, you have another chance each year to sign up during a “general enrollment period” from Jan. 1 through March 31. Your coverage begins on July 1 of the year you enroll. Read our Medicare publication for more information.
- If you are still working and have a high deductible health plan and use a health savings account, you may decide to delay Part A enrollment so that you will be eligible to contribute to your Health Savings Account (HSA).
- Read this fact sheet carefully to learn more about your SEP.
- Part B is not free and the cost is graduated based on modified adjusted gross income (MAGI). Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Does MAGI include non-taxable social security? I would estimate my MAGI at $109,000 (annuity) and $36,000 (SS) for a total of $145,000. Am I approximately correct that as a single taxpayer filing with income between $142,000 and $170,000 Medicare Part B is going to cost $442.30? (annually = $5,408.00)
- MAGI does not appear as a single line on your tax return, but your AGI can be found on line 11 of your Form 1040 for the 2021 tax year. For people who have other income, some Social Security benefits may be included in their AGI.
- According to the IRS, your MAGI is your AGI with the addition of the appropriate deductions, potentially including:
- Student loan interest
- One-half of self-employment tax
- Qualified tuition expenses
- Tuition and fees deduction
- Passive loss or passive income
- IRA contributions
- Non-taxable social security payments
- The exclusion for income from U.S. savings bonds
- Foreign earned income exclusion
- Foreign housing exclusion or deduction
- The exclusion under 137 for adoption expenses
- Rental losses
- Any overall loss from a publicly traded partnership
The standard Part B premium amount in 2022 is $170.10. Most people pay the standard Part B premium amount. If your modified adjusted gross income as reported on your IRS tax return from two years ago is above a certain amount, you’ll pay the standard premium amount and an Income Related Monthly Adjustment Amount (IRMAA). IRMAA is an extra charge added to your premium.
If your yearly income in 2020 (for what you pay in 2022) was You pay each month (in 2022) File individual tax return File joint tax return File married & separate tax return $91,000 or less $182,000 or less $91,000 or less $170.10 above $91,000 up to $114,000 above $182,000 up to $228,000 Not applicable $238.10 above $114,000 up to $142,000 above $228,000 up to $284,000 Not applicable $340.20 above $142,000 up to $170,000 above $284,000 up to $340,000 Not applicable $442.30 above $170,000 and less than $500,000 above $340,000 and less than $750,000 above $91,000 and less than $409,000 $544.30 $500,000 or above $750,000 or above $409,000 or above $578.30
- I understand that I can pay for both my FEHB and Medicare Part B. But my FEHB with CareFirst is first rate and cheaper than Medicare Part B. I know that if I don’t enroll in Medicare and decide to join later, there will be a substantial penalty. So why would I want to have both Medicare and FEHB? Will CareFirst reduce my benefits once I am Medicare eligible? If not, why shouldn’t I just stay in the FEHB program? I can change FEHB medical coverage every year during the open season if my needs change.
Option 1: Continue with your current plan/status quo. Your FEHB will continue to cover you with or without Medicare enrollment. In this case, you will continue to pay your out of pocket costs associated with your FEHB plan up to the catastrophic limits and conditions. Search your plan brochure to be sure you understand what you must pay should you suffer from multiple chronic conditions later in life. According to the National Council on Aging, 80% of adults 65 and older have at least one condition, while 68% have two or more.
Option 2: Enroll in Medicare Part B and change to one of the FEHB plans that cater to retirees with Medicare A & B. These are plans that may provide a health fund or Medicare reimbursement (partial) and waive cost sharing (deductible, copays, coinsurance) when Medicare is primary payer. These plans typically have lower premiums.
See additional document with list of all FEHB plans that provide Medicare enrollment incentives. By saving these costs, you may find that you will save more than the cost of adding Medicare Part B. However, if you are paying the higher IRMAA surcharges, you may not save as much as you have to pay in the extra surcharge amount.
Option 3: Try out one of the FEHB plans offering Medicare Advantage through FEHB. These plans seem to be a great option but are new and we are not fully aware of the downsides to the FEHB plans that are now offering Medicare Advantage coverage. These plans may offer some additional benefits such as gym membership, meal delivery and some non-emergency transportation benefits, however they have different formularies than the non-Advantage plans and you may be more restrictive and may not allow you to use “original Medicare (A & B)” outside of the plan’s network. When you are enrolled in a Medicare Advantage plan (in or outside of FEHB), you will no longer show your “red, white, and blue” Medicare card, but instead, you will only have one insurance card since Medicare will no longer be billed. You will be enrolled in Medicare Part D and if IRMAA applies, you will be billed for the additional premium. Contact your providers to be sure that they will accept this plan as it may not be accepted where original Medicare is accepted.
Option 4: Suspend FEHB using RI 79-9 for one of the qualifying reasons listed on the form.
- If I retain FEHB and get Medicare, at a cost of almost $10,000, what happens in the coordination of benefits? How does a FEHB member establish what will happen to their benefits? Do I call CareFirst or Medicare or both? I have read numerous small pamphlets and books on SS and am still looking for accurate advice I can rely on to make wise decisions.
Communication is key!!
o Call the Benefits Coordination & Recovery Center (BCRC) at 1-855-798-2627. TTY users can call 1-855-797-2627 if you change FEHB plans.
o Tell Medicare if your other health or drug coverage changes. Let the BCRC know:
- Your name.
- The name and address of your plan.
- Your policy number.
- The date coverage was added, changed or stopped, and why.
- Also, tell your doctor and other health care providers about your health or drug coverage changes the next time you get care.
- Learn more at Medicare Interactive.
- Explore the Checkbook Guide to Health Plans.
- Use OPM Plan Comparison to compare up to 3 plans.
Nearly Useless Factoid
By David Thornton
In the early 60s, a diving team in Tacoma, Washington invented a new sport: Octopus wrestling. They would compete to see who could wrangle the largest octopus from the Tacoma Narrows Strait in Puget Sound. In 1963, the “World Octopus Wrestling Championship” was even locally televised.
Source: Sports Illustrated