Reverse Mortgages Could Help Retirees Avoid Medicare Supplements
As healthcare costs continue to rise in the United States, financial advisors need to be especially mindful of how these costs may affect their clients in retirement, and how those costs will translate into an impact on their clients. a client’s retirement funding plans. One of the reasons health care costs are rising is focused on the Medicare program’s monthly income-related adjustment amount (IRMAA), which can impact retirement security.
That’s according to a recently published article on ThinkAdvisor, which recommends a few options that retirees can potentially explore so that their own IRMAA can be mitigated or avoided. One such option is a reverse mortgage, the article says.
“For many retirees, the equity in their personal residence represents a significant portion of their net worth,” the article read. “This untapped equity can be accessed ‘tax free’ with a variety of reverse mortgages. “
Note that the article specifically placed quotes around the phrase “tax free,” a potential recognition that the proceeds of a loan cannot be taxed directly even though reverse mortgage customers must continue. pay associated taxes, home insurance and certain other associated costs. to keep his loan in good standing.
Using a reverse mortgage to supplement cash flow in retirement may have a direct benefit for Medicare beneficiaries looking to mitigate the effects the ARIAA can have on a retirement portfolio, the article says.
“This not only avoids the trap of the IRMAA surcharge, but can also prevent what is commonly referred to as ‘media slippage’,” the article said. “If you can avoid moving to higher marginal tax brackets and avoiding IRMAA surcharges through the use of a reverse mortgage, it might be worth considering. However, reverse mortgages are complex instruments that must be carefully researched before implementing them. “
Other potential methods a retiree can use to mitigate the impact of the IRMAA include not assuming that unqualified accounts are to be used first in a liquidation order strategy; taking into account Roth conversions; avoid a propensity to save too much in pre-tax accounts; and take tax-free cash values from a life insurance policy.
Like the reverse mortgage recommendation, however, the life insurance recommendation also comes with caveats that advisors and their clients should be aware of, the article says.
“The cash values of some life insurance policies can also be distributed as tax-free income and help clients avoid IRMAA surcharges,” he says. “Again, advisors should carefully review their clients’ life insurance policies because not all are eligible. With some, there is a risk of forfeiture of the policy, which would create a very unfavorable tax consequence called “ghost income”.
Read it item at ThinkAdvisor.