How to Model IRMAA costs throughout Retirement

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WoodSpinner
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How to Model IRMAA costs throughout Retirement

Post by WoodSpinner » Wed Mar 25, 2020 12:06 pm

All,

One of the gaps in my planing is some sort of model for IRMAA costs throughout Retirement.

Any ideas how the Tiers and costs adjust?

How often?

Anyone have a model they are willing to share?

Not looking for perfection, plan is a yearly recalibration given all of the unknowns.

The goal is to better model the IRMAA costs in my Retirement and Roth Conversion planning.

I have a 2 year window (2020-21) where my AGI doesn’t affect IRMAA and want to take advantage of it.

WoodSpinner

smitcat
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Re: How to Model IRMAA costs throughout Retirement

Post by smitcat » Wed Mar 25, 2020 12:41 pm

FWIW - we see our IRMAA tiers when we model potential outcomes with both the extended IORP and the RPM.

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FiveK
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Re: How to Model IRMAA costs throughout Retirement

Post by FiveK » Wed Mar 25, 2020 1:01 pm

The personal finance toolbox Excel spreadsheet will also show IRMAA tier effects.

The actual tier income amounts and premiums will change, but perhaps by less than the error band around assumed investment returns.

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WoodSpinner
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Re: How to Model IRMAA costs throughout Retirement

Post by WoodSpinner » Wed Mar 25, 2020 1:44 pm

Unless I am missing something the tiers in RPM and Personal Finance Toolkit are static at 2020 levels and don’t move through time.

I am trying to put a model that will provide some level of accuracy looking out through retirement.

For instance, I model taxes by shifting the brackets by my inflation expectation. It’s not perfect but gets me in the ball park.



WoodSpinner

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FiveK
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Re: How to Model IRMAA costs throughout Retirement

Post by FiveK » Wed Mar 25, 2020 2:25 pm

FiveK wrote:
Wed Mar 25, 2020 1:01 pm
The actual tier income amounts and premiums will change, but perhaps by less than the error band around assumed investment returns.
WoodSpinner wrote:
Wed Mar 25, 2020 1:44 pm
Unless I am missing something the tiers in RPM and Personal Finance Toolkit are static at 2020 levels and don’t move through time.

I am trying to put a model that will provide some level of accuracy looking out through retirement.

For instance, I model taxes by shifting the brackets by my inflation expectation. It’s not perfect but gets me in the ball park.
You are correct about the non-inflation adjusting that RPM and PFT use. If one uses real - instead of nominal - returns, that is appropriate.

smitcat
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Re: How to Model IRMAA costs throughout Retirement

Post by smitcat » Wed Mar 25, 2020 4:15 pm

WoodSpinner wrote:
Wed Mar 25, 2020 1:44 pm
Unless I am missing something the tiers in RPM and Personal Finance Toolkit are static at 2020 levels and don’t move through time.

I am trying to put a model that will provide some level of accuracy looking out through retirement.

For instance, I model taxes by shifting the brackets by my inflation expectation. It’s not perfect but gets me in the ball park.



WoodSpinner
I do not have it in front of me now but I believe the extended IORP has the inflation adjustments. It also allows you to set inflation to a number of your choice (or zero) when you do the initial setup.

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BigFoot48
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Re: How to Model IRMAA costs throughout Retirement

Post by BigFoot48 » Wed Mar 25, 2020 4:56 pm

FiveK wrote:
Wed Mar 25, 2020 2:25 pm
You are correct about the non-inflation adjusting that RPM and PFT use. If one uses real - instead of nominal - returns, that is appropriate.
RPM escalates the Medicare Premiums and IRMAA Surcharge Tiers by the user-adjustable Federal tax yearly escalation factor, which is 2% beginning for the 2021 factors. The recommended 2.0% is based on the historic average annual escalation rate for Federal tax brackets rounded to a whole number for the example case. The IRMAA escalation table in on the Tax Tables page in a normally hidden section below the factors at the top.

The reality is for a 40 modeling period all of these factors and calculations will be very wrong many times as Congress adjusts the laws, but maybe for the next 2-3 years be pretty close.
Last edited by BigFoot48 on Wed Mar 25, 2020 5:53 pm, edited 1 time in total.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 14-time loser

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WoodSpinner
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Re: How to Model IRMAA costs throughout Retirement

Post by WoodSpinner » Wed Mar 25, 2020 5:31 pm

BigFoot48 wrote:
Wed Mar 25, 2020 4:56 pm
FiveK wrote:
Wed Mar 25, 2020 2:25 pm
You are correct about the non-inflation adjusting that RPM and PFT use. If one uses real - instead of nominal - returns, that is appropriate.
RPM escalates the Medicare Premiums and IRMAA Surcharge Tiers by the user-adjustable Federal tax yearly escalation factor, which is 2% beginning for the 2021 factors. The recommended 2% is based on the historic average annual escalation rate for Federal tax brackets rounded to a whole number.

The reality is for a 40 modeling period all of these factors and calculations will be very wrong many times as Congress adjusts the laws, but maybe for the next 2-3 years be pretty close.
Many thanks! You have built a great tool—it’s clear a lot of work and thought went into it.

WoodSpinner

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BigFoot48
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Re: How to Model IRMAA costs throughout Retirement

Post by BigFoot48 » Wed Mar 25, 2020 5:54 pm

WoodSpinner wrote:
Wed Mar 25, 2020 5:31 pm
Many thanks! You have built a great tool—it’s clear a lot of work and thought went into it.

WoodSpinner
Thanks very much. I've had a lot of BH help over the years to help make it what it is now.
Retired | Two-time in top-10 in Bogleheads S&P500 contest; 14-time loser

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FiveK
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Re: How to Model IRMAA costs throughout Retirement

Post by FiveK » Wed Mar 25, 2020 10:55 pm

BigFoot48 wrote:
Wed Mar 25, 2020 4:56 pm
RPM escalates the Medicare Premiums and IRMAA Surcharge Tiers by the user-adjustable Federal tax yearly escalation factor, which is 2% beginning for the 2021 factors.
Thanks for clarifying!

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