Medicare Mistakes That Could Cost You Thousands in Retirement with Mark Kenney – Ep 115

You could have a well-funded retirement portfolio, a solid investment strategy, and plenty of money saved, yet still be paying thousands more than necessary for healthcare.

The problem? Medicare isn’t as straightforward as many retirees think.

What you pay for coverage can depend on decisions you made years earlier, including when you retire, how much income you withdraw, and which accounts you take that money from. And some of the biggest surprises don’t show up until it’s too late to easily correct them.

In this episode, I’m joined by SHP Financial’s Mark Kenney to discuss some of the Medicare mistakes that can quietly eat away at your retirement savings.

We’ll explore why your Medicare premiums could increase even after your income drops, what Medicare doesn’t cover that many retirees assume it does, and how the loss of a spouse can create an unexpected financial burden for the surviving partner.

For specific information and updates around Medicare please visit:

• Medicare & You 2027
• Medicare Costs 

In this podcast interview, you’ll learn:

• Why Investment Planning Alone Isn’t Enough
• Understanding Medicare Parts A And B
• Medicare Advantage Vs. Medigap Coverage
• Do You Need Medicare At 65?
• How RMDs Can Increase Medicare Premiums
• What Medicare Doesn’t Cover For Long-Term Care
• Planning For Potential Long-Term Care Costs
• How Income Affects Your Medicare Premiums
• When You Can Appeal Higher Medicare Premiums
• The Hidden Financial Risks Of Losing A Spouse
• How Roth IRAs Can Reduce Medicare Costs
• The Tax Trap Of Inherited IRAs
• Why Retirement Planning Must Connect Everything

Resources

• Medicare
• Lyndon Johnson
• Tax Cut and Jobs Act
• SECURE Act 2.0

Inspiring Quotes

• “Healthcare is one of those things that, if you don’t do it right, can cost a lot of money.” – Derek Gregoire

• “The beautiful thing of Roth IRA is you’re not required to take the distributions out. And I always say, like, your kids are incentivized to help take care of you because if you’re not spending that, they’re going to inherit that tax-free.” – Mark Kenney

• “I would say that’s one of the risks of retirement. If you have all of your money in pre-tax buckets, I can show you that your income’s going to be X amount for the rest of your life. What I can’t tell you is how much of that you’re going to net.” – Mark Kenney

[INTERVIEW]

Derek Gregoire: Welcome, everyone, to another edition of the SHP Retirement Roadmap podcast. This week, I’m Derek Gregoire, going to be hosting, and joined by the legendary Mark Kenney. Welcome, Mark.

Mark Kenney: Thank you for having me. I’m excited for our topic today. Very relevant.

Derek Gregoire: You’re very excited about Medicare, I can tell.

Mark Kenney: Yes, I am.

Derek Gregoire: Well, it is not maybe the most exciting topic, but it’s very important to what we do, and Mark, when did you join SHP?

Mark Kenney: 2017. I’m in my 10th year.

Derek Gregoire: Unbelievable.

Mark Kenney: Yeah.

Derek Gregoire: Well, thank you. It’s been an honor.

Mark Kenney: It’s flown by. It’s been great.

Derek Gregoire: So, we started the firm. Mark was here for the second version, the second half of SHP, basically.

Mark Kenney: Yes.

Derek Gregoire: First half was Keith and Matt and I running around like crazy people, and then we actually, it was more of a business from 2013 on.

Mark Kenney: Yeah, it’s incredible how much we’ve grown, and the impact that we have on all those clients.

Derek Gregoire: Well, that’s what I wanted to kind of talk about, because it’s funny, this is going to probably come off the wrong way, but I was at dinner in Mattapoisett last weekend, and someone’s like, trust me, this never happens, they’re like, “Oh, I see you on TV.” So, I’m like, “Okay.” And we started talking. They’re like, “We’re with a certain advisor that everyone knows that has a $500,000 minimum, that’s all…” I think they raised it now. They’re on TV all the time.

Mark Kenney: Okay, yep.

Derek Gregoire: And they started talking to me about, like, “You know, I just feel like I’m missing something.” And it’s funny, they started saying exactly what we do, and this woman was like, “I feel like I have this portfolio and it’s done okay because the market’s done okay, but I’m super aggressive. I’m worried if we have a pullback.” And that’s just the first part of it. She’s like, “What if…” She’s like, “No one’s talked to me at all about the tax implications. When I retire, what’s my withdrawals, my RMDs? Can I get ahead of it?” And then she started talking about Medicare.

Mark Kenney: Healthcare.

Derek Gregoire: Yeah. And she’s like, “Then I heard if you make too much money or pull from the wrong accounts, not only does your income go up, but your tax bracket goes up, and then you have to pay more Medicare premiums.”

Mark Kenney: That’s correct.

Derek Gregoire: And I’m like, well, it’s funny, because I’m like, “Obviously, I’m not here to sell my services,” but I said, “That’s what we built our firm for, is, back in the day, if you had, or even now, if you have 50 million or 100 million, you get that automatically. That’s like a family office. But most firms that are smaller or work for wire houses, they just do portfolios. So,our firm, yeah, most of our clients don’t have 40 million, 50 million. But we have a lot of millionaires that trust us, and great families over the years, almost people that just, it’s like, ‘Wow, I worked hard and don’t realize I’m a multimillionaire.’”

Mark Kenney: The accidental millionaire, right? In Massachusetts, your 401(k) doing so well, the value of your home. I’ll call my clients millionaires, and they’ll be like, “Wait, I’m not a millionaire.” I’m like, “Yes, you are. Look at your net worth. Yes, you are a millionaire on paper.” And they still have the same issues that all other clients have. And again, what differentiates us is that we’re not just sending you a statement, “Here’s how you did.” We’re looking at the overall impact of how all of this makes sense, protecting you from those one-offs, like what if the market drops? And taking proactive approaches to taxes, and as we’ll discuss today, Medicare, and trying to make sense of this huge Medicare and how it works and how it impacts all the other things that you have going on.

Derek Gregoire: Yeah. So, real quickly, if you look at the five worlds we cover with our clients, and we try to bring as close to a family office style as we can to our clients for covering income planning, investment planning, tax planning, estate planning, and we’re talking about today healthcare planning. And it all works together, and it’s a domino effect because one triggers something in another.

Mark Kenney: That’s correct.

Derek Gregoire: So, you have to work it together. Anyways, so Medicare in general. Maybe just give the quick base. We’ll kind of go through the basics and then kind of expand.

Mark Kenney: Yeah, so it’s interesting. Medicare actually doing the research for this podcast, only started in 1965, believe it or not.

Derek Gregoire: Really? Well, then what was it before that?

Mark Kenney: Yeah, I don’t know what they had before that. But Lyndon Johnson actually started it in 1965. And now it’s a way for those 65 or older, and there are some other causes that get protected, to have this federal health insurance that’s available to you. Most of us pay into it, but yet have no idea what it is and how to circumvent all the choices that are available to you at 65. And so, for a lot of people, it’s a huge change because they’re going from their employer’s healthcare plan to this federal system, and they don’t understand what it covers. They don’t understand what it costs. They don’t understand what their options are. So, we got to really dig into it and kind of unravel it all for them.

Derek Gregoire: So,barring, I think, end-stage renal disease, ALS, there’s a couple of circumstances where you can get it before 65. But for the majority of folks, it’s probably 65 is more that target line. And there’s Part A and B as a starting point, right?

Mark Kenney: That’s correct, yeah. So, Part A is your hospitalization, right? And for most individuals, Part A is totally free. And when I say free, it’s because you’ve paid into Social Security, okay? And remember, 7.65% of your salary is going towards Social Security and Medicare, what we call FICA taxes. And you automatically are eligible for Part A once you have what we call 40 credits now, which is basically 10 years of paying into the system. However, Part B is your outpatient, we’ll call it, and that, how much you pay is a formula determined by your income two years prior, right? So, it ranges from $202.90 a month all the way up to I believe it’s 750. And then someone’s like, “Well, how much am I going to pay?” And I’m just like, “Well, it actually depends on the income that you earned two years ago.” And so, there’s nothing you can do, but that’s how much you’re going to pay.

Derek Gregoire: So,just to recap, you have 65, basically, you get Medicare A for free. But Medicare B, you kind of need a supplemental plan because, again, if you have a doctor’s visit and so forth, or if you have a major hospitalization, it’s going to be astronomical. Even a small percentage of a big number is a lot of money.

Mark Kenney: That’s correct. Yeah, so for Part B, that’s where the client has choices. You can either go the supplemental route, which we hear, especially this time of year, all the ads, where you can supplement that and bundle what we call Parts A and B, old Medicare, with other benefits, whether it be vision, prescriptions, or you could keep the original Medicare and buy a Medigap or what we call a supplemental plan. And there’s no right answer. There are pros and cons to each of them, and that’s what we like to discuss with our clients and understand what benefits you want from the system. But regardless of what you choose, Part B is means-tested. And so, therefore, the income that you show every year will determine how much you pay for Medicare Part B two years later.

Derek Gregoire: So,just to clarify, you need to have Part B. That’s one payment, then you have to add a supplemental plan.

Mark Kenney: Yeah, so yes.

Derek Gregoire: Or you should.

Mark Kenney: You should, and again, it depends. These are questions that we ask, Derek, with our potential clients, is how is your health, right? I don’t think other advisors talk about that. They don’t ask. I think they’re afraid to. That is a huge factor in what you choose. And in fact, if you get supplemental right away, you don’t have to go through underwriting, right, if you get it right away, where if you get it five years down the road, they can kind of not give it to you based on your health condition. So, these are things that I ask clients, like, “How is your health? Let’s talk about that to understand what we should be paying out of pocket for Part B.” The one thing I do want, I think a lot of clients always think this, that, like, “Well, if I’m covered by employer healthcare plan, do I need to enroll?” And the answer is no, you do not need to enroll in Part B.

Derek Gregoire: Even at 65?

Mark Kenney: Yeah, at 65. Yes, I get this all the time, right? You must get this all the time. Clients are like, “No, I was told I have to enroll.” No, the rules state that you only have to enroll if you’re not covered by employer’s healthcare plan, or, moreover, maybe your spouse is still working, and he or she has the plan. Now, sometimes you may want to, depending on what you’re paying for your employer’s healthcare plan, but you do not have to enroll. Where the penalty comes in is you have to enroll if you’re not covered by an employer.

Derek Gregoire: 65 or older.

Mark Kenney: And you’re not covered. And usually, that happens during this time of year, but there can also be life-changing events that may trigger you to get coverage before that.

Derek Gregoire: When are the enrollments?

Mark Kenney: Yeah. So, it starts in September, I believe, and it runs to November. I always know because I’m watching football, and all the ads come on for the supplemental and Advantage plans. And that’s the other thing, too, is clients should know that you’re not stuck with the Advantage Plan you choose. You’re not stuck with that. If you don’t like it, you can change every year, as we’ll see to do that. And so, we work with people that will help you choose the plans that are best for you, but you’re able to shop around. And some great resources through us that…

Derek Gregoire: Oh, yeah. So, yeah, that’s the thing. For our clients, as you know, for the clients that are listening, we try to handle as much as we possibly can, dot every I, cross every T for your situation. And one of them is basically making sure that you have a conversation as much as you want to decide what plan makes most sense for you for the Medicare supplement. Because Medicare A, as you mentioned, free. Part B, you pay into based on your income. So, let’s say you forget to do everything, and you don’t do any planning, and you turn 73 or 75, and RMD start coming out, that might push you into a higher tax bracket, you pay more taxes, and then you say, “Wait, why are they taking more money out of my Social Security check?”

Mark Kenney: That’s correct.

Derek Gregoire: That’s just for Part B, and then you need a supplemental plan if you want to protect against major catastrophes because that Part B covers, what, 80%?

Mark Kenney: That’s correct.

Derek Gregoire: So,the other 20%, if you have a $200,000 medical situation, you’re on the hook for 40,000 if you don’t have a supplemental plan. So, that’s the basics. And then to get down the road even further, what does that cover for long-term care?

Mark Kenney: Yeah. So, that’s again, another pitfall of Medicare. People or clients think that, “Oh, I have Medicare. I’m covered for a nursing home.” That’s just not true. Medicare will cover, usually, the first 100 days or a part of the 100 days if you are deemed rehabilitable. So, there’s strict rules in place that if you come out of a hospital for three days, actually, that you can go into a rehab center, and Medicare will pay for the first 20 days. Believe it or not, days 20 to 100, you actually have a co-pay. And this is where the supplemental plan comes in place, because the co-pay right now, I believe, is $217 a day from days 21 to days 100, right? So, that’s a lot of money, where a lot of these supplemental plans will cover that from days 21 to 100. You can see the savings that you would have in there.

So, yes, and that’s another thing too, is that’s what we talk about with clients, is how do we cover this potential long-term care cost, right? Once we educate them that Medicare is not going to cover this, right, that opens up a whole different avenue of questioning because we’re just educating them that Medicare doesn’t cover it.

Derek Gregoire: Well, that’s why, to me, it’s so hard if, and again, SHP, when we started in 2003, we didn’t have all the resources, but that’s what our goal was always to get to this point. And now, when our clients work with us, they have resources. Like, we have a portfolio team that handles all the investments. We have a planning team that helps us map out all the tax planning, Roth conversions.

Mark Kenney: Estate planning attorneys.

Derek Gregoire: Estate planning attorneys, CPAs. But we also have healthcare planning. We have on one of our clients has a business that she can help coordinate care.

Mark Kenney: Yes.

Derek Gregoire: Things like that, if you need it. But we also, it’s more important… I don’t say more importantly because that’s very important, but trying to get ahead of all the things that can come up, right? It’s like you build the portfolio, and that’s huge, right? That’s your income and investment plan. But if that’s all you do, you have so many threats, whether it’s taxes, whether it’s healthcare, whether it’s changes in Congress and law, and all these things that can affect it that you want to also look at, or you only have a partial plan. It’s like you built something with no protection, and now we’re trying to protect that portfolio. Because healthcare is one of those things that, if you don’t do it right, can cost a lot of money.

Mark Kenney: Can cost a lot of money.

Derek Gregoire: It might cost a lot of money even if you do it right.

Mark Kenney: That’s true, right? But having a plan, right? And there’s no one solution, right? We try to give the pros and cons of each solution, understanding your situation, your health status in coming up with a plan of how do we cover these potential long-term care costs, and that’s one of the things that we do, is why people hire a financial advisor, is to protect them from those outliers that could have a devastating effect on their overall retirement, right?

Derek Gregoire: And, Mark, some people are self-insurable, so we can say, through our client portal, we can run a scenario and be like, “Hey, what if you needed long-term care for $200,000 a year for five years?”

Mark Kenney: Yes.

Derek Gregoire: And sometimes they still have plenty of money.

Mark Kenney: That’s correct.

Derek Gregoire: And it’s like, hey, maybe you don’t have to go the insurance route. Maybe you don’t have… I’d say the majority of our clients probably don’t have insurance based on their situation, but some, and you have to be eligible, insurable. But a lot of times it does make sense to have some sort of protection.

Mark Kenney: That’s correct. Yeah. Whether it be self-insuring, which is what, earmarking a portion of your assets for this potential long-term care cost. I love to do this with Roth IRA. Because the beautiful thing of Roth IRA is you’re not required to take the distributions out. And I always say, like, your kids are incentivized to help take care of you because if you’re not spending that, they’re going to inherit that tax-free.

Derek Gregoire: That’s a good point.

Mark Kenney: But these are all factors that you need to look at. And going back to, again, how much you’re going to pay, right? So, how much you pay for Medicare Part B right now for a married couple filing jointly, 218,000 is the cutoff, okay? That is MAGI, which is modified adjusted gross income. So, what you make this year in 2026 will determine your premiums for 2028, okay? And again, the cutoff is 218 for a married couple filing jointly. It’s half of that if you’re a single individual. And yes, it’s all income, right? It’s IRA distributions. It’s the house that you sold, your investment property. It’s Social Security, right? All of those factors will determine how much you pay. I want to let clients know, or prospects know of a little secret, though.

You are able to file an adjustment, right? So, what we call it is a life-changing event. I do this for my clients, and let’s just say they were at $250,000 income, and then they retire, and they’re at 160 for a married couple filing jointly.

Derek Gregoire: Well, they look back two years.

Mark Kenney: They look back two years, Derek.

Derek Gregoire: So, nope, you’re making 250.

Mark Kenney: But Social Security doesn’t know that you retired, so you are able to file an amendment and say, “Listen, this isn’t the true story. This is a one-off.” And again, this is a value-add that can save hundreds of dollars a month to clients that we have a great… Now, if you won the lottery, that’s not a life-changing event, unfortunately. But if you’re transitioning to retirement and your income situation changes, yes, you can go ahead and file an adjustment.

Derek Gregoire: If you win the lottery, you can afford the higher premiums.

Mark Kenney: That’s correct. That’s correct. That’s correct. Social Security doesn’t really care.

Derek Gregoire: Yeah, it’s like whatever. They’re not going to have no sympathy. But one of the things I was going to get into around planning, this is why planning and healthcare and taxes are so important, because let’s say someone’s out there and they say, “Yeah, you know what? My Social Security, my RMDs, it’s only 200,000. I’m married, I’m doing fine, so no big deal.” But the reason why you want to get way ahead of this is if someone let’s say the spouse passes away. Well, guess what? You have the same amount of IRA dollars, you have probably a similar income. Maybe you lost a little bit of Social Security, but you’re probably in a very similar situation except two things. Now, you hit tax brackets half as fast in the IRMAA, the Medicare bracket. So, that single spouse who’s still alive might be paying thousands of dollars more in taxes and Medicare surcharges.

Mark Kenney: That’s correct. Yeah, so that is usually most couples will have 80% of the same income when one spouse dies because, as you know, you lose the smaller of the Social Security benefits. But that’s why we’re so proactive here at SHP about getting ahead of taxation, because I don’t think anyone listening here is going to say, “Oh, I think taxes are going to go down in the future, Derek.” Right? You know, especially with Congress passing the Tax Cut and Jobs Act, and taxes are very low right now. It might not seem like it. It doesn’t feel like it, but historically, if you look at where taxes have been in the past, and if we poll the audience, say, “Where do you think they’ll be in the future?” Everybody says they’re going to be higher.

So, why aren’t we taking advantage of the tax environment that we’re in now, knowing where you’re at, versus the unknown of the future? And I would say that’s one of the risks of retirement. If you have all of your money in pre-tax buckets, I can show you that your income’s going to be X amount for the rest of your life. What I can’t tell you is how much of that you’re going to net, right?

Derek Gregoire: What are you going to keep?

Mark Kenney: What are you going to keep, right? And so, in order to mitigate that, we need to buy out the IRS on our terms, which again, has that knock-on effect of money that you take out of a Roth IRA down the road is not counted towards Medicare premiums, right? So, that’s another thing that we could be saving you money because Medicare premiums, I don’t know, when I first started in this industry, Derek, Part B was like $100 a month or something like that.

Derek Gregoire: Now it’s 2-8.

Mark Kenney: It’s 202, right? And you know in a couple of months they’re going to raise that again. So, these are hidden costs that we need to be proactive to buy out on your terms.

Derek Gregoire: Well, you’re exactly right, and I think that’s where a lot of planning… Well, there’s a lack of planning out there. And I’ve said that for years. I still say it. People come to us all the time, and they say, “Derek, I have all this money in IRAs,” which is normal. You worked your butt off. You saved. That’s how everyone was taught to save. And they have a $2 million, $3 million pre-tax. And I’ll kind of show them, if we don’t do anything, here’s the result down the road, and that’s if, God willing, you’re both still doing well. If one of you passes away, the results are even worse because now your tax brackets get hit half as quick. But think of, like, if you do some planning, right? Let’s say you retire at 62, 65, and RMDs aren’t until 75.

That’s a lot of years where you can chip away and move some money from pre-tax to Roth, and then next thing you know, your RMDs, instead of being 100,000 at 75, maybe they’re 40,000. Who knows? I mean, just hypothetically. But now your income’s lower. You have lower taxes in general, less you have to pull out. If you need to pull out of your Roth, it’s tax-free. And so, you’re helping yourself not just tax-wise, but also Medicare, healthcare-wise.

Mark Kenney: And one step further, Derek, is we know this, obviously, money has to go somewhere, right? So, if you don’t spend it, right, if you don’t consume your IRA, your investments, it is going to get passed on to the next generation, right?

Derek Gregoire: Great point.

Mark Kenney: And now, with the SECURE Act 2.0, people don’t realize that anyone who inherits an IRA, they have 10 years to take that out, right? And let’s think about that. If you have kids, at that time they’re in their 50s, their peak-earning years, right? And all of a sudden they’re going to pay what? 30%, 40% in taxes, if not more. So, when we tell clients that, they’re like, “Listen, oh, we can do something now to buy out the IRS at 10%, 12%, 15%, even 22%, 24%, instead of an unknown, have that grow tax-free for your kids for the next 20 years?” That’s huge.

Derek Gregoire: And the last thing I’ll take it on that is let’s say you pass away, you leave $2 million in an IRA. The kids now have 10 years to take it out. So, at a minimum, with no growth, they’re probably going to want to pull at least $200,000 a year, all taxable, all to their income, which is taxed probably at the highest rate, potentially. Or if you inherit a Roth, let’s say you live 25, 30 years, then pass away, those kids can defer 10 more years, essentially, tax-free.

Mark Kenney: Ten more years. Doubling the account. You know what I mean? With compound interest, you can double your account again. Take that all out tax-free.

Derek Gregoire: And then the ninth year, 364th day, cash it all in tax-free. So, the difference, not only for you, not only for your spouse, for both of you, and for the next generation, is huge by doing some tax planning. And by the way, don’t do this without professional guidance. Like, we’ve mapped this out over with our team, our internal planning team, taxed it. But it’s something we do because, as we talk about the domino effect, it trickles down from not only taxes and income, where you withdraw money from to get to your taxable income, but it also trickles down to the Medicare, how much you pay in Medicare. It could be $200 a month. It could be $700 a month. That’s per person.

Mark Kenney: Yeah. And you see how they’re all connected, right? How everything’s connected, your investments, your taxes, your healthcare, and your legacy, and that’s why it’s important to have a holistic overall financial plan, instead of getting a statement saying, I mean, every advisor should be up, right? I mean, the whole market’s up. You know, the market is the market. We all have the same investments to work from.

Derek Gregoire: Depends on who I listen to this.

Mark Kenney: Yeah, that’s true. That’s true. That’s true.

Derek Gregoire: But yeah, at the end of the day, obviously we have a ton of content. I know Alina just did a great white paper on healthcare. If you go to shpfinancial.com, you can get a ton of content or contact us if you need something. But thank you so much, Mark, for joining us.

Mark Kenney: Thanks for having me.

Derek Gregoire: We made Medicare as exciting as it can be, as interesting as it can be, but it is important. So, thank you, everyone, for tuning in, and we’ll talk to you very soon on the SHP Retirement Roadmap podcast.

[END]