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Retired Military Finances 101: Tricare for Life

Insurance

I first put on a military uniform in 1979. I don’t remember if anyone promised me free health-care for life. It really doesn’t matter as Tricare as it exists certainly isn’t free. And when you turn 65, you will qualify for Tricare for Life (TFL) and it has a different fee structure.

TFL Basics

When you turn 65, you’ll be eligible for Medicare Part B. And to keep your Tricare coverage, you need to sign up and pay for it. Medicare premiums are based on your income. The minimum amount you will pay is $144.60 per month if your Adjusted Gross Income (AGI) is less than $174,000 (2020) if you’re married or $87,000 if you’re single. The maximum premium is $491.60 if your AGI was above $750,000 married or $500,00 is you’re single. You should also note that if you’re married your spouse will pay the same premium. It’s also worth noting that the premium is based on your income from 2 years prior, so if you work to age 63 or later there is a good possibility that you’ll pay a higher premium in the early years of your retirement.

The good news is that if you need medical care that is covered by both Medicare and Tricare, you don’t pay anything. Tricare basically acts as a Medicare supplement. If you have a treatment that isn’t covered by Medicare, you’ll pay 20% until you meet your annual catastrophic cap of $3,000. This could occur if you need a lot of prescriptions (you can’t get on base) as Medicare Part B doesn’t cover prescriptions. If you need care that is only covered by Medicare, then you pay 20% with no upper limit.

Those are the basics.

TFL Planning considerations

Required Minimum Distributions (RMD). You’re required to take distributions from most retirement accounts and all pre-tax retirement accounts at age 72 (there are a few exceptions). If the balance in these accounts is significant, when those RMDs kick in you could end up paying higher Medicare premiums. As an example, if you go over the $174,000/$87,000 threshold you’ll pay $693 in additional Medicare premiums per person. This is one of those cases where $1 more in income could increase your “tax bill” by more than $1. So, if this is an issue you might want to look at Roth conversions or taxable distributions before RMDs kick in and push you over the limit. Fill up a current tax bracket or to the Medicare premium threshold.

Waivers for Premium Increases. If you work until the year you turn 63 or later and apply for Medicare at age 65 there is a pretty good chance you’ll pay an increased Medicare premium. You can request a waiver and stopping work is considered a life-changing event and may get the increase waived.

Military Finances are different

Civilians don’t have anything equivalent to Tricare for Life. If you’re going to work with a financial advisor, we think you should work with one who already understands military benefits. If you’d like to chat schedule a free initial consultation using the button below or give us a call to chat.


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