How RMDs Can Triple Your Medicare Premiums

I have a financial planner friend who came across a client being solicited to roll a TSP(Thrift Savings Account) into an index annuity. My friends radar went up and suggested I do a video on Index Annuities, which I’m happy to do here in this video.

Honest Look at Annuities

Now, be advised, I am a 100% fee-only, fiduciary advisor. This means I sell NO products. Thus I sell no annuities. Some may think I’m biased AGAINST these products because a lot of fee-only, fiduciary advisors, are opposed to all annuities. That is not me.

Annuities have a place in a clients toolkit for sure. In fact, there is becoming a cottage industry of academics extolling the benefits of INCOME annuities for most retirees. I’ll do a video on that in a future episode. However, in this case, after analyzing the brochure for index annuities, I simply do not see the value here, especially when it comes to rolling over ones TSP to it.

Historical Growth of an Indexed Annuity

In this video, I analyze the growth potential of an index annuity using the brochure the insurance company provides. (In part two of this series, I will analyze the income potential of the same annuity.)

It seems to me from a growth perspective, the index annuity leaves a LOT to be desired. The argument in favor of the annuity is that there is NO downside. You are guaranteed to never lose money. Unfortunately, with that guarantee, you are not coming anywhere near making the upside of the market either.

20 Year Treasury Bond Out-performed

In fact, in the example from the brochure, a client putting $100k into this annuity in 1997 would have been MUCH better off by simply purchasing a 20 Treasury bond! The 20 year Treasury is 100% guaranteed for principal, not by an insurance company mind you, but actually by the Feds themselves.

20 Year Treasury Bond Out-performed….with LESS Risk

Annuities are only as safe as the claims-paying ability of the insurance company. So, there is significant more risk in an annuity than a Government bond. Now, hindsight is ALWAYS 20-20, so there was no way to know that in 1997 the 20 Treasury bond would have outperformed the index annuity, with less risk.

However, we can use hindsight for future guidance. And given that, at least from a growth perspective, I don’t see this annuity offering much value at all. Click here for my analysis on the income side of this annuity.…


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Medicare premiums are MEANS-TESTED! Let me state that again…Medicare premiums are MEANS-Tested!

What does that mean? Well, simple. You pay higher premiums the more income you have.

“Oh, that’s only for rich people!” You might be thinking. Uh huh. Think again.

In this video I show you how a single taxpayer, let’s say a widow, can have her Medicare Part B and D premiums increase by 100% with only a 20% increase in income.

Think it can’t happen to you?

Well, your Medicare premiums are based on your Modified Adjusted Gross Income (MAGI).

MAGI is ALL the income you receive PLUS your tax-exempt interest.

MAGI is before you use your Standard Deductions or itemized deductions you may claim.

Remember, there is a huge difference between TAXABLE income and Gross Income.

And there is another difference between Gross Income and Modified Adjusted Gross Income too.

If you are ignorant of how this works, you can easily be paying Medicare Premiums well above what you anticipated when you first went into retirement.

Don’t let this be you. Plan accordingly. In fact, start planning in your 50s so you can avoid leaving your surviving spouse a huge tax bill. Because by then it’s too late to change tactics.

At that point, it’s just pay the tax man and hope he or she will be okay.


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