Medicare Income-Related Monthly Adjustment Amount (IRMAA) Surcharge – What Does It Mean, What Can I Do, and How?

Medicare Income-Related Monthly Adjustment Amount (IRMAA) Surcharge – What Does It Mean, What Can I Do, and How?

 

 

Co-written with Jeffrey Barnett

 

The first question on many retirees’ minds is how to pay for expensive healthcare costs and health insurance when you’re no longer covered by the employer plan you relied on throughout your career. Medicare is the U.S. government’s answer for supporting healthcare costs throughout retirement. While you might have already enrolled in Medicare or are at least looking forward to beginning benefits at age 65, you may not know how Medicare premiums work. Let’s explore Medicare premiums and an important potential speedbump known as IRMAA.

 

What Is IRMAA?

 

To provide some background, approximately 75% of the costs of Medicare Part B (Medical Insurance) and Part D (Prescription Drug) are paid directly from the General Revenue of the Federal Government, with the remaining 25% covered through monthly premiums paid by Medicare enrollees. If you receive Social Security or Railroad Retirement Board benefits, your Medicare Part B premiums are typically deducted automatically from your monthly benefits. For those who don’t receive these benefits, you’ll receive a bill to pay your premiums instead. Medicare premiums increase as your income grows through Income-Related Monthly Adjustment Amount (IRMAA), which is an additional surcharge for higher income individuals on top of the 2021 Medicare Part B baseline premium of $148.50.

 

Medicare premiums and any surcharges are based on your filing status and Modified Adjusted Gross Income (MAGI) with a two-year lookback (or three years if you haven’t filed taxes more recently). That means your 2021 premiums and IRMAA determinations are calculated based on MAGI from your 2019 federal tax return. MAGI is calculated as Adjusted Gross Income (line 11 of IRS Form 1040) plus tax-exempt interest income (line 2a of IRS Form 1040). The table below details the base premium amount you’ll pay for Medicare in 2021 depending on your MAGI and filing status, inclusive of any additional IRMAA surcharge.

 

 

 

Fortunately, the Social Security Administration (SSA) tracks these numbers for you and uses MAGI data from the IRS. For every year that they determine IRMAA applies to you, you’ll receive a pre-determination notice explaining what information was used to make the determination and what to do if individuals feel the finding is incorrect, like due to a life-changing event as defined by the SSA. After 20 or more days, the SSA sends another notice with additional information regarding your appeals rights. For the instances you feel an incorrect determination was made, you can request a “New Initial Determination.”

 

Am I Eligible to Request a New Initial Determination?

There are five qualifying circumstances where an individual may be eligible to request a “New Initial Determination.” They are:

  1. An amended tax return since original filing
  2. Correction of IRS information
  3. Use of two-year-old tax return when SSA used IRS information from three years prior
  4. Change in living arrangement from when you last filed taxes (e.g., filing status is now “married filing separately” but you previously filed jointly)
  5. Qualified life-changing event(s)

 

According to the SSA, a Life-Changing Event (LCE) can be one or more of the following eight events:

  • Death of spouse
  • Marriage
  • Divorce or annulment
  • Work reduction
  • Work stoppage
  • Loss of income-producing property
  • Loss of employer pension
  • Receipt of settlement payment from a current or former employer

 

A common scenario we often see is with new retirees age 65 or over where income is much lower in retirement than it was two years ago, but the SSA determines that the IRMAA surcharge should be applied to your premium costs given the lookback period. Fortunately, an exception can be requested under the “work stoppage” LCE, and we can help you navigate that process. Luckily, this is typically irrelevant after the first or second year of retirement since post-retirement income is often significantly reduced and naturally falls below the IRMAA threshold. Another common scenario for retirees is having portfolio income that pushes you above the IRMAA tiers. However, it’s important to point out that portfolio income from things like capital gains or Roth conversions are not allowable exceptions to request for the IRMAA surcharge in a high-income year.

 

If you don’t qualify to request a new initial determination based on the 5 qualifying circumstances noted above, you also have the right to more formally appeal the determination, which is also known as requesting a reconsideration.

 

 

Requesting a New Determination

 

If any of the above life-changing events apply, individuals are likely eligible to request a new initial determination by calling their local Social Security office or, alternatively, completing and submitting this form for reconsideration along with appropriate documentation. We highly recommend calling the Social Security hotline at 800-772-1213 to discuss if more than one LCE applies to you, if you have questions about why IRMAA applies to you, or if you have questions about requesting a reconsideration.

 

We know that Medicare can be tricky and that this only scratches the surface, so we also encourage you to contact us if you have any questions. We regularly serve as a resource for questions around enrolling for Medicare along with many of the other factors involved in planning for retirement, and we are happy to help you as those questions move to the forefront.

 

Sources:
Income Thresholds:  https://www.medicare.gov/your-medicare-costs/part-b-costs

Life-Changing Event: https://www.ssa.gov/OP_Home/handbook/handbook.25/handbook-2507.html

Determination Notices: https://secure.ssa.gov/poms.nsf/lnx/0601101035

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.

Take Advantage of New Tax Adjustments in Planning for 2023!

Take Advantage of New Tax Adjustments in Planning for 2023!

 

 

Tax adjustments happen every year, but this provides an excellent opportunity to review and plan for a better personal tax situation for 2023. Let’s take a look at the changes! Legislation has given even more planning opportunities for employees and retirees than usual. The planning opportunities for 2023 fall into three broad categories: tips for current workers, tips for retirees, and ongoing strategies.

 

Updates for Current Workers

Here are some items that people who are currently working will want to review for the new year:

  • New Tax Brackets and Standard Deduction: Tax brackets and the standard deduction are all indexed to inflation. The large numbers in 2022 created bigger changes than usual in 2023, making it worth reviewing tax withholding.
  • Higher 401k (and 403b and 457) Employer Plan Contribution Limits: 2023 will see an increase from $20,500 ($27,000 if age 50+) to $22,500 ($30,000 if age 50+) that can be added to your employer retirement plan.
  • Higher IRA and Roth IRA Contribution Limits and Phase Outs: The contribution limits to IRA and Roth IRA accounts will also increase, potentially in addition to employer plan contributions. There will also be an increase to the income limits regarding when your ability to take advantage of these plans starts to phase out.
  • Health Savings Account Increases: For employees with a health savings account (HSA), the amount that can be contributed to the plan will also increase in 2023.
  • NEW Employer Matching 401k Contributions as Roth: Starting in 2023, employers may start allowing employees to take matching contributions as Roth contributions rather than pre-tax contributions. This is brand new and opens up significant planning opportunities.

 

Updates for Retirees

Retired individuals will also see several changes in 2023 to plan around:

  • NEW RMD Age Increased from 72 to 73: The biggest change for retirees in 2023 is the delay of the first required minimum distribution (RMD) from age 72 to 73. Individuals turning 72 in 2023 now have an additional year of flexibility for things like Roth conversions or other strategies to minimize taxes over their lifetimes.
  • Social Security Benefits and Medicare Premiums: Social Security will get an 8.7% increase in 2023. The base monthly premium for Medicare will decrease from $170 to $165.For higher earning retirees, the thresholds for Medicare’s IRMAA surcharge will be increasing.

 

Ongoing Planning Opportunities

There are several ongoing planning opportunities as individuals start looking ahead at 2023:

  • Qualified Charitable Contributions (QCD): For individuals who are at least 70½ years old, qualified charitable distributions (QCDs) from an IRA may be one of the most tax-effective ways to give to charity.
  • Roth Conversions and “Backdoor” Roth IRA Contributions: Depending on your current income and current retirement accounts, Roth conversions or “backdoor” Roth IRA contributions may allow more savings into accounts that will grow tax-free in the future.
  • Tax Loss Harvesting: With the decline in both stock and bond markets in 2022, there may be more opportunities than usual to sell investments at a loss and offset taxable income realized in other areas.

 

The Bottom Line

The new tax changes have created significant planning opportunities to review. It’s worth exploring how your personal tax situation may benefit from making adjustments in 2023. At Merriman, we live and breathe this stuff so you don’t have to. We are happy to answer your questions and partner with you to develop and/or refine the best approach for your taxes for 2023. Schedule some time with us today!

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. As always please remember investing involves risk and possible loss of principal capital and past performance does not guarantee future returns; please seek advice from a licensed professional.

 

 

 

Do Luxury Cars Need an Active Warranty?

Do Luxury Cars Need an Active Warranty?

 

If you own a luxury car, do you need to have an active warranty on it? That’s a question that has been on many minds lately, particularly those who own or are looking to purchase a high-end vehicle. Here we’ll take a look at what an active warranty is, the pros and cons of having one for your luxury car, and who might benefit from purchasing one. So whether you’re in the market for an exotic sports car or are simply curious about this topic, read on.

 

The Benefits of an Active Warranty

When you invest in a Rolls-Royce Phantom, you’re not just buying a car—you’re making a statement. This is a vehicle that exudes luxury, and its price tag reflects that. But what many people don’t realize is that a Rolls-Royce is also a complex machine, with hundreds of moving parts. That’s why it’s so important to have an active warranty.

An aftermarket warranty can help cover the cost of repairs and services, and it gives you peace of mind knowing that you’re covered in case of any unforeseen problems. So if you’re thinking about buying a luxury car, make sure you factor in the cost of an active warranty. It could end up being the best investment you ever make. Take a look at the different warranty providers; for example, see how CarShield warranty costs differ from other providers.

1. Luxury cars are often expensive and have high maintenance costs

Anyone who has ever owned a luxury car knows that they come with a high price tag. Not only are the initial costs higher than for a standard car, but luxury cars also have much higher maintenance costs. Warranty coverage is generally much more expensive for luxury cars, and repairs can also be quite costly.

In addition, luxury cars often require premium gasoline and may need to be serviced more frequently than standard cars, adding yet more to the overall cost. However, for many people, the high cost is worth it for the prestige and status that comes with owning a luxury car.

2. Warranties can help you protect your investment

Warranties are a great way to protect your wealth. When you purchase a vehicle, you want to be sure it will last for years to come. A warranty can help you do just that. By ensuring that your vehicle is protected against defects and damage, you can rest assured that it will continue to run smoothly for years to come. What’s more, a warranty can also help you avoid costly repairs. In the event that something does go wrong with your vehicle, a warranty can help to cover the cost of the repairs. As such, warranties are an excellent way to protect your wealth and ensure that your vehicle remains in good condition for years to come.

3. There are a variety of warranties to choose from

As you approach retirement, it’s important to start thinking about how you’ll protect your assets. One way to do this is to purchase an aftermarket car warranty for your vehicle. There are a variety of options available, so you can find a plan that fits your needs and budget. It’s important to compare plans and prices before you make a decision, but an aftermarket warranty can be a great way to protect your investment and provide peace of mind.

4. They can help you save money over the life of your car

If you’re like most people, you probably don’t give much thought to car warranties. However, if you’re the owner of a Porsche Panamera, an aftermarket car warranty can be a lifesaver. Porsche is known for its luxury cars, and the Panamera is no exception. With a starting price of $85,000, it’s one of the most expensive cars on the market. And because it’s a Porsche, you can expect to pay more for repairs and maintenance than you would for a less luxurious car.

An aftermarket warranty can help to offset some of these costs. In addition, it can give you confidence knowing that your car is covered in the event of an unexpected breakdown. Whether you’re looking to save money or to protect your investment, an aftermarket car warranty is worth considering.

 

When You Don’t Need an Active Warranty

Anyone who’s ever driven a luxury car knows that they’re a different breed altogether. They’re smoother, sleeker, and generally just better all around. But one of the best things about them is that despite their higher price tag, they don’t require an active warranty. That’s right—you can buy a luxury car and not have to worry about forking over extra money every month for a warranty. And why is that? Because luxury cars are built to last. They’re made with higher quality materials and designed to withstand whatever life throws their way. So go ahead and treat yourself to a luxurious ride. You deserve it!

1. You can afford to pay for repairs yourself

If you don’t mind spending the money and can afford to pay for repairs yourself, you don’t need an aftermarket warranty. For example, if you have an Audi A8, the cost of repairs and maintenance will be much higher than the average car. However, if you have the money for it, you won’t have to worry about paying for repairs down the road. Aftermarket warranties often have a lot of fine print that can exclude certain types of repairs. So, if you can afford to pay for repairs yourself, it’s probably the best option.

2. It’s not worth the extra money

Aftermarket warranties are often not worth the extra money for a number of reasons. First, they tend to be much more expensive than the manufacturer’s warranty. Second, they often have a lot of exclusions and restrictions that make it difficult to actually use the coverage. Finally, many people find that they never actually need to use the coverage. For these reasons, aftermarket warranties are not always worth the extra money.

Financial freedom is important, and there are better ways to spend your money than on an aftermarket warranty. Financial freedom gives you the ability to live your life the way you want to live it, and it is something that everyone should strive for. There are numerous things you can do to achieve financial freedom, and buying an overpriced warranty is not one of them.

3. Luxury cars are built to last

Luxury cars are built with the highest quality materials and components so they can withstand the rigors of daily driving for many years. That’s why luxury car owners don’t need to buy an extended car warranty. The factory warranty will cover any repairs that are needed during the first few years of ownership. After that, the car will continue to run reliably for many more years, with only routine maintenance required to keep it in top condition. So if you’re thinking of buying a luxury car, rest assured that it will provide years of trouble-free driving enjoyment.

4. The claims process is complicated

The extended car warranty claims process is complicated. If you bought a car with an extended warranty, you’re likely to find that the process for filing a claim is much more complicated than you anticipated. In order to get your claim processed, you’ll need to provide a lot of documentation, including proof of purchase and a detailed description of the problem. You’ll also need to be prepared to negotiate with the warranty company, as they will likely try to lowball you on the repairs. However, if you’re persistent, you can get the full value of your extended warranty. Just be prepared for a long and complicated process.

When it comes to luxury cars, there are many things to consider. You need to think about the cost of repairs and maintenance, whether you can afford them, and whether an aftermarket warranty is worth the money. Ultimately, it’s up to you to decide if you need an extended warranty for your Genesis G90. If you’re comfortable with the costs and don’t mind dealing with the complicated claims process, then go ahead and buy a warranty. But if you’re not sure that an aftermarket warranty is right for you, don’t feel pressured into buying one. There are plenty of other ways to protect your investment in a luxury car.

 

 

Written exclusively for Merriman.com by: Georgia Henry. 
Georgia Henry is originally from South Orange, New Jersey. After studying marketing in college and minoring in finance, she discovered her true passion: writing. Georgia loves to ski and has been on many amazing vacations, but her favorite was when she visited the petrified forests. She also enjoys painting and watching Olympic wrestling. In her spare time, she likes to hang out with her cat named Tom Petty.

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

How to Improve Your Credit Score

How to Improve Your Credit Score

 

 

 

Bad credit can haunt you for years. It can make it difficult to get a loan, rent an apartment, or even get a job. If you’re struggling with bad credit, it’s not the end—there is hope. Here are some useful pointers on how to give your credit score a much needed boost. Follow these steps to see a noticeable improvement in no time.

 

What Is a Credit Score?

A credit score is a critical indicator of one’s financial health and stability. This numeric value is determined based on several factors, including payment history, credit utilization, length of credit history, types of credit used, and recent inquiries on the report.

 

Because this single number encapsulates so much information about one’s financial behavior and habits, it is essential to monitor a credit score closely. You must take all necessary steps to maintain or improve it. A good credit score can be your ticket to financing significant purchases, such as a home or car. In contrast, a poor score can leave you in the hands of bad credit auto finance companies or other high-interest lenders.

 

Credit scores go from a low of 300 to a high of 850. Generally, a score above 650 is considered good, while anything below that is fair or poor. Therefore, it is of utmost importance to understand what goes into a credit score so that you can work to improve yours over time. Fortunately, consumers can take steps to improve their credit scores, regardless of where they fall on the credit spectrum.

 

Pointers to Help Boost Your Credit Score

Looking at your credit score right now may leave you feeling down in the dumps, but don’t despair. You can do plenty of things to improve your credit score over time. The following pointers will help get you on the right track:

 

1) Pay Your Bills on Time, Every Time

A good credit score is crucial for many reasons. That’s why it’s important to make sure you pay your bills on time, every time.

 

Unfortunately, things have a way of turning up to scuttle any timely payment plan. If that happens to you, don’t panic. There are steps you can take to minimize the damage to your score.

 

First, try to arrange a payment plan with your creditor. This shows them that you’re willing to work with them to resolve the situation. Second, cover the minimum payment if you cannot make a full payment. This shows creditors that you’re still trying to meet your obligations even if you can’t pay everything you owe right away.

 

Finally, keep track of your payments and ensure you don’t miss another one. Even one late payment can significantly impact your credit score, so it’s critical to stay on top of things. By following these steps, you can help ensure that your score stays strong, regardless of life’s challenges.

 

2) Don’t Apply for Too Many Accounts at Once

It can be tempting to open up many credit cards when you’re first starting. After all, one of the first steps to building good credit is to have a robust credit file. But while it’s essential to have a few lines of credit, you want to be careful about applying for too many at once.

 

Whenever you submit a new credit application, your credit score takes a minor hit. And if you’re constantly applying for new lines of credit, that can add up to a significant drop in your score. Additionally, you increase your identity theft risk every time you open a new account. So while it’s important to build your credit file, you want to be thoughtful about which accounts you open and how often you submit applications.

 

3) Regularly Check Your Credit Report

You must always stay on top of your credit report. Whether you’re applying for a mortgage, a car loan, or a new credit card, your credit score will be one of the factors that lenders look at when considering your application. That’s why it’s so important to review your credit report regularly.

 

By doing so, you can catch any errors or discrepancies and address them before they have a chance to impact your credit score. You can also identify any negative information that may be dragging down your score and take steps to improve your credit standing. Reviewing your credit report is one of the best ways to keep track of your financial health, so do it regularly.

 

4) Pay Your Bills Every Two Weeks

There are many strategies for improving your credit score quickly and effectively. One helpful method is to pay your bills every two weeks instead of once a month. This pacing enables you to make smaller payments more frequently, which can help reduce the effect of interest over time.

 

In addition, making frequent and consistent payments helps demonstrate that you are a dependable borrower in the eyes of lenders. Because this can be a powerful tool for increasing your credit score, it is well worth considering if you have the financial means. If you can set aside just a small amount each paycheck or biweekly period, it could make all the difference for your future borrowing prospects.

 

5) Don’t Close Unused Credit Card Accounts

Some people say it’s good to close any unused credit card accounts. After all, why keep them open if you’re not using them? However, closing these accounts can do more harm than good. One of the factors that creditors look at when considering a loan is your credit history. The longer your history, the better.

 

So, by closing down those old credit card accounts, you’re shortening your history and making it look like you’re not as reliable. It’s better to keep those old accounts open and pay the annual fee if there is one. That way, you can maintain a strong credit history and improve your chances of getting approved for future loans.

 

 

The Bottom Line

Building good credit takes time and effort. But by following these simple tips, you can improve your credit score and make it easier to get the things you want out of life. So don’t wait—start working on your credit today.

 

 

 

Written Exclusively for Merriman.com by Amy Marshall.

Amy Marshall is an automotive expert who loves to write about anything car-related.

 

 

 

Disclosure: All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Merriman. The material has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source.  Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be taken as such.

 

The Building Blocks of Portfolio Risk Management

The Building Blocks of Portfolio Risk Management

 

When markets are rising, risk management seems easy—invest, sit back, and watch your investments grow. Things get a bit trickier when the markets experience volatility and decline. These are the times when you need to understand the amount of risk your investments are subject to and how that risk relates to your financial plan.

 

The first and least tangible measure of risk is qualitative in nature: how much risk are you willing to take? How would you feel, for example, if the markets declined more than 20%? What if the markets fell by more than 40%? Generally, what is the level of decline that you are comfortable with that will encourage you to stay invested and allow for your plan to thrive? Take some time to think about it. While it is easy to come up with a threshold or a hypothetical number, it is different in real time (consider the financial crisis or the markets’ initial response to the COVID outbreak, for example).

 

Once we have a handle on your subjective feelings around risk, there are a variety of tools we use here at Merriman Wealth Management to help our clients manage the quantitative measures of risk.

 

First and most important is answering this question: what is the amount of risk my portfolio can take within the context of my financial plan? This is a super important question. Too often, folks will bifurcate their investment and financial plans. This does not typically lead to successful outcomes. We manage this for clients by calculating statistically valid risk and return measures for our clients’ portfolios—i.e., we expect an all-equity portfolio to return 9.52% net of fees per year with a standard deviation of 20.49. A more moderate 60% equity portfolio would return at 7.95% and 13.06, respectively. Understanding these figures within the context of your accumulation and distribution plans is what matters. The typical recipe is for folks in their early years to take on more risk, as they have time for the markets to recover from declines. In contrast, folks later in life have less time to recover, and a more moderate portfolio is conducive to their plan.

 

The next risk management tool to understand centers around the sequence of returns. While one can craft statistically valid long-term expectations for portfolio risk and return, it is extremely difficult to predict returns in any given year. Consider 2020: who would have thought the markets would have rebounded so swiftly?

 

One thing to keep in mind with respect to sequence risk is what we call “bad timing.” What happens if you retire (switch from accumulating to decumulating) and the markets have two successive bad years? This is a good stress test for your portfolio. Pass this test, and your plan is likely in good shape.

 

The next measure to consider is the longer-term variability of returns. We measure this by running 1,000 different return trials for our clients (Monte Carlo analysis), effectively looking at everything from years of sustained above-average performance to years of sustained below-average performance and everything in between. The results are considered a success if greater than approximately 80% of the trials result in money remaining at the “end” of your plan. 

 

In conclusion, consider the list of questions below as you evaluate the risk metrics of your plan:

  • What are the risk dynamics of my current portfolio, and how do these relate to my financial plan?
  • What is the outcome of my financial plan if I retire and the markets have two successive bad years?
  • How am I accounting for the sequence of returns? What is my plan’s probability of success—will I have money left at the end of my plan?

 

Here at Merriman Wealth Management, we live by our tagline of “Invest Wisely. Live Fully.” If you are a Merriman client, we’ve got you covered. If you are not a Merriman client and would like a holistic review of your financial plan and corresponding risk metrics, let us know, and we would be happy to take you through our complimentary Discovery process.

 

 

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable, however Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal or accounting advice, and nothing contained in these materials should be relied upon as such. Nothing in this presentation in intended to serve as personalized investment, tax, or insurance advice, as such advice depends on your individual facts and circumstances. Past performance is no guarantee of future results.  Advisory services are only offered to clients or prospective clients where Merriman and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Merriman unless a client service agreement is in place.

Should I Buy Solar for My House?

Should I Buy Solar for My House?

Two of my core values are frugality and helping the planet. Adding solar to my house is one way I can help the planet by decreasing the amount of energy I consume from nonrenewable resources. But what is the cost of such a move, and when do I break even financially?

Where do I even begin to explore these questions and other blind spots I might have about solar energy?

The following resource can help you determine if your house is a good candidate for solar and what the approximate savings would be for such a change: solar savings estimator.

The process of getting a quote is simple. The two companies I reached out to asked me to send them a copy of my energy bill and some pictures of my Electrical Service (Electrical Panel and Meter). With this information, they obtained my address and were able to view my house and roof to determine its exposure to the sun as well as my annual electric usage. With the pictures, we were able to determine if my Service was To Code and generally figure out how easy a PV System can be interrogated into my existing Service or if additional work might be required. In my case, I wanted to get additional panels to account for the purchase of an EV in two years.

The breakeven period, according to the solar provider, is about 14 years. Over 30 years, we would save $104,962.*

*Assumes a 0.3% annual solar efficiency decrease and an 3.5% annual utility rate increase over 30 years.

In 2022, the Solar Investment Tax Credit (ITC) is 26%. In 2023, it will drop to 22%, and in 2024, it is set to expire. This tax credit—and the fact that it is set to expire in a couple years—is a great incentive to explore solar energy now.

When I first started looking into solar options, I had no idea that it could increase the value of my home for resale. According to the Renewable Energy Focus Journal 2017, 1 watt of solar energy adds $3 to the value of your home.

Financing is available as well, which would affect your breakeven period. As of January 12, 2022, the rates very between 3.24% and 9.84% for up to 240 months.

Other considerations to keep in mind as you look into solar options for your home:

  • The length of warranty: There are 25-year warranties available for both workmanship and performance.
  • Your roof age, pitch, direction, and type of roofing material (as some types of roofs are more expensive to install on compared to others): Your roof cannot be too old or it will need to be replaced after solar has been installed. To remove an existing PV System and re-install after a new roof is installed can cost $5,000 – $10,000. Also be aware of any obstructions (such as trees) that could block sunlight from your roof, as well as the direction your roof faces. Northward-facing roofs don’t receive enough “good” sunlight to normally pencil out as a good location for module placement. Southward-facing roofs are the best.

 

Written by: Michael Van Sant, CFP®. CSRIC™

Disclosure: The material is presented solely for information purposes and has been gathered from sources believed to be reliable; however, Merriman cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Merriman does not provide tax, legal, or accounting advice, and nothing contained in these materials should be relied upon as such.