His Deferred Compensation Will Pay Out $150,000 a Year for Five Years After He Retires. Social Security Will Price His Medicare Premium on It Every Year, and Retiring Is Not the Form’s Fix
An executive stops working, yet Social Security still treats his retirement checks as paycheck-sized income and bills him for it. The form meant to fix that comes with a catch that can leave his premium exactly where it started.
This post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.
Picture a 66-year-old executive who retires at the end of 2026. His paychecks stop. Starting in 2027, his deferred compensation agreement pays him $150,000 a year for five years. He has stopped working, but Social Security will count every one of those payments as income when it sets his Medicare premiums.
Most retirees never run into this. The Centers for Medicare & Medicaid Services (CMS) says income-related surcharges affect roughly 8% of Medicare Part B enrolees. A single filer with MAGI at or below $109,000, or a couple at or below $218,000, pays the standard $202.90 monthly Part B premium. Executives with deferred pay usually land in the other group.
A Retirement Payment Can Still Be Income
A nonqualified deferred compensation plan lets an executive receive part of his earnings years after doing the work. Unlike a traditional 401(k), these payments generally can’t be rolled into an IRA to postpone income taxes. That label matters when the money comes out. He can roll a 401(k) distribution into an IRA and keep deferring the tax. He cannot do that with a nonqualified payout. Each payment counts as income in the year he gets it, and the plan will withhold income tax on the taxable part of amounts paid.
Social Security calculates the income-related monthly adjustment amount (IRMAA) using modified adjusted gross income (MAGI): adjusted gross income (AGI) plus tax-exempt interest. Interest from municipal bonds counts too, even though he pays no tax on it.
Five Payment Years, Five Surcharge Years
Assume he has $80,000 of other MAGI on top of the payout, for a total of $230,000 a year, and files single. Under 2026 rules that puts him in the bracket running from $205,000 to $500,000. He pays a $649.20 monthly Part B premium and an $83.30 monthly Part D surcharge on top of his drug plan’s premium.
The surcharges alone come to $6,355.20 a year. Over five payout years they add up to $31,776 per person (surcharges like this are one of several premium traps we mapped in a free Medicare guide). That total uses 2026 brackets as a stand-in, because the thresholds reset every year.
A two-year delay moves when the bill comes. Social Security generally uses income reported two years earlier. For example, 2026 Medicare premiums are based on 2024 income. His 2027 payout therefore sets his 2029 premium, and the final 2031 payout sets his 2033 premium. His 2027 and 2028 premiums will reflect 2025 and 2026, his last years on salary.
Filing jointly softens the hit. A couple at $230,000 lands in the first level, where each spouse pays $284.10 for Part B plus a $14.50 Part D surcharge. That works out to $1,148.40 per person a year in surcharges. If his wife dies during the payout years, he will start filing single on the same income and move up to the $649.20 level.
Why Retirement Relief Has Limits
Retirement can qualify for relief. SSA lists work stoppage among eight life-changing events that let a beneficiary file Form SSA-44 and ask SSA to use a more recent, lower income year. As one r/medicare commenter put it, “Work stoppage is one of the accepted life changing events for SSA-44.”
The difficulty lies in how SSA defines a qualifying drop. The lower income must be a reduction that decreases or eliminates the income-related monthly adjustment amount. If his MAGI in his last salary years fell between $205,000 and $500,000, his $230,000 retirement estimate lands in the same level, and the form changes nothing. It helps him only if his salary-year income exceeded $500,000, where the total Part B premium reaches $689.90.
The form may help once his deferred compensation payments end. Social Security can consider an earlier retirement even if the resulting income drop comes years later. If his MAGI falls to $80,000 after the final payment, he can ask SSA to use that lower income instead of waiting for the usual two-year lookback.
What to Check Before Choosing a Payout Schedule
- Read the plan’s election rules now. If his plan permits changes, federal tax rules generally require him to make the election at least 12 months before the scheduled payment and delay payment by at least five years. He needs to model five years of IRMAA before the first check comes.
- Look for ways to cut other income by $25,000. That would bring his MAGI to $205,000, lowering his combined surcharges to $4,620 annually at 2026 rates. Delaying optional IRA withdrawals or Roth conversions may help.
- Request an IRMAA review when his income falls after the final payment. He can submit Form SSA-44 with his retirement information and a lower income estimate. If approved, the adjustment may apply from January of the premium year.
Contact [email protected] for any questions or corrections.
Gerelyn Terzo is the author of dividend investing handbook "Dividend Investing Strategies: How to Have Your Cake & Eat It Too." A veteran financial journalist, she covers agri-finance for outlets like Global AgInvesting and the broader stock market and personal finance for 24/7 Wall Street. She began at CNBC and later helped launch Fox Business in New York. Gerelyn currently resides in Woodland Park, Colorado and dabbles in nature photography as a hobby.
