Medicare: Avoiding Extra Costs In Retirement

Many Americans rely on Medicare to pay for healthcare costs in retirement.  Medicare is a federal health insurance program for seniors and others with disabilities and certain illnesses.  There are several parts to Medicare, but we will focus on the two parts that will affect your retirement budget, Part B and Part D.

  • Part A provides inpatient/hospital coverage. The cost for Part A is typically free for those people who have paid Medicare taxes for a certain number of years.
  • Part B provides outpatient/medical coverage. The cost for Part B is $144.60 per month in 2020.
  • Part D provides prescription drug coverage. The cost for Part D varies by plan

If your modified adjusted gross income* as reported on your IRS tax return from 2 years ago is above a certain amount, you’ll pay the standard premium amount for Parts B and D in addition to an Income Related Monthly Adjustment Amount (IRMAA).

To determine if you are subject to the IRMAA surcharge we have provided a flowchart to help you find out:

Planning ahead to avoid IRMAA should be a goal in your financial plan and the strategies can begin long before you are eligible for Medicare.  For example, Roth conversions will lower your required minimum distributions later on which will lower your income and ultimately help you avoid IRMAA.

If you find that your tax return from 2 years ago does not accurately reflect your current situation due to a “life changing event” (see flowchart box), you can request an adjustment to IRMAA.

Contact our office if you have any questions about IRMAA or any other financial planning topics we have discussed.

*Modified Adjusted Gross Income = Adjusted Gross Income + Tax Exempt Interest