Medicare Planning: What Changes at 65
Healthcare costs are the wildcard in American retirement. At 65, Medicare kicks in—but it doesn't cover everything. Understanding the system, especially IRMAA surcharges, is essential for planning.
The Medicare Alphabet Soup
Medicare has multiple parts, and understanding them is the first step:
The Four Parts of Medicare
- Part A (Hospital): Usually premium-free if you worked 10+ years. Covers inpatient hospital, skilled nursing, hospice.
- Part B (Medical): Monthly premium (~$175/month in 2024). Covers doctor visits, outpatient care, preventive services.
- Part C (Medicare Advantage): Private plans that bundle A+B, often with extras. Alternative to traditional Medicare.
- Part D (Prescription Drugs): Separate drug coverage. Must enroll or face penalties.
IRMAA: The Income Tax on Medicare
Here's what catches many retirees off guard: if your income is "too high," you pay more for Part B and Part D. This is IRMAA—Income-Related Monthly Adjustment Amount.
IRMAA is based on your Modified Adjusted Gross Income (MAGI) from two years ago. So your 2024 IRMAA is based on your 2022 tax return.
| Single MAGI (2022) | Monthly Part B Premium (2024) |
|---|---|
| ≤$103,000 | $174.70 (standard) |
| $103,001-$129,000 | $244.60 |
| $129,001-$161,000 | $349.40 |
| $161,001-$193,000 | $454.20 |
| $193,001-$500,000 | $559.00 |
| >$500,000 | $594.00 |
At the highest bracket, you pay over $400/month more than the standard premium—nearly $5,000/year extra, just for Part B.
The two-year lookback: IRMAA uses income from two years ago. If you're retiring at 65, your pre-retirement salary from age 63 determines your first-year premiums. You can appeal if you have a "life-changing event" like retirement.
The Early Retirement Healthcare Gap
If you retire before 65, you face the gap years—too young for Medicare, too old for employer coverage.
Options for the gap:
- COBRA: Continue employer coverage for up to 18 months, but you pay the full premium (often $1,500-2,000/month for a couple)
- ACA Marketplace: Subsidies available based on income. If you control retirement income, you can potentially qualify for significant help.
- Spouse's employer plan: If your spouse still works, stay on their coverage
- Health sharing ministries: Not insurance, but an option some early retirees use
What Medicare Doesn't Cover
Original Medicare (Parts A and B) has significant gaps:
- Dental, vision, hearing: Not covered (some Medicare Advantage plans include these)
- Long-term care: Not covered. Skilled nursing has strict limits; custodial care isn't covered at all.
- Out-of-pocket costs: Deductibles, copays, and 20% coinsurance on Part B services
Many retirees buy Medigap (Medicare Supplement) policies to cover the gaps. These run $100-300/month depending on plan and location.
The Roth Conversion IRMAA Connection
Roth conversions increase your MAGI, which can trigger IRMAA. This creates a planning challenge:
- Convert aggressively before 63 (two years before Medicare)
- Or be strategic about conversion amounts to stay below IRMAA thresholds
- Or accept the IRMAA surcharge as a cost of the Roth conversion benefits
The math depends on your specific situation—how much you're converting, how long you'll pay IRMAA, and the value of tax-free Roth withdrawals later.
Healthcare Costs in Retirement
Fidelity estimates a 65-year-old couple retiring today needs approximately $315,000 saved just for healthcare costs in retirement. That includes:
- Medicare Part B and D premiums
- Medigap or Medicare Advantage premiums
- Out-of-pocket costs (deductibles, copays)
- Dental, vision, hearing expenses
This doesn't include long-term care, which can dwarf all other healthcare costs.
How Talk Through Wealth Helps
Model healthcare costs throughout retirement:
- Project Medicare premiums including IRMAA based on your income
- Plan for the pre-65 gap years
- See how Roth conversions affect IRMAA
- Model different income strategies to minimize healthcare costs
- Factor healthcare inflation into long-term projections
Model Your Healthcare Costs
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