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Planning for Medicare Premiums in Retirement

Medicare premiums are an important (and often confusing) topic for those approaching retirement. Medicare itself is a confusing topic as it has 4 different parts in addition to income premiums and penalties for failing to sign up on time. In this post, we’ll try to demystify Medicare by breaking down the basics and then looking at the penalties and income thresholds for higher premiums. 

Medicare Basics 

Medicare is split into 4 parts: 

Part A = Hospital Insurance – Covers inpatient care in hospitals, skilled nursing facility care, hospice care, and home health care.

Part B = Medical Insurance – Covers services from doctors and other health care providers, outpatient care, home health care, durable medical equipment, and many preventive services. 

Part C = Medicare Advantage (aka supplemental insurance) – Medicare-approved plan from a private company that offers an alternative to Medicare. These are bundled plans that include parts A, B, and D. May offer extra benefits like vision, hearing, and dental services

Part D = Drug Coverage– Covers prescription drugs

Medicare Part A is free as long as you or your spouse paid Medicare payroll taxes for at least 10 years. Part B has a set monthly premium cost, which increases for those with higher incomes. Part C is optional with monthly charges typically between $0-$200. Part D also has a monthly charge, however, the exact charge depends on the plan that you choose. 

Medicare Penalties 

Unless you’re covered by an employer plan, you must sign up for Medicare around your 65th birthday to avoid paying penalties. You can sign up 3 months before your birth month, during your birth month, and 3 months after your birth month (a 7-month window). 

You’ll pay an extra 10% for each year you could have signed up for Part B, but didn’t. That penalty applies for life and is added to your monthly premium.  

There’s also a Part D penalty of 1% per month you don’t have Part D or creditable coverage. This penalty remains as long as you have part D coverage. 

Income-Related Monthly Adjustment Amount (IRMAA)

Higher-earning Medicare beneficiaries are required to pay an additional premium for their Part B and Part D coverage. According to the Center for Medicare and Medicaid Services, this impacts approximately 7% of beneficiaries. 

The income-related adjustment is based on your Modified Adjusted Gross Income (MAGI). MAGI is your Adjusted Gross Income (line 11 of your Form 1040 tax return) plus your tax-exempt interest income (line 2a of IRS Form 1040). Your premium adjustment is based on your MAGI two years prior. Thus for 2024, your monthly premium will be based on your 2022 tax return. Here are the 2024 thresholds: 

Tax Filing Status

Part B Monthly Premium


Part D Monthly Premium
IndividualMarried Filing Jointly
$103,00 or less$206,000 or less$174.70 (no IRMAA)Plan Premium
> $103,000-$129,000> $206,000 – $258,000$244.60$12.90 + Plan Premium
> $129,000 – $161,000> $258,000 -$322,000$349.40$33.30 + Plan Premium
> $161,000 – $193,000> $322,000 – $386,000$454.20$53.80 + Plan Premium
> $193,000 – $500,000> $386,000 – $750,000$559.00$74.20 + Plan Premium
Greater than $500,000Greater than $750,000$594.00$81.00 + Plan Premium

Here is the same table for 2023:

Tax Filing StatusPart B Monthly PremiumPart D Monthly Premium
IndividualMarried Filing Jointly
  $97,000 or less      $194,000 or less$164.90 (no IRMAA)Plan Premium
> $97,000 – $123,000> $194,000 – $246,000$230.80$12.20 + Plan Premium
> $123,000 – $153,000> $246,000 -$306,000$329.70$31.50 + Plan Premium
> $153,000 – $183,000> $306,000 – $366,000$428.60$50.70 + Plan Premium
> $183,000 – $500,000> $366,000 – $750,000$527.50$70.00 + Plan Premium
Greater than $500,000Greater than $750,000$560.50$76.40 + Plan Premium

The income at which additional premiums kick in has increased significantly over the past several years: 

IRS Filing Status20202021202220232024
Married filing Jointly$174,000$176,000$182,000$194,000$206,000
All Other$87,000$88,000$91,000$97,000$103,000

Medicare Part B premiums are generally withheld from monthly Social Security payments. Thus some Medicare beneficiaries may be unaware of their mandatory Part B premiums. 

Appealing Higher Premiums from IRMAA 

If you believe your IRMAA calculation was erroneous or you have had a life-changing event you can appeal and file for a redetermination. 

The Social Security Administration gives the following choices for life-changing events: 

  1. Marriage
  2. Divorce /Annulment
  3. Death of Your Spouse
  4. Work Stoppage
  5. Work Reduction
  6. Loss of Income-Producing Property
  7. Loss of Pension Income
  8. Employer Settlement Payment

Conclusion

It’s important to inform yourself of the details of Medicare to ensure you avoid its pitfalls. By registering on time and being mindful of the IRMAA cut-off points you can optimize your situation. For the IRMAA cut-offs, you may want to plan your income sources strategically. You may be able to stay below the income thresholds that trigger the premium adjustments, but keep in mind that they change every year and are based on your income from two years ago.

If you need help with planning for Medicare or any other aspect of your retirement, please feel free to contact me for a free consultation.

Scott Caufield, CFA, CPA