Retiring After a High-Income Career? How to Reduce IRMAA When Medicare Is Using Your Old Income
One of the stranger surprises we see when high earners retire is that their paycheck can disappear before Medicare realizes it.
Imagine spending your final working years earning $300,000, $400,000, or more.
You retire.
Your salary stops.
Maybe your retirement income drops substantially.
Then you receive your Medicare premium notice and discover you're paying an additional amount because Medicare is looking at income from when you were still working.
That additional amount is called the Income-Related Monthly Adjustment Amount, or IRMAA.
And in certain circumstances, you may not simply have to wait two years for your Medicare premiums to catch up with your new income.
If retirement or a reduction in work causes your income to fall, you may be able to ask Social Security to use more recent income information when determining your IRMAA.
For high earners approaching retirement, we believe this is one more reason the final years of your career and first years of retirement should be planned together.
What Is IRMAA?
Most people think about Medicare premiums as a relatively fixed expense.
For higher-income retirees, that isn't necessarily the case.
IRMAA is an additional amount added to Medicare Part B and Medicare prescription drug coverage premiums when modified adjusted gross income, or MAGI, exceeds certain thresholds.
For IRMAA purposes, Social Security generally defines MAGI as your adjusted gross income plus tax-exempt interest income.
The important part for someone approaching retirement is which year's income Medicare is looking at.
For example, Social Security states that 2026 IRMAA determinations generally use tax-return information from 2024. If that information isn't available, an earlier return may sometimes be used.
That's where the retirement problem begins.
Why the Two-Year Lookback Can Surprise New Retirees
Consider a hypothetical Dallas couple.
One spouse is finishing a successful career and retires in 2026.
Their income might look something like this:
2024: $450,000
2025: $400,000
2026: $175,000 after retirement
Their financial life has changed considerably in 2026.
But their initial 2026 IRMAA determination may still reflect their much higher 2024 income.
That's not necessarily a mistake.
It's simply how the system generally works.
And it creates an important planning question:
What happens when the income Medicare is using no longer represents the income you're actually going to have in retirement?
In some circumstances, Social Security provides a way to address exactly that situation.
Retirement Can Be a Life-Changing Event for IRMAA
This is where Form SSA-44 becomes important.
Social Security allows someone whose income has decreased because of certain qualifying life-changing events to request that more recent income information be used to determine IRMAA.
One of those events is work stoppage or work reduction.
Social Security specifically defines this category to include situations in which you or your spouse stopped working or reduced your work hours.
That's why I wouldn't describe this as “negotiating your Medicare premium.”
You're asking Social Security for a new determination based on a qualifying change in circumstances and more representative income information.
For someone retiring after a high-income career, that distinction can be extremely important.
How Form SSA-44 Works
Form SSA-44 is called:
Medicare Income-Related Monthly Adjustment Amount — Life-Changing Event
The basic process involves identifying the qualifying life-changing event, documenting when it occurred, and providing more recent income information.
For example, if Social Security used 2024 income to determine your 2026 IRMAA but you experienced a qualifying work stoppage that materially reduced your income, you may be able to request that Social Security consider more recent income information instead.
Social Security may require evidence supporting both the life-changing event and the reduction in income. Its guidance notes that documentation could include something such as a letter from an employer regarding retirement, along with tax information or an estimate of more recent MAGI depending on the circumstances.
The important planning point isn't simply knowing that the form exists.
It's having a reasonable estimate of what your income will actually look like after you retire.
And that's where things can get more complicated.
Your Final Paycheck May Not Be Your Final Income From Work
This is something we've encountered when helping families plan their transition into retirement.
Someone may say:
“I'm retiring in March, so my income is going to drop substantially this year.”
Maybe.
But first we want to understand everything still coming from the employer.
That could potentially include:
- Salary through the retirement date
- Bonus compensation
- Accrued PTO or vacation payouts
- Severance
- Stock compensation
- Deferred compensation
- Other employer payments
Then retirement begins and entirely different income sources may enter the picture:
Pension income.
Social Security.
Interest and dividends.
Capital gains.
IRA distributions.
Roth conversions.
Portfolio withdrawals.
The year someone retires can therefore be one of the more unusual tax years of their life.
That's why estimating post-retirement MAGI isn't necessarily as simple as taking last year's income and subtracting the salary.
A Real Planning Question We See: What Is Your First Full Retirement Year?
This is where IRMAA planning becomes more interesting.
Suppose someone retires halfway through the year.
Their income falls, but the retirement year still contains six months of salary, a bonus, and a PTO payout.
The following year may be the first year that actually represents their new retirement-income picture.
That's the kind of distinction we want to understand before making assumptions about future Medicare premiums.
It also connects directly to broader retirement planning.
In our Retirement Red Zone guide, we discuss why the years immediately before retirement deserve particular attention.
And our Retirement Planning in Dallas guide looks more broadly at coordinating income, investments, taxes, healthcare and retirement decisions before the paycheck stops.
IRMAA is a good example of why those pieces can't always be planned independently.
IRMAA Doesn't Stop Being a Planning Issue After the Appeal
Getting Medicare to recognize a legitimate drop in income is only one part of the conversation.
Once you're retired, your own financial decisions can affect MAGI too.
Suppose you're in your first several years of retirement and considering a large Roth conversion.
That conversion may make sense as part of a long-term tax strategy.
But it can also increase MAGI.
The same can be true of realizing large capital gains or taking significant taxable retirement-account distributions.
That doesn't mean you should avoid a Roth conversion simply because of IRMAA.
It means IRMAA should be one of the variables evaluated.
We discuss the broader strategy in Roth Conversions: Why Retirees Talk About Them So Much.
Sometimes paying more Medicare premium could be an acceptable consequence of a tax strategy expected to create a larger long-term benefit.
The objective isn't:
Pay the lowest possible Medicare premium every year.
It's:
Coordinate Medicare premiums with the rest of the retirement tax plan.
Think Beyond This Year's Tax Bill
This is one of the biggest changes that occurs when someone moves from their peak earning years into retirement.
During your career, tax planning often revolves around reducing taxable income while your marginal tax rate is high.
After retirement, you may suddenly have considerably more control over your taxable income.
You can potentially decide:
How much comes from taxable investments.
How much comes from traditional retirement accounts.
Whether to complete a Roth conversion.
When to realize capital gains.
When to begin Social Security.
How to fund larger expenses.
Those decisions can affect both taxes and Medicare premiums.
That's why our tax planning process looks at decisions across multiple years rather than simply trying to minimize one year's tax return.
A decision that saves $5,000 in taxes this year isn't automatically a good strategy if it creates larger taxes later.
And a strategy that causes a temporary increase in IRMAA isn't automatically a bad one if it meaningfully improves the long-term plan.
Your Retirement Date Can Create a Planning Window
This is another reason the date you stop working matters.
A high earner may move through three very different income phases:
Peak earning years
Salary, bonuses and perhaps equity compensation create high taxable income.
Early retirement years
Salary disappears and the retiree may have more control over where income comes from.
Later retirement years
Social Security, pensions and eventually Required Minimum Distributions may increase taxable income again.
That middle period can be extremely valuable.
It may create opportunities for Roth conversions, portfolio rebalancing, charitable planning and intentional retirement-account withdrawals.
Our article on early retirement planning in Dallas explains why the bridge between your final paycheck and later retirement-income sources can create unique planning opportunities.
IRMAA belongs in that same conversation.
What Should You Do If You Retired and Received a High IRMAA Notice?
If your Medicare premium is based on income from your working years and you've since retired or substantially reduced your work, we would generally start by asking:
What income year did Social Security use?
Then:
Has a qualifying life-changing event occurred?
Next:
What will your MAGI reasonably be for the more recent year?
And finally:
Do you have documentation supporting the change?
If work stoppage or reduction caused a significant enough decline in MAGI to reduce or eliminate IRMAA, Social Security's rules allow a request for a new determination using more recent income information.
Social Security provides the SSA-44 process specifically for this purpose. It also distinguishes this type of request from a traditional appeal of an incorrect decision; if you're requesting a new determination because of a qualifying life-changing event, SSA says you generally don't need to file a separate appeal merely to make that request.
Request to lower your IRMAA through Social Security
The Bigger Lesson: Retirement Is a Multi-Year Tax Transition
IRMAA is a relatively small piece of a much bigger retirement-planning puzzle.
But it's a perfect example of why we don't think retirement planning begins on your retirement date.
Your final years of work affect your first years of retirement.
Your final salary and bonuses affect taxes.
Past income can affect Medicare premiums.
Your retirement date affects cash flow.
Your pension and Social Security decisions affect future income.
Your IRA withdrawals and Roth conversions can affect both taxes and Medicare.
Your investments need to replace a paycheck that may have arrived every two weeks for decades.
The pieces overlap.
That's why we believe some of the most important retirement planning happens during the transition from your final high-income working years into your first lower-income retirement years.
If you're approaching that transition, our Retirement Income Planning in Dallas guide explains how we think about replacing the paycheck once work stops.
And if you're trying to coordinate Medicare, taxes, investments and retirement income before you leave work, schedule a conversation with our team.