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Understanding Medicare and IRMAA: What Retirees Need to Know
Medicare Is Not Free
Many people spend decades hearing that Medicare will cover healthcare in retirement.
While Medicare provides valuable coverage, most retirees still face meaningful healthcare costs. For many retirees, healthcare expenses may include Medicare premiums, prescription drug costs, Medigap premiums, deductibles, copays, dental care, vision care, and hearing aids.
Healthcare planning remains an important part of retirement planning — and one that deserves attention well before retirement begins.
Understanding Medicare's Different Parts
Medicare is not a single insurance plan. It is a collection of different coverage options.
Medicare Part A
Part A generally covers hospital care, inpatient stays, and certain skilled nursing services. For many retirees, Part A is premium-free if they or their spouse paid Medicare taxes long enough during their working years.
Medicare Part B
Part B generally covers physician services, outpatient care, and preventative care. Unlike Part A, Part B requires a monthly premium.
Medicare Part D
Part D helps cover prescription drug expenses. Premiums vary depending on plan selection, prescription needs, and income level.
Medigap
Many retirees choose a Medigap policy to help cover deductibles, coinsurance, and other out-of-pocket costs. Popular plans such as Plan G can significantly reduce unexpected medical expenses, although premiums vary by state and provider.
Medicare Advantage (Part C)
Some retirees choose Medicare Advantage plans instead of Original Medicare plus Medigap. These plans often have provider networks, include annual out-of-pocket maximums, and may offer dental, vision, or fitness benefits. The right option often depends on healthcare needs, provider preferences, and cost considerations.
What Is IRMAA?
One of the biggest Medicare surprises for many retirees is something called IRMAA — the Income-Related Monthly Adjustment Amount.
IRMAA is essentially a surcharge that increases Medicare premiums for higher-income retirees. Many retirees assume Medicare premiums are the same for everyone. They are not. Your income can directly affect what you pay.
How IRMAA Works
IRMAA is based on your Modified Adjusted Gross Income (MAGI). Importantly, Medicare looks back two years. Your 2026 Medicare premiums are generally based on your 2024 tax return.
This catches many retirees by surprise. Examples that may increase IRMAA exposure include large Roth conversions, selling appreciated investments, pension lump sums, business sales, and unusually large IRA withdrawals.
A planning decision made today may impact Medicare premiums two years later. This is one reason we treat Medicare as part of the broader tax planning conversation rather than a standalone healthcare decision.
Why IRMAA Matters
The first Medicare bracket is relatively modest. But premiums can increase significantly as income rises.
For 2026, married couples with income above approximately $218,000 begin facing higher Medicare premiums through IRMAA. Higher income levels trigger additional increases.
This does not mean retirees should avoid Roth conversions or realizing gains. It simply means Medicare should be part of the planning conversation. Our article on tax-focused retirement planning covers how IRMAA fits into a broader strategy for managing retirement income taxes.
IRMAA and Roth Conversions
One of the most common retirement planning questions we discuss is: "Should I do a Roth conversion?"
Often the answer is yes. But we also want to understand tax brackets, future Required Minimum Distributions, survivor tax issues, and Medicare premium impacts together.
A Roth conversion that saves significant taxes over a lifetime may still be worthwhile even if it temporarily increases Medicare premiums. The key is evaluating the entire picture rather than focusing on one year in isolation. We discuss this tradeoff in greater depth in our article on why retirees talk about Roth conversions so much.
Medicare Does Not Cover Long-Term Care
Another common misconception is that Medicare covers long-term care. Generally speaking, it does not.
While Medicare may cover limited skilled nursing care under certain circumstances, it does not provide ongoing coverage for assisted living, homemaker services, adult day care, or long-term custodial care.
Long-term care planning often requires separate conversations around insurance, brokerage assets, retirement income, and family support systems. We discuss our approach to this topic in depth in our article on how we think about long-term care planning.
Final Thought
Medicare is an important part of retirement planning, but it is not simply a healthcare decision. It is also a tax planning decision, an income planning decision, and a retirement cash-flow decision.
Understanding Medicare, IRMAA, and future healthcare costs can help retirees avoid surprises and make more informed decisions about Social Security timing, Roth conversions, retirement withdrawals, and long-term care planning.
For retirees thinking through how retirement income actually works across all of these moving pieces, the goal is not simply minimizing premiums. The goal is creating a retirement plan that balances healthcare coverage, tax efficiency, and long-term flexibility — one that supports the life you want retirement to look like. Our Wealth Protector service is built specifically around helping retirees coordinate these decisions into a cohesive plan.