The $15,000 Medicare Surprise: How Retirement Income Can Affect Medicare Premiums & IRMAA
Most people approaching Medicare have a pretty simple expectation. They know they'll have to pay Medicare premiums, but they assume the cost will be fairly predictable. But. BUT. For many retirees, that's not how it works.
If you've spent decades building a significant retirement portfolio, a decision you make with your income at 63 or 64 can affect what you pay for Medicare at 65. And for some higher-income retirees, the difference can add up to thousands of dollars. That's the Medicare surprise most people don't see coming.
Medicare premiums aren't the same for everyone
Medicare Part B has a standard monthly premium. But higher-income Medicare beneficiaries can pay more than the standard premium based on their income from two years ago. This is where IRMAA, or the Income-Related Monthly Adjustment Amount, comes into the picture. The basic idea is pretty simple: Medicare looks at your income from an earlier tax year (two years ago) to determine whether you'll pay an additional amount for Medicare Part B and prescription drug coverage this year.
For example, the Medicare premiums for 2026 are generally based on income from 2024.
That creates an interesting retirement-planning problem. You might make an income decision today without realizing that Medicare is going to be looking at that income two years from now.
Here's where retirement planning gets interesting
Let's say you're 63 and have spent your career saving aggressively. You have money in your IRA or 401(k), and you're thinking about doing a large Roth conversion. Or maybe you need to take a large withdrawal from your retirement accounts. On the surface, that might seem like a simple tax-planning decision. But there's another question to ask:
What could this do to my Medicare premiums later?
A large increase in your income can potentially push you into a higher Medicare premium bracket. And that additional premium applies to each person who is subject to the adjustment. For a married couple, that can make the numbers meaningful very quickly. A decision that looked like a smart move on your tax return could have another cost attached to it down the road. That's why the years before Medicare are so important.
The $15,000 Medicare surprise: IRMAA
This is where the numbers can get your attention. A higher-income retiree can end up paying hundreds of dollars more per month than someone paying the standard Medicare premium. Multiply that by 12 months. Then multiply it across two people. Yep, that's right - the surcharge is applied to both spouses' premiums.
Suddenly, we're not talking about a small difference. We're talking about thousands of dollars a year. Over multiple years, that can become a five-figure expense. That's how a retirement-income decision can turn into what I call the $15,000 Medicare surprise.
And here's the important part: It's not necessarily that the Roth conversion or IRA withdrawal was a bad decision. It may have been the right decision. The problem is making the decision without looking at the bigger picture.
Roth conversions and Medicare don't happen in separate worlds
This is one of the reasons I think retirement planning is different from simply managing an investment portfolio. You can't always look at one decision by itself. A Roth conversion can help with long-term tax planning. But the amount you convert increases your taxable income for the year. That can affect your tax bill, and for some retirees, it can also affect future Medicare premiums. The same idea applies to large withdrawals from retirement accounts. Sometimes you need the money. Sometimes the withdrawal makes sense. But before making a large move, it's worth asking what else that decision might affect. That's the kind of coordination that becomes much more important as you approach retirement. If you are going to do Roth conversions, you have to make sure you're factoring in any potential Medicare surcharges in the future.
Your income at 63 can matter at 65
This is probably the biggest takeaway. The decisions you make in the years leading up to Medicare don't necessarily stay in that year. They can have consequences later.
That's why I don't think retirement planning should start six months before you retire.
If you're sitting on $2 million, $3 million, $4 million, or $5 million of retirement assets, you have more decisions to coordinate than someone who simply needs to figure out where their next paycheck is coming from. You have to think about withdrawals. Taxes.
Roth conversions. Social Security. Medicare. And how those pieces fit together.
The goal isn't to avoid paying taxes at all costs. Sometimes paying taxes today can make sense. Sometimes a Roth conversion can make sense even if it increases your income.
The point is to understand the tradeoffs before you make the decision.
The best Medicare planning happens before you enroll
By the time you turn 65, some of the decisions that affect your Medicare premiums may already be in the rearview mirror. That's why the years before Medicare deserve more attention than they usually get. If you're approaching retirement with significant savings, don't just ask: "How much will Medicare cost me?"
Ask: "What can I do today that could affect what Medicare costs me later?"
That's a much more useful retirement-planning question. Your retirement income strategy, tax strategy, and Medicare strategy shouldn't exist in separate boxes. They all affect each other. And when you're dealing with millions of dollars, those connections can be worth paying attention to. A good retirement plan isn't just about how much money you have.
It's about understanding how your decisions today can affect your taxes, your Medicare premiums, your spending, and the life you're trying to build in retirement.
Because the goal isn't just to retire with money. It's to know how to use that money wisely once you get there.
If this way of thinking resonates with you, book a time on my calendar to talk about all the pieces of your plan. You can find the link here: https://www.buoyantwealth.com/contact
-Brendan
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