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Medicare papers

Healthcare has undoubtedly been a hot topic in the last few years. However, for those of us in the retirement planning industry, we’ve been planning around and for healthcare for generations. Most individuals will become eligible for their health insurance in retirement at 65 through Medicare. You’ll choose between multiple options in Medicare, and what those options cost each month depends on your taxable income in retirement. Let’s dive into some of those numbers.

Medicare Part A

Your Medicare Part A is your hospital insurance, covering your inpatient costs at a hospital or other inpatient facilities. A reminder that inpatient care is the type of care that is a result of a condition that would require you to be placed in a hospital. Most individuals that achieve 40 credits (10 years) in Social Security will get Part A free; however, if you don’t qualify for Part A through your payment into Social Security, you can still make monthly payments to receive it. The cost will depend on achieving 30 – 39 credits in Social Security or fewer than 30 quarters. The person with 20 quarters in Social Security will pay more than the person who has 31 quarters, and both are paying more than the person who has 50 quarters, which consequently, as mentioned above, receives Part A free.

Medicare Part B

Your Medicare Part B helps to cover your doctor's visits and other types of outpatient care. Medicare Part B, unlike Part A, has a monthly premium that you’ll owe, and it was based on your income two years ago. This is called the Income-Related Monthly Adjustment Amount (IRMAA). For example, in 2022, your IRMAA is adjusted based on your reported income in 2020. The standard Part B premium in 2022 is $170.10 each month. If you reported more than $182,000 (Joint Married Return) or $91,000 (Single or Married Separate), your premium would increase to $238.10 monthly. It can be adjusted to as high as $578.30. Check with your Advisor to understand where your income could place your Medicare Part B monthly premiums.

Medicare Part C

Medicare Part C plans are often called Medicare Advantage Plans, which are sold in the private marketplace by Health Insurance Advisors, such as the Advisors at Whitaker-Myers Benefit Plans. Almost all (about 89%) include prescription drug coverage, and the average premium for a Medicare Advantage Plan is $62.66 in 2022. Your premiums will not change based on your income for Medicare Part C.

Medicare Part D

Medicare Part D plans are exclusively designed for prescription drug coverage and, like Part C above, can be sold by private insurance companies like Whitaker-Myers Benefits Plans. The average plan premium in 2022 was $47.59 and can be adjusted based on your income. You will pay your plan's premium if your income is $182,000 or below (Married Filing Joint) or $91,000 (Single or Married Filing Separate). It can then be increased from $12.40 / month to $77.90 / month based on how much you exceeded the abovementioned income.

Planning Opportunities Around Health Insurance

As noted above, $182,000 and $91,000 are the thresholds you don’t want to cross in retirement from an income perspective because they’ll create higher premiums on your Medicare costs. But imagine you have a year in retirement you need to take a significant distribution to pay one-time expenses, like a new roof, purchasing an automobile, taking the trip of a lifetime, or a myriad of things that could push your income above those thresholds. Are you just out of luck? The answer comes back to how well you planned. If you were consistent with Baby Step 4, putting 15% of your income away in retirement, you most likely have saved enough. However, Baby Step 4 is not just about how much but also about where you save, meaning you should have been allocating in your 401(k) up to the match, and everything else should have gone into your Roth IRA (up to annual limits).

If done correctly, your asset base is diversified across your 401(k), which will most likely count against your income when withdrawn each year in retirement, and your Roth IRA, which will not count against your income in retirement. This can help save thousands of dollars yearly in unnecessary taxes and increased Medicare payments. This is not about saving more money, per se, but rather saving it in suitable types of accounts.

Even if you’re in your 30s, 40s, or 50s reading this and thinking I’m a ways off on paying for Medicare, you’d be wise to start planning for the impacts of how your assets will save you on Medicare costs by being intentional in executing Baby Step 4 to its desired outcome, 401(k) and Roth IRA together, not just 401(k).

Finally, for those retiring pre-65, I wrote an article last year about the myriad options you have until you turn 65 and become eligible for Medicare. These are all things when creating your financial plan; your Financial Advisor will be incorporating into your projections, so you can see what your costs will look like, pre-65 and post-65, for this essential part of your retirement planning. Please get in touch with us today if you have additional questions and want to ensure you’re not spending over the Medicare income limits.


September 11, 2022

John-Mark Young

Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm.  The information presented is for educational purposes only and intended for a broad audience.  The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed.  Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.

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