Fidelity estimates that the average 65-year-old person retiring in 2023 is looking at spending $157,500 on healthcare costs throughout retirement as a Medicare enrollee. Of course, that number may or may not apply to you, depending on the state of your health and where you live. But either way, you should expect healthcare to be a major line item in your retirement budget.
The good news, though, is that there are steps you can take to spend less of your senior income on Medicare. These moves could result in a world of savings.
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1. Enroll on time
Your initial Medicare enrollment window begins three months before the month of your 65th birthday and ends three months after that month. All told, that’s seven months to sign up.
If you wait too long to enroll, though, you’ll risk a 10% surcharge on your Medicare Part B premiums for each year-long period you were eligible to sign up but didn’t. And those surcharges stick around for life. Enroll on time to keep your costs down.
That said, you won’t have to worry about surcharges if, during your initial enrollment window, you’re covered by a qualifying group health plan through a job (either yours or your spouse’s). In that case, you’ll get a special enrollment period for Medicare once your employment or group health coverage ends.
2. Compare your plan choices carefully each year during open enrollment
If you decide to stick with original Medicare, you’ll need a Part D drug plan to go along with it. But it’s important to review your Part D plan choices every year during Medicare’s fall open enrollment. The reason is that the costs of different plans can change, and so can your medication-related needs. So it pays to compare options in case there’s a less expensive alternative to the plan you’re currently on.
If you choose to enroll in Medicare Advantage as an alternative to original Medicare, you’ll want to do the same thing — review your plan choices from one year to the next. It’s especially important to do so following changes to your health.
3. Set yourself up with tax-free income
Each year, there’s a standard monthly premium established for Medicare Part B. This year, it’s $174.70.
However, if you’re a higher earner, you’ll face a surcharge for Part B known as an income-related monthly adjustment amount, or IRMAA. Those same surcharges apply to Part D premiums, too.
IRMAAs are based on your income from two years prior. So if you earned a high income in 2022, you might face surcharges on your Medicare premiums in 2024.
But if you make a point of housing your retirement savings in a Roth IRA or 401(k), as opposed to a traditional retirement account, your withdrawals won’t count as taxable income. That could keep your income low enough to avoid IRMAAs that drive your Medicare costs up.
It’s important to read up on Medicare ahead of retirement and know what costs you might be in for. But you should also know that there are steps you can take to spend less on Medicare — and enjoy a world of financial relief.