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What Could My Medicare Cost??

What Could My Medicare Cost??

January 17, 2024

What is my Medicare going to cost?


Will your income 2 years ago change your Medicare premium?  How about your IRMAA calculation?  Hmm…not familiar with that anacronym.  Let’s start there.  IRMAA stands for Income-Related Medicare Adjusted Amount.  This series of letters has to do with what you will pay for your Medicare Part B premium.  Now, it may seem that if you paid into Medicare your whole life, your premium should cost the same as your neighbor’s.  This is not a safe assumption.  In fact, a lifetime of saving for retirement, could  mean that your monthly health insurance premiums are higher than others.  I will use a simple example to illustrate this. 


Let’s assume that John is turning 65 this year and will elect Medicare also.  (For the purpose of this example, these numbers happened 2 years ago.)  John made $70,000 on his W-2 income from employment, and he decided to sell his cabin in northern Minnesota the same year.  (He hadn’t been there much in the last few years, and he couldn’t turn down a great offer.)  It sold for $150,000 more than he purchased it 15 years ago.  Therefore, John’s adjusted gross income in 2021 was $220,000.


Here is the challenge:  Medicare premiums.  Why would thinking about Medicare premiums be the issue here when it happened 2 years before he turned 65?  Medicare determines premiums based on your Modified Adjusted Gross Income (MAGI).  When assessing premiums, Medicare does not allow itemized deductions (even if John had a lot of expenses necessary to fix up the cabin before he sold this investment property.) 

In 2023, this year, John would have paid:

  • $527.50 a month for Medicare Part B ($6,330 for the year), and
  • $70.00 a month for Medicare Part D ($840 for the year)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     If John had not sold the cabin in 2021, his 2023 Medicare premiums would have totaled $1,979 ($164.90 x 12) versus $7,170. For John, his IRMAA created an extra annual tax of $5,191. Again, when most of his neighbors may be paying a lower premium this year, his will be higher for one year.                                                                                                                                                                                                                                                                                           

    There are a lot of examples of this that many near retiree and retired individuals are not aware of, for example: 

    1. ROTH IRA conversions of too much or in the wrong year
    2. Spending your 401K at higher levels in the first couple years of retirement, as is the pattern for the newly retired
    3. Opportuning on cap gains when the market may be taking a drop (selling high)
    4. What about increased donations thinking you would itemize the charitable gift
    5. What if you needed to use your retirement to assist with necessary medical expenses
                                                                                                                                                                                                                                                               So, what is the takeaway?  There are so many things to consider when retiring, and many people don’t go looking for assistance on these issues until months before retirement.   Whether right or wrong, most of us don’t think about these choices that were made 2-3 years ago.  Don’t forget to keep your Financial Adviser in your financial decisions and consider involving one a decade before the big day. Let us know if we can help!                                                                                                                                                                                                                                                                                                       Blessings,                                                                                                                                                                                                                                       Dan