Medicare Premiums and Their Effect on Retirement

Medicare and retirement sometimes go hand in hand. Make sure you know about both.

All of your life, you have been advised to save your money – as much as you possibly could! It started when you were little with just a piggy bank and some coins. Later, those savings became the source of your income during retirement.


But did you know your retirement income can affect your Medicare premiums? Even just a couple of cents over the defined income brackets can cost hundreds of dollars more in additional expenses for the year – sometimes thousands!


Believe it or not, there is good news. When the Medicare system calculates your premiums using your income, there are several considerations. Therefore, if your money “lives” in the right places, you won’t get faulted for making over a certain threshold.


First, let’s do a brief overview of Medicare’s parts, in case you are just turning 65 or this is your first year qualifying. We will also explain how Medicare calculates their premiums and the income brackets for 2021. In addition, there are some steps you can take to avoid penalizing yourself with extra costs. These include making charitable donations, requesting special consideration from the government, or converting your money into Roth IRAs.


The Four Parts of Medicare

Medicare consists of four parts: Medicare Part A, which is your hospital insurance, Medicare Part B, which is your regular medical insurance, Medicare Part C (or Medicare Advantage), which is an alternate way to receive benefits and save money, and Medicare Part D, which covers prescription drugs.


Part A covers inpatient care at the hospital as well as nursing facilities. Most people would get this for free if they paid into Medicare through working for at least ten years, and enrollment is usually automatic.


Part B is the coverage of medical supplies and services that are necessary to treat you. These include outpatient care, preventative services, rehabilitation, ambulatory services, and some medical equipment. To receive Part B benefits, you must enroll and pay a premium, which is outlined below.


Part C is a combination of parts A and B, but usually administered privately and often covers additional benefits. This may be a good option, especially if your income is limited. Keep in mind with straight Medicare, you will incur additional costs when going to a provider, or even being hospitalized. A Medicare Advantage plan will afford you little to no copays or deductibles, increased benefits, and hospitalization is much less with only a nominal copayment rather than a 20% coinsurance, which could end up being astronomical.


Part D is your prescriptions. Part D’s monthly costs are based on your income and are on top of the Part B premium costs. These range from $0 extra to an additional $77.10 per month.

Each year, there is a standard Part B premium amount. For 2021, this amount is $148.50 per month. Many people will pay only this amount.


Medicare bases this premium on your retirement income; specifically the Modified Adjusted Gross Income (MAGI) from your tax return from two years prior. Therefore, you can determine the amount you will pay in 2021 by calculating your MAGI from 2019.


Government Relief May Be Available

Since the government looks at your income from two years ago, a drastic change may have occurred between then and now. Life events can and do happen that lower your income, and basing your premium on a higher income from two years ago can be detrimental to your wallet.


By filing a simple form, you can request that the government base your Medicare premiums on your expected 2021 income rather than your income from 2019. Some of the life-changing events that the government considers for relief are:

  • Marriage

  • Divorce/Annulment

  • Death of Your Spouse

  • Work Stoppage or Reduction

  • Loss of Income-Producing Property

  • Loss of Pension Income

The government is usually pretty good about allowing relief for the above situations; however, there are other particular circumstances they may not accept. It’s best to contact the Social Security Administration through their online services with any questions.

To assist you further in making the right decision as you transition into retirement and turn 65, please reach out to an HRBC Representative today. By selecting the right health care plan, you will save yourself a lot of money and grief.



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