By: Suzanne Page
People on Medicare know all too well that the costs associated with it can be burdensome. While Medicare Part A, which covers hospital care, is usually free for enrollees, Parts B and D, which cover preventive/outpatient care and prescriptions, respectively, and comprise the remainder of seniors' coverage under original Medicare, charge enrollees a premium.
The good news, however, is that there are steps you can take to lower your Medicare premium costs, thereby stretching your retirement income even further.
1. Enroll in Part B on time
Your initial window to enroll in Medicare spans seven months. It begins three months before the month of your 65th birthday, the month of your birthday, and it lasts for three months following that month.
If you don't enroll during that initial period, you can sign up at a later point in time -- but you might pay more.
For each 12-month period you go without Part B coverage upon being eligible, you'll be charged a 10% penalty on your Part B premiums that will remain in effect permanently. As such, it really pays to sign up on time.
Keep in mind that the rules are different if, come age 65, you still have access to a group health insurance plan through an employer (yours or your spouse's).
In that case, you get a special eight-month enrollment period to sign up for Medicare that begins once you separate from your employer, or once your group coverage goes away -- whichever happens sooner.
As long as you enroll during that eight-month window, you'll avoid a Part B penalty.
2. Don't go too long without Part D coverage
Just as you'll be penalized for going too long without Part B coverage, so too can the same thing happen if you go 63 days or more without a Part D plan (or without any prescription drug coverage).
The penalty you’ll face in this scenario is 1% per month you go without coverage. That penalty is on top of the national base premium [$32.74 in 2020]. So, if you go 15 months without coverage, that penalty in 2020 would be $4.91 per month.
3. Secure tax-free retirement income
The standard monthly premium for Part B in 2020 is $144.60. But if you're a higher earner on Medicare, you’ll pay even more.
Once your income exceeds $87,000 as a single tax filer, or $174,000 as a joint filer, you'll be subject to what's known as an IRMAA (income-related monthly adjustment amounts) surcharge on your premiums, the exact amount of which will depend on what your earnings look like.
On the other hand, if you're able to lower your income enough to avoid that surcharge, or lower it enough to put yourself in a lower surcharge tier, you'll pay less for Part B.
A good way to go about that is to line up tax-free income sources that won't raise your earnings threshold for Medicare premium surcharges.
Ways you can accomplish this would be by utilizing Roth IRAs [by contributing to them or converting your current retirement to a Roth] or by using Section 7702 of the IRS tax code, which is another form of tax-free money with some additional benefits.
Even if you're entering retirement with a healthy level of savings, Medicare premiums can eat up a large chunk of your income, leaving you with less financial flexibility when you need it.
By making these moves now, you can avoid the potential $9,000 additional surcharges [which honestly are what we call “stealth taxes”] a year for no additional benefit, it will reduce your taxes by hundreds of thousands of dollars, increase your retirement income by thousands of dollars a year, and take market risk off the table.
As a bonus, doing these things could reduce or even eliminate taxes on Social Security income too.
ABOUT THE AUTHOR: Suzanne Page is one of the top advisors with Both Hands Financial Group and is consistently a top agent in South Carolina for Medicare. Her knowledge and experience in the Medicare field helps her serve her clients well by helping them find the right plan for their needs and at the best price possible. Both Hands Financial Group understands how Medicare and retirement planning work together so Suzanne can not only help you find the right Medicare plan for your needs, but also protect your future.