3 Ways to Save Big on Medicare Costs in Retirement

Fidelity estimates that the average 65-year-old retiring in 2023 as a Medicare enrollee will spend $157,500 on health care costs during retirement. Of course, those numbers may or may not apply to you depending on your health status and where you live. But either way, you should expect health care to be a major item in your retirement budget.

But the good news is that there are steps you can take to help seniors spend less of their income on Medicare. This move could result in cost savings.

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1. Register on time

Your initial Medicare enrollment period begins three months before and ends three months after your 65th birthday. In total, it takes 7 months to sign up.

However, if you wait too long to enroll, you risk being charged a 10% surcharge on your Medicare Part B premium for each year you were eligible but did not enroll. And that surcharge lasts for life. Register on time to save money.

That said, you don’t have to worry about additional fees if you are covered by a qualified group health plan through your job (yours or your spouse’s) during your initial enrollment period. In this case, you will have a special enrollment period for Medicare when your employment or group health insurance ends.

2. Compare your plan choices carefully each year during open enrollment.

If you decide to keep Original Medicare, you will need a Part D drug plan to go with it. However, it is important to review your Part D plan choices each year during Medicare’s fall open enrollment period. That’s because the costs of different plans can change and drug requirements can also change. So it’s a good idea to compare your options if there’s a cheaper alternative to your current plan.

If you choose to enroll in Medicare Advantage as an alternative to traditional Medicare, you’ll want to do the same. This means reviewing your plan selection every year. It is especially important to do this after a change in your health occurs.

3. Prepare your tax-free income

There is a standard monthly premium for Medicare Part B each year. This year it is $174.70.

However, if you are a high earner, you will be charged an additional fee for Part B, known as the Income-Related Monthly Adjustment Amount (IRMAA). The same surcharge applies to Part D premiums.

IRMAA is based on income from two years ago. So, if you earn a high income in 2022, you may be charged an additional fee on your Medicare premium in 2024.

However, if you plan to keep your retirement savings in a Roth IRA or 401(k) rather than a traditional retirement account, the withdrawal amount is not considered taxable income. This will help you keep your income low enough to avoid IRMAA, which increases your Medicare costs.

Before retirement, it’s important to read up on Medicare and know what it costs. But you should also know that there are steps you can take to reduce your Medicare spending and enjoy financial relief.