What To Know Before You Retire

Healthcare in retirement is a highly important matter to review in advance. Inadequate healthcare can be detrimental to a financial plan and completely derail retirement funding. Although there is not a stated retirement age in the United States, many delay retirement until the Medicare age of 65 to avoid this financial deficiency and maintain medical coverage during retirement. As a federal program, Medicare offers essential coverage for those who qualify either by age or through certain disabilities. The following is a brief overview of Medicare and should be evaluated based on individual circumstances.

Medicare has multiple parts that allow an individual to layer additional coverage or replace certain components. It consists of four parts: Part A (hospital insurance), Part B (medical insurance), Part C (Medicare Advantage), and finally, Part D (prescription drug coverage). Original Medicare consists of Part A, Part B, and Part D. Part C, or Medicare Advantage, is an alternative program that provides Part A and Part B benefits through a private Medicare-approved plan, which often includes Part D. Part C can be re-evaluated and changed through applicable Medicare enrollment periods.

To qualify for premium-free Part A, an individual or spouse generally needs at least 40 quarters (10 years) of Medicare-covered employment, similar to Social Security qualifications. For those who have not met this criterion, Medicare is still available with a premium set by Medicare and federal law. Keep in mind that there will still be amounts owed for deductibles and various medical needs, as with most medical insurance programs. Each premium varies based on the chosen plan and which part of Medicare is elected.

Premiums for Medicare Part B and Part D may be affected by income, more specifically Modified Adjusted Gross Income (MAGI), and may trigger an Income-Related Monthly Adjustment Amount (IRMAA) surcharge on premiums. There are different thresholds based on tax filing status. It is important to consult a tax advisor when determining which threshold is applicable. It is also important to note that the look-back period for IRMAA is based on MAGI two years prior to the year the premium is charged. When experiencing changes in income due to life-changing events, including marriage, divorce, or the death of a spouse, among other situations, IRMAA can be contested through the Social Security Administration using Form SSA-44. There is no need to wait until the change occurs, as Form SSA-44 can be completed in anticipation of an income change. You can find instructions for filing on the form itself.

Medicare Part C is designed to provide Part A and Part B through a private, Medicare-approved plan rather than Original Medicare, although higher-income beneficiaries may still be liable for Part B and Part D IRMAA even if included in the Medicare Advantage package. Private insurance companies offer Medicare Advantage plans and must be approved by the Centers for Medicare & Medicaid Services (CMS). These plans are subsidized by the United States federal government through CMS. Although an individual may enjoy additional benefits offered by a Medicare Advantage plan, some plans have various restrictions in comparison to Original Medicare, with increased complexity when needing prior authorization, referrals, or the use of provider networks. In addition, frequent travelers may find themselves out of network and may be better suited for Original Medicare. Reviewing one’s personal situation is crucial when determining if a plan is appropriate, and the critical need for healthcare in retirement should not be overlooked.