By Nino Pavan, J.D., CFP®
Turning 65 doesn’t automatically make Medicare simple. In fact, many retirees are surprised by how many decisions they need to make. Should you choose Original Medicare or Medicare Advantage? Do you need a supplemental policy? What prescription drug coverage makes sense for your situation?
These questions matter because the choices you make can affect both your healthcare coverage and your retirement budget for years to come. Yet many people find themselves making these decisions with limited information and a growing stack of Medicare mailers arriving in their mailbox.
That’s especially important when you consider Medicare’s role in retirement today. Since its creation in 1965, Medicare has grown to serve more than 68 million Americans, and nearly 96% of adults age 65 and older rely on it for healthcare coverage. Understanding your options can help you make more informed decisions and avoid costly surprises down the road. Unsure whether your current coverage is the best fit? Consider a Medicare assessment.
What Is Medicare?
Medicare is a health insurance program provided by the federal government for people over the age of 65 as well as disabled individuals. As mentioned, it plays a key role in covering healthcare costs in retirement, but it is not meant to cover everything. Understanding its coverage and its limitations is a crucial part of being prepared for retirement.
Medicare is divided into four parts: Part A, Part B, Part C, and Part D. There are also supplemental coverages to consider to fill in any gaps not covered in the four main parts. Here is an overview of the different options to review as you approach retirement:
- Part A covers hospital services. If you or your spouse paid Medicare payroll taxes during your working years for at least 10 years, Part A is free for you. If you didn’t, you can still get coverage by paying a monthly premium.
- Part B covers doctor visits and other outpatient services. Even if you or your spouse paid Medicare payroll taxes, Part B comes with a monthly premium. In 2026, the standard Medicare Part B premium is $202.90 per month, although higher-income beneficiaries may pay more due to IRMAA surcharges.
- Part D is an optional add-on that includes drug coverage that also comes with a monthly premium. Beginning in 2025, Medicare Part D beneficiaries became subject to an annual out-of-pocket cap on covered prescription drug costs. In 2026, that cap increased to $2,100. The limit may continue to increase in future years based on Medicare’s annual cost adjustments.
- Original Medicare is a package that includes Part A and Part B, with the optional add-on of Part D. Medicare continues to expand certain programs and benefits designed to improve care coordination and support for beneficiaries with chronic health conditions, including dementia.
- To help with Medicare costs such as copayments, coinsurance, and deductibles, many retirees will purchase Medigap insurance from private insurance companies to supplement their Original Medicare plan. Some Medigap policies help cover costs that Original Medicare does not fully pay, such as deductibles, copayments, and coinsurance. Certain plans may also provide limited benefits for services such as emergency medical care while traveling outside the United States.
- Medicare Advantage, also known as Part C, is an alternative to Original Medicare that is offered through Medicare-approved private companies. This plan bundles Part A and Part B and often includes Part D as well. Medicare Advantage plans may cover additional services, including vision, hearing, and dental visits, but it is dependent on the terms of each plan. Also, if you’re enrolled in Medicare Advantage and you switch to Original Medicare, you may not automatically qualify for a Medigap policy and could face additional underwriting.
Income Related Monthly Adjustment Amount (IRMAA)
Regardless of whether you have Original Medicare or Medicare Advantage, you may pay an additional charge on top of your Medicare Part B premium called an Income-Related Monthly Adjustment Amount (IRMAA). IRMAA can also apply to your Medicare Part D prescription drug coverage.
In short, if your Modified Adjusted Gross Income (MAGI), as reported on your tax return from two years prior, exceeds certain thresholds, you’ll pay the standard Medicare premium plus an additional income-based surcharge.
For example, in 2026, single taxpayers with a MAGI between $109,000 and $137,000 will pay an additional Part B IRMAA surcharge of $81.20 per month. Married couples filing jointly with a MAGI between $218,000 and $274,000 will pay the same surcharge.
Here’s another example. If you’re a single taxpayer with a MAGI between $205,000 and $500,000, your Part B IRMAA surcharge in 2026 is $446.30 per month. Similarly, married couples filing jointly with a MAGI between $410,000 and $750,000 will also pay a monthly surcharge of $446.30.
It’s important to understand that IRMAA is determined using a two-year lookback period. That means your 2026 Medicare premiums are generally based on the income reported on your 2024 tax return. For retirees with significant investment income, Roth conversions, business sales, or other one-time income events, careful planning may help reduce future Medicare surcharges.
Keep in mind that no form of Medicare covers most long-term care expenses. Without proper planning, these costs can create a significant financial burden and impact your broader retirement strategy.
What to Expect?
What to expect depends on which stage of the Medicare process you’re in.
To enroll in Medicare, anticipate signing up during the three months before or three months after your 65th birthday. If you’re already receiving Social Security, you’re automatically enrolled in Medicare Parts A and B.
Medicare Part D, Medigap, and Medicare Advantage are optional and you sign up for them separately.
Every year, Medicare open enrollment runs from October 15th to December 7th. If you’re already enrolled in Medicare, these are the changes you can make to your coverage during open enrollment:
- Parts A & B enrollees can switch to Part C.
- Part C (Medicare Advantage) enrollees can switch back to Original Medicare or change to a different Medicare Advantage Plan. Heads-up! Once you are past your one-time Medigap open enrollment period and you want to switch back to Original Medicare, you may not be able to qualify for an affordably priced Medigap plan.
- Part D enrollees can switch to a different Part D plan or drop their prescription drug plan altogether.
Keep in mind that Medicare costs and coverage levels change annually, so it’s important to stay up to date and make any necessary changes during open enrollment. Any changes you make during open enrollment begin on January 1st of the following year.
Navigating Medicare Within Your Retirement Plan
If you’re feeling overwhelmed by Medicare, you’re certainly not alone. Between enrollment deadlines, coverage options, and the way healthcare decisions fit into your overall retirement strategy, it’s easy to feel like there are more questions than answers.
At Financial Designs, we help individuals and families build retirement plans that account for the most important financial decisions, including healthcare costs, income planning, taxes, and long-term goals. If you’d like to discuss how these pieces fit together in your own retirement plan, schedule a no-obligation retirement planning consultation by calling (909) 626-1642 or emailing fdc@fdcadvisors.com today.
About Nino
Nino Pavan is the President and a CERTIFIED FINANCIAL PLANNER® at Financial Designs in Claremont, CA, specializing in goal-centered retirement planning. With over 30 years of experience, Nino helps individuals and families navigate the retirement process with confidence, making it stress-free. He holds a law degree, a BS in Telecommunications Management, and is a contributing advisor to Kiplinger.
