Medicare is not entirely free...

When someone turns 65 it can come as a surprise to find out that Medicare isn't free. Knowing your costs for Medicare Part B, Part D, and supplemental coverage can help you plan ahead and budget accordingly.

Costs for medicare part a, B, D

Medicare Part A is usually free as long as you have worked for 10 years (40 Quarters) and paid FICA taxes. 

Essentially, you have already “pre-paid” for these benefits and will not have any premiums due in retirement. 

If you have not met the qualifications to get Part A for free, you will pay a monthly premium of up to $413 for 2017. If you have worked for more than 30 quarters but less than 40 quarters you can get a pro-rated premium for Medicare Part A. 

Medicare Part B costs are based on income.

Premiums for Medicare Part B are based on your Modified Adjusted Gross Income (MAGI). Since enrollment in Medicare is done through the Social Security Administration, Medicare will pull your latest income numbers directly from the IRS. You will get a letter each year around December from Social Security telling you how much your Part B premium will be for the upcoming year.

How is MAGI Calculated?

Modified Adjusted Gross Income (MAGI) is calculated by monies you have earned through wages, Social Security Benefits, required minimum dividends from investments, interest, capital gains, and tax-deferred pensions. Any distributions from Roth IRA (or Roth 401k) accounts, life insurance, reverse mortgages, and health savings accounts DO NOT count in the MAGI calculation.

Roughly 95% of Americans fall into the standard income bracket for Medicare Part B premiums leaving only 5% paying higher premiums due to the Income Related Monthly Adjustment Amount (IRMAA). 

What is the standard monthly premium?

The standard monthly premium for someone new to Medicare in 2017 is $134. This premium will be automatically deducted from your Social Security benefit each month. If you are not already receiving Social Security benefits you can be billed quarterly or setup and EFT to pay for Part B directly from your checking account each month. 

If you have a higher income you will pay an Income Related Monthly Adjustment Amount in addition to the standard Part B premium. The chart below which was pulled directly from the Medicare website. 

Medicare Part D costs are also based on income.

Similar to Part B, Medicare Part D also has its own rules for higher income earners. Medicare Part D premiums vary by plan and you can usually find plans starting at $15-17/month. The national average Part D premium though is $34/month.

In addition to the plan’s premium, those in the higher income bracket will also pay a Part D- IRMAA. The chart below can help give you an idea what to expect if your income is above the standard threshold.

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If you find all of this just a little overwhelming, don't worry it definitely can be. We can help you determine your costs ahead of time so you are prepared to start Medicare on time and on budget. Many people find that the combined costs for Medicare Part B, Part D, and supplemental coverage is still a lot less than they are paying for private insurance before they turn 65.