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Know your numbers: An average 65-year-old couple retiring today will need about $300,000 to cover health care expenses in retirement, but planning ahead can help ease what doesn’t need to be a lifelong financial strain. Part of that planning includes understanding Medicare’s income-related monthly adjustment amount (IRMAA), which was developed as a means-testing program to increase the premium that some beneficiaries pay based on their income. The program’s income brackets are based on a retiree’s prior two years’ modified adjusted gross income (MAGI) and can cause wealthier individuals to pay higher surcharges.

The good news: Legislation passed in 2020 now requires IRMAA brackets to be indexed to the Consumer Price Index for Urban Consumers, meaning retirees must have a higher MAGI than in previous years to be subject to surcharges. While this does help prevent health care costs from taking a bite out of your lifelong savings, there are additional ways to solidify your financial security amongst IRMAA issues, six of which are included here:

📌Don’t assume non-qualified accounts should be used first in a liquidation order strategy: Deferring taxes from qualified accounts and taking income from non-qualified accounts first can result in increased IRMAA surcharges

📌Consider Roth conversions: This can help avoid bumping you into a higher IRMAA bracket

📌Use RMDS for charitable contributions: If at risk for a higher surcharge due to RMDs, a qualified charitable distribution in the form of an RMD would be considered taxable income

📌Don’t over-save in pretax accounts: Tax laws are continually changing, so avoid placing all retirement contributions into your 401(k) or IRA

📌Reverse mortgages: Personal residence equity can be accessed “tax-free” with a variety of reverse mortgages

📌Life insurance: With certain policies, cash values can be distributed as tax-free income and also help IRMAA surcharges

Here’s the reality: Healthcare and taxes are the two most overlooked areas I see ignored in the planning process, yet they can be one of the few places to find guaranteed returns in retirement.