Why Pre-Retirees Need to Understand How Medicare Works

Many people approaching retirement incorrectly believe that their health care costs will be fully covered once they reach 65, the magical year they become eligible to enroll in Medicare. After all, it’s not surprising that pre-retirees think that because they paid the 1.45% Medicare tax on their annual earnings over the course of their working years, it will cover their medical expenses in retirement.

However, without proper planning, health care in retirement can be costly and complicated to address. To begin to understand the complexities of Medicare in retirement, consider these points.

#1. Medicare coverage is spotty and limited. Medicare has four parts: A through D. Each part covers different things.

  • Medicare Part A is free if you paid into the system over the course of your working years. It covers hospital stays, as well as rehab (skilled nursing), home health care, hospice, and nursing home care. However, long-term nursing home care (beyond 90 days) is not covered by Medicare.
  • Medicare Part B covers doctor visits and the care your physician or medical specialist provides. There is a premium for this coverage, and Medicare covers 80% of these costs after you meet your Part B deductible for the calendar year.
  • Medicare Part D is a voluntary prescription drug plan offered by private insurers that are approved by Medicare. If you take medication, or anticipate needing to, and don’t want to pay out of pocket for it, you will need Part D insurance. There is a separate premium for this coverage. It often includes co-pays. Not all medication is covered. Medicare issues a list each year of what’s covered.
  • Medicare Part C, often referred to as Medicare Advantage, provides the coverage offered in A, B, and D. Part C is offered by a private insurer that has been pre-approved by Medicare. It is network specific, which some may find limiting if choice of providers is a priority for you.

Hearing, dental, and vision are not covered by any parts of Medicare described above.

#2. Your income drives Medicare Part B premiums. As noted above, everyone pays a premium for Part B, which is $148.50 per month for 2021. Depending on your modified adjusted gross income as reported on your IRS tax return from two years ago, you may be subject to an Income Related Monthly Adjustment Amount (IRMAA), which is an extra charge added to your premium. These charges can be significant; careful planning with your tax and financial advisor in advance of going on Medicare in retirement can help mitigate the potential magnitude of the IRMAA.

#3. Even with Medicare, you still need to plan for long-term care. Before even thinking about long-term care, it’s important to plan for how to financially address co-pays and limits to coverage, along with expenses associated with hearing, dental, and vision—whether that’s through additional insurance or out of pocket. Beyond such costs, it’s critical to understand that the need for long-term care can wreak financial havoc on anyone with a nest egg accrued over a lifetime. Whether one needs nursing home care or in-home care, the costs can be prohibitive and are the financial burden of the recipient.

Two Parts to Planning for Long-Term Care

Given the risks associated with needing long-term care, we encourage each and every individual, regardless of their financial situation, to thoughtfully address long-term care planning well before retirement, with their family and trusted financial advisor.

  • Candid and periodic conversations with family members to understand what level of care they are not only willing to offer, but truly capable of providing, should the need arise.

Everyone’s family and financial situation are different. They also evolve over time with expected and unanticipated events. As such, we believe preparation is the key to enjoying a retirement that minimizes the financial worries and surprises associated with health care expenses. We at MPPL Financial have witnessed, time and time again, that proactively addressing this important issue can protect not only one’s retirement nest egg, but family relationships as well.

To better understand Medicare in retirement, we encourage you to reach out to us to help you navigate this important area of your life.

MPPL Financial has offices in Duluth and Grand Rapids, MN, Wausau, WI and Crystal Lake, IL. While we’re located in the Midwest, we work closely with clients across the U.S.


Investment Advisory Services offered through Midwest Professional Planners, Ltd. (“MPPL”), 2610 Stewart Ave., Ste. 100, Wausau, WI 54401, 1-800-236-6775, an SEC-registered investment advisor. Certain representatives of MPPL are also registered representatives of, and offer securities products involving commission or transaction based fees through APW Capital, Inc., 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866, 1-800-637-3211. Member FINRA/SIPC/MSRB. MPPL is independent of APW Capital, Inc. Registration with the SEC or State Regulatory Authority does not imply a certain level of skill or expertise.