The Bottom Line: Start Medicare Planning 5 Years Out

When people envision retirement planning, they often focus on saving, investing, and building a nest egg. Those are vital, no doubt—but there’s another expense looming that frequently gets overlooked until it’s too late: healthcare.

Medicare is the cornerstone of health coverage for retirees in the U.S. While incredibly valuable, it's not free—and it's far from simple. Procrastinating until age 65 to figure it out can lead to mistakes, financial penalties, and unnecessary stress. That’s why I advise clients to start planning for Medicare at least five years before retirement. Whether you're aiming to retire at 60, 65, or beyond, your decisions in the years leading up to retirement can significantly influence your healthcare coverage and costs for years to come.

Here’s what to consider—and why early planning gives you the control and confidence you need.

1. Medicare Isn’t Automatic—or Timing Isn't Universal

One of the most common myths I encounter is: “When I retire, Medicare will kick in.” Unfortunately, it’s not that straightforward.

While Medicare eligibility begins at age 65, enrollment depends heavily on your work and insurance situation:

• Large employers (20+ employees): You often can delay Medicare without penalty as long as you're still covered under your employer’s group plan.

• Small employers (<20 employees): Medicare typically becomes your primary coverage at 65, which means timely enrollment is essential to avoid gaps.

• Solo practitioners or those on ACA plans: Transitioning into Medicare requires precise timing to ensure continuity of coverage.

Missing the appropriate window can lead to late penalties that last for life. For instance, delaying Part B enrollment can result in a 10% increase in your premium for each year deferred (Centers for Medicare & Medicaid Services, n.d.).

Planning with five years’ lead time allows you to coordinate with your employer and avoid mistakes.

2. Enrollment Windows Are Non-Negotiable

Medicare enrollment comes with a set timeframe:

• Initial Enrollment Period (IEP): Seven months surrounding your 65th birthday—three months before, the month of, and three months after.

• Special Enrollment Periods (SEP): Available if you have qualifying employer coverage, but rules vary depending on whether the employer plan is group-based. COBRA coverage, for example, does not count as qualifying coverage for delaying Medicare without penalty (Centers for Medicare & Medicaid Services, n.d.; Kaiser Family Foundation, 2023).

Navigating these timelines without planning can result in coverage delays or premium penalties. Early awareness gives you flexibility and room to align transitions smoothly.

3. IRMAA: The Hidden Surcharge You Can’t Ignore

Enter IRMAA—Income-Related Monthly Adjustment Amount—a surprise surcharge many retirees encounter unexpectedly.

Here's how it works:

• If your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds, your Medicare Part B and Part D premiums increase.

• IRMAA uses income from two years prior. That means your income at age 63 influences your premiums at 65.

• For 2025, IRMAA kicks in for single filers with MAGI over $106,000 and joint filers over $212,000(Medicareresources.org, 2024; Kiplinger, 2024).

Depending on your income bracket, Part B surcharges could raise your premium from the standard amount up to as high as $628.90 per month, with Part D surcharges adding anywhere from about $13.70 to $85.80 (Social Security Administration, n.d.; Humana, 2025; Savant Wealth, 2025).

With five years of runway, you can employ strategies—like managing capital gains, timing Roth conversions, or pacing large withdrawals—to keep your MAGI below IRMAA thresholds.

4. Legislation Is Reshaping Future Coverage—Know What’s Coming

Medicare benefits aren’t static—recent legislative changes are unfolding right now.

Thanks to the Inflation Reduction Act (IRA):

• In 2024, Part D beneficiaries in catastrophic coverage no longer owe 5% coinsurance—effectively capping catastrophic out-of-pocket costs.

• In 2025, Part D will have a $2,000 annual cap on out-of-pocket drug spending, and the "donut hole"/coverage gap will be eliminated (Kaiser Family Foundation, 2023; National Council on Aging, 2024; Medicare Rights Center, 2024).

These changes are pivotal for budgeting pharmacy costs—it’s key to recognize how they alter your future healthcare spending projections.

5. Medicare Influences Every Other Retirement Element

Medicare decisions aren’t solo—they weave into the fabric of your financial plan.

• Health Savings Accounts (HSAs): Once you're on Medicare, you can't contribute to HSAs. If you're retiring before 65, you may want to max out HSA contributions ahead of time.

• Retirement income strategies: The source of your income—tax-deferred, taxable, or Roth—affects both IRMAA and tax planning.

• COBRA to Medicare transitions: Relying on COBRA into retirement without careful enrollment planning can lead to gaps or penalties.

• Spousal coverage impacts: One spouse's Medicare timing can affect the other’s insurance options if still employed.

A thoughtful, integrated approach ensures Medicare decisions support—not disrupt—your overall goals.

6. Real-Life Wins: Early Planning Pays Off

Let me share two stories:

• A couple I worked with started planning Medicare at age 61. Thanks to early coordination, we streamlined their income strategy, avoiding IRMAA—and it saved them thousands in premiums.

• Another client came to me after turning 66—late and facing penalties. Because Medicare penalties are lifelong, there's no reversing them (Centers for Medicare & Medicaid Services, n.d.). This was a costly outcome that early planning could have avoided.

The Bottom Line: Plan 5 Years Out to Retire with Confidence

If retirement is near, don't wait to address Medicare. Here's what early planning delivers:

• Confidence around when and how to enroll, aligned with your work and insurance status.

• Avoidance of lifetime penalties for late enrollment.

• Strategies to reduce or eliminate IRMAA surcharges.

• Accurate budgeting for upcoming changes in Part D coverage.

• A holistic plan that ties Medicare into taxes, income strategy, and household needs.

Healthcare is one of the biggest uncertainties in retirement. But by planning five years ahead, you gain control, clarity, and peace of mind.

Frequently Asked Questions About Medicare and Retirement

1. When should I start planning for Medicare? It’s best to start planning for Medicare at least five years before retirement. This gives you time to understand enrollment deadlines, avoid late penalties, and make adjustments that could reduce future IRMAA surcharges (Medicare.gov).

2. What happens if I miss my Medicare enrollment deadline? Missing your Initial Enrollment Period can lead to lifelong penalties. For example, Part B premiums increase by 10% for every year you delay enrollment without qualifying coverage (Medicare.gov).

3. What is IRMAA and how does it affect Medicare costs? The Income-Related Monthly Adjustment Amount (IRMAA) is a surcharge added to Medicare Part B and Part D premiums if your income is above certain thresholds. It’s based on your income from two years prior (Medicareresources.org).

4. How do 2024–2025 Medicare Part D changes affect retirees? The Inflation Reduction Act caps annual out-of-pocket prescription drug costs at $2,000 starting in 2025, while eliminating the “donut hole” coverage gap (KFF.org).

5. Can I still contribute to my HSA once I’m on Medicare? No. Once you enroll in Medicare, you can no longer contribute to a Health Savings Account (HSA). It’s wise to maximize contributions before you turn 65 if you’re eligible (SSA.gov).

👉 If you’re approaching retirement and want to make sure Medicare is seamlessly integrated into your plan, I’d be glad to help. Schedule a conversation with me today.

References

Centers for Medicare & Medicaid Services. (n.d.). Avoid late enrollment penalties. Medicare.gov. https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties

Social Security Administration. (n.d.). Medicare premiums: Rules and costs. SSA.gov. https://www.ssa.gov/benefits/medicare/medicare-premiums.html

Cubanski, J., Neuman, T., & Freed, M. (2023, August 29). Changes to Medicare Part D in 2024 and 2025 under the Inflation Reduction Act and how enrollees will benefit. Kaiser Family Foundation. https://www.kff.org/medicare/changes-to-medicare-part-d-in-2024-and-2025-under-the-inflation-reduction-act-and-how-enrollees-will-benefit/

National Council on Aging. (2024). Who pays what for Medicare Part D in 2025: A guide. NCOA.org. https://www.ncoa.org/article/who-pays-what-for-medicare-part-d-in-2025-a-guide

Medicare Rights Center. (2024, March 7). Changes to Part D lower out-of-pocket drug costs in 2024 and 2025; simplifications in 2025. Medicare Rights Center. https://www.medicarerights.org/medicare-watch/2024/03/07/changes-to-part-d-lower-out-of-pocket-drug-costs-in-2024-and-2025-simplifications-in-2025

Medicareresources.org. (2024). What is the Income-Related Monthly Adjustment Amount (IRMAA)?Medicareresources.org. https://www.medicareresources.org/medicare-eligibility-and-enrollment/what-is-the-income-related-monthly-adjusted-amount-irmaa/

Kiplinger. (2024, November). Medicare premiums 2025: IRMAA for Parts B and D. Kiplinger.com. https://www.kiplinger.com/retirement/medicare/medicare-premiums-2025-irmaa-for-parts-b-and-d

Humana. (2025). IRMAA and Medicare: What you need to know. Humana.com. https://www.humana.com/medicare/medicare-resources/irmaa