Why Medicare Should Be Part of Your Retirement Planning

When most people think about retirement, they picture a mix of freedom, leisure, and financial security, but one of the most important pieces of that puzzle, health care, is often underestimated. While Medicare is a powerful resource, it’s far from all-inclusive. To build a truly resilient retirement plan, you need to understand where Medicare shines, where it falls short, and how to close the gaps.

The Basics: What Medicare Covers—and What It Doesn’t

At its core, Original Medicare (Parts A & B) offers essential coverage:

Part A covers hospital stays, skilled nursing, hospice, and some home health care.
Part B covers outpatient services like doctor visits, preventative care, and medical equipment.

But that coverage stops short in a few key areas. Original Medicare does not cover:

Dental care
Vision and eyeglasses
Hearing aids
Most prescription drugs
Long-term care

In other words, it’s a solid foundation, but it needs structural support.

Bridging the Gaps: Medigap, Part D, and Advantage Plans

To fill in Medicare’s gaps, retirees typically follow one of two routes:

Medigap + Part D

A Medigap policy helps pay for out-of-pocket costs like copays, coinsurance, and deductibles under Parts A and B. However, it doesn’t cover prescription drugs, so most people also enroll in Part D, which adds drug coverage.

This approach is ideal for those who want:

Predictable out-of-pocket costs
The flexibility to see any provider who accepts Medicare
Fewer restrictions on care

Medicare Advantage (Part C)

Advantage plans bundle Medicare Parts A, B, and usually D into a single private insurance plan. Some even include dental, vision, and gym memberships.

However, these plans often come with:

Narrow provider networks
Pre-authorization hurdles
Regional limitations (not great for frequent travelers)

Both routes have tradeoffs, and choosing the right path should align with your health needs, lifestyle, and financial plan.

What Medicare Doesn’t Touch: Long-Term Care

Perhaps the biggest blind spot in Medicare is long-term care. Whether it’s in-home help or a nursing facility, custodial care isn’t covered by Medicare. The cost can be significant, often exceeding $100,000 per year in some regions.

Planning strategies include:

Traditional long-term care insurance
Hybrid life insurance with LTC riders
Self-funding with earmarked assets
This part of the plan is too important to ignore. If your financial plan doesn’t address long-term care, it’s not finished.

The Medicare Surcharge Nobody Talks About: IRMAA

You might assume that Medicare premiums are the same for everyone, but if your income is above a certain threshold, you'll be subject to IRMAA (Income-Related Monthly Adjustment Amount), a surcharge on Parts B and D.

Here’s how it works:

Medicare uses your income from two years prior to determine if IRMAA applies.
In 2025, IRMAA kicks in at $103,000 for individuals and $206,000 for married couples (based on 2023 income).
Surcharges can double or triple your premiums, depending on your income tier.

This can take retirees by surprise, especially after a large Roth conversion, capital gain, one-time windfall, or large RMD.

How to manage or avoid IRMAA:

Time Roth conversions carefully—do more in low-income years.
Delay Social Security and draw down pre-tax accounts before 65 to reduce future RMDs.
Harvest capital gains early, when income is lower.
Use Qualified Charitable Distributions (QCDs) after age 70½ to reduce taxable income without triggering IRMAA.

Medicare is powerful, but it’s not free. IRMAA is a perfect example of why health care and tax planning must go hand in hand in retirement.

Retiring Before 65? You’ll Need a Bridge

If you’re retiring early, you’ll need to cover the gap before Medicare starts at 65. Options include:

COBRA coverage from your employer (typically lasts 18 months)
ACA marketplace plans, which can be affordable if your income is carefully managed
Spousal coverage, if your partner is still working

This interim period needs planning, especially if your retirement income is coming from pre-tax accounts that could unexpectedly inflate your MAGI (Modified Adjusted Gross Income) and trigger IRMAA later.

What You Can Do Now

Health care is one of the most complex and variable costs in retirement. A strong plan does more than hope for the best. It also needs to:

Accounts for Medicare’s limits
Builds in protection against long-term care expenses
Strategically manages income to minimize Medicare surcharges

At Hanover, we don’t view Medicare planning in a vacuum. We integrate it into your broader retirement strategy, to support both your health and your wealth. Want to make sure your retirement plan is IRMAA-aware and Medicare-optimized? Contact us today.