Medicare Out-of-Pocket Costs Are Set to Increase in 2027: What Seniors Should Budget For

Seniors on Medicare should brace for another round of modest cost increases in 2027. The Medicare Trustees Report projects that Part B premiums will continue to rise over the coming decade due to higher healthcare utilization, rising medical costs, and an aging U.S. population. Still, there are no dramatic surprises in store for 2027.

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Projected 2027 Medicare increases

Data source: My Federal Retirement. Note: These figures remain projections until the Centers for Medicare & Medicaid Services (CMS) releases the official rates in the fall.

What seniors can do now

It's a good idea to build a modest cushion of a few hundred dollars annually into a fixed-income budget to absorb Medicare cost increases without disruption. Planning for the worst-case scenario may be unpleasant, but it's the surest way to ensure the money is there when it's needed.

Higher-income retirees who may face additional IRMAA (income-related monthly adjustment amount) surcharges on top of the standard premiums should consider whether upcoming required minimum distributions (RMDs) from tax-advantaged retirement accounts or other income could push them into a higher premium bracket. If so, there are strategies they may want to employ. For example:

• Time the arrival of funds: You may not be able to delay RMDs, but if you can delay all or part of other income sources until a year when your overall income is lower, you may be able to avoid the IRMAA surcharge.
• Take advantage of tax-loss harvesting: If you have underperforming assets in taxable accounts, consider selling some of them. Those losses can offset gains, lower your taxable income, and potentially help you avoid the Medicare upcharge.
• Review your investments: A valuable tip for the future is to review your holdings and consider shifting toward tax-efficient investments that generate less taxable income, such as municipal bonds or growth stocks that don't pay dividends.
• Work with a professional: An experienced financial fiduciary can be worth their weight in gold when it comes to IRMAA-avoiding strategies.

Although projected cost increases for 2027 are not extreme, they do indicate higher healthcare spending in retirement. The silver lining is that you still have five months before price increases kick in, giving you time to decide the best move for you.

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