The Bill Your 4% Rule Can't See: Medicare, IRMAA, and Long-Term Care

Your withdrawal rate can look perfect on paper and still miss the bill that shows up at 65. Healthcare is the line item retirement plans forget — and it is not optional.

Medicare is not free

At 65 the federal government picks up part of the tab and hands you the rest. Part A, hospital insurance, usually has no premium if you paid Medicare taxes long enough. Part B, doctors and outpatient care, was $202.90 a month for most people in 2026, with a $283 annual deductible. Part D, prescription drugs, is a separate private plan with its own premium. Then you choose: original Medicare plus a Medigap supplement that covers most of the gaps, or a Medicare Advantage plan that bundles everything with its own networks and prior-authorization rules.

Either way, budget a monthly health line. It is not optional.

The IRMAA cliff

Earn too much and Medicare charges you extra — the income-related monthly adjustment amount, IRMAA. It is a cliff, not a bracket: cross the line by one dollar and you pay the full surcharge for the year. As written in the Field Guide, the first 2026 cliff sat at $109,000 of 2024 MAGI for a single filer ($218,000 joint), and the top tier pushed Part B to $689.90 a month per person.

Two features make it nasty. First, the two-year lookback: your 2024 income sets your 2026 premiums, so a big Roth conversion or IRA withdrawal at 63 raises your Medicare bill at 65. Second, it is per person — a married couple pays the surcharge twice off one joint income figure. That is why Roth conversion timing deserves a tax professional: the conversion can save income tax and cost Medicare premiums two years later.

What Medicare will not pay

Custodial long-term care — help with bathing, dressing, eating, the long slow kind of care — is not covered. The 2025 CareScout survey put national medians at $6,200 a month for assisted living ($74,400 a year) and about $115,000 a year for a semi-private nursing home room (about $130,000 private). Medicaid covers nursing homes only after you have spent down nearly everything, which is a backstop, not a plan.

Averages hide the skew: most people need little paid care, and a minority need years of it. That is exactly the risk insurance exists for.

Four moves, in order

• While you are still working with a high-deductible health plan, fund the HSA. It is the only triple-tax-benefit account: deductible going in, tax-free growth, tax-free for medical spending — and after 65 it spends like a traditional IRA for anything else. It is the closest thing to a dedicated medical retirement account.
• Put a health line inside “need per month,” not next to it. Before 65, budget roughly $500–$800 a month per person for marketplace or COBRA coverage. At 65 and older, roughly $300–$500 a month per person covers Part B plus Part D plus a supplement or Advantage plan plus the dental, vision, and hearing gaps neither covers well.
• Decide the long-term-care question separately from the 4 percent math. Either keep a dedicated care reserve you never count as portfolio, or price long-term-care insurance in your late 50s when it is still underwritable. Do not let a withdrawal rate pretend a six-figure-a-year risk is a rounding error.
• Watch the IRMAA cliffs in the two years before 65. Time Roth conversions, capital gains, and large IRA withdrawals against the published thresholds — crossing by a dollar costs thousands.

Why this belongs in the gap math

None of this fits in a withdrawal-rate box — which is exactly the point. The honest version of the retirement-gap exercise adds the monthly health line to “need per month” and reruns the numbers. A plan that covers the income gap but not the premiums is a plan with a hole in it.