Medicare is one of those topics that most people intend to figure out before they retire and then find themselves scrambling to understand as 65 approaches. The parts, the plans, the enrollment windows, the costs, it's genuinely complex, and the stakes are high. Mistakes can mean permanent premium penalties, coverage gaps, or unexpected costs that affect your retirement budget for years.

This guide breaks Medicare down into plain language: what it is, how it works, what it costs, and how it connects to the broader retirement planning decisions you're already making.

What Is Medicare?
Medicare is the federal health insurance program primarily for people 65 and older. It also covers certain younger individuals with qualifying disabilities. Unlike employer-sponsored health insurance, Medicare isn't a single plan. It's a system made up of different parts that cover different types of care.

Understanding the structure is the first step.

The Four Parts of Medicare
Part A: Hospital Insurance Part A covers inpatient hospital stays, skilled nursing facility care, hospice care, and some home health services. Most people do not pay a premium for Part A if they or their spouse worked and paid Medicare taxes for at least 10 years.

Part B: Medical Insurance Part B covers outpatient care, doctor visits, preventive services, and medically necessary services. Part B does carry a monthly premium. In 2026, the standard Part B premium is $202.90 per month, though higher-income individuals pay more through IRMAA surcharges (more on this below).

Part C: Medicare Advantage Medicare Advantage plans are offered by private insurance companies approved by Medicare. They provide all Part A and Part B benefits and often include additional coverage such as dental, vision, hearing, and prescription drugs. Costs, networks, and coverage details vary significantly between plans.

Part D: Prescription Drug Coverage Part D is standalone prescription drug coverage for individuals with Original Medicare (Parts A and B). Medicare Advantage plans often include prescription drug coverage, so a separate Part D plan may not be needed.

Original Medicare vs. Medicare Advantage: What's the Difference?
This is one of the most common questions people have as they approach Medicare eligibility.

Original Medicare (Parts A and B) allows you to see any doctor or specialist who accepts Medicare, anywhere in the country. There are no network restrictions. However, Original Medicare doesn't cap your out-of-pocket costs, which is why most people pair it with a Medigap supplemental plan to fill in the gaps.

Medicare Advantage (Part C) is an alternative way to receive your Medicare benefits through a private insurer. These plans often have lower premiums and include additional benefits, but they typically require you to use a network of providers and may require referrals to see specialists.

Neither option is universally better. The right choice depends on your health needs, your doctors, your travel patterns, and your budget.

What Medigap (Medicare Supplement) Insurance Covers
Medigap plans are private insurance policies designed to cover the gaps in Original Medicare, including deductibles, copayments, and coinsurance. There are standardized plan types (labeled A through N) that offer varying levels of coverage.

Medigap plans generally offer more predictable out-of-pocket costs and broader provider access than Medicare Advantage, but they carry higher monthly premiums and don't include prescription drug coverage (requiring a separate Part D plan).

Medicare Enrollment: When and How to Sign Up
Enrollment timing is one of the most important Medicare decisions you'll make, and missing the right window can have permanent consequences.

Initial Enrollment Period Your Initial Enrollment Period (IEP) begins three months before the month you turn 65 and ends three months after. This seven-month window is your primary opportunity to enroll in Medicare without penalty.

Special Enrollment Period If you're still working at 65 and covered by an employer health plan with 20 or more employees, you can delay Medicare enrollment without penalty. Once your employer coverage ends, you have an eight-month Special Enrollment Period to sign up.

Important: COBRA coverage and retiree health plans do not qualify as employer coverage for purposes of delaying Medicare enrollment. Relying on these plans while missing your enrollment window can result in late enrollment penalties.

Late Enrollment Penalties Missing your enrollment window without qualifying coverage has lasting consequences:

• The Part B late enrollment penalty is 10% of the standard premium for each full 12-month period you were eligible but didn't enroll. This penalty is permanent and added to your premium for as long as you have Part B.
• The Part D late enrollment penalty similarly adds to your prescription drug premium indefinitely.

Enrolling on time is one of the most important Medicare decisions you'll make.

What Does Medicare Cost?
Medicare costs vary based on your plan choices and your income. Here's a general framework:

Part A: Usually $0 if you or your spouse paid Medicare taxes for 10+ years.

Part B: $202.90 per month in 2026 at the standard rate. Higher-income individuals pay more through IRMAA.

Part D: Varies by plan, typically ranging from $10 to $100+ per month depending on the medications covered.

Medigap: Varies widely by plan type, age, and location.

Medicare Advantage: Often lower monthly premiums than Original Medicare plus Medigap, but cost-sharing at the point of care varies significantly.

IRMAA: Why Your Income Affects Your Medicare Premiums
IRMAA: the Income-Related Monthly Adjustment Amount, is one of the most important and least-understood aspects of Medicare for higher-income retirees.

If your modified adjusted gross income exceeds certain thresholds, you pay a surcharge on top of the standard Part B and Part D premiums. In 2025, those thresholds begin at $106,000 for individuals and $212,000 for married couples filing jointly.

The IRMAA calculation is based on your income from two years prior. This means your 2025 Medicare premiums are based on your 2023 income. Major income events: a large IRA withdrawal, a Roth conversion, the sale of a home, or the exercise of stock options, can push you into a higher IRMAA bracket without warning.

For residents of San Jose and Silicon Valley, where income events like equity compensation, RSU vesting, and concentrated stock positions are common, IRMAA planning deserves serious attention.

Proactive tax and retirement income planning in the years before and during Medicare can help manage IRMAA exposure meaningfully.

How Medicare Connects to Your Retirement Income Plan
This is the piece that most Medicare guides don't cover, and it's one of the most important for people in the Bay Area. The accounts you draw from in retirement, and when you withdraw, can directly affect your Medicare costs. Here's why:

IRA withdrawals count as ordinary income and increase your MAGI. Drawing heavily from a traditional IRA can push your income above IRMAA thresholds and increase your Medicare premiums.

Roth IRA withdrawals do not count toward MAGI. Drawing from a Roth instead of a traditional IRA in years where keeping your income lower matters can help you stay below IRMAA thresholds.

Roth conversions increase your income in the year of conversion. Timing Roth conversions carefully relative to Medicare enrollment and IRMAA thresholds is an important coordination decision.

Social Security income is partially included in MAGI calculations. The more other income you have, the more of your Social Security may be included.

Getting Medicare and retirement income planning to work together requires looking at both simultaneously, which is why we incorporate Medicare considerations into every retirement plan we build.

Medicare Annual Enrollment Period
Every year from October 15 through December 7, Medicare's Annual Enrollment Period allows you to:

• Switch from Original Medicare to Medicare Advantage (or vice versa)
• Change Medicare Advantage plans
• Join, switch, or drop Part D prescription drug coverage

Changes made during Annual Enrollment take effect January 1 of the following year. This is an important window to review whether your current coverage still meets your needs, especially if your health, medications, or preferred providers have changed.

Working With a Financial Advisor on Medicare Planning
Medicare decisions don't exist in isolation. They connect directly to your retirement income strategy, your tax plan, and your overall financial picture.

At True North Advisors, we incorporate Medicare planning into the comprehensive retirement planning work we do with clients throughout San Jose, Sunnyvale, Cupertino, Mountain View, Palo Alto, Santa Clara, Los Gatos, and Saratoga (Read more about Retirement in Silicon Valley here).

We help you understand how Medicare enrollment timing interacts with your income plan, how to manage IRMAA exposure through thoughtful account withdrawal strategies, and how to build a retirement that accounts for the full cost of healthcare, not just the premium.

Have questions about Medicare and your retirement plan? Schedule a Free Consultation or call us at (408) 573.1822.

 

Sources:

Medicare.gov. “What Does Medicare Cost?”
U.S. Centers for Medicare & Medicaid Services. 2026.
What Does Medicare Cost? 

Medicare.gov. “When Does Medicare Coverage Start?”
U.S. Centers for Medicare & Medicaid Services. 2026.
When Does Medicare Coverage Start? 

Medicare.gov. “Working Past 65.”
U.S. Centers for Medicare & Medicaid Services. 2026.
Working Past 65

Medicare.gov. Medicare & You 2026.
U.S. Centers for Medicare & Medicaid Services. 2026.
Medicare & You 2026 Handbook