Dave Ramsey Shares Key Medicare Lessons Every Retiree Should Know

If you will soon turn 65 and are about to become eligible for Medicare, prepare to be perplexed.

The program can be difficult to navigate, especially for newbies. Money guru Dave Ramsey has lamented this fact in the past. As he and his team say at the Ramsey Solutions website, "Why does this dang Medicare feel so confusing?"

Here are the key lessons Ramsey says you should know as you craft your retirement plan and Medicare's place in it.

Plan for the reality that Medicare isn't free or complete

Ramsey and his team note that if you picture Medicare as an outfit, it most resembles a bikini. That means it leaves a lot of things uncovered.

Some of the things that Original Medicare does not cover include:

• Long-term care
• Vision care
• Dental care
• Hearing aids
• Chiropractic care
• Overseas health care

And that is just a partial list. Because of these gaps, you may also need to purchase supplemental coverage if you have Original Medicare. This type of coverage is known as a Medigap policy, and it fills in many of the holes left by Original Medicare.

By contrast, many Medicare Advantage policies do offer some of these coverages. So, if you plan to enroll in Medicare Advantage, shop around to find the policy that best meets your needs.

You can use the enrollment window to find a better plan

Each year, Medicare has an open enrollment period that runs from Oct. 15 to Dec. 7. Ramsey and his team remind you that this is the perfect time to change your existing coverage if it is not meeting your needs.

Because Medicare is so complex, open enrollment can be "a little frustrating," according to the Ramsey Solutions website. But Ramsey and his team also remind you that open enrollment represents "a great opportunity to find the right health insurance plan at the right price."

Waiting too long to sign up for Medicare is costly

Open enrollment is an annual period that is important for everyone who is currently enrolled in Medicare. But the Initial Enrollment Period (IEP) is a crucial time for those who are turning 65 and are eligible for Medicare for the first time.

This period starts three months before the month of your 65th birthday and ends three months after your birthday month. That gives you seven months to sign up for Medicare on time.

If you fail to sign up for Medicare during this time frame, you may have to pay higher premiums for the rest of your life.

As Ramsey and his team note, there are a lot of important Medicare dates to keep in mind, but "the really important one is your IEP."

Funding an HSA can make Medicare more affordable

A health savings account offers a tax-advantaged way to save for and pay for qualified medical expenses. But an overlooked feature of HSAs is that you can use them as part of your retirement planning.

Once you enroll in Medicare, you can no longer make contributions to your HSA. But you can still use any money that remains in your HSA to pay for eligible health care costs throughout retirement.

Ramsey and his team recommend building a solid emergency fund before you contribute to an HSA.

But once you have that fund in place and have paid off all debt, you can "go ahead and put whatever amount you're comfortable with into your HSA (up to the limit)," according to the Ramsey Solutions website.

Smart planning can keep your premiums lower

The income-related monthly adjusted amount (IRMAA) is an additional premium charge that some wealthier enrollees pay based on their modified adjusted gross income. This applies to Medicare Part B and Part D.

Ramsey has noted that careful planning can help reduce your tax burden and costs in retirement. He once said that he had "systematically moved 100% of my stuff to Roth over the past decade" to reduce how much he would have to pay out in required minimum distributions later in retirement.

Such careful planning can help reduce your odds of having to pay a higher Medicare premium. Your initial IRMAA calculation at age 65 is based on your income at age 63. So, if you have the income flexibility and plan ahead, you might find ways to begin lowering your taxable income at 63 and in the years following.

Bottom line

Most people qualify for Medicare at the age of 65. The decisions you make at that point regarding Medicare can have long-lasting financial consequences.

Ramsey acknowledges that Medicare is difficult to understand. However, he believes learning more about the Medicare system before you are in it can help you to better navigate its complexities.

So, if you want to prepare yourself financially for retirement by learning how Medicare works, now is the time to start.