A retirement guide for maximizing Social Security and Medicare together

If you’re retiring or thinking about life down the road, you may think of Social Security and Medicare as two separate systems that affect your finances.

“It’s a costly mistake,” said Andrew Looknauth, of Fluency in Finance. “Your decision to claim Social Security directly affects your Medicare costs through the IRMAA, or Income-Related Monthly Adjustment Amount. During my time on Wall Street, I’ve seen high-income professionals get blindsided by this connection.”

Here are five strategies to help you maximize Social Security and Medicare.

“I know this goes against the conventional advice of delaying until 70,” Looknauth said. “But if you spend $800 or more a month on prescriptions or deal with chronic conditions, getting Medicare at 65 and keeping your income low makes sense. Your reduced IRMAA surcharges can offset a smaller Social Security check.”

Be aware: Here’s who really should be worried about Social Security cuts

Read next: 4 Safe Accounts Proven to Grow Your Money Up to 13x Faster

If you claim before your full retirement age and continue to work, Social Security pays $1 for every $2 you earn above $23,400 (the 2024 threshold), Looknauth noted. But here’s the secret, he added, they calculate your benefits at full retirement age to account for those saved months. You don’t lose money, you delay it.

“This is important for Medicare because working longer means employer health coverage, which delays Medicare enrollment and the potential additional costs of IRMAA,” Looknauth said. “You’re basically using the income test as a forced delay mechanism.”

“This is where I’ve seen the biggest planning failure in my two decades in finance,” according to Looknauth. “People claim Social Security at age 62, then continue to take large IRA distributions because they don’t need the Social Security money yet. Their combined income creates large IRMAA costs.”

Instead, he advises, take large IRA distributions between 62 and 65 before treatment begins. Use these funds to delay Social Security and keep your income low when the IRMAA calculation begins. You raise your tax bill up front to save on health care premiums.

“Medicare allows you to request a reduction if you experience a drop in income due to retirement, divorce or the loss of a spouse,” Looknauth said. “Most people don’t know it exists. I’ve helped clients save $3,000 or more each year through successful appeals.”

“Roth IRA distributions do not count as income for IRMAA calculations,” Looknauth said. “If you convert traditional IRA money to a Roth between age 60 (and) 65, you’ll pay taxes on the conversion. But when you’re on Medicare and taking Social Security, a Roth withdrawal won’t increase your premiums.”

Looknauth notes that it takes upfront tax pain for long-term health care savings. The interval is also usually five to seven years, depending on your tax bracket and health care costs. But for someone who expects to live into their 80s or 90s, the math works out well, he said.

“I always tell my clients that even if you keep your money and investments separate from your spouse or partner, it’s important to take a more coordinated approach to Social Security and Medicare,” according to Marguerita Cheng, Certified Financial Planner (CFP), CEO of Blue Ocean Global Wealth. “It’s always good to consider consulting a professional because Medicare and Social Security can be overwhelming.”

Since retirees returning to the workforce is a growing trend, Marcus Sturdivant Sr., managing director of ABC Squared, said consider the impact of income on taxes and Medicare costs.

“The amount and level of premiums we pay is a game changer,” he said. “Health care costs continue to rise, and as you retire, you have the multiplier effect of health care becoming a larger part of your living expenses.”

Per Taylor Kovar, CFP, co-founder of Budgeting GPT, “I’ve seen situations where taking into account the timing of Social Security, managing income and health care costs has helped make cash flow easier and reduced surprise expenses down the road. When these decisions are coordinated, retirees typically find it easier to budget and adjust as expenses change over time.”

More from GOBankingRates

This article originally appeared on GOBankingRates.com: A Retiree’s Guide to Combining Social Security and Medicare