Healthcare is consistently the most underestimated expense in retirement. But it is not just the cost of care that catches people off guard. It is the administrative complexity of Medicare itself. The rules around when to enroll, which plan to choose, and how your other coverage interacts with Medicare are genuinely confusing, and the penalties for getting it wrong are permanent.
Here are the five mistakes I see most often, and what you can do to avoid them.
Mistake 1: Assuming Medicare Is Automatic at 65
If you are already receiving Social Security benefits when you turn 65, you will be automatically enrolled in Medicare Parts A and B. But if you are not yet receiving Social Security, you have to actively sign up. Many people assume the government will handle it. They are wrong.
Your Initial Enrollment Period (IEP) is a seven-month window: three months before your 65th birthday month, your birthday month itself, and three months after. If you miss this window and do not have qualifying employer coverage, you will face a late enrollment penalty on Part B premiums of 10% for every 12-month period you were eligible but did not enroll. That penalty is permanent.
Mistake 2: Dropping Employer Coverage Too Early (or Too Late)
If you are still working at 65 and covered by a large employer group plan (20 or more employees), you may be able to delay Medicare without penalty. If your employer has fewer than 20 employees, Medicare becomes your primary coverage at 65 regardless, and you need to enroll.
The mistake I see most often is the reverse: people who retire at 63 or 64, lose their employer coverage, and assume they can just wait until 65 for Medicare. They cannot. They need a bridge plan for the gap. COBRA, ACA marketplace coverage, or a spouse's employer plan are the most common options, and each has different cost and coverage implications.
Mistake 3: Not Understanding the IRMAA Surcharge
Medicare Part B and Part D premiums are income-adjusted. If your income exceeds certain thresholds (based on your tax return from two years prior), you will pay a surcharge called IRMAA (Income-Related Monthly Adjustment Amount).
In 2025, the standard Part B premium is $185 per month per person. But if your income is above $106,000 (individual) or $212,000 (married filing jointly), that premium jumps significantly, up to $628 per month per person at the highest income tier.
Here is why this matters: the income Medicare uses is from two years ago. If you had a high-income year due to a Roth conversion, a business sale, or a large capital gain, you may face IRMAA surcharges even if your current income is much lower. Proactive income management in the years leading up to Medicare enrollment can significantly reduce this cost.
Mistake 4: Choosing the Wrong Plan Type at Enrollment
The choice between Original Medicare (Parts A and B, plus a Medigap supplement) and Medicare Advantage (Part C) is one of the most consequential decisions you will make in retirement, and it is one you need to get right the first time.
Medigap plans are guaranteed issue only during your initial enrollment period. If you choose Medicare Advantage first and later want to switch to a Medigap plan, you may be subject to medical underwriting and could be denied coverage or charged higher premiums based on your health status.
Medicare Advantage plans often have lower premiums but come with network restrictions, prior authorization requirements, and out-of-pocket maximums that can be significant if you have a major health event. Original Medicare with a Medigap supplement offers more predictable costs and broader access to providers, but higher monthly premiums.
The right choice depends on your health, your finances, and how much you value flexibility versus predictability.
Mistake 5: Not Planning for Long-Term Care Separately
Medicare does not cover long-term care. This surprises a lot of people. Medicare will pay for a short-term skilled nursing facility stay after a qualifying hospital admission, but it does not cover custodial care, the kind of care you need when you can no longer perform activities of daily living on your own.
The average cost of a private room in a nursing facility in North Carolina is over $90,000 per year. Home health aide services average $50,000 or more annually. These costs are not covered by Medicare, and they can devastate a retirement plan that was otherwise well-constructed.
Long-term care planning is a separate conversation, and one that needs to happen before you need it. Options include traditional long-term care insurance, hybrid life/LTC policies, and self-insurance strategies for those with sufficient assets.
The Bottom Line
Medicare is not a set-it-and-forget-it program. The decisions you make at enrollment have consequences that last for decades. Getting them right requires understanding the rules, your specific health situation, and how Medicare fits into the broader context of your retirement income plan.
If you are within five years of retirement and have not yet thought through your Medicare strategy, now is the time. Book a complimentary retirement brainstorm session and let's make sure your healthcare plan is as solid as your financial plan.
Jason Rindskopf is the founder of Two Waters Wealth Management and creator of the SMART Retirement Blueprint®. He works with high-achieving professionals and couples in the Charlotte, NC area who are within 10 years of retirement or recently retired.