Can You Have Both Medicare and an Annuity at the Same Time?
Can you have Medicare and an annuity at the same time? Learn how annuities can affect Medicare premiums, IRMAA, and retirement planning decisions.
Key Takeaways
Yes, you can have Medicare and an annuity at the same time because they serve different purposes in retirement. Medicare provides health care coverage, while annuities generate retirement income. Having an annuity does not affect your eligibility for Medicare, but the taxable income an annuity produces can influence how much you pay for certain Medicare premiums.
Annuity income may increase Medicare Part B and Part D costs through the Income-Related Monthly Adjustment Amount (IRMAA), which is based on your modified adjusted gross income from two years prior. Immediate annuities and large lump-sum withdrawals can raise taxable income quickly, while deferred annuities allow retirees to better control when income begins and reduce the risk of higher premiums.
When coordinated carefully, Medicare and annuities can work together to provide both a predictable income and stable healthcare coverage throughout retirement.
Can You Have Both Medicare and an Annuity at the Same Time?
In 2025, the Centers for Medicare and Medicaid reported that over 69 million Americans relied on Medicare for health care coverage. While Medicare provides affordable healthcare to those 65 and older, many retirees still struggle to cover any of the costs that Medicare doesn’t cover, which is when many turn to annuities and other financial strategies. Since these systems address very different needs, it is common to wonder whether they can work together, and if annuity income might affect Medicare eligibility or costs.
Ultimately, retirees can have both Medicare and an annuity simultaneously, but how an annuity is structured and when payments begin can affect Medicare premiums.
How Medicare and Annuities Serve Different Retirement Needs
Medicare helps cover health care expenses for those who qualify, but it does not replace income in retirement. Medicare’s different parts (Part B and Part D) help to cover things such as hospital care, medical services, prescription drugs, and managed care options, but neither provides retirement income after you stop working.
That’s where annuities come in. Unlike Medicare, annuities are designed to provide a steady, reliable income stream in retirement, giving you a predictable cash flow and helping reduce the risk of running out of savings.
In short, Medicare takes care of your health expenses, while annuities help support your income as a retiree. When planned together, they can work side by side as part of a well-rounded retirement strategy—each covering a different but equally important need.
Can You Legally Have Medicare and an Annuity at the Same Time?
There’s no rule that says you can’t have both Medicare and an annuity at the same time. Having an annuity doesn’t affect your ability to enroll in Medicare or remain covered once you’re on it. Rather, Medicare eligibility is based on age or a qualifying disability—not your income or assets. So even if you have an annuity, you can still qualify for and keep your Medicare coverage without issue.
Unlike Medicaid, Medicare doesn’t have income or asset limits. Many retirees continue to hold annuities, investment accounts, and other assets while remaining enrolled in Medicare. However, income from those assets can still influence certain health care costs over time, such as premiums or out-of-pocket expenses.
How Income-Related Monthly Adjustment Amount (IRMAA) Can Affect Premium Costs
While annuities are unrelated to Medicare eligibility, they can affect Medicare premiums through the Income-Related Monthly Adjustment Amount (IRMAA). IRMAA applies to Part B and Part D of Medicare and is based on your Modified Adjusted Gross Income (MAGI) from two years prior. Because of this, changes in income may not affect premiums immediately, making the connection harder to spot in the moment. This timing gap means a one-time increase in income may not feel important at first, even though it can lead to higher Medicare premiums down the road.
When taxable income from annuity payments crosses MAGI thresholds, you may still be covered. Still, your healthcare costs can increase significantly, especially for Part B and D members who are retirees with multiple sources of income.
Types of Annuities and Their Medicare Implications
Medicare and annuities can coexist in peace, usually. Various factors can determine whether your annuity affects Medicare premium rates. Things like strategically delaying deferred annuities or spacing out income to avoid tax hikes.
By choosing either of these methods, you can still meet your retirement goals.
Immediate Annuities and Medicare Premiums
Immediate annuities begin generating income almost immediately, and can increase taxable income quickly, potentially raising Medicare Part B and Part D premiums.
These stipulations make timing even more critical for individuals approaching Medicare enrollment or those already receiving benefits.
Deferred Annuities and Medicare Planning
It is common for withdrawals from deferred annuities to be delayed. This option allows income to start when it makes the most sense within a retiree’s long-term financial plan. Coordinating retirement income with Medicare enrollment becomes easier with this structure, as you can gain greater control over when and how taxable income is distributed year over year.
Deferred annuities can be valuable for retirees who anticipate income from other sources, such as Social Security benefits or minimum distributions. By strategically spacing income, deferred annuities can help you avoid tax spikes during critical years when Medicare calculations are conducted. This strategy allows you to meet your long-term retirement financial needs while reducing the risk of higher Medicare premiums.
Qualified vs. Non-Qualified Annuities
When you use qualified annuities, you fund them with pre-tax dollars, similar to those held in IRAs or 401(k) plans. Generally, distributions are fully taxable and count toward MAGI.
Only the earnings portion of each payment is taxable because non-qualified annuities are funded with after-tax funds. The amount of your annuity income used in Medicare premium calculations may be affected by this discrepancy.
Best Practices to Avoid Higher Medicare Costs
Strategic timing and financial management are typical ways retirees avoid high Medicare premium costs. Having a solid understanding of annuity income, Medicare premiums, and how they can work together will ease stress and worry about future finances.
Timing Annuity Income Around Medicare Enrollment
Avoiding large spikes in taxable income is a common strategy among retirees aged 63 to 65. Spreading your income more evenly over time can be achieved by coordinating annuity start dates with other income sources, such as Social Security or mandatory minimum distributions.
When it comes to controlling healthcare expenses in retirement, even minor scheduling changes can provide retirees with a sense of security and peace of mind. Planning like this could reduce the risk of temporary income surges that lead to higher Medicare premiums.
Managing MAGI to Reduce IRMAA Exposure
Rather than taking large distributions all at once, managing MAGI often involves spreading income over several years. Some retirees also pair annuities with Roth strategies to increase the flexibility of how their retirement income is taxed.
Since IRMAA thresholds are fixed, even small changes in taxable income can affect Medicare premiums. Working with a financial professional can help retirees evaluate how income decisions may impact healthcare costs while still meeting their individual income needs.
Coordinating Medicare, Medigap, and Annuities
Compared with other expenses, healthcare costs in retirement are usually more predictable. You can budget for premiums, copays, and out-of-pocket costs by coordinating Medicare coverage, Medigap plans, and annuity income.
While maintaining assets for long-term planning, using annuity income to cover anticipated medical expenses can give much-needed stability in an uncertain healthcare world.
Understanding how Medicare premiums and annuity income work together isn’t always straightforward, but you don’t have to figure it out alone. Connect with a financial professional and use the retirement planning resources here at My Guide To Retirement to build a strategy that works for you.
FAQs About Medicare and Annuities
Annuity income does not affect your eligibility for Medicare. Medicare eligibility is based primarily on age and work history, not income or assets. As long as you meet the basic requirements, such as being age 65 or older or qualifying due to disability, you can enroll in Medicare regardless of whether you receive income from an annuity or other retirement sources.
Yes, annuity income can increase your Medicare Part B and Part D premiums if it raises your modified adjusted gross income above certain thresholds. Medicare uses income data from your tax return to determine whether an Income-Related Monthly Adjustment Amount (IRMAA) applies. If annuity payments are taxable and push your income into a higher bracket, you may pay higher monthly premiums for both Part B and Part D.
While IRMAA calculations don’t include annuities themselves, they do consider the taxable income they generate. Medicare looks at your modified adjusted gross income, which includes taxable portions of annuity payments, interest, dividends, and other income sources. How much of your annuity payment is taxable depends on whether the annuity is qualified or non-qualified and on its structure.
Whether you should purchase an annuity before or after enrolling in Medicare depends on the annuity’s structure and the timing of income payments. Buying an annuity before Medicare enrollment does not automatically affect premiums, but starting annuity income at the wrong time can increase taxable income during key years used for IRMAA calculations. Many retirees benefit from coordinating annuity start dates with Medicare enrollment and other income sources to avoid unnecessary premium increases.
Lump-sum withdrawals from an annuity can significantly affect Medicare premiums if they are taxable and cause a temporary spike in income. Because Medicare uses a two-year lookback when calculating IRMAA, even a one-time distribution can lead to higher Part B and Part D premiums for at least one year. This is why timing and distribution strategy are essential when using annuities as part of a retirement income plan.
Yes, annuities can be an effective way to budget for Medicare-related expenses when structured correctly. The predictable annuity income can help retirees plan for monthly premiums, prescription drug costs, and out-of-pocket healthcare expenses. When you carefully manage your income to avoid unnecessary IRMAA surcharges, annuities can support both healthcare stability and long-term financial security in retirement.
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