Moneywise and Yahoo Finance LLC may earn commission or revenue through links in the content below.

If you’re approaching the age of 65, you probably already know you’ll be eligible for Medicare. You also likely have a precise number in mind about how much this program will cost you. Most seniors assume they’ll be paying the standard $202.90 a month for Part B in 2026 (1).

But far too many 65-year-olds sign up for Medicare only to get a surprise monthly bill that is much larger than they anticipated. This is because of the unintuitive way the government calculates your monthly premium and the penalties you could be exposed to if you’re not careful.

The ultra-rich use these 5 real estate strategies to build wealth while they sleep — you can start with just $100

The IRS usually taxes gold as a collectible — but this little-known strategy lets you hold physical bullion tax-free. Get your free guide from Priority Gold

Dave Ramsey warns nearly 50% of Americans are making 1 big Social Security mistake — here’s how to fix it ASAP

This oversight could cost you hundreds of dollars extra every single month. Here’s what you need to know about how these hidden traps emerge and how best to avoid them.

The Medicare system is complex and byzantine. To make matters worse, there’s also a list of different penalties that apply if you didn’t understand the system and make a bureaucratic mistake.

For instance, if you enroll in the program late, you may face an additional surcharge every month. These penalties can range from 1% to 10% of your monthly premiums under Part A, B or D, according to the National Council on Aging (2).

However, the biggest mistake most seniors make is with IRMAA or the Income-Related Monthly Adjustment Amount (1). This is a surcharge the federal government layers on top of your standard Medicare Part B and Part D premiums if your income exceeds certain thresholds.

What makes this tricky is that the government doesn’t use your current annual income to calculate this surcharge. Instead, it uses your income from two years ago. So, if you’re enrolling in Medicare in 2026, the government will use your income in 2024 for reference.

This is the part that catches most seniors off-guard, because they may still be working and earning near their peak in 2024. Or, you may have had a major windfall event that year — a bonus, severance package, a Roth conversion, or the sale of an investment property can all push income into a higher bracket, triggering a surcharge that lasts the entire year.

Simply put, if you didn’t plan for IRMMA and had exceptional income in 2024, your monthly premiums could be as high as $689.90 or up to $487 extra per month. That’s a huge hit in your mid-60s.

The good news is that this financial bomb can be avoided.

Read More: Thanks to Jeff Bezos, you can become a landlord for $100 — without the headache of actually being one

There are essentially two ways to mitigate this issue: plan or appeal.

Planning is probably most effective. If you’re a few years away from age 65, take the time to understand the system and weave it into your retirement plan. This will help you time property sales or Roth conversions with all the rules in mind so that you never get hit with an unnecessary penalty.

Understanding the system should also let you discover and plan for its limitations. For instance, Medicare doesn’t generally cover the cost of long-term care (3), which can be a huge surprise cost in your senior years. Here, signing up for private insurance can protect you.

Long-term care insurance offers coverage for the costs of in-home assistance, nursing homes or assisted living facilities.

According to the latest CareScout Cost of Care Survey (4), the median annual cost of living in an assisted living community or a semi-private room in a nursing home could be $74,400 and $114,975, respectively.

That’s an annual estimate, which means a typical senior can quickly burn through their nest egg within a few years of unplanned and uninsured long-term care.

Without proper planning, paying for long-term care could deplete your retirement fund. In many cases, the burden of paying for care often falls on family members — potentially straining their own finances.

GoldenCare offers different options based on your needs, including hybrid life or annuity with long-term care benefits, short-term care, extended care, home health care, assisted living and traditional long-term care insurance.

For those already paying an IRMMA, there are ways to appeal this surcharge if your situation has changed considerably. For instance, the loss of a spouse or divorce could have changed your financial life enough to qualify for some reprieve. You can file Form SSA-44 with Social Security to request a reduction based on more recent income data.

Ultimately, the best way to keep your costs down is to understand the system or hire a professional to lay out a comprehensive plan for you many years before you turn 65.

No time to shop for cheaper car insurance? This 2-minute check could slash your bill today — no phone calls required

Robert Kiyosaki says this 1 asset will surge 400% in a year and begs investors not to miss this ‘explosion’

Millionaires under 43 are reshaping investing — just 25% of their portfolios are in stocks. Here’s where their money is going

Here are the 4 costs Americans (still) overpay for every single month. How many of these are sabotaging your budget?

Join 250,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.

We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.

Medicare (1), (3); National Council On Aging (2); Genworth (4)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.