He Plans to Retire at 62 and Live on $120,000 From His 401(k) Until Social Security Begins at 67. His Ages 63 and 64 Will Set the First Two Medicare Premiums Above $284.10 a Month

He has mapped out nearly every year of early retirement, but two overlooked years before Medicare begins may determine the premium he pays when coverage starts.

An individual thoughtfully reviews financial documents, highlighting the significant $284.10 monthly Medicare premium mentioned in the article.

A 62-year-old is leaving work with a sizable traditional 401(k) and a straightforward plan: withdraw $120,000 a year for living expenses, then begin Social Security at 67. The quieter bridge years at 63 and 64 matter most, because Medicare will look back at income from those years to set his first two premium bills.

Many retirees never run into this issue. The Centers for Medicare & Medicaid Services says income-related surcharges affect about 8% of Medicare Part B enrollees. In 2026, a single filer with income at or below $109,000, or a joint filer at or below $218,000, pays the standard $202.90 monthly Part B premium. This retiree is above the single-filer threshold.

Why Ages 63 and 64 Still Matter

Social Security bases IRMAA on the most recent federal tax return the IRS provides, which usually reflects income from two years earlier. In other words, 2024 income determines 2026 premiums. If this retiree turns 62 in 2026, then his 2027 withdrawals at age 63 will affect his 2029 premiums at age 65, while his 2028 withdrawals at age 64 will affect his 2030 premiums at age 66.

The agency uses modified adjusted gross income, or MAGI, which it defines as adjusted gross income plus tax-exempt interest. That means every dollar taken from a traditional 401(k) is included in AGI, and even interest from municipal bonds that he may think of as tax-free gets added back in.

What a $120,000 Withdrawal Could Trigger

If he has no other income, a $120,000 withdrawal would place a single filer about $11,000 above the first threshold. Under 2026 rules, that would put him in the first IRMAA tier: a Part B premium of $284.10 a month, plus a $14.50 monthly Part D surcharge if he also enrolls in drug coverage.

At current 2026 rates, those Part B and Part D surcharges would add up to $1,148.40 a year, or $2,296.80 over two years, assuming he has both forms of coverage. He would still have about $17,000 of room before reaching the next tier. Because CMS updates premiums and income brackets every year, the actual 2029 and 2030 amounts are unknown. These figures are only meant to show the possible scale of the cost. If he were married filing jointly, the same $120,000 would fall well below the joint threshold and would not create a surcharge. Among the Medicare charges that can surprise retirees, IRMAA is one of the biggest.

Spending Money Is Not the Same as Reporting Income

IRMAA is based on the income he reports, not simply on how much he spends. He could still use $120,000 at age 63 and report far less if part of the money comes from sources that do not increase AGI:

• Cash savings: Money withdrawn from a bank or money market account is not income; only the interest it earns counts.
• Qualified Roth withdrawals: The IRS treats qualified Roth distributions as tax-free, so they are excluded from AGI.
• Taxable brokerage sales: Only the realized gain is included in AGI.

For example, he could take $109,000 from the 401(k) and cover the remaining $11,000 from cash or Roth funds. Under the 2026 income limits, that would keep his MAGI low enough to avoid the surcharge, so long as he has no other taxable income. The pressure returns once Social Security starts at 67. At that point, the taxable portion of his benefit will raise MAGI, and the income he has at 67 will determine his premiums at 69.

Three Decisions to Make Before Age 65

1. Estimate 2027 and 2028 MAGI now. Add up 401(k) withdrawals, interest, dividends, capital gains and tax-exempt interest. Going even one dollar over a threshold triggers the full surcharge for that bracket, so any excess should be moved to cash or Roth sources before December 31 of the relevant year.
2. Use the year Medicare does not price. Income at 62 determines premiums at 64, before he enrolls. If age 62 falls in 2026, he has until the end of the year to take more from the 401(k) and set aside the after-tax cash for ages 63 and 64. The trade-off is that the extra income would be taxed in a higher federal bracket now, so he would need to compare that cost with the $1,148.40 annual surcharge it might prevent.
3. Understand the limits of Form SSA-44. Social Security can reduce IRMAA after a qualifying life event such as retirement, reduced work hours, divorce or the death of a spouse. His retirement at 62 may qualify, but continued $120,000 withdrawals could leave his income too high for relief. The withdrawals themselves do not count as a qualifying event. If he files an amended tax return that lowers his reported income, he can also ask Social Security to reconsider the premium calculation.