Current Cost of Future Increasing Payments

How to Use This Tool

This calculator determines how much money must be set aside today — and left to grow — to fund a series of payments that increase every year. The primary use case is Medicare IRMAA surcharges or Medicare charges, but it works for any growing recurring obligation.

Primary Use Case — IRMAA Penalties

What is IRMAA?

IRMAA (Income-Related Monthly Adjustment Amount) is a Medicare surcharge added to Part B and Part D premiums when your income exceeds certain thresholds. It is assessed based on your MAGI from two years prior.

Why can't you just avoid it?

IRMAA avoidance requires keeping RMDs plus other fixed income below a tier boundary. If your RMDs alone push you into a tier, avoidance may not be possible — so you need to plan to fund the penalty instead.

The tax problem

IRMAA is paid with after-tax dollars, but retirement income (IRA/401k withdrawals) is taxed as ordinary income. If your penalty is $2,000 and your tax rate is 20%, you need to withdraw $2,500 to net $2,000 after taxes. Enter your IRMAA penalty as the First Payment; the Tax Rate slider handles this gross-up automatically.

Inputs

First Payment

The after-tax obligation in year 1 — for IRMAA, this is the annual surcharge you owe Medicare (Part B + Part D combined). Each subsequent year's payment grows by Inflation + Extra Growth.

Number of Years

How many years you expect to be subject to this payment. The default of 15 reflects a common IRMAA planning window: RMDs begin at age 75 under current law, and a longevity assumption of 90 gives a 15-year horizon.

Inflation Rate

Baseline CPI rate. IRMAA thresholds are indexed to CPI, but premiums often rise faster — use the Extra Growth field to capture that.

Extra Growth Above Inflation

How much faster the payment grows beyond CPI. Medicare Part B premiums have historically grown 2–4% above general inflation. Set to 0 if you want a conservative floor estimate.

Portfolio Return Rate

The annual return you expect to earn on the funds set aside for this obligation. This is how quickly the reserve can grow to keep pace with future payments. A higher return means you need to set aside less today.

Federal Tax Rate (marginal)

The marginal rate for your federal tax bracket — the rate applied to the last dollars of regular income (e.g. 24%), not your lower effective average rate. Use the marginal rate because IRMAA payments are funded from the top slice of withdrawals, which sit at the margin. The first IRMAA tier typically falls in the 24% bracket.

State Tax Rate (marginal)

Your state income tax rate on regular income. Set to 0 for no-income-tax states (TX, FL, WA, NV, SD, WY, AK, NH, TN). California's top rate is 13.3%. The tool combines federal + state: Pre-tax draw = Payment ÷ (1 − federal − state).

Annual Income (MAGI)

Your current Modified Adjusted Gross Income, used only to compute the "% of income" figures shown in the Year 1 and Final Year metrics. The tool assumes this grows with CPI each year so the comparison stays apples-to-apples. The IRMAA Tier 1 threshold for MFJ 2026 is $218,001 — defaulting just above that is a natural starting point.

Results

Funds to Allocate Now

The reserve needed today — growing at your Portfolio Return Rate — to cover every future grossed-up payment. There is no lump-sum buyout for IRMAA; these funds must stay invested and growing alongside the obligation.

Year 1 Pre-tax Draw

What must actually come out of your account in year 1: the IRMAA penalty divided by (1 − combined tax rate). The smaller line below shows this as a percentage of your current income — a useful baseline.

Final Year Pre-tax Draw

The gross withdrawal needed in the last year of the projection. The percentage shown below it is calculated against that year's inflation-grown income. Because the payment grows faster than income (Extra Growth > 0), this percentage is higher than Year 1 — those payments displace an ever-larger share of disposable income every year.

Total Real Cost (today's $)

Every future pre-tax draw deflated by CPI and summed. Because IRMAA grows faster than inflation, this total exceeds N × Year 1 draw — the "small potatoes" compound into a meaningfully larger real burden over time.

Charts

NPV sensitivity

Shows how the required reserve changes as Portfolio Return Rate varies from 2% to 12%. The dark blue bar is your current selection — stress-test the return assumption here.

% of income by year

Each bar is that year's grossed-up payment as a percentage of that year's CPI-grown income. Because the payment grows at CPI + Extra Growth while income grows at CPI only, the bars rise at the Extra Growth rate each year. A flat Extra Growth of 0% produces a flat line; the default 2% produces a visibly rising staircase — the "growing potatoes" made geometric.

Example A — IRMAA Penalty Only (what you'd save by avoiding a tier)

Example B — Total Medicare as a Growing Obligation