In addition to your plans for retirement savings and long-term care, you will also need to consider Medicare as you approach retirement.

While Medicare is available for every American who is 65 or older, how much you pay for your Medicare premiums varies depending on your income. Since you will need to pay these costs well into retirement, you will want to factor them in as you set your budget, especially if you're on a fixed income.

Here's what you need to know about how much you might have to pay in premiums and how your income can affect those payments.

How Your Income Can Impact Your Medicare Premiums

In general, the more income you earn, the more you will pay in Medicare premiums each month.

If you have Original Medicare, there are two main components to consider: Medicare Part A, which primarily covers hospital stays, and Medicare Part B, which primarily covers doctor's visits. Medicare Part A is free for nearly everyone who qualifies, but you might have to pay a premium for Medicare Part B depending on your income.

Each year Medicare sets a standard premium amount. For 2021 that amount is set at $148.50. The Social Security Administration (SSA) determines whether you need to pay more or less than the standard amount, based on your income. To make this determination, the SSA looks at your tax returns from two years ago (for 2021, the SSA uses your 2019 returns), and if your modified adjusted gross income (MAGI) is more than a pre-set limit, you will pay a higher monthly premium. In 2021, the income limit is $88,000 for individuals and $176,000 for joint tax return filers. If you have a lower income, you might qualify for some subsidies or other programs offered by Medicare to help pay for costs.

If you have Medicare Part D, which offers prescription drug coverage, then the monthly premium you pay will vary according to your plan. As with Medicare Part B, if you are above the income limits, you will have to pay an additional monthly premium. In 2021 if your earnings surpassed $88,000 for individuals or $176,000 for joint filers, you will need to pay an additional $12.30 on your premium each month.

The premiums for Medicare Part C, also called Medicare Advantage, vary depending on which plan you choose, and there is no income limit that will affect your premiums.

Other Factors to Consider

Because the amount you pay in premiums can vary from year to year and is based on your income, you will want to keep track of your projected earnings as you approach retirement so you can anticipate any additional costs tied to Medicare. Since your Medicare premium costs factor in your tax returns from two years prior, you can get a general idea of whether you will be paying a surcharge on top of the standard premium.

If you are hovering around one of the surcharge lines, you can consider making decisions to help reduce your income now so you won't have to pay more in the future. Most people will not have to worry about this, as their income will not exceed the limit. However, bear in mind that if you have a life change that impacts your income in a significant way — whether it's a divorce, a marriage, a reduction in work hours or a job loss — it could affect your premium.

Medicare does allow for you to appeal premium surcharges. To do so, you will need to fill out a form detailing any life changes that have impacted your income and schedule an interview with your local Social Security office.

It is also worth noting that your Medicare premiums do not change based on whether or not you have preexisting conditions. However, note that Medicare does not cover all medical costs, so you may still have to pay for certain expenses out of pocket. Supplemental insurance, such as Medigap, or long-term care insurance could be options worth considering to help you cover these additional expenses as you age.