You’ve worked hard and saved well throughout your career. Now, let’s make sure you know how to plan for healthcare in retirement so you can enjoy your golden years with less stress and more peace of mind!
Key Takeaways
- Estimate your healthcare costs in retirement to prepare for potential expenses.
- Understand your Medicare options and supplemental coverage to find the best fit for your situation.
- Enroll on time, be preventative, and make the most of your HSA to save for healthcare costs in retirement.
Understanding Healthcare and Your Retirement Budget
One of the biggest challenges you’ll likely face as a retiree is budgeting for the rising cost of healthcare. According to Fidelity, if you are a 65-year-old individual who retired in 2024, you might need to spend an average of $165,000 in after-tax dollars on healthcare expenses throughout your retirement.
This estimate includes items like your Medicare premiums and co-pays, however you may be surprised that it doesn’t include the cost of dental care or long-term care costs. $165,000 may sound like a lot of money for healthcare, but with careful planning, you can make a plan to have the resources you need to cover your healthcare costs.
What Exactly Does Medicare Coverage Cover?
Medicare is the government sponsored health insurance program that you become eligible for at age 65. If you retire without a disability prior to age 65, you will need to purchase health insurance independently or through the government sponsored healthcare.gov marketplace.
Medicare tends to be more affordable than independent health insurance, however it doesn’t cover all of your healthcare expenses in retirement. Understanding how much your Medicare coverage will cost and what it includes will help you figure out how much income you need in retirement.
How Does Medicare Work?
When you become eligible for Medicare at age 65, there are a few different parts you need to understand before you sign up. Here’s a quick breakdown:
Part A (Hospital Insurance)
This covers your inpatient hospital stays, skilled nursing facility care, hospice care, and some limited home healthcare. Most people don’t pay a Medicare premium for Part A. It’s generally wise to enroll in this in the 7 month window surrounding your 65th birthday.
Part B (Medical Insurance)
This part covers your doctor’s visits, outpatient care, preventive services, and medical equipment. You will have a monthly Medicare premium for Part B. You can postpone enrolling in this at age 65 if you are still employed and covered by your employer’s health insurance plan.
Part C (Medicare Advantage)
This is offered by private insurance companies approved by Medicare. These plans provide you with all of the benefits of Part A and Part B, and often include additional coverage, such as prescription drugs and dental care.
Part D (Prescription Drug Coverage)
This is also offered by private insurance companies. These plans help cover the cost of your prescription drugs.
Medigap (Medicare Supplement Insurance)
These are offered by private insurance companies and are designed to be paired with Medicare part A,B, and usually D. These policies help reduce further out-of-pocket costs for things not covered in traditional Medicare.
What Will Medicare Cost Me?
Like many government benefits, Medicare is priced according to your income tax bracket. The more you make, the more you will pay for Medicare. The pricing for each year is based on your modified adjusted gross income from 2 years prior. These price increases are known as Income-Related Monthly Adjustment Amounts (IRMAA).
Here is a chart of the 2025 Medicare pricing based on your 2023 MAGI from your federal income tax return:
| Medicare in 2025 | $0 – $212,000 | $212,000 – $266,000 | $266,000 – $334,000 | $334,000 – $400,000 | $400,000 – $750,000 | $750,000 + |
| Part A | $0* | $0* | $0* | $0* | $0* | $0* |
| Part B | $185 | $259 | $370 | $480.90 | $591.90 | $628.90 |
| Part C | Varies** | Varies* | Varies* | Varies* | Varies* | Varies* |
| Part D | $36.78*** | + $13.70 | +$35.30 | +$57.00 | +$78.60 | +$85.80 |
* Most people who’ve paid into Social Security receive part A with no premium.
** These prices are set by private insurance companies and vary based on the plan and what it includes.
*** $36.78 is the 2025 national base price. Part D pricing varies depending on your plan and company offering the coverage.
Medicare Advantage vs. Medigap
When you start exploring Medicare policy options, you may wonder if you should bundle your Medicare coverage under Medicare Advantage or if you should purchase Medicare supplement insurance.
Your decision should come down to your budget, your health, and how much you are expecting to pay out of pocket besides your premiums.
Bundling with Medicare Advantage (Part C)
These programs bundle all the benefits of original Medicare (Part A and Part B) and are offered by private insurance companies. Policies usually include extra coverage, like prescription drugs, dental, and sometimes vision. Medicare Advantage is known for having lower premiums with the tradeoff that you will likely have higher out-of-pocket expenses as you use your insurance.
Original Medicare A,B, & D with a Supplement (Medigap)
If you’re willing to pay higher premiums to limit out-of-pocket expenses, consider Medigap. This supplemental insurance works with original Medicare parts A, B, and D. A Medigap policy helps cover out-of-pocket expenses like deductibles, copayments, and coinsurance.
How to Plan Better for Your Retirement Healthcare: 9 Expert Recommendations
1. Estimate Your Future Health Care Costs:
Projecting your future health care costs can be challenging, but it’s important for choosing the right coverage. Start by examining exactly how much you spend today for medical costs.
Make a list that includes your:
- Current health insurance premiums
- Current health insurance deductibles
- How much you spent out of pocket health care expenses for things like co-pays or co-insurance
- How much you spent out of pocket on prescriptions in the past few years
2. Consider Your Budget & Health:
Once you know what you are really spending for healthcare today, consider factors such as your current health, family medical history, and potential for expensive medical treatments in the near future. This information will help you make an informed decision about the best type of retirement coverage for you.
For example if you are seeing lots of specialists today for chronic health issues, you might be better suited to explore original Medicare with a supplement. Alternatively, if you rarely see a doctor and are in great health, Medicare Advantage might better suit you with its lower premiums.
3. Make the Most of Your HSA:
If you have a high-deductible health plan, consider contributing to a Health Savings Account (HSA) until you turn 65. A health savings account potentially allows tax free withdrawals in retirement to pay for your health care expenses including your Medicare premiums.
HSAs offer a triple tax free benefit:
- Your contributions are tax deductible
- You can invest your health savings account and your earnings grow tax deferred
- If you take distributions for qualified medical expenses, they are tax free
Here’s a chart that outlines how much you can contribute in 2025 to your HSA and what your deductible must be in order to qualify:
| HSA Covering | Contribution | Minimum Deductible |
| Individual | $4,300 | $1,650 |
| Family | $8,550 | $3,300 |
| Age 55+ Catch Up | $1,000 | – |
4. Enroll in Medicare During Your Initial Enrollment Period (IEP):
Missing your Initial Enrollment Period (IEP) for Medicare may result in permanent penalties and gaps in coverage. Your IEP includes the 3 months before your 65th birthday, your birthday month, and the 3 months following for a total of 7 months. Mark your calendar and ensure you enroll on time.
5. Reduce Your Modified Adjusted Gross Income (MAGI):
Your modified adjusted gross income can affect your Medicare premiums by moving you into a higher IRMAA bracket. Your MAGI is essentially your adjusted gross income plus any tax exempt interest you received.
Remember that your MAGI today impacts your Medicare premiums in 2 years. Explore strategies to lower your modified adjusted gross income and potentially reduce your future healthcare costs.
6. Be Preventative & Maintain Healthy Lifestyle Habits:
Prioritize your health through regular exercise, a balanced diet, and fulfilling social activities. Take advantage of preventive care, such as annual checkups with your doctor. These can help you detect health problems early, when they are often easier and less expensive to treat.
7. Use Generic Medications:
Generic medications are often just as effective as brand-name drugs but cost significantly less. Be sure to tell your doctor that you prefer generic medications whenever possible.
8. Negotiate Your Medical Bills:
Don’t be afraid to negotiate with healthcare providers to reduce your medical costs and appeal denied claims if you think you should receive coverage.
According to a Wall Street Journal report in 2025, health insurers process about five billion payment claims per year. They typically deny around 850 million claims and less than 1% of insured patients appeal the denials. On average three-fourths of these appeals are granted.
9. Plan for Long-Term Care:
Long-term care gets expensive. These costs cover care that Medicare and health insurance don’t, like custodial care for chronic issues. Custodial care covers non-medical services for chronic issues. This includes help with dressing, bathing, toileting, and transferring from sitting to standing. These services are typically provided by in-home, assisted living, or nursing home care.
Explore long-term health care insurance if you are in your 50s or 60s. This type of insurance is quite expensive. However, it can protect your retirement savings from being depleted. Alternatively, you might choose to self-fund these expenses. This involves planning which investments you own could be used to pay for care later in life.
Maximize Your Retirement and Healthcare with a Financial Advisor
Planning to handle your healthcare costs in retirement can be complicated. A financial advisor and a qualified tax professional can provide you with personalized guidance, help you understand your options, and create a plan to secure your retirement wellbeing.
Contact Stage Ready Financial Planning for a Free Consultation on Your Retirement Standing
Are you over age 50 and live in Dayton or Southwest, Ohio? Take control of your retirement healthcare planning today. Contact us today to schedule your complimentary intro call.
Stage Ready Financial Planning is dedicated to helping retirement savers create a plan to live their ideal retirement with peace of mind.
FAQs
How do I prepare for healthcare costs in retirement?
Start by estimating your potential healthcare expenses, consider saving in an HSA, enroll in Medicare on time, and explore supplemental coverage options.
What do people do for healthcare when they retire?
Most retirees rely on Medicare health insurance, which provides essential coverage. Medicare doesn’t cover all your medical costs. Plan to either purchase a supplement policy or have the income and resources to pay for some treatments and prescriptions out-of-pocket.
How do people who retire early pay for health insurance?
Early retirees may need to secure their own health insurance. This is necessary until they become Medicare-eligible at age 65. Options include COBRA (short-term extension of your employer coverage at the full cost), purchasing private insurance through the healthcare.gov exchange, or exploring spousal coverage if your partner is still working.
Is it a good idea to get Medicare if you’re still working at 65?
If you have employer-sponsored health insurance, you may be able to delay enrolling in Medicare Part B without penalty. This can be helpful as your employer coverage will likely supersede your Medicare coverage. This means you might be double paying for your health insurance. Be sure to learn more about the rules and implications of delaying your enrollment.
About the Author
Joseph A. Eck, CFP®, is a financial planner passionate about helping retirement savers achieve their financial goals with confidence. With years of experience in retirement planning, and investment management, Joseph provides personalized guidance and support to clients in Dayton and Southwest Ohio. He believes that everyone deserves to have clarity and peace of mind knowing they’ve made the best decisions surrounding Medicare and their retirement income. Click here to learn more about Joseph.
Additional Resources
- Ohio Department of Insurance: https://insurance.ohio.gov/
- Medicare.gov: https://www.medicare.gov/
- Social Security Administration: https://www.ssa.gov/
Ohio-Specific Resources
- Ohio Senior Health Insurance Information Program (OSHIIP): Provides free, unbiased information and counseling to Ohioans on Medicare and other health insurance options. https://insurance.ohio.gov/about-us/divisions/oshiip
- Ohio’s Long-Term Care Insurance Partnership Program: Offers special benefits to Ohioans who purchase long-term care insurance policies that meet certain requirements. https://insurance.ohio.gov/consumers/long-term-care/partnership-ltc-ltc4me
This communication is for informational purposes only and is not intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This communication should not be relied upon as the sole factor in an investment making decision. Past performance is no indication of future results.