Managing healthcare costs in older age requires proactive planning, including maximizing Medicare benefits, utilizing tax-advantaged accounts like HSAs, and budgeting for long-term care. A 65-year-old couple may spend over $345,000 on medical expenses in retirement. Key strategies involve reviewing coverage annually, using in-network providers, and lifestyle management to prevent costly chronic conditions.

Premiums, out-of-pocket expenses and critical services not covered by Medicare can deplete your retirement savings. In fact, a healthy 65-year-old couple who retired in 2023 will likely use nearly 70% of their lifetime Social Security benefits to cover their medical costs in retirement. Yet only about half of Americans surveyed by the Harris Poll said they understood how much they need to cover healthcare costs in retirement.

“Retirees counting on Social Security to supplement their retirement income are often surprised to learn that most of it may need to be used for healthcare,” notes Storey. “Your financial advisor can help you estimate and develop a strategy to save for those costs.”

Key Strategies for Managing Costs:

• Optimize Medicare Coverage: Annually review your Medicare options (Part B, Part D, and Advantage plans) to compare coverage, premiums, and out-of-pocket maximums. Consider Medigap (supplemental insurance) to cover costs Medicare does not.
• Utilize Savings Accounts: If available, use Health Savings Accounts (HSAs) for tax-free funds to pay for medical expenses. While you cannot contribute after enrolling in Medicare, funds can remain in the account.
• Preventive Care & Health Management: Focus on healthy living—diet, exercise, and sleep—to reduce the need for expensive medical interventions and lower long-term costs.
• Use In-Network Providers: Always check if doctors and facilities are in-network to avoid higher fees.
• Prescription Cost Management: Compare pharmacy prices, ask for generic alternatives, and confirm medication coverage within your plan’s formulary.
• Plan for Long-Term Care: Research in-home care vs. assisted living early. Explore long-term care insurance to cover services like assisted living or nursing home care.
• Financial Planning: Consider setting up a dedicated “healthcare fund” within your budget for unexpected costs, and consult a financial planner to discuss your specific circumstances. 

Health is often one of the top concerns for those nearing or in retirement—not just because it affects their independence and lifestyle, but staying healthy can also come with significant and unpredictable expenses, even for individuals who have been saving diligently for the expected high cost of health insurance for retirees.

A report from the Employee Benefit Research Institute estimates a 65-year-old couple could need as much as $366,000 in savings to have a 90% chance of covering their health care expenses—including premiums, deductibles, prescriptions, copays, and out-of-pocket costs—in retirement.

Planning for health care costs as you age

Health care can be expensive with many factors — like your current health, lifestyle, future potential health care needs, and the economy — that may impact future cost. To add, unplanned doctor visits, surprise bills, other medical needs, and other unexpected cost can put a strain on your finances. 

Figuring out how to pay for health care cost as you age can been overwhelming. However, planning ahead for health care cost, including researching to understand the insurance system and the options available to you could be worth the effort.

Explore insurance options

Check to see what insurance benefits are available to you, including Medicare or retiree medical coverage. If you haven’t purchased long-term care (LTC) insurance, remember that neither private medical insurance nor Medicare provides long-term care services. 

What’s Medicare?

Medicare is a federal health insurance program created for people aged 65 or older, certain younger people with qualifying disabilities, and people with end-stage renal disease (ESRD). Health care costs differ based upon the plan and what type of benefits your Medicare plan provides.

Retiree medical coverage

A retiree health plan is health insurance offered to retired persons, after their employment ends by their former employer. It’s often coupled with Medicare coverage. If you have both — Medicare and retiree coverage generally Medicare pays your bills first and anything not covered or your remaining balance  is covered by your retiree plan.

Navigating and understanding the Medicare program can be confusing. You can visit Medicare.gov for more information about Medicare and retiree medical coverage.

Plan for out-of-pocket expenses

Even though Medicare may cover quite a bit, you’ll still need to pay for premiums and some health costs out-of-pocket. Paying for health care and insurance premiums, should be part of your larger financial management discussions. It could be helpful to consult with a Certified Financial Planner (CFP) when figuring out your finances.  

If savings aren’t available to pay for health care costs, discussing your needs with family members could be worthwhile, especially if they can and want to assist. If that’s not an option, look into community resources. For example, Administration for Community Living provides links to a range of support services to help you live successfully in your community and Benefits.gov helps you determine if you’re eligible for federal benefits. 

Gerontological social workers can also help connect you with financial aid resources and help you fill out paperwork. 

Prescription costs

Prescription costs can vary based on the pharmacy you use. There are smartphone apps and websites available to help you search pharmacies for the lowest price on your medication—some even include coupons for your specific medication. 

Pharmacy membership clubs can also help you save money. Ask your local pharmacy or search online to compare pharmacy savings club options. However, there’s usually a fee for a membership club. You’ll want to make sure the discount on the prescription offsets the monthly or yearly membership fee.  

Consider these five questions as you work together to develop a plan to help you cover all your healthcare expenses.

How much could medical expenses cost me in retirement?

While Medicare will pay about two thirds of your medical costs, out-of-pocket healthcare expenses like premiums, copays and deductibles can add up. And the post-pandemic economy, with inflation at a 40-year high, has significantly impacted those costs. In fact, healthcare costs have been increasing at one-and-a-half to two times the rate of inflation. A 55-year old couple today can expect to pay more than $1 million for healthcare costs during their retirement.

Medicare won’t cover
1/3 of your
medical expenses

“Such a large amount may put you at risk of outliving your retirement savings,” says Storey. It most likely means that it is time to revisit what you have earmarked for healthcare expenses in retirement. Your advisor can walk you through what Medicare does — and doesn’t — cover, estimate how much you may need to put aside for future healthcare costs and develop a plan to help you get there.”

“As you estimate your potential costs, consider factors such as your current health, your family’s health history, where you’ll retire (medical costs can vary across the country) and whether your employer offers retiree health coverage,” says Storey.

Your advisor may recommend adjusting your financial plan to include a one-time lump sum investment or an increase in your regular investment contributions to cover these additional costs. Other changes might include taking on more risk in your portfolio or reprioritizing your goals. The approach you take will depend on your individual circumstances but just like investing for any goal, the sooner you start, the better your chances of being successful.

What does Medicare cover, and how much does it cost?

Medicare Parts A and B, known as Original Medicare, cover a portion of hospital stays and medical services — but not vision, hearing or dental care; prescription drugs; or medical care outside the U.S. So, you may want to add a drug plan (Medicare Part D) and a Medicare Supplement Insurance Policy, commonly known as Medigap, which can help cover out-of-pocket costs as long as you have Original Medicare. Medicare Advantage, or Part C, is a private insurance alternative that bundles much of that coverage but often restricts you to a limited network of providers.

While Medicare Part A is typically premium-free, you will pay monthly premiums for Part B, some Part C Medicare Advantage plans, Part D prescription coverage and Medigap.

And while there is no premium for Medicare Part A, there is a $1,676 deductible in 2025 for each inpatient hospital benefit period, before Medicare starts to pay. And there is no limit to the number of benefit periods that can take place in a year. This means that you could pay the deductible amount many times if you have multiple hospital stays during a year.

The monthly premium for Medicare Part B is $185 in 2025 or higher depending on your income. You’ll pay the higher premium if your modified adjusted gross income (MAGI) is more than $106,000 (from your tax return from two years prior), if you file an individual tax return or are married and file separately or if your MAGI is more than $212,000, if you are married and file a joint tax return. The higher monthly premium costs range from $259 to $628.90 based on income.

In addition, Medicare Part D premiums can also be impacted by income. The monthly cost, in addition to the plan premium, can range from $13.70 to $85.80.

What if I retire before I’m eligible for Medicare at age 65?

Unless your employer offers retiree coverage, you’ll need to consider other health insurance options so that you don’t go without coverage until you are Medicare eligible.

The cost of coverage should be fully explored among various resources and can vary widely. Your options include:

• Joining your partner’s plan if they are still working or taking on a new job that provides you with healthcare benefits.
• Sticking with your employer’s insurance plan under COBRA (the Consolidated Omnibus Budget Reconciliation Act) for up to 18 months.
• Purchasing health insurance directly from a company or through an insurance broker or purchasing health insurance on the government-managed exchange.
• Purchasing a high-deductible health plan that meets federal tax standards permitting you to open a health savings account (HSA).

What about my future long-term care needs?

“Long-term care insurance can help improve the chances that your savings will last through your full retirement,” says Storey.

Even with all the medical coverage available through Medicare, there’s one element that falls through the cracks — the cost of long-term care. “Savings can get eaten up pretty quickly,” notes Storey. And many people are unprepared to meet those costs.

Purchasing insurance to cover the costs can help when you need to pay for a caregiver to keep you in your home or if you need to move to a long-term care facility. It can cost upwards of $100,000 per year for a private room in a nursing home.

The annual long-term care insurance premium for a couple (both aged 65) with a benefit of $165,000 (increasing by 5% each year) was $9,675 in 2022.

But if you haven’t purchased it by the time you’re in your 60s, the premiums on traditional long-term care policies may be out of reach and, after age 70, it may be harder to obtain coverage.

Other options to consider include hybrid life insurance/long-term care policies, which are designed to provide long-term care coverage as well as cash value you could tap. In addition, some life insurance policies have a long-term care rider that can provide coverage.

“The sooner you consider your needs, the more options you’ll have,” says Storey.

Are there other ways to prepare for healthcare costs in retirement?

You could self-fund by increasing the amount you save in your 401(k) or other retirement accounts. “But a health savings account (HSA), with its potential tax advantages,¹⁰ is a particularly powerful way to save for medical expenses,” says Storey.

To qualify for an HSA, you must have a high-deductible health plan, and you can’t be covered by any other medical plan or be enrolled in Medicare. Opening an HSA could help you accumulate critical additional funds to pay for eligible expenses in retirement, including long-term care services and insurance premiums.

Once you enroll in Medicare, you can no longer contribute to your HSA but you can use the funds you’ve saved to cover most out-of-pocket medical expenses and Medicare premiums (Medigap Supplement Insurance premiums are an exception).

Either way, “the more you can earmark for healthcare as you save for retirement, the better,” Storey sums up.

Here are four strategies to consider before and into retirement to help minimize your cost of health coverage in the future.

1. Funding an HSA before you retire

While you’re still working, one employee benefit you may have is the ability to enroll in a high-deductible health care plan (HDHP) that offers a health savings account (HSA). During your open enrollment period, check if this health insurance option is available under your health benefits. While an HDHP with an HSA may not be the right choice for everyone, you can build unused money in the account for future medical needs.

For 2025, you can make tax-deductible contributions¹ of up to $4,300 for individual coverage and $8,550 for a family ($4,400 and $8,750 respectively in 2026)—plus an additional $1,000 for those ages 55 and older so long as you’re not enrolled in Medicare. Some plans even allow you to invest your HSA funds after meeting a minimum account balance.

HSA earnings can potentially grow tax-free, and withdrawals of contributions and earnings are tax- and penalty-free when used for qualified health care expenses, including Medicare and long-term care (LTC) insurance premiums. And once you reach age 65, withdrawals from an HSA can be used for any purpose without penalty, although ordinary income taxes will apply to funds used for nonmedical expenses.

2. Enrolling in Medicare on time

Understanding your options for retiree health coverage can become challenging as you grow older and plan to leave the workforce. Most near-retirees know Medicare becomes available at age 65, but fewer realize there’s typically a permanent penalty for missing the initial enrollment period (IEP), unless a special exceptions applies. Your IEP is a seven-month span comprising the three months before, the month of, and the three months following your 65th birthday.

The penalty for not enrolling on time can be stiff. If you miss your IEP for Medicare Part B—which covers most everyday (outpatient) medical expenses—your monthly Part B premiums could go up 10% for every 12-month period you go without coverage. There’s also a 1% penalty per month for each month you delay enrolling in Part D prescription drug coverage (see “The ABCDs of Medicare”).

If you begin collecting Social Security before your 65th birthday, you’ll automatically be enrolled in Medicare Part A (which covers hospital stays and is generally premium-free) and Part B. But if you plan on waiting to collect Social Security until your full retirement age or later, be sure to apply for Medicare as soon as you’re eligible.

Be aware that you may be able to delay Medicare enrollment if you (or your spouse) are still working and enrolled in an employer’s health insurance plan. For example, if you work for a large company (with at least 20 employees), you may be able to delay signing up for Medicare without penalty until your workplace coverage ends. Generally, you may also want to postpone enrolling in Medicare if you intend to stay with your group health insurance plan or you want to keep contributing to an HSA after age 65. Your human resource department can explain how Medicare works with your health plan to help guide your decisions.

Once you (or your spouse) lose employer-sponsored health insurance coverage, you’ll have up to eight months to sign up for Medicare during a special enrollment period (SEP) to avoid penalties. That said, best practice is to plan for Medicare coverage immediately after losing coverage to prevent any insurance gaps. Also, if you are funding an HSA, stop contributions six months before you apply for Medicare.

3. Reducing your modified adjusted gross income

Medicare premiums for Parts B and D are affected by your modified adjusted gross income (MAGI), and relatively higher-earning retirees may also be subject to Medicare’s Income-Related Monthly Adjustment Amount (IRMAA). MAGI for IRMAA is generally calculated as the sum of your adjusted gross income (AGI) plus tax-exempt interest from your tax return from two years prior.

A premium on premiums

The higher your income, the more you can expect to pay for Medicare in 2025.

The differences in premiums for higher-income retirees can be steep, so taking steps to reduce your MAGI can lower your medical costs. Consider these strategies:

• Diversifying accounts by tax treatment: Many retirees have the bulk of their retirement savings in tax-deferred accounts—like a 401(k), 403(b), or traditional IRAs—and distributions from these are fully taxed as ordinary income. To provide more flexibility in managing your MAGI, consider diversifying your investments across accounts with different tax treatments—for example, investing in a 401(k), a Roth IRA, or Roth 401(k) as well as a taxable brokerage account. This could also help you plan for potential changes to your tax bracket or unexpected expenses in retirement.
• Taking qualified distributions before your RMD age: Retirement savings that are in tax-deferred accounts are subject to taxable required minimum distributions (RMDs) in the year you reach age 73 or 75, depending on your birth year. RMDs will likely increase your MAGI, which could potentially lead to higher Medicare premiums. Before RMDs occur, you may want to consider strategies to accelerate qualified distributions from a 401(k) or traditional IRA to reduce the impact to Medicare IRMAA and income tax brackets, such as converting some of those funds to a Roth IRA.
• Converting tax-deferred accounts to a Roth: Roth IRAs can potentially offer tax-free withdrawals once you reach age 59½ and you’ve held the account for at least five years since your first contribution. You’ll have to pay taxes on the converted amount in the year of the conversion, but Roth IRAs are not subject to RMDs, helping you to better manage your MAGI in retirement.
• Reducing RMDs with a qualified charitable distribution (QCD): If you’re charitably-minded and at least age 70½, taking a QCD can help reduce your MAGI. With a QCD, you can donate up to $108,000 in 2025 (estimated to be $115,000 in 2026) to a qualified charity directly from your IRA, which could satisfy all or part of your RMD. Although you can’t deduct a QCD as a charitable contribution, the withdrawal won’t count as taxable income.

4. Planning for long-term care

Long-term care costs include custodial help for activities of daily living and can be a significant risk to your financial situation in retirement without careful planning. Costs related to long-term care aren’t typically covered by Medicare, and very few retirees have insurance for it. Long-term care insurance can seem costly—annual premiums with 3% growth for a healthy 60-year-old average $2,610 for males and $4,550 for females in 2025—but with the median annual cost of a private room in a nursing home at $127,750 in 2024, and with the majority of people needing some form of assistance into older ages, it may be more expensive not to have it. 

Generally speaking, the most cost-effective time to buy is in your 50s to early 60s, and premiums may be tax-deductible if your overall medical expenses exceed 7.5% of your income. A financial planner can help you strategize ways to structure insurance to dampen the risk of future long-term care costs as well as discuss alternatives.

Medicare basics

When you turn 65 (or earlier if you have certain qualifying disabilities) you’re eligible for Medicare, the federal health insurance program for seniors. Medicare has several options to know about. At a glance:

• Part A is hospital insurance. It covers hospital stays, skilled nursing facility care, hospice care and some healthcare.
• Part B covers outpatient care, certain doctors’ services, medical supplies and preventive services.
• Part C (Medicare Advantage Plan) is a type of Medicare-approved health plan from a private company that you can choose to cover most of your Part A and Part B benefits instead of Medicare parts A and B.
• Part D is prescription drug coverage. This is extra coverage that people with Medicare can choose to help with the cost prescription drugs.

Bottom line on retirement health care costs

With the cost of care and health insurance premiums showing no signs of declining, taking proactive steps before and during retirement is essential to managing future health expenses—and should be an important part of your financial and retirement planning strategy.

Consider Medigap or Medicare Advantage

Medicare doesn’t cover everything, so many retirees choose either Medigap or a Medicare Advantage plan to cover costs like deductibles and copays. Medicare Advantage often includes extras like dental or vision, which can be a big plus.

Purchase travel insurance for medical emergencies abroad

Many retirees are active and mobile and enjoy traveling during this stage of retirement. However, it’s important to remember that Medicare generally doesn’t cover health services outside the U.S. Having travel insurance can cover medical emergencies abroad and provide peace of mind during trips.