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You've saved for retirement. You've planned your income. But have you truly accounted for one of the biggest expenses you'll face: healthcare?
Healthcare costs in retirement are rising faster than general inflation, and they're one of the most unpredictable expenses retirees face. Even with Medicare, out-of-pocket costs for premiums, deductibles, copays, prescriptions, and long-term care can add up quickly.
At Chesapeake Financial Planners, we help pre-retirees and retirees build healthcare costs into their retirement plans—so you're not blindsided by expenses that could derail your financial security.
How much should you expect to spend on healthcare in retirement?
According to recent estimates, a 65-year-old couple retiring today can expect to spend approximately $300,000 or more on healthcare expenses throughout retirement. That figure includes Medicare premiums, out-of-pocket costs, and prescription drugs—but it does not include long-term care, which can add hundreds of thousands more.
Healthcare costs vary widely based on:
- Your health status and family medical history
- Where you live (costs differ significantly by region)
- The type of Medicare coverage you choose
- Whether you need long-term care
The key takeaway? Healthcare is not a minor line item—it's a major retirement expense that requires strategic planning.
Understanding Medicare: The foundation of retirement healthcare
Medicare is the federal health insurance program for people age 65 and older (and some younger individuals with disabilities). It's the backbone of retirement healthcare, but it doesn't cover everything.
Medicare has four parts:
Medicare Part A (Hospital Insurance)
Covers inpatient hospital stays, skilled nursing facility care, hospice, and some home health services. Most people don't pay a premium for Part A if they've paid Medicare taxes during their working years.
Medicare Part B (Medical Insurance)
Covers doctor visits, outpatient care, preventive services, and medical equipment. Part B requires a monthly premium—$174.70 in 2024 for most people, though higher earners pay more through IRMAA (Income-Related Monthly Adjustment Amount).
Medicare Part C (Medicare Advantage)
An alternative to Original Medicare (Parts A and B) offered by private insurers. These plans often include prescription drug coverage and may offer additional benefits like dental or vision—but they come with network restrictions and prior authorization requirements.
Medicare Part D (Prescription Drug Coverage)
Covers prescription medications. If you have Original Medicare, you'll need to purchase a standalone Part D plan. Costs vary based on the plan you choose and your income level.
What Medicare doesn't cover
While Medicare is comprehensive, it has significant gaps:
- Dental, vision, and hearing care (except in specific circumstances)
- Long-term care in nursing homes or assisted living
- Custodial care at home
- Many out-of-pocket costs including deductibles, copays, and coinsurance
This is where Medicare Supplement (Medigap) plans or Medicare Advantage plans come in to fill the gaps.
Medicare Supplement (Medigap) vs. Medicare Advantage
When planning your Medicare strategy, one of the biggest decisions you'll make is whether to stick with Original Medicare plus a Medigap plan, or switch to a Medicare Advantage plan.
Medigap plans:
- Fill the gaps in Original Medicare (deductibles, copays, coinsurance)
- Offer nationwide coverage—you can see any doctor who accepts Medicare
- Require a separate Part D plan for prescriptions
- Charge a monthly premium in addition to your Part B premium
Medicare Advantage plans:
- Replace Original Medicare and often include prescription drug coverage
- May offer lower premiums or even $0 premiums
- Often include extra benefits (dental, vision, gym memberships)
- Require you to use in-network providers and may require prior authorization for services
Which is better? It depends on your health, budget, and preferences. We help clients evaluate both options based on their unique situation.
The hidden cost: Income-Related Monthly Adjustment Amount (IRMAA)
If your income exceeds certain thresholds, you'll pay higher premiums for Medicare Part B and Part D through IRMAA. This surcharge is based on your Modified Adjusted Gross Income (MAGI) from two years prior.
For example, in 2025, IRMAA kicks in if your 2023 income exceeded:
- $103,000 (individual)
- $206,000 (married filing jointly)
The surcharges increase progressively, and high earners can pay several hundred dollars more per month.
Strategic planning matters: Large IRA distributions, Roth conversions, or one-time income spikes (like a business sale) can push you into IRMAA territory. We help clients manage their income to minimize these surcharges or appeal them when a life-changing event (like retirement or widowhood) justifies a reduction.
Prescription drug costs: A moving target
Prescription drug costs are one of the most variable healthcare expenses in retirement. Medicare Part D helps, but coverage varies widely by plan, and costs can change year-over-year.
Key considerations:
- Formularies change annually: The medications covered by your Part D plan can change each year, so it's important to review your options during the annual Open Enrollment period (October 15–December 7).
- Coverage gaps ("donut hole"): While the Affordable Care Act has reduced the donut hole, you may still face higher out-of-pocket costs once you reach a certain spending threshold.
- Catastrophic coverage: If your drug costs are extremely high, you'll eventually reach catastrophic coverage, where Medicare pays most costs—but getting there can be expensive.
Planning for long-term care: The elephant in the room
Medicare does not cover long-term custodial care—help with daily activities like bathing, dressing, or eating—whether at home, in assisted living, or in a nursing home.
The average cost of long-term care varies by location and level of care:
- Home health aide: $30–$35 per hour
- Assisted living facility: $4,000–$6,000+ per month
- Nursing home (private room): $9,000–$10,000+ per month
Long-term care can quickly deplete retirement savings. Options to plan for this include:
- Self-funding: Setting aside dedicated assets to cover potential costs
- Long-term care insurance: Purchasing a policy to cover future care needs (best done in your 50s or early 60s)
- Hybrid policies: Life insurance or annuities with long-term care riders
- Medicaid planning: For those with limited assets, Medicaid may cover long-term care costs, but strict income and asset limits apply
Healthcare planning strategies for retirees
1. Estimate your healthcare costs early
We help clients project healthcare expenses based on their health, family history, and coverage choices—so they're not caught off guard.
2. Coordinate healthcare with your retirement income plan
Healthcare premiums and out-of-pocket costs should be built into your spending plan, and we help you manage income to minimize IRMAA surcharges.
3. Maximize Health Savings Accounts (HSAs)
If you're still working and have a high-deductible health plan, maximize HSA contributions. HSAs offer triple tax benefits and can be used tax-free for qualified medical expenses in retirement.
4. Review your Medicare options annually
Plans change every year, and so do your needs. We recommend reviewing your coverage during Open Enrollment to ensure you're getting the best value.
5. Consider long-term care planning
The earlier you address long-term care, the more options you'll have. We help clients evaluate whether insurance, hybrid policies, or self-funding makes the most sense.
Your next step
Healthcare costs are one of the most significant—and most overlooked—retirement expenses. Planning for them isn't optional; it's essential to protecting your financial security.
At Chesapeake Financial Planners, we integrate healthcare planning into your overall retirement strategy, helping you understand your options, minimize costs, and prepare for the unexpected.
Ready to build healthcare costs into your retirement plan? Schedule a complimentary consultation with our team today.
This material is for educational purposes only and is not intended as medical or insurance advice. Medicare rules and costs are subject to change annually. Please consult with a licensed insurance agent or Medicare specialist for personalized guidance.
Long-term care insurance is subject to underwriting, and premiums can increase over time. Coverage options and costs vary significantly by carrier and policy design.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Great Valley Advisor Group, a registered investment advisor and separate entity from LPL Financial.
Chesapeake Financial Planners | 2402 Scotlon Ct, Forest Hill, MD 21050 | (410) 652-7868 | www.chesapeakefp.com