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Most people approaching retirement haven't factored healthcare into their budget or assume Medicare covers everything. It doesn't. Let’s talk about how much healthcare costs in retirement, what Medicare covers (and what it doesn't), and how to build these expenses into your plan so you're not blindsided.
What to Consider About Healthcare Costs in Retirement
1. Understand What Medicare Covers (and What It Doesn’t)
Medicare becomes available at age 65, but it’s not a one-size-fits-all solution. Here’s a quick breakdown:
Medicare Coverage Breakdown:
- Part A: Hospital insurance covers inpatient care in hospitals, skilled nursing facility care, hospice care, and some home health care.
- Part B: Medical insurance covering services from doctors and other healthcare providers, outpatient care, home health care, durable medical equipment, and many preventive services.
- Part D: Prescription drug coverage provided through private insurance companies approved by Medicare.
- Medicare Advantage (Part C): Bundled plans offered by private companies that include Part A, Part B, and usually Part D, with additional benefits like dental or vision coverage.
Remember, Medicare doesn’t cover everything. Long-term care, dental, and vision services often require separate coverage or out-of-pocket payments.
2. Your Options for Health Insurance Before 65
If you retire before age 65, you may need to secure alternative health insurance until you become eligible for Medicare. Options include:
- COBRA: If you’ve worked for a company with 20 or more employees, you may be eligible to continue your employer’s insurance for up to 18 months. Be prepared for higher premiums, though.
- Marketplace Insurance: The Health Insurance Marketplace offers plans with potential subsidies based on your income. These can be a good option before you qualify for Medicare.
- Health Savings Accounts (HSAs): If you’ve been contributing to an HSA while working, you can use that money tax-free for qualified medical expenses. In 2025, the contribution limit is $4,300 for self-only coverage and $8,550 for family coverage. If you're 55 or older, you can contribute an additional $1,000 as a catch-up contribution.
- Spouse or Partner Coverage: If your spouse or partner has employer insurance, you may be able to join their plan.
3. Plan for Long-Term Care
Long-term care isn’t just about nursing homes. It includes assistance with daily activities like bathing, dressing, and eating, which can be expensive. In 2025, the national average cost for a semi-private room in a nursing home is about $10,965 per month.
Options to help cover these costs include:
- Long-Term Care Insurance: Premiums vary based on age and health. For example, a 60-year-old might pay around $1,200 annually, while a 65-year-old could pay about $1,900.
- Hybrid Life Insurance Policies: These combine life insurance with long-term care benefits.
- Self-Funding: If you have significant savings, you might choose to pay out-of-pocket for long-term care.
