Health care costs in retirement: common and unexpected expenses

By Jason R. Friday, CFP®, MPAS®, RICP®, CMFC, Head of Financial Planning | Citizens Wealth Management

_{As Head of Financial Planning, Jason is a strategic partner who is responsible for developing the strategy, managing the planner teams, and coordinating personal financial planning activities across Citizens Wealth Management to help clients navigate and grow in changing circumstances.}

When you think of retirement planning, you might have an eye on traveling the world or building a legacy for future generations. But health care costs in retirement — especially unexpected ones — can hinder your plans.

According to data from the Employee Benefits Research Institute, couples relying on Medicare have a 90% chance of meeting their health care spending needs if they have between $188,000 saved (and use Medicare Advantage) and $366,000 (and use Medigap).¹

But medical expenses in retirement don't have to catch you off guard. By planning for those costs now, you'll know what steps to take when your employer-sponsored or other medical coverage ends.

Medical expenses in retirement

Your health care costs in retirement will depend on many factors, including your health and lifestyle, when you retire and how long you live. But no matter your age or health, it's easy to be surprised by the true costs of health care.

During your working years, you may have access to health insurance through your employer. Regardless of the plan or its costs, it at least keeps you from footing the entire bill. In fact, U.S. employers cover roughly 80% of medical insurance premiums for their employees.² When you factor in copays and negotiated costs, your share of a health care bill amounts to a fraction of the true cost.

In retirement, however, that changes. Generally, you won't have your employer's medical coverage anymore. So, unless you're covered by your spouse's workplace plan, you may become responsible for 100% of your health insurance premiums until Medicare kicks in. Even once you have Medicare, it doesn't cover everything, and the premiums could be high if your retirement income is in the six-figure range.

Retiring before age 65: health insurance options

Retirement brings its fair share of changes — from where you live and how you spend your time to where you get your health insurance. However, the timing of the start of your retirement can also play a significant role in how you'll cover your medical expenses.

If you retire before age 65, you'll need to bridge the gap between the end of your employer's medical coverage and the start of Medicare. Some of your medical insurance options include:

• COBRA coverage: While it can be pricey, you may be able to continue your employer's health insurance plan when you retire for a limited time. However, you become responsible for paying the full cost of the plan, plus a 2% administrative fee.³
• Marketplace health insurance plans: These plans can help you adjust premiums and coverage to fit your budget. The average monthly premium is $497, although cost can vary based on the plan level and other factors.⁴
• Private insurance: Choosing a plan from a private insurer may help you tailor medical coverage to fit your unique health and budget needs.
• Coverage from your spouse's insurance: If your spouse hasn't yet retired, you may be able to be insured by their plan.
• Part-time work for medical coverage: Some major employers offer health insurance to part-time employees.

If your interim insurance plan has higher out-of-pocket costs than you had with your employer's plan, a health savings account (HSA) could help. The power of the HSA comes from its tax advantages, including tax-deductible contributions, tax-deferred treatment of growth, and tax-free withdrawals for qualified medical expenses now or in retirement.

Having HSA funds set aside could support your financial well-being in two important ways. First, those funds could help you avoid tapping your individual retirement account or 401(k) early, which may result in penalties before age 59½. Similarly, an HSA could provide a financial cushion that gives you more flexibility to delay claiming Social Security, which may allow you to receive a higher monthly benefit later in retirement.

Retiring at age 65 or later: health insurance options

If you retire at age 65 or later, you can immediately transition from your employer's health care plan to Medicare, which has two main plans: Original Medicare and Medicare Advantage. Both have several moving parts that include hospital, medical and prescription drug coverage. It's important to understand your options so you can plan for them.

Original Medicare

If you opt for Original Medicare, your insurance includes Part A and B, and you can add on optional coverage like Part D or Medigap.

• Part A is your hospitalization insurance and covers expenses like inpatient care at hospitals, skilled nursing facility care, home health care and hospice. Medicare taxes you paid during your working years cover these premiums. It covers 80% of your care costs once you meet the deductible, which is $1,676 in 2025.⁵
• Part B covers your medical care from providers, including preventive care like annual physicals. In 2025, Part B premiums start at $185 per month, but could go as high as $628 if your income is above certain thresholds. The annual deductible for all Part B enrollees is $257 for 2025.⁶
• Part D covers prescription drugs and has a separate income-based monthly premium, with an average cost of $46.50 per month.⁷ Starting in 2026, retirees with Part D plans will have annual out-of-pocket medication costs capped at $2,100.⁸
• Medigap is extra insurance you can purchase with Original Medicare to cover expenses that the plans don't cover. Medigap can pay for costs like your deductible, your 20% co-insurance after you've met your Part A deductible each year and copays for care. Premiums will vary depending on your plan, where you live and the insurer you choose.

Medicare Advantage

Medicare Advantage, also known as a Part C plan, is a private Medicare plan that includes Parts A and B, and typically Part D. These plans work more like the health insurance you're used to having during your working years. They include dedicated physician networks, annual out-of-pocket maximums, and comprehensive coverage for most of your health care needs.

Your costs will vary depending on where you live, the insurer and the plan you choose. Unlike Original Medicare plans, many Advantage plans cap your premium costs at your Medicare Part B premium. Some plans may kick in to help cover those costs as well. Once you hit your annual out-of-pocket limit, these plans pay 100% of your covered care costs for the rest of the year.

While these plans can benefit a wide range of retirees, you may need to do some research and compare costs to identify the insurer, premium and plan that best suits your needs.

Planning for other health care costs

A comprehensive financial plan goes beyond having a budget for health insurance later in life. It should also include strategies to meet unexpected medical expenses in retirement head-on. By considering your personal and family medical history, a financial advisor can help you plan for potential expenses like:

• Long-term care: Nearly 70% of 65-year-olds will need long-term care at some point in their life, typically lasting around three years.⁹ The average nursing home in the U.S. exceeds $100,000 per year.¹⁰
• Critical illness: Long-term illnesses like cancer and cardiac and lung disorders can require significant lifestyle and financial adjustments to accommodate treatment.
• Disability: Should you or your spouse become disabled, monthly care costs — including in-home care, home modifications and medical bills — can be substantial.

Financial planning is financial security

A well-rounded financial plan is one that travels with you through every life stage. Retirement is so much more than just decades of saving to fund your hopes and dreams. It's also about protecting yourself and your loved ones financially no matter what comes your way.

A Citizens Wealth Advisor* can help build a personalized financial plan that accounts for both the expected and often overlooked expenses in retirement. The right plan today can provide financial confidence and clarity for decades to come.

Find an advisor