Managing Healthcare Costs in Retirement

Written by Canty Financial - Published on May 17, 2022

Saving for retirement is a top financial priority for most people over the course of their working life. In terms of retirement spending, we generally think about the cost of housing, travel, and other activities we’d like to pursue. 

However, one of the biggest costs in retirement is the cost of healthcare. Fidelity Investments does an annual study of the cost of healthcare in retirement for a hypothetical couple both aged 65. Their 2022 estimate of health costs in retirement for this couple was $315,000. This excludes any costs for long-term care expenses that might arise. This is roughly a 25% increase over the $245,000 estimate from their 2015 survey. 

Here are some thoughts on managing your health care costs in retirement. 

Understand Medicare 

Medicare is the core retirement health insurance program for most people. You become eligible for coverage at age 65, people with certain medical conditions may be eligible earlier. A few basics about Medicare to know: 

  • Medicare Part A provides hospital coverage and is free.
  • Part B provides coverage for various doctor visits and medical procedures, there is a charge based upon your income.
  • Part D is prescription drug coverage and is required. Part D is offered through Medicare-approved insurers and there is a charge for this coverage.  

Parts A and B are known as traditional Medicare. Original Medicare plus Part D coverage can also be obtained via plans such as a Medicare Advantage Plan. These plans are offered via Medicare-approved insurers.   

If you are taking Social Security at age 65 you will be automatically enrolled in Medicare. Otherwise, there is a window to enroll without incurring a penalty for signing up late. This is a seven-month window that stretches for three months prior to and three months after your 65th birthday, plus the month of your birthday. 

There is also a steep and permanent penalty for failing to sign up for prescription drug coverage on time or demonstrating that you have “credible” alternative coverage. 

If you are still working at age 65, coverage under your employer’s health insurance provides an exemption as long as the company has 20 or more employees. If your spouse is employed and has workplace health insurance your coverage under the plan can also serve as an exemption. 

You will need to be aware of what Medicare covers and what it doesn’t, as well as any deductibles and copays. There are a lot of costs not covered, though some of these expenses might be covered under a Medicare Advantage or similar type of plan. 

Your HSA 

If you have access to a health savings account (HSA) while you are working, this can serve as a vehicle to save for healthcare costs in retirement. Contributions to the account are made on a pre-tax basis and withdrawals are tax-free if used to pay for qualified medical expenses. The beauty of an HSA is that the balance in the account can be carried over from year to year if not used. 

If you can cover out-of-pocket medical expenses from other sources, the HSA can be used to cover health care costs in retirement. These might include deductibles and co-pays from Medicare, eligible long-term care premiums as well as expenses that Medicare typically doesn’t cover such as the cost of eye exams related to glasses, hearing aids, and related exams, and a number of other costs. Note that you cannot make additional HSA contributions once you are covered by Medicare. 

Retiree Medical Coverage 

Some employers offer medical coverage for retired employees. This coverage can take many forms, cost and the level of coverage can vary widely. In some cases this might be a continuation of your coverage while working, in others, it may be a coverage plan specifically for retirees. 

Many retiree health plans are tied to Medicare, often playing a supplementary role to Medicare once you reach age 65. Retiree medical coverage is generally more common in the public sector than in the private sector.   

In recent years a number of employers have altered or canceled their coverage, it's important to understand all aspects of your company’s plan. Typically premiums and the continuation of coverage are not guaranteed. 

In some cases when companies offer older workers a buyout deal to entice them to leave the company, one of the sweeteners is to extend their company medical coverage for a time, for example until they are Medicare eligible. 

Early Retirement – Bridging the Gap to Medicare 

For those looking to retire early, or at least leave the corporate world, figuring out their health insurance situation is a key consideration. For someone retiring at age 55, that’s ten years that they have to bridge the coverage gap until they are eligible for Medicare. 

COBRA might be a solution for those who are age 62 or older. COBRA is a government-mandated continuation of health coverage that applies to most private-sector employers with 20 or more employees. COBRA allows you to continue your employer's health care coverage for up to three years. The catch is that it is expensive, as you will generally pay the full cost of the coverage without any subsidy from the employer. 

If your spouse continues to work, you may be able to take advantage of spousal coverage under their plan. 

You may need to obtain health insurance coverage privately, either through the Health Insurance Marketplace for your State under the Affordable Care Act or through an insurance agent who specializes in health insurance. 

If you are planning to retire prior to Medicare eligibility, planning for your health insurance needs is a critical planning issue to address beforehand. 

Long-Term Care 

A major potential retirement health care expense not included in the Fidelity number referenced above is long-term care. This might include care in a nursing home or assisted living facility. It might include some sort of in-home care. These costs can be expensive and should be included in your planning. 

Long-term care insurance is a potential solution as is self-insurance if your nest egg is large enough. Planning is key here, however. 


Planning for health care costs in retirement is critical as this can represent a significant expense over time. Failing to adequately plan for these costs can unravel even the best-laid retirement financial planning. 

If you are looking for a fee-only fiduciary financial advisor who will always put your interests first, please give us a call to discuss options for dealing with health care expenses in retirement or any other financial issues. We are here to help.

Bill Canty, CFP®, CPA

Ed Canty, CFP®

Joe Canty, Investment Advisor Rep.

Maureen Walsh, EA, Investment Advisor Rep.

Tina Alteri, CPA, Tax Advisor

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