Planning for Retirement Means Planning for Healthcare Too

Most professionals approaching retirement know they need a plan. What many underestimate (often drastically) is the size of the piece of that plan that should be devoted to healthcare. Retirement is no longer just about 401(k)s and Social Security. It’s about protecting yourself from unpredictable, rising medical expenses that could quietly dismantle even the most disciplined savings strategy.

This article is a deep dive into healthcare costs in retirement. If you’re planning smartly for the long haul, this is where your attention should be focused.

The overlooked cost of retirement: Healthcare expenses

Let’s start with a number most people underestimate, by a lot.

Milliman’s 2024 projections show that a healthy 65-year-old man will likely spend around $281,000 on healthcare over his lifetime. For a woman, the estimate climbs to about $320,000. This can be attributed largely to longer average life expectancy. Together, that pushes the total cost for a couple to well over $600,000, assuming they’re enrolled in Original Medicare with Medigap and Part D.

Now, even if you adjust those future costs to present value (using a conservative 3% investment return), you’d still need nearly $395,000 in savings set aside today just to meet those expenses. And remember, this doesn’t even touch long-term care. Which, as we’ll see later, is an entirely different (and very expensive) category on its own.

What makes this even more concerning? Healthcare inflation doesn’t just rise, but accelerates faster than most other expenses. Historically, it outpaces general inflation by 1.5 to 2 times. That means even if your retirement portfolio is doing well, healthcare can still eat into your income faster than expected. Over time, that gap compounds, and so does the risk to your budget.

And yet, the underestimation is consistent and widespread:

• Over two-thirds of pre-retirees underestimate their annual healthcare needs by at least $1,200.
• Nearly half of Americans over 60 say they couldn’t cover a $5,000 medical bill without dipping into their retirement savings.

The bottom line: you can’t afford to treat retirement healthcare costs as an afterthought.

Understanding the real components of healthcare costs

To plan well, you have to plan with precision. And that means understanding exactly what healthcare in retirement includes (not just what you think it does).

Healthcare in retirement isn’t a single bill. It’s a moving target made up of many parts, some obvious, others less so. Let’s break it down.

What Medicare covers (and what it doesn’t)

Once you turn 65, Medicare becomes your primary insurance. That sounds like a win. And in some ways, it is.

But here’s the catch: Medicare isn’t comprehensive. Not even close. It covers a good portion of your care, but leaves significant gaps that most retirees aren’t prepared for.

Let’s look at the structure:

• Part A (Hospital Insurance): Usually premium-free. Covers inpatient hospital care, some home health services, and short stays in skilled nursing facilities. However, this is limited to 100 days per benefit period.

  Beyond that?

  You’re on your own.

• Part B (Medical Insurance): Covers outpatient care like doctor visits, preventive screenings, and durable medical equipment. There’s a monthly premium (about $175 in 2024), and 20% coinsurance for most services.

  If you need regular care, this adds up fast.

• Part D (Prescription Drug Coverage): A separate plan with its own premium. It helps with medication costs, but doesn’t cap what you might pay for expensive or ongoing prescriptions. Many retirees underestimate this until it’s too late.

Where Medicare falls short

Even with all three parts in place, you’re still exposed to significant out-of-pocket costs. Here’s what Medicare generally doesn’t cover:

• Dental, vision, and hearing services, including basics like eye exams, hearing aids, and dentures.
• Deductibles, copays, and coinsurance vary widely and can be unpredictable.
• Long-term or custodial care that helps with daily living, such as bathing or eating, is largely excluded.
• Medical treatment abroad, including emergencies while traveling.

If you’re relying on standard Medicare alone, the gaps aren’t small. And if you don’t have a supplemental plan, they could derail your budget quickly.

Medigap vs. Medicare Advantage

This is where most retirees face a major fork in the road.

You have two main options for filling the coverage holes in Medicare, and both come with trade-offs.

Option 1: Original Medicare + Medigap + Part D

This path gives you broader flexibility and more predictable out-of-pocket costs.

• Higher monthly premiums, yes.
• But you can see any provider that accepts Medicare, with no network restrictions.
• Your costs are more stable, even if care becomes frequent or complex.

This works well for retirees with ongoing conditions or for anyone who values choice and consistency in care.

Option 2: Medicare Advantage (Part C)

This bundled alternative rolls Parts A, B, and often D into a single private plan.

• Lower premiums are available with some plans, advertising as low as $ 0 per month.
• But you’re limited to network providers, and referrals may be required.
• Out-of-pocket costs vary more, and caps can still be high.
• Some plans include extras, such as dental or vision, but benefits vary and may come with strings attached.

The right choice depends on how often you use care, how much flexibility you want, and how much risk you’re comfortable carrying.

The truth about coverage before 65

Planning to retire before Medicare kicks in? Then you have another hurdle: how to stay covered until 65.

This gap, even if just a few years long, can cost tens of thousands if not planned for.

Here are your main options:

• COBRA: Lets you continue your former employer’s plan for up to 18 to 36 months. But you’ll pay the full premium, which is often $1,000 to $2,000 per month, per person.
• Spouse’s employer plan: If your partner is still working and their plan allows it, this can be your most affordable bridge. But eligibility and timing matter, and don’t assume it to be automatic.
• Affordable Care Act (ACA) marketplace plans: Open to everyone under 65, and subsidies are available. But in 2026, the “subsidy cliff” returns. One small income spike, and your monthly premium could jump by hundreds.

ACA plan pricing also varies by state and zip code. In some places, even subsidized plans stretch the budget uncomfortably thin.

Bottom line?

If early retirement is in your future, insurance planning has to be part of the equation from day one.

Smart strategies for managing healthcare costs in retirement

Now that we’ve detailed the problem, let’s talk about how to take control. Financial planning for healthcare costs is all about setting proactive strategies in motion.

1. Maximize your HSA while you can

If you’re in a high-deductible health plan (HDHP), your best bet pre-retirement is to max out your Health Savings Account (HSA):

• 2025 limits: $4,300 individual / $8,550 family (+$1,000 catch-up if 55+)
• Triple tax advantage: tax-free contributions, tax-free growth, and tax-free withdrawals for qualified expenses

After age 65, you can even use HSA funds for non-medical expenses (taxable as income), making it one of the most flexible retirement planning tools out there. Few vehicles offer this kind of triple tax advantage.

2. Time Medicare enrollment correctly

Missing your Initial Enrollment Period (IEP) can lead to permanent penalties:

• Part B late penalty: 10% for each year you delay
• Part D penalty: 1% per month you delay, compounding over time

Unless you’re still working and covered under an employer plan, you need to act by age 65. These penalties may seem small, but over a 20+ year retirement, they can cost thousands.

3. Make the right Medicare decision for you

Don’t base your Medicare choice on what your neighbor (or even your sibling) picked. What works for someone else could end up costing you more in the long run. Your decision should reflect both your medical profile and your lifestyle priorities.

Start by asking yourself:

• Are you okay with Health Maintenance Organization (HMO) and provider restrictions?

Some Advantage plans limit your access to a specific network, and seeing an out-of-network provider could mean footing the full bill.

• Do you travel frequently, even across state lines?

Medicare Advantage plans don’t always offer the flexibility to access care outside your home region.

• Do you regularly see specialists?

If so, you’ll want a plan that doesn’t require referrals or approvals each time you book a visit.

These aren’t minor details. They directly affect how smoothly your care experience goes and how much you end up paying.

A thoughtful, well-researched choice between Medigap and Medicare Advantage could be the difference between budget predictability and surprise expenses. Done right, it can save you thousands in premiums, coinsurance, and frustration over time.

4. Strategically control your MAGI

Your Modified Adjusted Gross Income (MAGI) plays a much bigger role in retirement healthcare costs than most people realize. It’s not just a tax metric, but directly determines whether you’ll owe Income-Related Monthly Adjustment Amounts (IRMAA), which are added surcharges on your Medicare Part B and Part D premiums.

Simply put:

Higher income = higher Medicare premiums

And these surcharges aren’t small. For high-income retirees, they can add hundreds of dollars per month, per person.

But here’s the good news: MAGI is something you can plan for if you act early. A few proactive moves can go a long way in keeping those surcharges in check:

• Roth conversions (ideally before Medicare starts): Shifting taxable IRA funds into a Roth gradually helps reduce taxable income later.
• Tax-loss harvesting: Strategically selling investments at a loss can offset capital gains and reduce your MAGI.
• Municipal bonds: These bonds generate tax-free interest, and importantly, that interest doesn’t count toward MAGI.

MAGI thresholds can (and often do) shift each year based on inflation. That’s why ongoing planning matters. Work with a financial advisor to regularly review your income sources and keep your retirement plan IRMAA-resistant. A small adjustment today can prevent years of avoidable premium hikes.

5. Fill the pre-65 gap with a plan

If you’re planning to retire before 65, health insurance becomes one of the biggest financial roadblocks. Until Medicare kicks in, you’ll need a solid backup plan or risk paying far more than expected.

Here are your main options to bridge that gap:

• Stick with your employer coverage through COBRA: It can extend your current plan for up to 18 to 36 months. But beware, you’ll pay the full premium, often including a 2% admin fee. That can easily run into four figures a month.
• Join a spouse’s employer plan: If your partner is still working and their benefits allow it, this could be the most cost-effective path. But eligibility rules vary, so check early.
• Explore ACA marketplace plans: These can be a practical solution if you manage your income carefully. ACA subsidies are income-based, and even small increases in reported income could push you over a threshold. When that happens, subsidies vanish, and premiums can spike.

And that’s the real risk: without some kind of healthcare bridge in place, early retirement could cost you upwards of $20,000 a year, just in premiums for a couple. That’s money that could otherwise go toward travel, savings, or long-term care planning.

So, before you mark your last day at work, make sure you’ve done the math on this piece. The right bridge plan can buy you both time and peace of mind.

6. Factor in long-term care separately

Long-term care (LTC) is often the most overlooked piece of the retirement healthcare puzzle, and the most financially devastating if ignored. Medicare does not cover custodial care, which includes help with daily tasks, such as bathing, dressing, and eating. That’s not a gap but a canyon.

You need a dedicated plan, and it typically falls into one of three categories:

• LTC insurance: These policies help pay for assisted living, nursing homes, or in-home care. Yes, premiums have been rising. But buying in your 50s, while you’re still healthy, can lock in lower rates. Wait too long, and you risk being declined altogether or priced out.
• Hybrid LTC policies: These combine life insurance or annuities with long-term care coverage. If you never need LTC, your heirs get the death benefit. If you do, the policy helps cover the cost. It’s a flexible option for those hesitant about “use-it-or-lose-it” coverage.
• Self-funding: The riskiest route. You’ll need to earmark a six-figure reserve, possibly $300,000 or more, depending on your family history, longevity, and the level of care you might require.

Consider this: the average nursing home stay now exceeds $100,000 per year. And the average stay? Nearly 2.5 years. Without planning, those costs can quietly drain your portfolio and put your spouse or children in a tough position.

7. Prioritize preventive care and telehealth

This one’s deceptively simple and often underrated. Staying healthy now reduces costs later. It’s not just about diet or exercise (though those help). It’s about building consistent habits that minimize medical surprises and stretch your retirement dollars further.

Retirees who invest in regular checkups, screenings, and wellness programs often:

• Avoid costly emergency room visits.
• Detect chronic conditions early, when treatment is cheaper.
• Lower their prescription needs over time.

And don’t underestimate telehealth. Virtual doctor visits are more than a pandemic-era trend. They’re here to stay. They come with:

• Lower copays.
• Faster access to care.
• Fewer logistical hurdles, especially in rural or mobility-limited situations.

Wellness is a strategy that directly impacts your healthcare spending curve.

8. Stress-test your retirement plan

A “good” retirement plan isn’t one that works on paper when everything goes right. It holds up when things go wrong.

That’s where stress-testing comes in.

Run the numbers with uncomfortable scenarios, like:

• 6% annual healthcare inflation instead of 3%.
• A major illness in your third year of retirement.
• A surviving spouse who outlives you by 15 years, with rising care needs.

Ask yourself: Could your portfolio absorb that? Would your withdrawal strategy still hold? Would your spouse be protected?

If the answer is “not really,” then it’s time to reassess. Because durability matters. The best retirement plans are well-funded and shockproof.

9. Diversify your funding sources

When it comes to funding healthcare in retirement, there’s no single “best” account. What you want is a blend where each source plays its part in a larger, flexible strategy.

Here’s how smart retirees layer their income:

• HSAs: The holy grail for medical expenses. These are tax-free in, tax-free out, and flexible post-65.
• 401(k)s and Traditional IRAs: Great for long-term growth, but remember, withdrawals are taxed as income.
• Roth IRAs: No taxes on qualified withdrawals, making them perfect for income smoothing and IRMAA management.
• Taxable brokerage accounts: These offer liquidity and can help you bridge gaps or fund one-off expenses without triggering income surcharges.

This kind of diversification helps you control how and when you access money. And that kind of control is what keeps your long-term plan intact, even when healthcare costs spike unexpectedly.

How to plan for healthcare at every stage of retirement

Here’s how financial planning for healthcare costs should evolve:

Healthcare planning includes an evolving set of line items that rise, fall, and shift unpredictably. Treat it with the same rigor as any other long-term investment.

Your healthcare plan is your peace of mind plan

Healthcare costs in retirement are all about control. Control over your lifestyle, your choices, and your peace of mind.

Here are two insights to consider before you close this tab:

Insight #1: Healthcare and lifestyle are intertwined

Your travel plans, volunteering, or even downsizing homes all affect healthcare costs, whether through location-specific care availability, insurance options, or stress levels. Thinking in silos won’t cut it.

Tie your lifestyle plans and your health plans together.

Insight #2: Make healthcare planning a living process

Laws change. Your health changes. Your income streams evolve. Don’t build a static plan and assume it will hold for the next 30 years. Build annual reviews into your routine, and your future self will thank you.

Navigating retirement healthcare costs may not be the best DIY project. A qualified financial advisor can help you:

• Time Roth conversions to reduce IRMAA.
• Align your insurance choices with income and location.
• Stress-test your plan against medical volatility.
• Incorporate healthcare into your withdrawal strategy.

For additional information on retirement planning strategies that can be tailored to your specific financial needs and goals, visit Dash Investments or email me directly at dash@dashinvestments.com.

About Dash Investments

Dash Investments is privately owned by Jonathan Dash and is an independent investment advisory firm, managing private client accounts for individuals and families across America. As a Registered Investment Advisor (RIA) firm with the SEC, they are fiduciaries who put clients’ interests ahead of everything else.

Dash Investments offers a full range of investment advisory and financial services, which are tailored to each client’s unique needs, providing institutional-caliber money management services that are based upon a solid, proven research approach. Additionally, each client receives comprehensive financial planning to ensure they are moving toward their financial goals.

CEO & Chief Investment Officer Jonathan Dash has been profiled by The Wall Street Journal, Barron’s, and CNBC as a leader in the investment industry with a track record of creating value for his firm’s clients.