Why Healthcare Planning Matters

Retirement healthcare costs are often the biggest surprise expense in retirement—not because people suddenly get sick, but because most retirees underestimate what Medicare actually covers, how fast premiums rise, and how tax planning affects their out-of-pocket costs.  

One error I encountered from a retiree was selling a 2^nd home to upgrade the backyard to a pool. Not only did they not understand a second home did not have a tax exclusion, but they also had to take out significant withdrawals to pay for the taxes on the appreciated gains. A simple planning conversation could have prevented both the tax hit and the IRMAA spike. This is why coordinated income and Medicare planning are so essential.

A coordinated plan between your financial planner and a healthcare broker can prevent costly gaps, avoid IRMAA penalties, and help protect your long-term income. Without proactive Medicare planning, healthcare can strain even a well-prepared retirement.

How Much Healthcare Costs in Retirement

What are costs if you wait until age 65? Here’s what recent research shows for healthcare costs in retirement 2025/2026:

• Milliman’s 2024 Index estimates a healthy 65-year-old will spend around $197,000 on healthcare during retirement when using Original Medicare + Medigap + Part D.
• Using Medicare Advantage can reduce that estimate to $128,000–$147,000.
• Fidelity reports that the first year of healthcare alone can cost about $6,425 for a 65-year-old.
• Poor withdrawal timing—especially large 401(k) or IRA distributions—can unintentionally push retirees into higher IRMAA brackets.
• IRMAA surcharges can add $185 to $715 per month per person for higher-income households.

Retirement Timing Matters

The age you retire directly affects lifetime healthcare costs:

• Retiring at 60 instead of 65 increases lifetime costs by 56% (Original Medicare path) and up to 89% (Medicare Advantage path).
• Delaying retirement to 70 may reduce lifetime healthcare spending by 29–30% due to shorter enrollment periods and longer use of employer benefits.

These differences show why understanding when you retire—and how you structure your income—can dramatically affect lifetime healthcare costs.

What Medicare Covers — and What It Doesn’t

Medicare was never designed to be fully comprehensive. It was built around hospital and doctor care—not dental, vision, hearing, or long-term care. Understanding the gaps in Medicare is essential so you don’t get blindsided.

What Medicare DOES Cover:

• Hospital care (Part A)
• Doctor services, outpatient care (Part B)
• Prescription drugs with Part D or included in Medicare Advantage

What Medicare DOES NOT Cover (or only partially covers):

• Dental care, dentures, vision care, and hearing aids
• Certain prescriptions depending on Part D rules
• Cosmetic or alternative therapies
• Long-term care (daily living assistance)

Because of these gaps, many retirees pay significant out-of-pocket costs unless they add supplemental coverage like Medigap or choose Medicare Advantage plans with broader benefits.

Tools & Strategies to Cover Rising Costs

Health Savings Accounts (HSAs)

HSAs offer tax-deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses. They are one of the most powerful tools for future healthcare spending.

Supplemental Coverage: Medigap vs. Medicare Advantage

Choosing between Medigap and Medicare Advantage depends on your health, providers, travel needs, and prescriptions. Medigap generally offers more predictable costs, while Medicare Advantage may offer more bundled benefits but with potential network limitations.

Tax & Withdrawal Planning

Coordinating withdrawals across IRAs, Roth IRAs, and brokerage accounts helps control taxable income and avoid IRMAA penalties. IRMAA tax planning is a major lever in reducing lifetime healthcare expenses.

Budgeting & Lifestyle

Tracking today’s health costs helps predict tomorrows. Preventive care, fitness, and managing chronic conditions can significantly reduce long-term expenses..

How to Build Your Healthcare Plan

A great healthcare plan is not about predicting every medical event—it’s about eliminating surprises. Here’s the framework we use with clients:

1. Evaluate your current healthcare spending
2. Project retirement medical needs using realistic inflation and cost estimates
3. Determine your expected retirement age
4. Develop an income and tax strategy that minimizes IRMAA exposure
5. Select the right supplemental coverage with a healthcare broker
6. Review your plan annually—costs, rules, and health conditions all change

Bringing It All Together

Healthcare is one of the most predictable—yet overlooked—retirement expenses. By understanding what Medicare does and doesn’t cover, planning for lifetime costs, and coordinating taxes and income, you can protect your retirement lifestyle and enjoy greater peace of mind.

Next Steps

If retirement is approaching, or even a few years away, we can help you integrate healthcare planning into your overall retirement strategy. That includes estimating long-term costs, choosing the right coverage, and coordinating withdrawals to avoid unnecessary Medicare surcharges. A clear healthcare plan helps you protect your retirement lifestyle and stay focused on the people and priorities that matter most.

References

• How much will health care cost you in retirement? —Fidelity Communications
• 2024 Milliman Retiree Health Cost Index —Milliman
• What Medicare Does and Doesn’t Cover —Kiplinger
• Health Savings Accounts and rules for Medicare eligibility — IRS Publication 969; HealthEquity etc. IRS
• The Real Cost of Healthcare in Retirement — RBC Wealth Management