Top Healthcare Costs in Retirement

Presented by Trevor Kurth, CFP®

In a 2022 survey, 35% of workers reported they were either “not too” or “not at all” confident that they would have enough money to pay for their medical expenses in retirement.¹ 

Regardless of your confidence, however, being aware of potential healthcare costs during retirement will help you understand how much you should budget for healthcare in retirement.

The first step to becoming aware of potential healthcare costs is to understand the different types of expenses. Here, we’ll explain the three main categories of healthcare costs in retirement. 

Medicare Premiums

The first healthcare cost to consider is your Medicare Part B premium. According to Medicare.gov, your premium amount depends on your adjusted gross income (AGI) as reported on your IRS tax return.² Most people pay the standard premium amount of $170.10/month. However, depending on your AGI, your premium can go up to $578.30/month.

In addition to your premium, you’ll also have to consider the Part B deductible, which is $233 for 2022. After you meet your deductible for the year, you will likely pay 20% of the costs for most doctor services, outpatient therapies and some durable medical equipment (walkers, wheelchairs, canes, etc.).

Healthcare Copays

The next healthcare costs in retirement to consider are co-payments related to Medicare-covered services that are not paid for by Medicare Supplement Insurance plans (aka Medigap) or other health insurance. 

These copays can be for specialist visits, prescription costs and other healthcare needs that aren’t completely paid for by your insurance. Drug costs can vary by pharmacy, supplier costs, availability of a generic option and more. 

Speaking of prescription drug costs, once you and your plan spend a combined $4,430 (including deductibles) on drugs in 2022, you’ll pay no more than 25% of the costs for prescription drugs until your out-of-pocket spending reaches $7,050.³

Expenses Not Covered by Medicare

Lastly, there are the healthcare expenses that may not be covered by Medicare. This is where your healthcare costs in retirement have the potential to skyrocket. 

One example of a service that may not be covered by Medicare is long-term care. This includes medical and non-medical care for people unable to care for themselves. Medicare and most health insurance plans don’t pay for long-term care.

In addition to long-term care, Medicare does not cover expenses related to:⁴

• Most dental care
• Eye exams related to prescribing glasses
• Dentures
• Cosmetic surgery  
• Acupuncture  
• Hearing aids and exams for fitting them
• Routine foot care

While Medicare is a great option for many healthcare expenses for retirees, some people also choose to purchase a Medicare health plan to cover some of the above rather than paying out of pocket. Medicare health plans are health plans offered by a private company that contracts with Medicare to provide health benefits.⁵ They may cover expenses that the regular Medicare plan doesn’t.

One example of a Medicare health plan is a Medicare Advantage Plan. Medicare Advantage Plans are offered by Medicare-approved private companies and may offer a higher level of coverage, depending on your needs.⁶ Sometimes, Medicare Advantage Plans are called Medicare Part C.

The costs associated with a Medicare Advantage Plan will vary depending on the health insurance company you purchase your policy from. You can also choose between a Health Maintenance Organization (HMO) plan and a Preferred Provider Organization (PPO) plan. You must have Medicare Part A and Part B coverage to apply for a Medicare Advantage Plan.

There are many healthcare costs in retirement, from routine checkups to unexpected medical expenses. Building the costs of medical insurance into your retirement strategy is an important part of preparing for retirement.