Cost of Healthcare in Retirement

Managing Healthcare Costs surgeon in operating room.

As one of the largest expenses in retirement, most people nearing retirement worry about how they will pay for the cost of healthcare in retirement. Our guide explains the various ways you can offset costs.

By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC®:

According to a nationwide survey, an astounding 73 percent of respondents say one of their top concerns in retirement is paying for healthcare costs. Yet only a fourth claim to have discussed these concerns with their advisor. People often haven’t broached the topic because it feels it’s too personal to discuss with others.

How to Pay for Healthcare in Retirement

With healthcare expected to be one of the largest expenses you’ll have in retirement, it’s critical to discuss your retirement healthcare needs with your financial advisor. Your advisor can help you work through many different scenarios for covering costs including Medicare and HSA plans.

Start Saving Early

It’s important to start planning for your healthcare costs in retirement as early as possible. This will give you more time for your money to grow and time to choose the right options for your needs.

Additional planning tips include:

  • Get an estimate of your healthcare costs. Getting an estimate of what your healthcare costs in retirement might be can help you determine how much you need to save. There are several healthcare cost estimate calculators online that you can use.
  • Consider your general health. If you have chronic health conditions, you may need to plan for higher healthcare costs.
  • Be flexible. Since your healthcare needs may change over time, be flexible with your plans so you can adjust them as needed.


According to that same survey, 90 percent of older adults plan to use Medicare for their healthcare needs when they retire. Many, however, admit they don’t know what Medicare covers. Here’s a closer look:

Medicare coverage is designated using a variety of letters. The biggies are:

  • Part A. Covers major medical and inpatient care such as hospitals
  • Part B. Covers doctor’s visits and outpatient care
  • Part D. Covers prescription drugs

Most states offer Parts A-D, F, G, and K-N. Some states also offer Medicare Select which may require users to use in-network hospitals and doctors. It’s important to note that Medicare Part A coverage is free as long as you qualify for it. However, the bulk of Medicare is not free.

Medigap Supplemental Insurance

Medigap is another word for the supplemental insurance sold by private insurance companies. You may only purchase Medigap if you have original Medicare (Part A and Part B). It can be used along with Medicare Part A and Part B to fill in gaps in the coverage. These supplements help pay for your share of out-of-pocket costs.

Medigap policies are all standardized, offering the same basic benefits regardless of what state you live in and which company you purchase the policy from.

What You Should Consider with Medicare and the Supplements

The more money you make, the higher your Medicare Part B and D premiums will be. But there are options to offset these costs. Some things to consider when selecting the right plan:

  • The “original Medicare” plan consisting of parts A and B does not cover deductibles, copays, coinsurance, most dental care, most prescriptions, routine eye and hearing exams, fitness programs, long-term care, or services outside of the United States.
  • Distributions from HSA accounts, Roth IRA accounts, cash value life insurance policies, and income from reverse mortgages don’t count in the formula that determines your Part B premiums.
  • If you go with Medigap supplemental insurance to cover deductibles and co-payments, shop around as the prices vary wildly.
  • You may want to purchase an all-in-one Medicare Advantage plan. Though you may have a limited provider network, you may save on premiums over purchasing Medigap and Part D plans.
  • More importantly, you’ll want to enroll when you are first eligible or face late-enrollment penalties, even if you are still working at age 65. Plus, there are deadlines and eligibility dates for making changes. Your advisor can help you keep track of these.

How an HSA Covers Retirement Healthcare Costs

HSAs are similar to individual retirement accounts. Both employers and individuals can contribute pre-tax dollars for eligible individuals. Distributions are tax-exempt provided they are used for qualifying medical expenses. Additionally, HSAs do not have to be spent in the current calendar year, so the balance can be carried over indefinitely.

According to national surveys, 65 percent of workers are not using their HSA as an investment vehicle. Money in an HSA can be invested in stocks, bonds, mutual funds, certificates of deposit, and other similar investments. What’s more, to offset the cost of healthcare in retirement, HSAs offer a triple tax benefit:

  • Funds are deposited pre-tax
  • An HSA’s growth is tax-free
  • Distributions are tax-free as long as they are used for qualifying medical expenses


To take advantage of an HSA, you must meet several conditions. Here are the eligibility requirements for 2023:

  • Be covered under a high-deductible health insurance plan
  • Self-only coverage must have an annual deductible of at least $1,500 and annual out-of-pocket expenses not to exceed $7,500
  • Family coverage must have an annual deductible of at least $3,000 and annual out-of-pocket expenses not to exceed $15,000
  • A plan may not pay benefits other than preventive care until the insured or the insured’s family has incurred covered medical expenses over the annual deductible each year
  • You may not be covered by any other health insurance plan that is not a high-deductible health insurance plan, including a spouse’s or parent’s plan and Medicare
  • The insured may not be claimed as a dependent on another person’s tax return


Contributions for 2023 may be made up to $3,850 for self-only coverage and $7,750 for family coverage. If you are age 55 or older, you can contribute an additional $1,000 to an HSA. Additionally, contributions can be made for the previous year until the April tax filing deadline, similar to an IRA. You may also fund an HSA through a one-time, tax-free rollover from a traditional or Roth IRA.

Some of the qualified medical expenses include:

  • Medical plan deductibles
  • Long-term care insurance premiums
  • Diagnostic services
  • Some nursing services and drugs require a prescription, though some over-the-counter drugs can be reimbursed if a prescription is obtained
  • COBRA healthcare continuing coverage or insurance coverage while receiving unemployment benefits
  • Premiums for Medicare Part B -medical coverage for doctor’s care and outpatient services, Part D – prescription drug plans, or Part C – Medicare Advantage plans

Other Options to Offset the Cost of Healthcare

There are other options to help you cover the cost of healthcare in retirement. For instance, long-term care and other insurance policies can help cover the cost of in-home care. These policies come in many different sizes and options.

Long-term care insurance. Long-term care insurance can help pay for the cost of long-term care, such as a nursing home or assisted living facility. That said, long-term care insurance can be expensive, and not everyone qualifies for coverage. Shopping around and comparing policies before it’s time to retire is an important strategy.

Hybrid plans. There are also a number of hybrid plans available that combine some of the features of Medicare, Medigap, and long-term care insurance. These plans can be a good option for people who want more comprehensive coverage.

Retirement income. You’ll likely have access to social security benefits and IRA distributions as part of your overall retirement income strategy. Your financial advisor can help you create personalized healthcare cost estimates, recommend funding sources, project your savings needed to cover those costs, and work through the best tax-reduction options for your situation.

Work past retirement age. If you or a spouse are able to work past retirement age, you may be able to keep your employer-sponsored health insurance. A financial advisor can help you determine optimal timing strategies.

Downsize your home. If you have a large home, you may be able to downsize to something more affordable to maintain. This could free up money that can be used to pay for your health care costs.

Consider moving. Some states have lower healthcare costs than others. If you’re able to move, you may be able to save money.

When it comes to paying for healthcare in retirement, there are many intricate strategies like coordination with Medicare, excess contributions, and transfers through death or divorce. It’s important to discuss your healthcare needs with your trusted financial advisor, even if they are embarrassing to you. They can help you determine the best options for your personal situation.


Kris Maksimovich is a financial advisor located at Global Wealth Advisors 4400 State Hwy 121, Ste. 200, Lewisville, TX 75056. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (972) 930-1238 or

Look for additional articles on paying for healthcare. 

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