If you are preparing for retirement, one of your primary considerations should be to adequately account for future medical costs. Too often, individuals prepare for retirement through careful stewardship of investments and retirement funds, but fail to account for future medical costs in their calculations. This mistake can leave individuals ill-prepared for the cost of their medical and health services throughout their retirement.


The Critical Need to Prepare

Ensuring your financial future is secure requires recognizing the important role of future medical expenses. Retirement is a period of time where you have the opportunity to slow down and enjoy the life that you have created with your hard work. When preparing for retirement, individuals have to balance a variety of competing interests. From saving for their retirement, to buying investment properties to produce passive revenue streams, to saving for their children’s college expenses, future retirees must make difficult decisions about how to allocate their resources to achieve their goals.

In weighing these decisions, individuals must also take into account expenses for medical and health services as an important component of their retirement budget. It is crucially important to begin saving for future medical expenses early. Maintaining your health and ensuring that an adequate level of care is available to you throughout your retirement is a basic, but vital, consideration. The transition from employer-provided health care to Medicare results in different expenses than many employer-provided plans. Additionally, the need to use health care services rises as we age, resulting in rising costs over time.


Anticipated Medical Costs During Retirement

The first item to consider when projecting future medical costs is the transition to Medicare. Medicare is a federal health insurance program primarily meant for individuals 65 and older, although there are some exceptions to this. Adults in the United States become eligible to switch to Medicare at 65, although some adults can delay enrollment if they continue to receive employer-provided health care.[1]

For most adults, transitioning to Medicare occurs at or around the same time that they retire. Medicare is a large and complex system that is important to understand when trying to anticipate costs for medical treatment during retirement.

According to a report by HealthView Services, healthcare costs for an individual at 65 years of age an average of $5,684 per year. For a 65-year-old couple, this would result in an average cost of $11,368 per year. Additionally, out-of-pocket medical expenses for medicine or other patient care is expected to rise an average of 5.47% annually in the coming years, making it crucially important to anticipate future medical costs and begin saving as soon as possible. In order to get a better understanding of where these costs are coming from, let’s take a look at the different parts of Medicare.

Medicare Part A

Medicare Part A covers inpatient hospital visits, hospice care, care provided in a nursing facility, or home health care visits. Medicare Part A is premium-free provided you or your spouse paid Medicare taxes for more than 40 quarters. In other words, if you are receiving your full social security benefits, Medicare Part A is premium-free. However, there is a deductible associated with Medicare Part A of $1,316 for the benefit period.[2]

Medicare Part B

Medicare Part B provides many of the same benefits as standard health insurance. Included in Medicare Part B are general doctor’s visits, mental health care, outpatient services, and preventative care. Medicare Part B has a standard premium associated with it. In 2018, the premium for Medicare Part B is $134 per month but may be higher depending on your income. There is also a deductible of $183 per year, after which point you will typically be required to pay 20% of the cost for approved services.[3]

Medicare Part C

Medicare Part C encompasses plans that are alternatives to Parts A & B. Some of these plans are known as Medicare Advantage Plans, which may be offered by an HMO, PPO, or other organizations. Medicare Part C has a wide variation between premiums, deductibles, and coverage between plans.[4]

Medicare Part D

Medicare Part D offers prescription drug coverage. There is a premium and deductible associated with Medicare Part D. The premium averages $408 per year, while the deductible is $400 a year. It is also important to note that many Medicare Advantage Plans provide prescription drug coverage as well.[5]


For individuals who choose Medicare Parts A and B, there may be gaps in their coverage. Medigap policies are contracted through private companies as a means of supplementing coverage. The average premium for Medigap is $183 per month, but this can vary depending on the coverage chosen and the provider.[6]


Early Retirement Health Insurance Costs

Given the average costs of health care for an individual at retirement age, the necessity for creating a robust medical savings plan is an important consideration when preparing for retirement. However, many people transition into retirement before the age that they are eligible for Medicare. The result is often much higher medical insurance premiums. If you anticipate a gap in coverage between employer-provided health care and Medicare, you must take this into account when determining your retirement costs for medical treatment and services.

For most, coverage options include private health care options though insurance providers and the Affordable Health Care (e.g. Covered California for those within the state). It is often beneficial to work with an independent insurance agent to see what coverage options are available for those not yet eligible for Medicare.