Big Medical Costs Often Underestimated by Retirees

Planning for retirement is challenging, especially future health care costs since high unexpected health care costs often arise during retirement.

Most people enter retirement in relatively good health, and understand they will pay premiums for Medicare, supplemental Medicare insurance, and Medicare drug plans, along with some out-of-pocket costs not covered by these plans. Many will face extra costs that recur each year which are not covered. Unanticipated expenses can add tens of thousands of dollars to healthcare costs in retirement. Fidelity Investments estimate cumulative health care costs will range around $345,000 for the average couple throughout retirement, or $172,500 for an individual. Advancements in medicine have contributed to longer lifespans. With the average life expectancy for a 65-year-old now at 82 years, retirees should prepare for potentially 20 to 30-plus years of retirement and associated healthcare costs.

A primary factor in determining potential retirement health care costs is your health status and risk. If you smoke, visit the doctor frequently, or have 2 or more chronic conditions, you will likely incur higher costs than those free of chronic conditions. These include high blood pressure, high cholesterol, rheumatoid arthritis, osteoarthritis, heart disease, diabetes, chronic kidney disease, depression, Alzheimer’s disease, senile dementia, chronic obstructive pulmonary disease and cancer, asthma, and osteoporosis. Many conditions occur before age 65 which can help you assess your future health risk. A family history of any of these conditions can also increase your health risk.

Health Care Cost Inflation

Medical expenses generally rise faster than other costs, given the shift to more expensive services and emergence of new treatments and prescription drugs. Some retirees delay medical care or downgrade their health insurance to save money. This can create a cycle where retirees pay lower premiums, but pay more when they need medical attention.

Retirement Before Medicare Eligibility

You must be 65 to qualify for Medicare - unless you have a disability or other special circumstances. Many people have relied on employer-subsidized insurance plans while working. If you retire earlier than 65, health insurance costs are usually transferred to you as a former employee. If you are married, you can usually stay on your partner's plan if they are still working and have access to employer-sponsored coverage. This is usually the cheapest way to remain insured. Some employers offer continuing insurance coverage as part of a retirement package. If not, former employees might be able to remain on the employer plan through COBRA (Consolidated Omnibus Budget Reconciliation Act) where workers and their families can continue health benefits under a former employer's plan. COBRA allows individuals to continue the same coverage, but it is more expensive since

the employer no longer subsidizes the costs. Since COBRA usually only lasts for 18 months, other options must be explored until you are Medicare-eligible.

Drugs Not Covered by Any Insurance

A new federal requirement for Part D Medicare drug insurance states patients in Medicare drug plans do not have to pay more than $2,000 out-of-pocket annually for the drugs covered by their plan. However, this $2,000 cap ONLY applies to drugs that the Medicare Part D insurance or Medicare Advantage company include in a patient’s “formulary list.” Each policy differs on the drugs covered and the copay required. If the drug needed is not part of the “formulary,” a retiree may often pay far more than the $2,000 annual cap for their medications. Each year it is important to check the formulary lists for any expensive drugs before selecting a Medicare drug insurance plan. Insurance companies can change formulary lists from one year to the next, and you can change your insurance once a year during “open enrollment” periods.

Your Income and IRMAA Premiums for Medicare Part B (doctor visits) and Medicare Part D (prescription drugs) are based on income. Medicare Part A (hospital visits) is premium-free. Most people pay the standard premium for Medicare Part B ($185.00 monthly in 2025). This premium is subsidized by the federal government. The premium subsidy decreases as your income rises (using a 2-year lookback).

If your MAGI (modified adjusted gross income as reported on your IRS tax return two years prior) is above a certain $ amount, you must pay the standard Part B premium PLUS an income-related monthly adjustment amount, known as IRMAA. In 2025, premiums begin to increase for MAGI over $106K for single people or over $212K for married couples filing jointly. Premiums peak at $628.90 monthly for single filers with incomes exceeding $500K and married filers with incomes exceeding $750K.

Premiums for Medicare Part D (Rx plans) average $36.78 per month in 2025, but vary according to the plan you buy and where you live. Those with higher incomes pay a monthly “adjustment” that ranges from $13.70 to $85.80 per person.

Medical isolation

In isolated, rural areas, even routine medical care can depend on traveling to cities far away. This may require small private plane trips and multi-night hotel stays. Many move to retirement dream homes early in retirement, far away from urban life where health care is easily accessible. But when health issues crop up, they may need to travel for hours for the nearest treatment for serious conditions. For those with financial means, charter medical flights can be booked to see top doctors far away. But with a cost of $2O+K each way, it is prohibitively expensive for most. Many in-home caregivers will not travel to a remote property even if a patient has a long-term-care insurance policy, so these patients may

need to move into a nearby nursing home. Consider whether having the best medical care readily available is your highest priority or not.

Concierge care

In some affluent areas, doctors may turn away patients on Medicare and only accept new patients if they pay an annual fee for concierge medicine. While the average annual concierge retainer is about $3,500, fees up to $25,000 are becoming common. Nationally there are a growing number of concierge doctors, plus an even higher number of “direct pay” doctors. Direct pay doctors do not require annual retainers but will not accept Medicare or other health insurance. Patients must pay out of pocket for medical appointments, but their insurance usually covers medical tests.

Long-term care

Currently more than half of retirees are estimated to need long-term care. Medicare does not cover long term care needs including nursing home and custodial care. While some individuals may pay <$100K, at least 15% will pay >$250K for long term care. Affluent individuals may “self-fund” or pay for long-term care out of savings. Less affluent people can consider long-term care insurance or plan to tap into their home equity. One qualifies Medicaid (the government health program for the indigent that pays for custodial care) only if your savings are exhausted. This is not optimal for the final years of your life.

Are you prepared for retirement health care costs? We can help create a comprehensive retirement plan addressing healthcare costs and other critical aspects of your financial life.

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Best regards,

Janet Rhodes Friedman, CFP®, CDFA®, MBA

Janet@PlanWithFPS.com

617-630-4978

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.