Healthcare is one of the largest and least-predictable categories of retirement spending. National studies regularly estimate that a 65-year-old couple may spend several hundred thousand dollars on healthcare over the course of retirement. The number is unsettling on its face, but it becomes manageable when broken into the categories you can actually plan around.
Medicare 101: the four parts
Original Medicare has two pieces — Part A and Part B. From there, you typically add Part D for prescriptions and either a Medigap supplement or a Medicare Advantage plan.
- Part A (Hospital) — covers inpatient hospital stays, skilled nursing facilities, and hospice. Premium-free for most people who paid Medicare taxes for at least 10 years.
- Part B (Medical) — covers doctor visits, outpatient care, preventive services. Comes with a monthly premium tied to income.
- Part D (Prescription Drug) — sold by private insurers, covers prescription medications.
- Part C (Medicare Advantage) — bundled alternative to Original Medicare, often including drug coverage.
IRMAA: the surcharge most people don't see coming
Higher-income retirees pay more for Medicare Parts B and D. The surcharge is called the Income-Related Monthly Adjustment Amount (IRMAA). It is based on your modified adjusted gross income from two years prior. A large Roth conversion, a real estate sale, or a one-time bonus can quietly push you into a higher IRMAA bracket for the year that follows.
What Medicare does NOT cover
These are the gaps that often surprise retirees:
- Routine dental, vision, and hearing — generally not covered by Original Medicare.
- Long-term custodial care (extended help with activities of daily living) — Medicare covers only limited short-term skilled care.
- Care received outside the United States — usually not covered.
- Some over-the-counter medications and certain elective procedures.
Long-term care: plan early, decide deliberately
Roughly half of retirees will need some form of long-term care during their lifetime. Options to plan for the cost include:
- Traditional long-term care insurance
- Hybrid life-with-LTC riders
- Annuity-based long-term care coverage
- Self-funding through dedicated savings or home equity
The right approach depends on age, health, family resources, and risk tolerance. Premiums for traditional policies often look most reasonable in the late 50s to mid-60s, when applicants are still likely to qualify medically.
Health Savings Accounts as a stealth retirement account
If you have access to a high-deductible health plan during your working years, the Health Savings Account (HSA) offers a rare combination: contributions, growth, and qualified medical withdrawals are all tax-free. Many of our clients treat the HSA as a long-term retirement healthcare account rather than spending it down each year.
Frequently Asked Questions
When do I need to enroll in Medicare?
Most people enroll during the seven-month window around their 65th birthday. If you delay past 65 without other qualifying coverage (such as an active employer plan), late-enrollment penalties may apply for life.
Will my Medicare premiums go up if I do a Roth conversion?
Possibly. Because IRMAA uses income from two years prior, a large Roth conversion can raise Medicare premiums for the following year. Planning the conversion size in advance helps keep premium increases predictable.
Can I use my HSA to pay Medicare premiums?
Yes. Once you are 65, HSA funds can be used tax-free for Medicare Parts B, D, and Medicare Advantage premiums, as well as most qualified medical expenses.
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