Healthcare in retirement: Costs, concerns, and solutions

For many people approaching or even thinking about retirement, paying for healthcare is the single most pressing financial concern, according to a joint study from eHealth and Retirable. Mysteries abound, including how much it will cost. And for those who plan to retire early, before Medicare eligibility at age 65, the questions only multiply.

To help navigate the uncertainty, we spoke to wealth advisor Dennis Norwood, CFP^®, as well as David Champion and Chris Mamula, CFP^®, two early retirees and contributors to a personal finance blog.

“There’s not a whole lot you can be certain of, but you can shift things in your favor,” Mamula says.

Those favorable shifts aren’t possible without careful retirement planning. We’ll examine some strategies—but first, let’s look at the data.

Healthcare costs and concerns, by the numbers

Americans aren’t just living longer than ever—they’re looking forward to it. The majority of Americans want to live to 100, according to research from Corebridge Financial. The idea of working longer, however, isn’t met with the same enthusiasm. Expectations for early retirement—between age 50 and 61—increase with each succeeding generation, per the same Corebridge report.

With more and more Americans hoping for potentially four decades in retirement, many of them are stuck wondering how they’ll be able to afford it. Healthcare costs are the top financial concern for people between the ages of 60 and 70, according to the eHealth/Retirable survey. But most aren’t prepared: Only 33% of current retirees and 38% of those not yet retired had set aside funds exclusively for healthcare expenses in retirement.

Anxiety around paying for healthcare in retirement isn’t unwarranted. According to the Bureau of Labor Statistics, the average annual spend on healthcare for a couple 65 and older is more than $15,000.

Ways to pay for healthcare expenses in retirement

Let’s take a closer look at some of the most common approaches to healthcare coverage in retirement, so you can budget accordingly.

Relying on Medicare

Most people become eligible for Medicare when they turn 65. If you aren’t covered by another healthcare option (such as from an employer) and fail to sign up during the six-month initial Medicare enrollment period, you may face penalties in the form of increased premiums.   

Basic coverage, according to Medicare.gov, consists of Part A (hospital insurance) and Part B (medical insurance). Per the Social Security Administration, part A is free if you were part of the workforce and paid Medicare taxes for at least 10 years. For Part B, most people will pay a monthly premium that’s calculated based on their income.

Basic Medicare—Parts A and B—typically covers:

• Inpatient hospital services
• Inpatient mental health care in a psychiatric facility (up to 190 total days during your lifetime)
• Short-term skilled nursing care and rehabilitation (such as inpatient physical therapy after a joint replacement)
• Hospice care
• Home health services
• Doctor visits and outpatient care
• Durable medical equipment (such as wheelchairs and walkers)
• Preventative care and screenings
• Ambulance services

Medicare Parts A and B don’t cover:

• Long-term care
• Dental care and dentures
• Eye exams
• Hearing aids
• Chiropractic care (although some manual spinal manipulation treatments may be reimbursed)
• Routine podiatry
• Cosmetic or elective surgery
• Massage therapy

Medicare eligibility is the big target, Norwood says. But remember: While Part A might be free in the sense that you don’t pay a premium, it often comes with high deductibles. And although annual deductibles with Part B can be relatively manageable, don’t overlook the fact that you’re still typically on the hook for the 20% coinsurance on those medical costs, he says. “If you have a big medical expense, charges can add up pretty quickly.”

Purchasing marketplace coverage

Before age 65, the best path to securing coverage for healthcare in retirement is most likely through the Health Insurance Marketplace, created by the Affordable Care Act (ACA). These insurers can’t refuse coverage due to a preexisting condition, and there are no lifetime or annual limits on essential health coverage. (You can find dental and vision coverage on the marketplace, too.)

“I attribute my decision to retire, especially earlier than planned, entirely to [the ACA],” Champion says. “It’s come through for me in a big way.”

The Health Insurance Marketplace offers health insurance subsidies, or premium tax credits, based on your income, and the relationship of that income to the federal poverty level (FPL). The key here, he says, is to keep careful tabs on your income in retirement and try to stay as close as you can to the “sweet spot.” To get the ultimate discount on your health insurance policy, you’ll want to keep your adjusted gross income (AGI) as low as possible without dipping into Medicaid eligibility. Depending on your state, that will mean keeping your income between 100%-138% on the low end to avoid Medicaid and 400% of the FPL on the high end to avoid losing Premium Tax Credits (though this limit is a more gradual phase-out through 2025).

Signing up under a partner’s plan

“This is a great option if one partner wants to keep working enough to get healthcare benefits for the entire household,” Mamula says. It’s what he and his family did for four years until his wife reduced her qualifying hours.

He believes this may not be a good idea if the working spouse’s employer doesn’t provide coverage for the entire family—that earned income will still count toward your household AGI, assuming you file jointly. This, in turn, could impact the non-working spouse’s ability to get subsidies for healthcare they purchase from the ACA marketplace.

Investments from an HSA

A Health Savings Account (HSA) can serve as a long-term savings vehicle thanks to its unique triple tax advantage: Contributions reduce your taxable income, money grows tax-free, and withdrawals are also tax-free if they’re put toward a broad list of qualified health expenses.

For 2025, you can contribute up to $4,300 for individual coverage and up to $8,550 for family coverage, according to the IRS. Leftover funds in your HSA can be rolled over from year to year. Note: To contribute to an HSA, you must be enrolled in a high-deductible health plan—at least $1,600 for an individual or $3,300 for a family in 2025.

An HSA can be extra impactful, Mamula says, if you’re able to invest in one aggressively and avoid using it by paying for healthcare out of pocket. Once you turn 65, you can withdraw your HSA money for any reason without paying a penalty. So, letting it grow as much as possible before then can be a big win.

Plan ahead to make the most of your retirement savings

Outside of healthcare-specific funding options, you can turn to other resources to help allay the costs of healthcare in retirement. First and foremost, Norwood says, you should always take any free money available. One of the easiest ways to do this—assuming you’re still employed—is to take full advantage of any 401(k) matching offered by your employer.

You should also be diversifying when possible. Think of your sources of retirement income as different buckets, Norwood says. There’s your tax-free bucket, including Roth Individual Retirement Arrangements. There’s your taxable bucket, including regular brokerage accounts. And then there’s your pre-tax bucket, which includes Traditional IRAs and IRA CDs. Ideally, he says, you’ll have something in each bucket, all of which grow over time. You’ll want to consider all three in tandem when managing your retirement withdrawals.

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“I see a lot of retirees who have all their money in that pre-tax bucket,” he says. “And then when they withdraw it, they’re surprised at how much they’re paying in taxes in retirement.” If they had diversified more over time, he says, these retirees could pull from different buckets to better manage their tax situation.

Trusting your best-laid plans

Mapping out your goals and strategies for affording healthcare in retirement is a must, and there’s no such thing as planning too early. By familiarizing yourself with your coverage and savings options— today and down the road—you can ensure you’re not scrambling for a solution when the time comes.

At the same time, recognize that life is still about living, Mamula says.

“I could guarantee I’d never run out of money if I didn’t retire. But by not retiring, I’d be guaranteed to miss out on some of the most rewarding experiences and valuable relationships of my life. I think there’s a bigger risk of not living life to the fullest by playing it too safe.”

Want to learn more about different types of retirement accounts? Invest in your future today by comparing types of IRAs.

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