Paying for Health Care in Retirement: A Fresh Look for 2025
Paying for Health Care in Retirement: A Fresh Look for 2025
With retirement comes new freedoms. But it also brings new expenses—with health care as one of the most significant. For today’s retirees, medical costs can rival or even exceed housing expenses, making them a critical piece of financial planning. A 65-year-old who retired in 2024 could expect to spend about $165,000 on health care alone.1 For couples, the number climbs even higher, with new projections suggesting they may need $413,000 over the course of retirement to cover premiums, prescriptions, and out-of-pocket expenses.2
The Hidden Side of Retirement Costs
What often surprises people isn’t the obvious doctor visits or hospital stays. It’s the “stealth costs” that add up quietly. Rising insurance premiums, supplemental coverage, or prescription drug price hikes can strain a fixed budget. And Medicare, while essential, does not cover everything. Vision, dental, hearing aids, and most long-term care remain out-of-pocket expenses, which can be significant. Beyond medical bills, retirees face other unexpected hits: emergency home repairs, inflation, and even providing financial support for adult children. Collectively, these expenses can derail the best-laid retirement plans.
Building a Smarter Strategy
The good news is that retirees have tools to prepare. One of the most effective is a Health Savings Account (HSA), which offers triple tax advantages:
- Contributions are made pre-tax
- Investments grow tax-free
- Withdrawals for qualified medical expenses are also tax-free.
Even after age 65, HSA funds can be used for non-medical expenses without penalty, though regular income taxes apply.
Thoughtful Medicare planning is equally important. Original Medicare (Parts A and B) forms the foundation, but many retirees find value in adding a Medigap supplement to reduce out-of-pocket surprises. Others may prefer Medicare Advantage plans, which sometimes include dental and vision but come with network restrictions.
Timing matters too. Open enrollment runs every year from October 15 through December 7, with an additional Medicare Advantage enrollment window from January 1 through March 31. Missing those deadlines can mean higher premiums or gaps in coverage.
Preparing for the Unexpected
Because health care costs can be unpredictable, financial planners often recommend setting aside a “stealth cost” reserve within your retirement budget. This buffer can help protect against inflation, medical emergencies, or the rising price of prescriptions. For those who can, delaying retirement by even a year or two can also strengthen financial security—more time for savings to grow and fewer years of drawing down assets.
Another way to add resilience is by diversifying income sources. Instead of relying solely on Social Security or IRA withdrawals, consider a mix of Roth accounts, annuities, part-time income, or real estate. This approach can help balance taxes and keep your income streams steady in the face of market fluctuations.
Peace of Mind Through Planning
Beyond the numbers, retirement planning is about peace of mind. Surveys show that uncertainty about health care costs is one of the biggest sources of retirement anxiety. But a thoughtful strategy—maximizing HSAs, carefully choosing Medicare coverage, budgeting for the unexpected, and diversifying income—can help reduce that stress.
Healthcare in retirement doesn’t have to be overwhelming. While the numbers are large, they don’t need to be insurmountable. It just takes careful planning. By combining smart savings tools, strategic Medicare choices, and realistic budgeting, you can turn what feels like a looming burden into a manageable part of your overall retirement strategy.
1 MarketWatch.com, “The 80% rule doesn’t cut it anymore: You may end up spending a lot more in retirement than you expect,” Nov. 11, 2024. https://www.marketwatch.com/story/the-80-rule-doesnt-cut-it-anymore-you-may-end-up-spending-a-lot-more-in-retirement-than-you-expect-80ce1063
2 Employee Benefit Research Institute, “New Research Report Finds Projected Savings Medicare Beneficiaries Need for Health Expenses Increased Again in 2023,” Jan. 29, 2024. https://www.ebri.org/content/new-research-report-finds-projected-savings-medicare-beneficiaries-need-for-health-expenses-increased-again-in-2023#:~:text=Summary,return%20on%20assets%20in%20retirement.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
This material was prepared by Carson Coaching. Carson Coaching is not affiliated with the named broker/dealer or firm.
