Being able to afford to retire is a goal we spend most, if not all, of our working years planning. We start by investing in a 401(k) or Roth IRA, in hopes of saving enough money to last us once we no longer work. But how do you plan for all the unexpected costs, especially when it comes to your health care?
According to last year’s Fidelity Retiree Health Care Cost Estimate, a single person who’s 65 years old will need to have about $157,500 saved, after taxes, to cover health expenses. For a retired couple at age 65, that number goes up to about $315,000. Obviously, that number is dependent on several factors, like how long you work, when and where you choose to retire, your health and how long you’ll live, but it gives you a good benchmark to aim for.
While it is helpful to have that overall dollar figure in mind, it’s important to remember that health expenses are better calculated on an annual basis. You know how much your insurance premiums are, how much you typically go to the doctor and the costs incurred therein, the tests or procedures when seeing those providers, etc.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The basics of Medicare
Once you turn 65, you’re eligible for Medicare. There are several different components: Parts A, B, C, and D. “Original Medicare” consists of Part A and B. Medicare Part A will cover inpatient medical expenses you may have after you meet your deductible per benefit period ($1,632 in 2024). Most people do not have a premium for Part A. Part B is outpatient coverage, but requires a premium of $174.70 per month in 2024. Original Medicare does not cover prescription drugs, which is where Part D comes in, so you’d want to make sure to get a plan to cover medications. Even if you do not take any prescriptions, it is wise to at least purchase a drug plan with a low monthly premium to avoid any late enrollment penalty in the future.
You might want to consider Medicare Advantage plans offered by private insurance companies, which are Medicare Part C. These plans are all-encompassing, providing coverage for services under Parts A and B and also can include drug coverage. They are network-based, so when choosing an Advantage plan, it is vital to ensure that all of your doctors are in network. You also want to look up your medications to make sure they are covered. Taking care of those two steps will whittle what is likely dozens of plans available to you — down to a handful. Advantage plans may or may not come with an additional monthly premium cost and may also cover services not covered by Original Medicare, such as routine vision, dental, gym membership, over-the-counter benefits and so on.
You can change your coverage
As you're reviewing different options, keep in mind that the plan you select isn’t permanent. You can change your coverage over time to fit your health care needs as you age during certain times of the year, most notably during the annual election period (AEP) of October 15 through December 7. Now, you might be wondering what happens if you or your spouse is still working at 65. If you receive coverage through an employer, you’ll still be able to get that coverage until you or your spouse retires. Once that happens, you’ll have the option to enroll in Medicare through a special enrollment period (SEP).
Medicare Advantage plans are a great option for medical coverage once you retire, but they don’t cover everything. Supplemental policies are also offered through private insurance companies and provide coverage for many things not fully covered under Medicare. Medicare supplements, also called Medigap plans, fill in many of the gaps in Part A and Part B, such as the $1,632 deductible, or the 20% coinsurance for outpatient services. Supplements will come with an additional monthly premium, depending on the plan you get. Most supplements’ rates will increase as you get older. There are no network restrictions on a supplement. Your first six months of eligibility for Part B allows you an open enrollment period to get into any supplement with no questions asked.
Like Original Medicare, supplements do not include prescription drug coverage, so you would still need to get a separate Part D plan to cover your medications. There are many different supplements to choose from, so be sure to compare costs as you’re making your selections.
Finally, supplements do not cover additional benefits, such as routine vision, dental and so on like some Advantage plans can, so you would need to get separate dental and vision plans to help with those costs.
About long-term care insurance
Medicare does not cover custodial care, the most common type of long-term care. Those are typically covered by traditional long-term care insurance plans. These are also offered by private insurance companies, and the benefits they pay out per day can keep you from having to tap into your savings to pay for your health care. It’s best to purchase one of these plans when you are younger, when the rates are more affordable and you’re generally healthier. That’s because you will have to pass underwriting to purchase one.
A benefit-rich long-term care plan accompanied by your choice of Medicare coverage options can go a long way to ensure that you’ve protected your retirement nest egg and maintain control of your health care into your golden years.
Figuring out what coverage works best for you and your family can be overwhelming, so be sure to talk with your employer about your health care coverage and seek the counsel of an independent insurance agent so that you understand all of your options, costs and potential restrictions.
Related Content
- High Health Care Costs Can Cause Even the Insured to Skip Care
- Seven Things Medicare Doesn’t Cover
- 10 Things You Should Know About Long-Term Care Insurance
- No Long-Term Care Plan? Here’s What to Do About It
- Long-Term Care Planning vs. Taxes: Finding a Healthy Balance
-
Stocks Keep Climbing as Fed Meeting Nears: Stock Market TodayA stale inflation report and improving consumer sentiment did little to shift expectations for a rate cut next week.
-
Your End of Year Insurance Coverage Review ChecklistStop paying for insurance you don't need and close coverage gaps you didn't know about with this year-end insurance review.
-
Crypto Trends to Watch in 2026Cryptocurrency is still less than 20 years old, but it remains a fast-moving (and also maturing) market. Here are the crypto trends to watch for in 2026.
-
Time Is Running Out to Make the Best Moves to Save on Your 2025 TaxesDon't wait until January — investors, including those with a high net worth, can snag big tax savings for 2025 (and 2026) with these strategies.
-
I'm an Insurance Pro: If You Do One Boring Task Before the End of the Year, Make It This One (It Could Save You Thousands)Who wants to check insurance policies when there's fun to be had? Still, making sure everything is up to date (coverage and deductibles) can save you a ton.
-
4 Smart Ways Retirees Can Give More to Charity, From a Financial AdviserFor retirees, tax efficiency and charitable giving should go hand in hand. After all, why not maximize your gifts and minimize the amount that goes to the IRS?
-
3 Year-End Tax Strategies for Retirees With $2 Million to $10 MillionTo avoid the OBBB messing up your whole tax strategy, get your Roth conversions and charitable bunching done by year's end.
-
'Politics' Is a Dirty Word for Some Financial Advisers: 3 Reasons This Financial Planner Vehemently DisagreesYour financial plan should be aligned with your values and your politics. If your adviser refuses to talk about them, it's time to go elsewhere.
-
For a Move Abroad, Choosing a Fiduciary Financial Planner Who Sees Both Sides of the Border Is CriticalWorking with a cross-border financial planner is essential to integrate tax, estate and visa considerations and avoid costly, unexpected liabilities.
-
I'm a Financial Adviser: This Tax Trap Costs High Earners Thousands Each YearMutual funds in taxable accounts can quietly erode your returns. More efficient tools, such as ETFs and direct indexing, can help improve after-tax returns.
-
A Financial Adviser's Guide to Divorce Finalization: Tying Up the Loose EndsAfter signing the divorce agreement, you'll need to tackle the administrative work that will allow you to start over.
