Health care is one of the largest—and most often overlooked—expenses in retirement. While many people focus on saving and investing for retirement income, fewer take the time to plan for how medical costs may add up over the years.

Research from the Employee Benefit Research Institute estimates that a healthy 65-year-old couple may need up to $366,000 in savings to have a high likelihood of covering medical expenses in retirement. This estimate includes premiums, deductibles, copays, prescription drugs, and out-of-pocket costs, but it does not account for unexpected medical events or long-term care needs.

Understanding how health care costs fit into a broader retirement plan can help reduce uncertainty and support more informed financial decisions.

Why Health Care Planning Matters in Retirement

Medical expenses tend to increase with age, and many costs are unpredictable. Even retirees who qualify for Medicare are still responsible for premiums, supplemental coverage, and out-of-pocket expenses. Without a plan, health care costs can place unexpected strain on retirement income and savings.

Planning ahead allows retirees to:

• Anticipate recurring medical expenses
• Reduce the risk of coverage gaps or penalties
• Preserve flexibility in managing retirement income
• Protect long-term financial stability

Building Health Care Savings Before Retirement

For individuals who are still working, employer-sponsored benefits can play an important role in retirement health care planning.

Health Savings Accounts (HSAs)

If eligible, contributing to a Health Savings Account (HSA) can be a powerful way to prepare for future medical costs. HSAs offer tax-deductible contributions, tax-deferred growth, and tax-free withdrawals when used for qualified medical expenses.

HSA funds can be used in retirement for:

• Medicare premiums (excluding Medigap)
• Prescription drugs
• Copays, deductibles, and other qualified expenses
• Certain long-term care insurance premiums

After age 65, HSA withdrawals used for non-medical purposes are no longer subject to penalties, though ordinary income taxes apply.

Not everyone is eligible for an HSA, and enrollment in Medicare ends HSA contribution eligibility, making timing an important consideration.

Understanding Medicare and Enrollment Timing

Medicare becomes available at age 65, but navigating enrollment requires careful planning. Missing enrollment deadlines can result in permanent premium penalties unless an exception applies.

Key considerations include:

• The Initial Enrollment Period, which spans seven months around the 65th birthday
• Special enrollment rules for individuals covered by employer-sponsored health plans
• Coordination between Medicare, employer coverage, and HSA contributions

In addition to Original Medicare (Parts A and B), retirees must decide whether to add prescription drug coverage, supplemental insurance, or Medicare Advantage plans. Each option carries different cost structures, coverage rules, and trade-offs.

Managing Income to Control Medicare Premiums

Medicare premiums for certain components are income-based. Higher-income retirees may pay additional surcharges, known as Income-Related Monthly Adjustment Amounts (IRMAA), which are determined using income from prior tax years.

Planning strategies that may help manage taxable income include:

• Diversifying retirement savings across taxable, tax-deferred, and tax-free accounts
• Coordinating the timing and source of retirement withdrawals
• Understanding how required minimum distributions affect income levels
• Considering charitable giving strategies that may reduce taxable income

While income management does not eliminate medical costs, it can help control premium increases over time.

Preparing for Long-Term Care Needs

Long-term care is one of the largest financial risks in retirement. These services may include assistance with daily activities such as bathing, dressing, or eating, and are not typically covered by Medicare.

Planning options may include:

• Long-term care insurance
• Hybrid insurance products, which combine life insurance or annuities with long-term care benefits
• Self-funding through savings and investments
• Family or caregiving considerations

Each approach involves trade-offs related to cost, flexibility, and coverage, and no single solution fits every situation.

Balancing Liquidity and Long-Term Planning

Health care planning is not just about future costs—it’s also about access. Retirees benefit from maintaining adequate liquid assets to handle medical expenses without disrupting long-term investment strategies.

Balancing growth, income, and liquidity helps ensure funds are available when needed while supporting overall retirement goals.

A Broader View of Retirement Planning

Health care costs are an integral part of retirement planning, not a separate issue. Incorporating medical expenses into retirement income planning, tax strategies, and risk management helps create a more resilient financial plan.

Bringing It All Together

At Navalign Wealth Partners, we help clients look beyond savings and investments to understand how health care costs fit into their broader retirement strategy. By planning ahead for medical expenses, coverage decisions, and long-term care considerations, retirees can approach the future with greater clarity and confidence.

If you’d like help reviewing how health care costs may impact your retirement plan, we’re here to help you explore your options and make informed, thoughtful decisions.