Planning for Health Care Costs in Retirement
September 8, 2025
When you picture retirement, you probably think about travel, hobbies, or simply having more time to relax. But there’s one expense that deserves special attention: health care.
For most Americans, medical expenses are expected to be one of the largest costs in retirement. Unlike past generations, few retirees today can count on employer- or union-sponsored retiree health benefits. That means health care may take up a bigger share of your retirement budget than you expect.
Why health care costs are rising
There are a few reasons this challenge is growing:
● Longer lifespans mean more years of medical expenses.
● Health care inflation continues to rise faster than overall inflation.
● Early retirement is common—many people stop working around age 62, which is three years before Medicare eligibility.
This combination creates what some experts call a “retirement cost gap.” Many assume Medicare will cover all medical needs, but in reality, it doesn’t. Out-of-pocket costs, premiums, prescriptions, and supplemental insurance can add up quickly.
How much will you need?
According to the 2025 Fidelity Retiree Health Care Cost Estimate, the average 65-year-old retiring this year may need $172,500 in after-tax savings to cover health care in retirement. That’s up nearly 4% from 2024.
Of course, the actual amount varies based on factors such as when you retire, how long you live, your overall health, and the type of accounts you use to pay expenses. For example, withdrawals from an HSA are tax-free for qualified medical costs, while withdrawals from a 401(k) or IRA may be taxable.
Planning tip: If you’re still working and eligible, consider contributing to a health savings account (HSA). HSAs allow you to save pre-tax, grow investments tax-free, and withdraw for qualified medical expenses without owing taxes. That triple tax advantage makes them one of the most powerful tools for future health care planning.
Retiring before 65: Bridging the gap
If you plan to retire before Medicare kicks in at age 65, you’ll need to find coverage. Options may include:
● COBRA continuation coverage from your former employer (though you’ll likely pay the full cost).
● Your spouse’s employer plan, if available.
● Health insurance marketplace plans, where subsidies may apply depending on income.
● Private insurance policies.
Keep in mind, while you can’t normally use HSA funds to pay premiums, you can use them to pay COBRA premiums if you’re unemployed.
Medicare at 65: Know your options
At age 65, you’ll have a seven-month window to enroll in Medicare (three months before your birthday month, your birthday month, and three months after). Medicare has multiple parts:
● Part A covers hospital stays.
● Part B covers doctor visits and outpatient care but requires premiums.
● Part D helps with prescription drug costs.
● Medicare Advantage plans combine Parts A, B, and often D, with additional services.
● Medigap policies (from private insurers) help pay costs Medicare doesn’t cover.
Enrollment timing matters—delays can result in permanent late-enrollment penalties. Choosing the right mix of Medicare and supplemental coverage depends on your health needs and expected costs.
Working at 65 and beyond
If you or your spouse are still working past 65 and have employer coverage, you may choose to delay Medicare. Be sure to review your options carefully with HR or a benefits specialist, since rules can be complex. The goal is to avoid coverage gaps and unnecessary penalties.
Health care planning as part of your retirement strategy
Medical costs often rise later in retirement, especially as the need for prescriptions or long-term care grows. Building health care into your retirement strategy today can help protect your future lifestyle.
Some steps to consider:
● Max out savings opportunities. Catch-up contributions after age 50 to retirement accounts (and age 55 for HSAs) can help fill gaps.
● Review your Medicare choices regularly. Plans and needs can change over time.
● Balance premiums vs. out-of-pocket costs. Sometimes paying more upfront can save you money later if you expect frequent medical visits.
The bottom line
Health care will likely be one of your largest retirement expenses—but with the right planning, it doesn’t have to be a surprise. By saving strategically, exploring pre-65 coverage options, and making informed Medicare choices, you can help protect your retirement savings from being drained by medical bills.
If you’d like to talk about how to prepare for health care costs in retirement—or how to make HSAs, Medicare, and other strategies work together—we’re here to help.
Sources:
https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs
Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.