Retiring? Your Healthcare Budget

Let’s face it – as we age, maintaining our health comes more into focus. And even if we stay healthy in our golden years, insurance premiums will continue to rise. That’s why it’s so important to plan ahead for rising healthcare costs as you prepare to look at the full picture of your retirement budget and what you need to save now.

Healthcare Costs and Inflation

Although our current annual inflation rate hovers around 1%, inflation of healthcare costs is currently at 5% and rising. Healthcare will likely be the highest expense we face as we retire. When we are working, employers cover portions of insurance premiums and deductibles as we pay into our Medicare accounts through our payroll taxes. Once we leave the workforce, though, we will be paying our own premiums and expenses. The actual costs of premiums and what insurance does and doesn’t cover may come as a shock. For those who take on these costs prior to Medicare age, making informed decisions about healthcare needs can be the difference between thousands of dollars spent or saved.

Medical Insurance Before Age 65

Medicare is the healthcare insurance that you have paid for through your working years. It starts at age 65, or later if there are exceptions as described below. If you retire, leave your employer or start your own business before age 65, you may have some options:

  • Retiree insurance – Not every employer offers this type of insurance, but it’s worth asking about. If your employer (or your spouse’s employer) does offer this type of coverage, see what the premium costs are so that you can budget for the expense.

  • COBRA coverage – This short-term solution is usually only available for up to 18 months and the coverage is costly, but you may be able to purchase this coverage from your employer if you intend to retire at the age of 63 ½ and have it see you through to age 65.

  • Semi-retirement – Find an employer who seeks out older workers and covers insurance for part-time employees. You can still reap the rewards of a partially employer-funded plan and be semi-retired until you reach age 65.

  • Self-paid medical coverage - You can apply for healthcare coverage currently on the open marketplace and pay for it out of pocket. There are tax benefits for income-qualified individuals. Those benefits can either reduce your taxable income at the end of the year, or you can opt to have your premiums reduced each month from the tax credit. Different plans may offer other tax benefits, for example, a Health Savings Account which is tax deductible and carries forward year to year.


Those who are 65, on disability or claiming social security benefits before the age of 65 will automatically be enrolled in Medicare. Those who have postponed Social Security benefits will need to contact Social Security by the third month after they turn 65 to avoid paying a late-enrollment penalty for Medicare. This should be avoided, as this penalty will increase Medicare costs for the rest of your life. There are some exceptions. For example, people insured by an employer, union, the military or Medicaid may not have to enroll at 65, but check with Social Security just to make certain. You can enroll in traditional Medicare (parts A and B) or enroll with a private Medicare provider (part C), which is Medicare Supplement and covers costs where Part A and B leave off. And Medicare Part D covers prescription drugs. The most complicated part is choosing your Part C and D providers. Evaluate your health and prescription drug needs when choosing these providers.

Long Term Care Insurance

One of the most overlooked expenses for retirement healthcare is long term care insurance. Many Americans will face some sort of long term care need in their lifetime, and will possibly need to enter a long term care facility. Skilled nursing facilities, home healthcare and other needs can cost a small fortune without this coverage, so it’s best to be prepared. (Read more on finding the right long term care policy for your retirement on our blog.)

A trusted financial advisor can help you prepare your healthcare budget and can assist you in integrating it with your regular budget. Your advisor can also discuss other options, such as long term care insurance, savings and various plans to help make sure you remain as healthy as possible in your retirement. Don’t wait until the last minute (or even a year before you plan to retire). Plan ahead to ensure you will be able to get the most out of your retirement years.


Wood Smith Advisors, a Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

“Finance Made Simple” blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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