One of the most important—and often underestimated—parts of retirement planning is figuring out how to manage healthcare costs. Many people spend years saving and preparing for retirement, but they’re caught off guard by the rising cost of medical care. As someone who has worked with clients to prepare for retirement for over four decades, I can tell you that ignoring healthcare expenses can put a significant dent in your savings if you’re not prepared.

The good news is that with proper planning, you can navigate healthcare costs in retirement and ensure that you’re financially ready for the care you may need. Let’s explore some essential strategies to help you plan for healthcare costs, so you can retire with peace of mind knowing that you’re covered.

Understand Medicare and What It Covers

For most people, Medicare will play a central role in their healthcare coverage during retirement. But it’s essential to understand what Medicare covers—and what it doesn’t—so you can plan for any gaps.

Medicare comes in several parts:

• Part A covers hospital stays, skilled nursing facilities, hospice care, and some home healthcare. Most people don’t pay a premium for Part A if they’ve worked and paid Medicare taxes for at least 10 years.
• Part B covers outpatient care, doctor visits, preventive services, and medical supplies. You will pay a monthly premium for Part B, which is based on your income. It’s important to note that Part B doesn’t cover all medical services, and there are out-of-pocket costs, like deductibles and coinsurance.
• Part C (Medicare Advantage) is an alternative to traditional Medicare and is offered through private insurance companies. These plans often include additional benefits like vision, dental, and hearing, but the costs and coverage vary.
• Part D covers prescription drugs, but like Part C, it’s offered through private insurance, and the costs depend on the specific plan.

While Medicare covers many basic health services, it doesn’t cover everything. For example, long-term care, dental work, hearing aids, and routine vision care are often not covered. This is where supplemental insurance, or a Medigap plan, can come into play.

Consider Supplemental Insurance or Medigap Plans

Medicare doesn’t cover all of your healthcare costs, which is why many retirees choose to purchase supplemental insurance or a Medigap plan. These plans help cover expenses like deductibles, copayments, and coinsurance that Medicare doesn’t.

Medigap plans are sold by private insurance companies, and there are several types of plans to choose from. The key is to find a plan that meets your specific needs and budget. These plans are designed to fill in the “gaps” in Medicare coverage, which can make a big difference when unexpected medical expenses arise.

Additionally, if you’re planning on traveling outside the U.S. during retirement, Medigap can cover emergency care while abroad, something that Medicare generally does not.

When shopping for a Medigap plan, it’s important to compare policies, premiums, and coverage options. Look for plans that provide adequate coverage for the out-of-pocket costs that are most relevant to you, such as those related to frequent doctor visits or prescription medications.

Plan for Long-Term Care

One of the most significant expenses many retirees face is long-term care, which includes services such as in-home assistance, nursing homes, and assisted living facilities. Unfortunately, Medicare does not cover long-term care beyond short-term rehabilitation following a hospital stay.

The cost of long-term care can be staggering, with the average annual cost of a nursing home exceeding $100,000 in some parts of the country. If you haven’t factored long-term care into your retirement plan, it can quickly drain your savings.

There are several ways to prepare for long-term care costs:

• Long-term care insurance: This type of insurance can help cover the cost of services such as nursing home care, assisted living, and in-home care. It’s best to purchase long-term care insurance before you need it, as premiums increase with age and declining health.
• Self-funding: Some retirees choose to set aside a portion of their savings specifically for long-term care. This strategy works best if you have a robust retirement nest egg and can afford to allocate funds for potential care needs.
• Hybrid life insurance policies: Some life insurance policies offer long-term care benefits. These policies allow you to use part of the death benefit for long-term care if needed.

No one likes to think about the possibility of needing long-term care, but it’s better to plan for it than to be caught off guard. Having a strategy in place can help protect your retirement savings and provide you with options when the time comes.

Don’t Forget About Prescription Drug Costs

Prescription drugs are another area where retirees can face significant costs. Even with Medicare Part D or a Medicare Advantage plan, out-of-pocket costs for prescription medications can add up, especially if you’re managing chronic conditions.

When choosing a Medicare Part D plan, it’s crucial to review the formulary—the list of covered drugs—because not all plans cover every medication. Make sure the medications you take regularly are included in the plan you select. Also, pay attention to coverage gaps (often called the “donut hole”) in Part D, where you may be responsible for a larger portion of drug costs after you and your plan have spent a certain amount.

If prescription costs are a concern, there are ways to save, such as asking your doctor about generic alternatives or checking if your pharmacy offers a discount program. Some retirees also find savings through mail-order pharmacies or by using online price comparison tools.

Stay Healthy to Lower Costs

One of the most effective ways to manage healthcare costs in retirement is to prioritize your health. While it may not eliminate all expenses, living a healthy lifestyle can reduce your need for frequent doctor visits, medications, and medical procedures. Regular exercise, a balanced diet, and routine checkups can help prevent chronic diseases and improve your quality of life in retirement.

In addition to maintaining a healthy lifestyle, make use of preventive services covered by Medicare. Medicare Part B covers many preventive services at no cost, including annual wellness visits, screenings for certain cancers, and flu shots. Staying proactive about your health can help catch potential issues early and prevent costly treatments down the road.

Final Thoughts

Healthcare costs are one of the most significant expenses in retirement, but with the right planning, you can manage them effectively. Start by understanding what Medicare covers, and where there might be gaps. Consider supplemental insurance, plan for long-term care, and don’t overlook prescription drug costs. Most importantly, take steps to stay healthy, as this is one of the best ways to keep healthcare costs under control.

By taking a proactive approach to healthcare planning, you’ll be better equipped to navigate the expenses that come with aging, ensuring that your retirement is both financially secure and fulfilling. If you haven’t already started planning for healthcare costs in retirement, now is the time to sit down and build a strategy that gives you peace of mind for the future.