Don’t Underestimate Health Care Costs in Retirement

What Is Medicare?

In a nutshell, Medicare is a federal health insurance program for people age 65 and older or those with a qualifying disability.

Similar to Social Security, you generally need to have worked and paid Medicare taxes for at least 10 years (40 quarters) to be eligible. Unlike Social Security, however, income doesn’t determine coverage—though it can impact how much you pay in premiums and whether you qualify for assistance programs.

These income-based costs and eligibility nuances can affect your retirement budget, so understanding the basics is a key part of planning for long-term financial security.

What Costs Does Medicare Cover?

Medicare is divided into four parts that cover different aspects of health care, from preventive screenings to end-of-life support. Knowing what each part covers—and what it doesn’t—can help you plan for potential out-of-pocket expenses and avoid surprises that could disrupt your retirement finances.

Part A: Covers skilled nursing facilities, in-patient hospital stays, hospice care, and aspects of home care (though not long-term care). If you paid payroll taxes for the required time, there’s no premium, though you’ll pay co-insurance and a deductible of $1,676 in 2025.

Part B: Pays for outpatient care, doctor visits, and other aspects of home care. The monthly premium is $185 with a $257 deductible. After that, Medicare pays 80% of your expenses—if you don’t have supplemental coverage or Medicare Advantage.

Part C (Medicare Advantage):  Privately administered PPO or HMO plans that combine Parts A and B (and often D) into one plan. Advantages include simplified management, potential coverage for vision and dental, out-of-pocket limits, expanded prescription benefits, and wellness programs.

Part D: Standalone prescription drug and vaccine coverage offered by private insurers. Those with Medicare Advantage likely won’t need Part D. The deductible is about $46 in 2025, with a maximum out-of-pocket cost of $2,000 (set to rise in coming years).

Enrolling in Medicare: Miss the Window, Pay the Price

For those aging into Medicare, it’s best to enroll within the Initial Enrollment Period (IEP)—the seven-month window that includes the three months before, the month of, and the three months after your 65th birthday. To have coverage start the month of your birthday, enroll at least one month before.

Late enrollment comes with permanent financial penalties: your Part B premium increases by 10% for every 12-month period you delay, and your Part D premium increases by 1% for every month delayed. By 2025 rates, that’s about $23 more per year for life.

If you’re still working and have medical coverage through your employer, you may delay enrollment—if your employer covers at least 20 employees. Smaller employers (fewer than 20) don’t qualify, so employees should enroll during the IEP. Employers cannot drop coverage or encourage Medicare enrollment to avoid covering eligible employees.

How Much Does Medicare Cost?

While Medicare isn’t directly tied to income like Social Security, high earners pay more due to the Income-Related Monthly Adjustment Amount (IRMAA). This surcharge depends on your Modified Adjusted Gross Income (MAGI), which includes wages, Social Security, capital gains, and retirement distributions.

Part B Premiums by Income Level (2025)

Source: Centers for Medicare & Medicaid Services (CMS), 2025 data.

Part D premiums also vary by income, though they’re typically lower—topping out around $1,000 annually. Medicare Advantage costs will vary widely depending on plan structure and coverage.

What Does Medicare Mean for My Retirement Planning?

Because Medicare represents a major expense in retirement, it’s important to understand how coverage, premiums, and co-insurance fit into your budget. With careful planning, you can set up tax-advantaged income streams that may reduce your Medicare bill by lowering your MAGI.

Withdrawals from Roth IRAs, Health Savings Accounts (HSAs), and cash-value life insurance contracts* generally do not count toward MAGI—nor do qualified charitable contributions. These tools can be effective income or tax-reduction strategies** in retirement that also limit your IRMAA surcharge.

A financial adviser can also help evaluate Medicare Advantage and supplemental insurance options that align with your income and health needs. Because Medicare does not cover long-term care, an adviser can recommend supplemental coverage to fill that gap—before you need it.

Your Medicare Checklist

• Spend two to three months learning about Medicare plans and programs (Medicare.gov and Kiplinger offer excellent resources).
• Consult an adviser on whether Medicare Advantage or Part D coverage makes sense for you.
• Set a reminder to enroll within your Initial Enrollment Period if you’re approaching age 65.

*The primary purpose of cash-value life insurance is death benefit protection for your beneficiaries. Loans and withdrawals reduce the policy’s cash value and death benefit, and may increase the chance that the policy lapses. If the policy lapses, matures, is surrendered, or becomes a modified endowment contract, the loan balance may be taxable.

**Equitable Advisors and its affiliates do not provide tax, accounting, or legal advice. Consult with qualified tax and legal professionals before taking action.

Disclosure: This article, written by an outside source and provided as a courtesy by Stephen B. Dunbar III, JD, CLU (AR Insurance Lic. #15714673), Executive Vice President of the Georgia Alabama Gulf Coast Branch of Equitable Advisors LLC, is not intended as financial, tax, accounting, or legal advice. Always consult with your own qualified professionals for individualized guidance.

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