Retirement is a chance to savor the rewards of years of hard work, traveling, spending time with family, or finally getting through that to-read stack on your shelf. Yet, as joyful as it can be, one concern often looms large for retirees and those nearing retirement: healthcare costs. They’re unpredictable, often rising, and can take a significant bite out of your nest egg. 

But there’s good news. With the right planning and a strong understanding of available options, managing healthcare costs in retirement doesn’t have to feel overwhelming. From Medicare considerations to early retirement health insurance options and long-term care planning, this guide will help you tackle your healthcare concerns with confidence.

Bridging the Healthcare Gap Before Medicare

If you retire before age 65, you'll need to find health insurance to cover the gap until you’re eligible for Medicare. Skip this section if you are already 65. 

Option 1: COBRA Coverage 

COBRA allows you to continue your employer-sponsored health insurance for up to 18 months. While it offers a seamless transition, it comes at full cost, your premium plus a 2% administrative fee. For example, if your monthly premium was $500 while employed with your employer paying $400, you could pay around $510 yourself a month under COBRA. 

Option 2: The Affordable Care Act (ACA)

ACA marketplace plans are another option. Depending on your income, you might qualify for premium tax credits that make ACA plans much more affordable. However, be cautious of the “subsidy cliff,” which occurs if your income exceeds 400% of the federal poverty level. Strategic income planning is imperative to maximize these credits. Consult a tax planner to ensure you are not paying more than needed. 

Nerd Note: Roth account withdrawals don’t count toward your MAGI under ACA rules. This makes them a clever income strategy to stay within the subsidy threshold!

Option 3: Private Health Insurance

For some retirees, private health insurance is a last resort. These plans tend to be expensive, but they can provide the coverage you need if COBRA or ACA isn’t suitable. Consider pairing a high-deductible health plan (HDHP) with a health savings account (HSA) for tax advantages and long-term healthcare savings. 

Nerd Note: The second you turn 65 you will be automatically enrolled in Medicare Part A if you collect social security benefits. Enrollment in Part A will disqualify you from participating in a HDHP through an employer. If you continue to work beyond 65 AND are in a HDHP, consider calling SSA to delay your Part A enrollment until your work coverage ends to maximize your HSA benefit.

Medicare and IRMAA: What High-Income Retirees Should Know

For many retirees, Medicare is the foundation of their healthcare strategy. But did you know that your income can affect Medicare premiums? Enter IRMAA, or the Income-Related Monthly Adjustment Amount.  

What is IRMAA?

Think of IRMAA as a surcharge added to your Medicare Part B (medical insurance) and Part D (prescription drugs) premiums if your modified adjusted gross income (MAGI) exceeds certain levels from two years prior. For example, in 2024, retirees with MAGI above $103,000 (single filers) or $206,000 (joint filers) could pay up to an additional $419.30 per month for Medicare Part B. 

Nerd Note: IRMAA isn’t static. If your income changes due to significant life events, like retirement, you may qualify for a reduced IRMAA. Keep reading to learn how to appeal this surcharge!

Strategies to Minimize IRMAA 

The good news? With some foresight, you can reduce your exposure to IRMAA. Consider these strategies early on to avoid higher premiums in retirement.

• Roth Conversions: Move funds from tax-deferred accounts (like traditional IRAs or 401(k)s) to tax-free Roth accounts. This lowers your MAGI, potentially keeping you under the IRMAA threshold in your later years.
• Qualified Charitable Distributions (QCDs): If you’re over 70½ and giving to a not-for-profit or religious institution, donating up to $108,000 per year (as of 2025) directly from your IRA to a qualified charity can fulfill your required minimum distribution (RMD) without raising your MAGI.
• Form SSA-44: Experienced a life-changing event like marriage, divorce, or retiring fully? Use Form SSA-44 to appeal and recalculate your IRMAA based on your current (lower) income, not the two-year-old data they’re relying on.

The Case for Long-Term Care Planning

Those turning 65 today have nearly a 70% chance that they will need some form of long-term care, whether it’s help with daily tasks at home or full-time care at a facility. Planning for this is essential to safeguard your savings.

Long-Term Care Insurance (LTCi)

This insurance helps cover costs for services like in-home assistance, assisted living, or nursing homes. However, policies can be pricey, and premiums tend to rise over time. For example, a 60-year-old single woman might pay $1,900 annually for a $165,000 coverage plan in 2024. 

Nerd Note: The most opportune time to consider shopping for a LTCi policy before premiums become increasingly expensive is in your mid-late 50s.

Self-Insuring for Long-Term Care

High-net-worth retirees with substantial savings ($5M+) often choose to self-pay. This means setting aside and investing funds specifically for long-term care needs. Any money not used for care can remain part of your estate or be repurposed for other needs. 

Key Considerations for Long-Term Care Planning

• Your personal health and family history
• Your tolerance for financial risk
• Potential impact on your estate and legacy
• Preferred type of care (e.g., in-home vs. nursing facility care)

Nerd Note: The average annual cost of a private room in a nursing home is over $100,000 in the U.S. (as of 2024). A diversified investment portfolio can potentially help offset these costs, but careful planning is crucial.

Medicaid Funding

For those with limited income retirement resources, the most common means of funding LTC needs are through a combination of family care and Medicaid funding. Medicaid is a federally funded, state administered program (unlike Medicare that is federally administered,) that provides care when most assets are liquidated, being a “means-tested” program. 

Those with a net worth of $500,000-$1M+ often consider Medicaid trust planning, which is the process of transferring assets into a trust to protect them from LTC costs for the next generation, and leveraging the Medicaid system to pay for the care. Further details are beyond the scope of this post and requires thoughtful planning at least 5 years before care is needed.

Take Charge of Your Healthcare Future

Healthcare costs don’t have to cloud your retirement years. By understanding your options and implementing strategies tailored to your financial situation, you can enjoy peace of mind and focus on what truly matters.