Medicare: How Much Will My Healthcare Cost When I’m 65?
The Good News: Part A May Cost You Nothing
Medicare Part A generally covers inpatient hospital care and certain skilled nursing facility services. For most people who have enough qualifying work history, there is no monthly premium for Part A.
But there is an important distinction: Medicare Part A is not long-term care insurance. If you eventually need extended custodial or long-term care, Medicare generally won't cover those costs.
So while “free” sounds great, Part A is only one piece of the puzzle.
Part B: The Premium That Can Surprise You
Medicare Part B covers physician services, outpatient care, preventive services, and many other medically necessary services.
Unlike Part A, Part B comes with a monthly premium.
And here's where retirement planning gets interesting: your Medicare Part B premium can depend on your income.
Higher-income Medicare beneficiaries may have to pay an additional amount called the Income-Related Monthly Adjustment Amount (IRMAA).
The government generally looks at your tax return from two years earlier when determining whether you owe IRMAA.
That can create an unexpected situation.
Imagine you retire and your income drops significantly—but your Medicare premiums are still being calculated using your higher income from two years ago. In certain qualifying circumstances, you may be able to ask the Social Security Administration to reconsider your income-based Medicare adjustment.
Retirement can change your income dramatically. Your Medicare premiums should reflect that change when you're eligible to request a reconsideration.
Medigap vs. Medicare Advantage: Two Very Different Paths
Medicare Parts A and B don't cover everything. That's where supplemental coverage enters the picture.
Two of the most common approaches are Medigap and Medicare Advantage (Part C).
Medigap: More Predictability
Medigap policies work alongside Original Medicare and can help cover certain costs that Medicare doesn't fully pay.
One of the major advantages is predictability. Depending on the plan you choose, you may have fewer unexpected medical bills.
Timing also matters. The Medicare Supplement Open Enrollment period that begins when you are 65 or older and enrolled in Part B can provide important protections, including protections related to health conditions that may not be available later in the same way.
Medicare Advantage: Potentially Lower Upfront Costs
Medicare Advantage plans are offered by private insurers and combine Medicare-covered benefits into a private plan. Many plans also include additional benefits.
They can have attractive premiums and out-of-pocket structures, but you'll generally need to pay attention to provider networks, copays, deductibles, plan rules, and annual changes in benefits.
The cheapest plan today isn't necessarily the best plan for you over the next 10 or 20 years.
Don't Forget Prescription Drug Coverage
Medicare Part D helps cover prescription medications.
Premiums vary significantly depending on the plan, and higher-income beneficiaries may also face an additional income-related charge.
This is another reason why simply budgeting for a Medicare premium isn't enough. Your healthcare budget should consider:
- Medicare premiums
- Supplemental or Medicare Advantage premiums
- Prescription drug costs
- Deductibles and copayments
- Out-of-pocket medical expenses
- Potential increases in healthcare costs over time
So, How Much Should You Budget?
There isn't one universal number.
Your actual healthcare costs will depend on your income, location, health needs, coverage choices, prescriptions, and how much healthcare you use.
But here's the bigger retirement-planning lesson:
Healthcare costs don't stop when your paycheck stops.
In fact, healthcare can become one of the largest recurring expenses during retirement—and it can rise over time.
A retirement plan that looks comfortable on paper can feel very different if healthcare expenses haven't been properly accounted for.
The Real Retirement Question Isn't “Can I Afford Medicare?”
It's:
“Can my retirement income comfortably absorb rising healthcare costs for the rest of my life?”
That's a much better question.
Medicare can provide valuable coverage, but understanding the premiums, income-related adjustments, supplemental coverage choices, prescription costs, and potential future increases can help you build a retirement plan with fewer surprises.
Plan for Healthcare Before You Need It
Turning 65 shouldn't be the moment you start discovering how Medicare works.
The sooner you understand your options, the more confidently you can make decisions about retirement income, taxes, and healthcare spending.
At F5 Financial Planning, we can help you evaluate how healthcare costs fit into your broader retirement strategy.
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F5 Financial
F5 Financial is a fee-only wealth management firm with a holistic approach to financial planning, personal goals, and behavioral change. Through our F5 Process, we provide insight and tailored strategies that inspire and equip our clients to enjoy a life of significance and financial freedom.
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