Don't Let Medical Expenses Ruin Your Retirement
Do you have a spare $200,000 in your nest egg?
Hopefully, your answer is yes... because you could need about that much to cover medical expenses in your retirement years. And if you're diagnosed with a serious disease like cancer or Alzheimer's, that amount could easily double.
Healthcare is one of the most expensive needs most of us will face, and it's only getting costlier...
For 65-year-olds who retired in 2002, the average cost of medical expenses in retirement was $80,000, according to Fidelity Investments' Retiree Health Care Cost Estimate report.
If you're retiring at 65 today, you'll spend more than twice that number.
A few factors are driving this increase...
The first, which we wrote about earlier this year, is medical innovation. We have more treatments for more diseases than ever before.
We're also living longer in retirement, thanks in part to those same medical advancements. If you're 65 today, you could live another 20 years or so.
But we're also seeing staggering inflation in healthcare. The average cost of a coronary artery bypass graft in 2018 was $36,580, according to one study. In 2024, it cost between $57,240 and $75,047 (depending on the location) for folks who paid out of pocket.
Good retirement planning is crucial if you want to avoid stressing about money during your golden years. That includes not only saving and investing beforehand, but also understanding the biggest player in paying for your medical needs... Medicare.
And with Medicare open enrollment starting next week, it's a great opportunity to go over what Medicare does and doesn't cover, penalties you want to avoid, and how to make sure you're not left with insufficient coverage...
Seniors Depend on Medicare
As of 2022, 98.9% of American seniors were covered by Medicare... the government health-insurance plan created in 1965. And about 60% of those folks had no other health insurance.
The average American on Medicare pays nearly $2,500 a year for coverage. That's on top of all the Medicare taxes you paid during your working years.
Many folks assume that Medicare will take care of their healthcare expenses in retirement. But it's not nearly that easy...
If you make the wrong choices while selecting your Medicare coverage, your finances will take a hit – potentially leaving you unable to afford all the medical care you need.
The Medicare system is so confusing, it's no wonder people can't make sense of it all. So let's walk through the main parts...
Original Medicare (also called traditional Medicare) comes in two components – Part A and Part B. They make up the Medicare fee-for-service ("FFS") payment system.
Part A covers a lot of the cost of an inpatient stay in a hospital. The Medicare taxes you paid during your career entitle you to Part A benefits.
Part B pays for the doctor services you receive. However, your Part B benefits will cost you $202.90 to $689.90 a month depending on your income.
Part C and Part D are run through private insurance companies...
Part C is also known as a Medicare Advantage plan, and it combines Parts A and B through private insurance. You enroll in a plan through a company like a health-maintenance organization ("HMO") or preferred-provider organization ("PPO"), which manages your coverage.
Part D is a version of Medicare that only covers prescription drugs. Like Part C, it's offered through private plans.
Most folks opt to receive Parts A and B to cover their hospital and doctor visits. Some get A, B, and the additional benefit of D to receive prescription-drug coverage as well. And about 54% of Medicare participants opt for Part C plans.
Every year, Medicare's open-enrollment period runs from October 15 to December 7. That gives you enough time to look at the healthcare you need versus the coverage you're paying for...
If you have an expensive new prescription, you'll probably want to add Part D, for example... Or maybe your medicine just got a generic option and you don't need Part D coverage for the next year. Or you might choose to add, remove, or change your Part C coverage for the same reason.
But the annual open enrollment isn't the first time you'll have to think about Medicare...
Mark This Date in Your Calendar Today
Around the time you turn 65, you have a seven-month period around your birthday in which you need to sign up for Medicare. This is known as the initial enrollment period.
Say you turn 65 on June 10... Based on your birthday, you have from March 1 through September 30 to enroll. Mark it on your calendar. Because if you miss your September 30 deadline, you could face some big fines. (There are some exceptions, though... like for folks whose birthdays are on the first day of the month. Make sure you confirm your own initial enrollment period.)
Missing the enrollment deadline for Part A results in a flat 10% penalty that you pay for twice the number of years you neglected to sign up. So if you put it off for two years, you pay 10% of the plan's premium for four years.
If you miss the enrollment deadline for Part B, you'll have to pay a 10% penalty for each 12-month period you put off signing up – but you pay it for as long as you're on Medicare. So if you put it off for two years, you'll be paying a penalty worth 20% of the plan's premium for the rest of your life.
If you don't sign up for Part D when you first get Medicare, you'll be on the hook for an extra 1% each month. (You'll also get this penalty if you go 63 days or more without a drug coverage plan.)
You'll also need to make a big decision about your Part C coverage when you turn 65. And I encourage you to think about it beforehand...
The Medigap Window
The purpose of Medicare Advantage is to help pay for coverage beyond the basics of Medicare Part A and Part B. A Medicare Advantage Part C plan can help with key healthcare costs that aren't part of standard Medicare, including:
- Hearing aids
- Routine physical exams
- Eye exams
- Most dental care
Here's the problem: All this care still requires copays and deductibles...
Like other private insurance, Medicare Advantage only covers you within the insurance company's network... And it doesn't always help you when you travel, especially outside of the U.S.
That's where a different option comes in, called Medicare Supplement Insurance or Medigap.
You pay more for Medigap coverage premiums. But with Medigap, you pay a lot less for your coverage.
That makes it the logical choice if you're worried about needing a lot of care... whether that's repeated doctor visits or extended stays at skilled-nursing facilities, which can cost you $217 per day under Medicare Part A.
But you can't have both Medicare Advantage and Medigap. What's more, you can't change your mind at open-enrollment time. To get Medigap, you typically must sign up within six months of turning 65. After that, insurance companies can reject you for preexisting conditions, and the few available options tend to cost even more.
It's a tough choice... Do you want higher premiums but more predictable costs (Medigap)? Or lower premiums but higher costs of coverage (standard Medicare and Medicare Advantage)?
You'll need to think about how each one fits into your budget... whether you have any known risk factors that make Medigap's extra coverage more valuable... and which option gives you greater peace of mind.
And you only have a six-month window to decide.
Whether you're planning to start Medicare soon for the first time or you're already on it, take some time this week to evaluate your needs and make sure Medicare will meet them.
In my new book, Power Up Your Brain!, we talk about how easily medical expenses can soar as we age – especially if we're diagnosed with a debilitating disease – and steps you can take to avoid crushing medical debt.
Click here to get your copy today.
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Here's to our health, wealth, and a great retirement,
Laura Bente, CFP®
October 8, 2026