Are You Ready for Health-Care Costs in Retirement

By Jake T. Erlendson on March 2, 2015

Are you prepared to cover the cost of retiree healthcare? Many Americans aren’t. According to Fidelity Investments’ projections, a 65-year-old couple retiring now would require $220,000 in today’s dollars to cover their health-care needs in retirement. Because of the considerable cost, it’s important that Americans approaching the retirement milestone understand what their options are.

Check on employer coverage.

Employer health-care coverage for retirees used to be much more common. Roughly 28% of companies with 200 or more employees still offer this retirement coverage. It’s much more likely for government workers to continue to enjoy this benefit.

Understand your Medicare Options.

You are eligible for Medicare when you turn 65, but it’s important to understand what is covered and what isn’t. Most Americans automatically qualify for Part A, which is insurance for hospital stays. This coverage is free if you paid Medicare taxes during your lifetime. You will have to pay a monthly premium if you want Medicare to cover more of your medical costs. Medicare Part B covers physician bills, outpatient hospital care, physical and occupational therapy and some home health care. With Medicare Part B, there is no limit to your out-of-pocket expenses as you’d find with many private health insurance policies. The majority of Americans will pay a Part B premium of $104.90 each month. Most people will pay $147 annually for the Part B deductible. The chart below from the federal government shows how the Part B premium increases with individuals’ yearly income.














Courtesy of the Social Security Administration, here are the Medicare rules for higher-income Americansopens PDF file .

Additional Medicare Coverage

Individuals can also purchase supplemental or Medigap policies if they want to fill in the coverage gaps left by Medicare Parts A and B. You can use the federal government Medigap Policy Search tool to look for options. Many Americans will also want to purchase Drug Coverage Part D that covers prescriptions. Another option is called Medicare Part C, which is otherwise known as Medicare Advantage that are offered through private insurance companies. These plans are designed for people who want an all-in-one plan that is similar to a health maintenance organization (HMO) or preferred provider organization (PPO). People who choose this option will get their hospital insurance (Part A) and medical insurance (Part B) through the Medical Advantage Plan and not original Medicare.

Understand your options if you aren’t old enough for Medicare.

You can qualify for Medicare when you are 65, which means you’ll have to look elsewhere if retirement comes earlier than that. Here are some possibilities:

  • You can shop for your own medical insurance via, which is otherwise known as Obamacare.
  • You can look for coverage through an insurance broker.
  • For a certain period of time, you can continue your current employer coverage through COBRA.
  • If applicable, you could join your spouse’s health plan.
  • If eligible, you can take advantage of Veteran’s Administration benefits.
  • If you are low income, you may qualify for health coverage through Medicaid.

Evaluate policies.

There are obviously a lot of factors when evaluating insurance options. You’ll need to look at premiums versus deductibles, the available hospitals and physicians, the covered benefits. You should also look at a plan’s quality ranking system.


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