What you need to know and plan for before age 65

When most people think about retirement, they imagine the freedom to travel, spend time with family or pursue long-delayed passions. What’s often left out of the picture is the rising cost of healthcare—and the significant role it plays in your financial future.

It’s estimated that a 65-year-old couple will need approximately $315,000 to cover healthcare expenses throughout retirement, and that figure is climbing. According to the Centers for Medicare & Medicaid Services, per-person health spending is projected to grow at 4.8% annually. That means healthcare is not only a staple consideration in retirement planning—it’s an ever-expanding one.

If you’re nearing retirement, understanding these costs and putting a plan in place now can protect both your health and your wealth later.

The Reality of Healthcare Expenses in Retirement

Healthcare costs are unlike most other expenses. You can’t always predict them, and they often increase as you age. A retiree should expect healthcare to make up around 15% of their annual spending by age 75, which is roughly double what it typically is during the working years. This includes not only premiums and deductibles but also costs that Medicare doesn’t fully cover—like vision, dental, hearing aids and long-term care.

Social Security does include a cost-of-living adjustment (COLA), but healthcare inflation has consistently outpaced it. In other words, your buying power shrinks unless you actively plan for these growing costs.

And it’s important to remember: Your personal healthcare needs will depend on your overall health, life expectancy and the state you live in, since some health programs vary regionally.

Understanding Medicare: Your Primary Coverage in Retirement

The most common insurance for retirees is Medicare, the federal health insurance program available to most Americans beginning at age 65. But Medicare isn’t just one plan—it’s made up of several parts:

  • Part A – Hospital insurance that covers inpatient hospital stays, skilled nursing care, hospice and some home healthcare.
  • Part B – Medical insurance for outpatient care, doctor visits, preventive services, lab tests and medical supplies.
  • Part C (Medicare Advantage) – A private insurance alternative to Parts A & B. These plans often include extra benefits like dental, vision and prescription drug coverage.
  • Part D – Prescription drug coverage, available as a standalone plan or bundled with Part C.

Understanding the coverage and costs associated with each part is important for choosing the right plan based on your health needs and budget. Not all plans are equal, and the wrong choice can lead to higher out-of-pocket costs down the road.

Budgeting for Healthcare Costs

Like any other part of your retirement plan, budgeting for healthcare starts with knowing what to expect.

Key categories to include in your healthcare budget:

  • Medicare premiums (Parts B, C, D)
  • Out-of-pocket expenses like deductibles, copays, and coinsurance
  • Prescription drug costs
  • Dental, vision and hearing expenses
  • Medical supplies and equipment (glasses, walkers, supplements)

On average, retirees spend between $4,000–$7,000 per person per year on healthcare. These numbers can shift dramatically depending on your personal health history, prescription needs and type of Medicare plan.

Smart Ways to Save for Healthcare in Retirement

There are several tools you can use to save strategically for future medical costs:

  1. Health Savings Account (HSA)

An HSA is one of the most powerful ways to save for healthcare expenses—if you’re eligible. To contribute, you must be enrolled in a high-deductible health plan (HDHP).

Benefits of an HSA:

  • Contributions are tax-deductible
  • Growth is tax-free
  • Withdrawals are tax-free when used for qualified medical expenses

For 2025, contribution limits are $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution allowed for those aged 55 and older.

HSAs can also serve as a stealth retirement account. If you don’t use the funds for healthcare, you can still withdraw them after age 65 without penalty—though you will pay regular income tax if not used for medical expenses.

  1. Employer-Sponsored Retirement Plans

While 401(k)s and IRAs aren’t healthcare-specific, they remain vital in funding healthcare expenses. These accounts offer tax advantages—either upfront (traditional 401(k)/IRA) or at distribution (Roth)—and employer matching can significantly boost your savings.

  1. Earmarked Personal Savings

If you’re no longer HSA-eligible or have maxed out contributions elsewhere, consider creating a separate savings account specifically for healthcare. This gives you quick access to funds when unexpected medical bills arise.

Don’t Forget Long-Term Care

One of the most overlooked (and expensive) healthcare costs in retirement is long-term care.

According to the U.S. Department of Health and Human Services, 70% of people turning 65 today will need some form of long-term care during their lives. About 20% will require care for five years or more.

Whether it’s due to mobility issues, dementia, or recovery from surgery, the costs add up quickly. A semi-private nursing home room in the U.S. averages $8,000–$9,000 per month.

Here are a few ways to plan for long-term care costs:

  • Private Long-Term Care Insurance: These policies help cover the cost but often include a 90-day waiting period and limits on coverage duration or dollar amounts.
  • Hybrid Policies: Some annuities or life insurance policies offer riders that provide long-term care benefits—typically 2–3x your premium in coverage.
  • Medicaid: If you spend down your assets to $2,000 or less, Medicaid may cover your long-term care—but often at lower levels of service or facility choice.

Practical Strategies to Manage Costs

In addition to saving and budgeting, consider these tactics to keep your healthcare spending in check:

  • Opt for generic medications when available
  • Use price comparison tools for prescriptions
  • Consider mail-order pharmacies for convenience and savings
  • Look for manufacturer coupons on high-cost medications
  • Prioritize preventive care and wellness programs to catch issues early and maintain overall health
  • Preventive care is not only good for your health—it’s good for your finances.

Why Work with a Financial Planner?

Planning for healthcare costs in retirement isn’t just about picking a Medicare plan—it’s about aligning your savings, insurance and income to support your lifestyle long term.

A financial planner can:

  • Evaluate your current income, savings and spending
  • Recommend the right savings vehicles for your situation
  • Help you select the Medicare plan that offers the best coverage for your needs and budget
  • Guide you through long-term care planning
  • Assist with legal documents like healthcare directives and powers of attorney

Start Planning Today

Preparing for healthcare costs in retirement starts now—not at age 65. Whether you’re still working, approaching retirement or already transitioning, it’s never too early (or too late) to put a strategy in place.

At Adams Brown Wealth Consultants, we help clients plan with confidence. Let us help you build a plan that keeps your care high and your stress low. Reach out today and take the first step toward a healthier, more secure retirement.