How to Budget For Medicare Costs While Planning Your Retirement

Do not forget to add health care costs into your retirement planning.

First of all, have you thought about your health care needs when you retire? Like most people planning their retirement roadmap you may have underestimated the costs of health care as you age.

If you qualify, Medicare Part A is free and does cover some level of hospitalization. Consequently, there are many aspects of Medicare coverage that is not free. For example, you pay premiums for Medicare Part B, and for supplemental insurance or prescription plans, as well as, out-of-pocket costs. And don’t forget, Medicare premiums and out-of-pocket costs will go up.

Here are four types of health care premiums you are likely to have in retirement:

Medicare Part B

Medicare Part B is NOT free. Most members pay a monthly premium. Medicare Part B covers you for all services performed outside of a hospital setting. Think “out-patient”. Everything from a routine MD Office Visit, Lab work, Physical Therapy, CT Scans, MRI’s, etc.


Medicare Supplement (Medigap) Plans are health insurance plans sold by private insurance companies. They fill the “gaps” in Original Medicare. Medicare Supplement (Medigap) policies help pay some or most of the health care costs that Original Medicare doesn’t cover.

Medicare Part D

You must obtain a prescription drug plan whether you are currently on medications or not. Medicare Part D, or the Prescription Drug program, is just that. The Federal Government requires all Medicare beneficiaries to obtain a Part D drug plan. Otherwise you will be responsible for a “late enrollment penalty” if you fail to get a Part D plan.

Long-term Care

Medicare does not cover the majority of long-term care costs. To be assured you have coverage, consider long-term care insurance.

What can you expect to pay for healthcare in retirement?

First of all, a quick way to estimate your health care costs would be to use an online calculator. HVS Financial provides one here.

Example below produced using HVS online calculator by

For a male, age 65, and the calculator estimated total premiums and out-of-pocket costs at about $4,500 a year. Therefore, that means if you haven’t put about $375 a month into your budget for health care costs, you’re going to find yourself short on cash. As a result, it’s also likely that these healthcare costs will rise at about double the rate of inflation, which means 10 years into retirement that $375 a month may be closer to $675 a month (using a 6 percent inflation rate).

As you can see this is a significant amount to leave out of your retirement budgeting.

What can you do?

Above all, you can help yourself be better prepared for the anticipated costs of healthcare with some of the below tips:

Stay Healthy
The less add-on premiums you have the better for your budget. Hence, stay on top of your screenings and preventative care. Go to all your check up appointments. Develop a good strategy with your health care professional. Likewise this will help you to not be caught off guard.

File Your Taxes Efficiently
According to efficiently filing your taxes could make a difference.

For high-income taxpayers the more you make, the higher your Medicare Part B and D premiums. A good tax/retirement planner will provide you the following ideas. These will help manage distributions more tax efficiently. And potentially keep your premiums from rising.

  • Distributions from HSA accounts, Roth IRA accounts or from cash value life insurance policies don’t count in the formula that determines the final amount of your Medicare Part B premiums. Hence, income from a reverse mortgage doesn’t count either.
  • Money withdrawn from traditional retirement accounts can often be offset with deductible health care expenses.
  • Since Roth IRA withdrawals don’t count in the formula that may increase your Medicare Part B premiums, if you have large balances in traditional IRAs that means you will have a significant amount of required minimum distributions at age 70 and beyond, and you may want to consider converting part of your IRA to a Roth before you reach age 65.

Therefore, it is vital that you are able depend on your retirement money being there for you. Most noteworthy, now is the time to do your research and finalize your plan.