Health Care in Retirement: Planning for One of Life’s Biggest Transitions

As retirement approaches, most planning conversations focus on when to stop working and how income from savings and investments will replace your steady paycheck. One topic that often receives less attention, but deserves more, is health care. For pre-retirees, health coverage is one of the most complex and consequential transitions of retirement, and it’s an area where planning can significantly reduce future stress.

The Cost Reality

Health care is a recurring line item in retirement, not a one‑time expense. Premiums, deductibles, prescriptions and out‑of‑pocket costs tend to rise over time. And they often increase faster than general inflation. Even with Medicare, retirees shoulder meaningful ongoing expenses, which makes it important to plan for health care as part of an annual retirement budget rather than as a distant future problem.

Estimates vary widely based on age and health factors, but according to the Employee Benefit Research Institute (EBRI), a healthy 65-year-old couple that retired in 2025 would need to have saved $405,000 to have a 90% chance of covering health care costs over their lifetimes. If prescription drug prices move higher, that figure rises to $469,000.

Your goal with planning is to understand the range of potential costs and build appropriate flexibility into a financial plan. This can help ensure health care expenses don’t crowd out other priorities later on.

Retiring Before Medicare Kicks In: The Coverage Gap

For some people, like executives and business owners, the biggest health care challenge isn’t Medicare—it’s bridging to Medicare.

Eligibility begins at age 65. Retiring earlier creates a coverage gap that must be filled thoughtfully. Options may include COBRA, private insurance through the marketplace or employer‑sponsored retiree coverage if it’s available. Each choice comes with trade-offs related to cost, coverage and duration. The “right” option for you often depends on health needs, household income and how long the gap is expected to last.

This is also where employer negotiations can matter. In some cases, benefits continuation, partial premium subsidies or phased‑retirement arrangements can meaningfully reduce out‑of‑pocket costs in the years leading up to Medicare.

Medicare Decisions and Income Interactions

Planning doesn’t stop once Medicare begins. Choices around supplemental coverage, prescription plans and provider access can all influence long‑term costs and predictability. Income also plays a role. Higher‑income households may face Medicare premium surcharges, known as IRMAA, which are based on income from prior years.

While these surcharges are not uncommon for pre‑retirees with strong earnings or liquidity events, they are often manageable with advance planning. The key is awareness. You need to understand how income timing, retirement dates, and one‑time events like bonuses or asset sales interact with Medicare rules.

Where Planning Adds Value

Good health care planning is about coordinating health coverage with retirement timing, tax strategy, cash flow and benefit elections. Decisions made in the final working years often echo throughout retirement, especially when flexibility narrows later on.

For pre‑retirees, the most effective strategy is to treat health care planning as part of the broader retirement transition, not a last‑minute checkbox. When done well, planning can reduce uncertainty and preserve flexibility, allowing retirees to focus on what they’re retiring to, not just what they’re leaving behind.

For those who are already retired, health care planning remains just as relevant. Coverage choices evolve, income fluctuates and medical needs change over time. Ongoing planning can help you navigate annual Medicare decisions, manage rising out‑of‑pocket costs and coordinate health care spending with broader cash flow and tax strategies.

Your RWA team can also help anticipate how changes like unexpected medical events, shifts in investment income or evolving family needs may affect long‑term plans.

If you have any questions at all about your health care in retirement, we’re here to help.