When clients ask me what surprises retirees most in their first few years out of the workforce, healthcare costs are almost always near the top of the list. Not because the costs are hidden exactly, but because most working professionals never had to think about them directly. Your employer handled the plan selection, absorbed a large share of the premium, and healthcare was simply a line item deducted from your paycheck that you rarely examined closely.

Retirement changes that entirely. Suddenly you’re the one choosing coverage, paying the full premium, and absorbing costs that Medicare doesn’t cover. For a lot of the retirees I work with here in Pasadena, this is genuinely the most under-planned-for expense in their entire retirement budget. Let’s fix that.

The True Cost of Healthcare in Retirement

Most retirement calculators and rules of thumb dramatically understate healthcare’s real cost. It’s not just a monthly premium. It’s premiums, deductibles, copays, prescription costs, dental and vision (which Medicare largely doesn’t cover), and, for a meaningful share of retirees, long-term care costs that can dwarf everything else combined.

Industry estimates commonly cited for a healthy 65-year-old couple’s lifetime healthcare costs in retirement run well into six figures, and that figure typically doesn’t include long-term care. I want to be careful here: these industry-wide averages move over time and vary enormously based on health, location, and the choices you make along the way, so treat any specific number you read, including ones I might mention, as a rough planning input rather than a prediction for your own situation.

What I’d rather you take away is the shape of the problem: healthcare tends to be a larger, longer, and more variable expense than most people budget for, and it deserves its own line item in your plan rather than getting lumped into general living expenses.

Medicare Basics and Costs

Medicare is the foundation of healthcare coverage for most retirees, but “Medicare” isn’t a single, complete plan the way employer coverage often felt like one.

Part A covers hospital care and is premium-free for most people who’ve worked and paid Medicare taxes for at least ten years. Part B covers outpatient care, doctor visits, and medical services, and it carries a monthly premium that’s deducted from Social Security for most beneficiaries. Part D covers prescription drugs and is sold through private insurers, with its own separate premium.

Then there’s the choice between Original Medicare, paired with a supplemental Medigap policy, versus Medicare Advantage, which bundles coverage through a private insurer and often includes extras like dental or vision. This decision has real financial and practical tradeoffs, and it’s one of the most consequential choices you’ll make around retirement, worth a dedicated conversation with your advisor rather than a default selection.

One detail that catches people off guard: your Part B and Part D premiums aren’t flat. They’re based on your income from two years prior, through a surcharge called IRMAA, the income-related monthly adjustment amount. A large capital gain, a Roth conversion, or a big income year two years before you enroll can meaningfully increase what you pay for Medicare, sometimes without you realizing the connection until the higher premium notice arrives. I’ll flag this clearly: IRMAA income thresholds and surcharge amounts are adjusted periodically and are exactly the kind of figure that should be verified against current numbers before you rely on them, not assumed from something you read months or years ago.

The Long-Term Care Challenge

If healthcare costs in general are underestimated, long-term care costs are usually not estimated at all until a crisis forces the issue.

Medicare provides very limited long-term care coverage, generally only short-term skilled nursing care following a hospital stay, not the extended custodial care many people eventually need. That gap is significant. Home health aides, assisted living, and nursing home care are expensive, and costs vary considerably by region, with Southern California generally running above national averages.

Families generally address this gap in one of a few ways: purchasing a long-term care insurance policy, self-insuring by earmarking a portion of the portfolio specifically for this possibility, or some hybrid approach using a life insurance policy with a long-term care rider. There’s no universally correct answer here. It depends on your overall asset base, your family health history, and honestly, your comfort with risk. What I’d caution against is doing nothing simply because the topic is uncomfortable. A plan that at least acknowledges the possibility, even if it’s a self-insurance strategy rather than a policy purchase, puts you in a fundamentally different position than a plan that ignores the question entirely.

Building Healthcare Into Your Budget

Rather than treating healthcare as a vague, worrying unknown, I encourage clients to build it into the retirement budget as its own explicit category, separate from general living expenses.

Start with a realistic estimate of Medicare premiums, including the possibility of IRMAA surcharges if your retirement income will be on the higher end. Add a reasonable estimate for out-of-pocket costs: deductibles, copays, dental, vision, and hearing, none of which Original Medicare covers comprehensively. Then layer in a separate consideration for long-term care, whether that’s an insurance premium or a specific portfolio allocation earmarked for the possibility.

I’d also encourage building in some inflation cushion specifically for healthcare, since medical costs have historically risen faster than general inflation over long stretches of time. A budget that assumes healthcare costs will simply track your other expenses tends to underestimate this category over a multi-decade retirement.

Strategies to Reduce Costs

There’s more room to manage healthcare costs proactively than most people realize. If you’re retiring before 65 and not yet eligible for Medicare, bridging that gap, whether through COBRA, a marketplace plan, or a spouse’s employer coverage, deserves careful comparison shopping rather than defaulting to whichever option seems simplest.

A health savings account, if you have access to one before retirement, is one of the more powerful tools available: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free, a combination no other account offers. If you’re still working and eligible, maximizing HSA contributions in your final working years can meaningfully offset healthcare costs later.

Managing your taxable income in the years that determine your Medicare premiums matters too, since avoiding an unnecessary IRMAA surcharge through thoughtful timing of Roth conversions or large capital gains can save real money. And during Medicare’s annual open enrollment period each fall, it’s worth actually reviewing your plan rather than letting it auto-renew, since coverage and costs can shift year to year even if your health hasn’t changed.

Planning Timeline by Age

In your late 50s and early 60s, this is the window to seriously evaluate long-term care coverage while you’re still healthy enough to qualify at reasonable rates, and to begin maximizing HSA contributions if you have access to one.

As you approach 65, the focus shifts to understanding your Medicare enrollment window and avoiding the late enrollment penalties that can follow if you miss it, along with comparing Original Medicare plus Medigap against Medicare Advantage based on your specific health needs and preferred providers.

Once you’re retired and on Medicare, the ongoing task becomes an annual review each fall during open enrollment, along with periodic revisiting of your long-term care strategy as your health and financial picture evolve.

Greater LA Considerations

Southern California has a robust and generally high-quality healthcare system, but that quality often comes with costs above national averages, both for out-of-pocket medical care and for long-term care facilities. Pasadena and the surrounding communities have strong options for both Medicare Advantage plans, given the number of large regional health systems, and long-term care facilities, but pricing across the region varies enough that it’s worth researching specific providers and facilities relevant to where you plan to spend retirement, rather than relying on national averages.

Working With Advisors

Healthcare planning genuinely works best as a team effort. Your financial advisor can help you build the cost projections into your overall plan and think through the tax implications of IRMAA and Medicare timing. A Medicare broker or counselor, often available at no cost to you, can help you compare specific plan options in detail. And for long-term care insurance specifically, working with a specialist who represents multiple carriers tends to produce better options than going directly to a single insurer.

Action Plan

If you’re within five to ten years of retirement, this is the moment to get a realistic healthcare cost estimate built into your plan, evaluate whether long-term care coverage makes sense for your situation, and understand how your income in the years before Medicare enrollment could affect your premiums. If you’re already retired, an annual Medicare plan review each fall and periodic reassessment of your long-term care strategy should become a standing part of your yearly financial routine.

Conclusion

Healthcare costs in retirement are high, but they’re not unmanageable, especially with enough lead time to plan properly. The retirees who navigate this well aren’t the ones who happen to stay healthy; they’re the ones who built healthcare into their plan as deliberately as they built their investment strategy, rather than hoping it would sort itself out.

If you’d like help thinking through healthcare costs as part of your broader retirement plan, I’d welcome the conversation. Schedule a call, and let’s build this into your plan properly.