After you turn 65, you will still have medical expenses, but you may not still have medical insurance. That’s where Medicare comes in, but it doesn’t cover everything. A CFP explains some things you need to know about this coverage.

by Andrea Norris-McKnight

Many people assume that Medicare will cover all their medical expenses after age 65.

Not true! Medicare covers many, but not all, medical expenses.

To help us understand what to expect in terms of out-of-pocket medical expenses, we contacted Jennipher Lommen. Ms. Lommen is a Certified Financial Planner. She has helped numerous individuals and couples navigate the path of early retirement, of which heath care is one of many important considerations.

Q: Medicare isn’t completely free and doesn’t cover everything. What expenses aren’t covered by Medicare?

Ms. Lommen: In general, Medicare policies do not provide coverage for dental care, vision screening or care, hearing screening and hearing aids, or long term care services.

Medicare coverage for in-hospital care has increasingly high per-day co-insurance requirements when a stay is longer than 60 days and phases out skilled nursing facility coverage beyond day 100.

Some Medicare Advantage and Medi-Gap supplemental policies do step in and cover some of these services, with varying premium and co-pay costs for individuals.

Related: Do You Need Long Term Care Insurance?

Q: You say that many people are surprised by the costs of medical care even with Medicare. Is there a way to estimate how much will be needed?

Ms. Lommen: When I prepare financial plans for clients, I use a conservative estimate between $8,000 and $12,000 per person ($16K-$24K for a married couple) per year for overall medical expenses, including premiums and out-of-pocket expenses.

Premiums for Medicare Part B alone are $174.70 per person per month (in 2024) and go up from there depending upon income. Premiums and co-pays for Part D (prescription drug) and Medi-Gap plans vary greatly, but you can see how quickly annual costs can reach $8,000 per year or more.

Related: Controlling Medical Costs in Retirement

Q: If someone knows at age 50 that they’re likely to want to retire before age 65, what steps should they take now to make that transition easier?

Ms. Lommen: First and foremost, do your research and start planning early! Understanding your own medical needs and costs will be crucial to the planning stage of preparing for early retirement.

Maximizing pre-tax Health Savings Account contributions and allowing those savings to grow is one way to offset future qualified medical expenses. The funds in an HSA generally cannot be used to pay health insurance premiums. They can be used for COBRA premiums, long term care insurance premiums, and health insurance premiums while collecting unemployment benefits and Medicare part B premiums (not Medi-Gap). Even with these restrictions, HSA funds can be used to offset co-pays and other qualified out-of-pocket medical expenses during the early retirement period.

Of course, there are other savings vehicles besides Health Savings Accounts. Another option includes shifting from employment to semi-retirement through consulting or other self-employment opportunities. As a self-employed individual, you can deduct the cost of health insurance premiums for both yourself and your spouse on your tax return. The key is to understand your own estimated medical costs for the early retirement period so you can effectively strategize to meet your own needs.

Related: Get To Know the HSA and Better Understand Your Options

Q: Are there any medical cost advantages to delaying retirement past age 65?

Ms. Lommen: If you are covered by an employer provided health plan that offers the coverage you need at a cost to you that is lower than the cost of Medicare coverage, it may be advantageous to keep working (particularly if you like your job and want to keep working!).

Ordinarily, there is a penalty to delaying Medicare after age 65. This penalty is waived if you (or your spouse) are still working and you (and your spouse) are covered by an employer plan. You will need to enroll in Medicare right away if you do stop working, but you will not face any penalties.

Reviewed May 2024