Planning for Medicare Costs in Retirement: What to Budget
Medicare is not free -- and healthcare costs are one of the largest expenses in retirement. Here is a realistic breakdown of what Medicare costs in retirement and how to plan for them.
Planning for Medicare Costs in Retirement: What to Budget
One of the most common financial planning mistakes retirees make is underestimating healthcare costs. Medicare is not free -- and for many retirees, healthcare is the second-largest expense after housing. Here is a realistic breakdown of what Medicare costs and how to plan for it.
The Components of Medicare Cost
Part B Premium
Everyone on Medicare pays the Part B premium -- deducted automatically from your Social Security benefit.
2021 standard premium: $148.50/month ($1,782/year)
IRMAA surcharge: If your income exceeds $88,000 (single) or $176,000 (married), you pay more:
| Income (Single) | Part B Premium |
|---|---|
| Up to $88,000 | $148.50/month |
| $88,001-$111,000 | $207.90/month |
| $111,001-$138,000 | $297.00/month |
| $138,001-$165,000 | $386.10/month |
| $165,001-$500,000 | $475.20/month |
| Above $500,000 | $504.90/month |
Medigap or Medicare Advantage Premium
Medigap Plan G (Florida, age 65): $100-$160/month ($1,200-$1,920/year) Medigap Plan G (Florida, age 75): $160-$250/month ($1,920-$3,000/year) Medicare Advantage: $0-$100/month ($0-$1,200/year) -- but with potential out-of-pocket costs
Part D Premium
Average Part D premium (2021): $33/month ($396/year) Range: $7-$100+/month depending on plan and medications
Out-of-Pocket Costs
With Medigap Plan G: Minimal -- only the Part B deductible ($203 in 2021) plus drug copays With Medicare Advantage: Up to the plan's out-of-pocket maximum ($3,400-$7,550 in 2021)
Total Annual Medicare Cost Estimates (2021)
Original Medicare + Plan G + Part D (age 65, standard income):
- Part B: $1,782
- Plan G: ~$1,560
- Part D: ~$396
- Out-of-pocket (Part B deductible): $203
- Total: ~$3,941/year
Medicare Advantage (age 65, $0 premium plan):
- Part B: $1,782
- MA premium: $0
- Drug coverage included: $0
- Out-of-pocket (healthy year): $500-$1,500
- Out-of-pocket (serious illness): up to $6,700
- Total: $2,282-$8,482/year
Lifetime Healthcare Cost Projections
Fidelity Investments estimates that a 65-year-old couple retiring in 2021 will need approximately $300,000 to cover healthcare costs in retirement -- not including long-term care.
This figure includes:
- Medicare premiums (Parts B, D, and supplement)
- Out-of-pocket costs
- Dental, vision, and hearing expenses
Planning Strategies
Health Savings Account (HSA): If you are still working and have a high-deductible health plan, maximize HSA contributions before Medicare enrollment. HSA funds can be used tax-free for Medicare premiums (except Medigap) and out-of-pocket costs.
IRMAA planning: Work with a financial advisor to manage income in the years before Medicare enrollment to avoid or minimize IRMAA surcharges.
Long-term care planning: Medicare does not cover long-term custodial care. Consider long-term care insurance or a hybrid life/LTC policy while you are still healthy enough to qualify.
Budget for dental: Original Medicare does not cover dental. Budget $1,000-$3,000/year for dental care, or factor in the cost of a standalone dental plan or Medicare Advantage with dental benefits.
This article is for educational purposes only and does not constitute financial or legal advice. Consult a financial advisor for personalized retirement planning guidance.
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About the Author
William Gray
Independent Medicare BrokerUS Air Force Veteran · Florida Medicare Specialist
William Gray is an independent Medicare insurance broker based in Daytona Beach and Palm Coast, FL. A US Air Force veteran (A-10 crew chief, Germany), he spent years in corporate insurance before going independent to serve Florida seniors directly. He has helped more than 1,000 clients across Northeast Florida compare Medicare Advantage, Medigap, and Part D plans — always at no cost to the client.
