Educational information, not individual financial advice.
Key Takeaways
Healthcare is the second-largest retirement expense for most Americans, behind housing. Estimates from Fidelity and others peg lifetime out-of-pocket healthcare costs for a 65-year-old couple retiring today at $300,000–$400,000. That number excludes long-term care, which can add substantially more.
Medicare is the federal health insurance program for Americans 65 and older. Understanding its four parts is essential:
Part A — Hospital insurance. Covers inpatient hospital stays, skilled nursing facilities (short-term), hospice, and limited home health. Most people qualify premium-free at 65 through their or a spouse's work history.
Part B — Medical insurance. Covers outpatient care, doctor visits, preventive care, lab work, durable medical equipment. Has a monthly premium (standard $185 in 2025, higher for higher incomes via IRMAA). Standard deductible is around $257/year. Pays 80% of covered services after deductible.
Part C (Medicare Advantage) — Private plans that bundle Parts A, B, and usually D, often with extra benefits (dental, vision, gym memberships). Usually have provider networks like HMOs/PPOs. Sometimes lower out-of-pocket than traditional Medicare, sometimes not.
Part D — Prescription drug coverage. Separate premium. Covers most prescriptions with copays and deductibles.
Medigap (Medicare Supplement) — Private insurance that pays the gaps in traditional Medicare Parts A and B (the 20% coinsurance, deductibles). Various lettered plans (G, N, etc.) offer different coverage levels.
Two main paths:
Traditional Medicare (A+B) + Medigap + Part D. Higher premiums (maybe $400–500/month total for a couple), but nearly all healthcare costs covered after premiums. Can see any Medicare provider. Usually the right choice for people who want predictable costs and broad access.
Medicare Advantage. Lower or zero premiums (beyond Part B), but copays and out-of-pocket maximums on care. Network restrictions. Sometimes very generous (extra benefits) but may not cover all providers or have higher out-of-pocket in worst-case scenarios.
The best choice depends on your health status, preferred providers, travel patterns (Advantage networks are typically regional; Traditional + Medigap travels better), and preference for predictable vs variable costs.
Medicare Parts B and D premiums are higher for higher-income retirees. The thresholds (2026 approximate):
| MAGI (MFJ) | Monthly Part B premium per person |
|---|---|
| ≤ $212,000 | ~$185 (base) |
| $212k–$266k | ~$259 |
| $266k–$334k | ~$370 |
| $334k–$400k | ~$480 |
| $400k–$750k | ~$591 |
| > $750k | ~$629 |
IRMAA is calculated from your MAGI two years prior (so 2026 premium is based on 2024 tax return). Roth conversions, large capital gains, or RMDs in a given year can push you into a higher IRMAA tier for two years later.
If you retire before 65, you need coverage between retirement and Medicare eligibility. Options:
This gap is a major consideration for early retirement. A couple retiring at 55 needs 10 years of coverage. At $1,500/month/person unsubsidized, that's $360,000.
Covered in more detail in "The Gap: Age 62 to 65."
Medicare does not cover long-term custodial care (nursing home, in-home care for activities of daily living). This is one of the largest misunderstandings in retirement planning.
Costs:
About 70% of Americans over 65 will need some form of long-term care during their lives, according to HHS data. Average length of need: ~2–3 years. Some stays are much longer.
Options for covering long-term care:
Horizons models healthcare as a distinct expense category with higher-than-headline inflation (historically 2–3 percentage points above CPI). The Medicare starting age can be reflected by reducing out-of-pocket costs at 65. LTC can be modeled as a future expense with specified amount and timing, or via an LTC insurance premium expense that reduces the exposure.
You plan to retire at 60. What healthcare-coverage challenge does that create?
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Medicare Parts A, B, C, D
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