Healthcare Planning

A 65-year-old couple retiring today can expect to spend approximately $315,000 on healthcare costs over the course of retirement — and that figure doesn't account for long-term care. Healthcare is the variable most retirement income plans treat as a fixed assumption. It isn't.

The Pre-Medicare Gap Is the Most Acute Problem Early Retirees Face

If you plan to retire before 65, the years between your last employer health plan and Medicare enrollment are the most financially exposed of your retirement. COBRA coverage is time-limited — it runs out after 18 months. Medicare doesn't start until 65. The years in between need a plan that accounts for coverage continuity, cost management, and income strategy.

 

ACA marketplace coverage is available during that window, but the subsidies are income-dependent. That means how you draw income during pre-retirement — from which accounts, in what amounts, in what sequence — directly affects what you pay for health insurance. Managing that income is part of healthcare planning at Verak Private Wealth, not an afterthought to it.

 

What the pre-Medicare bridge looks like in practice:

 

  • COBRA duration analysis — evaluating whether COBRA is worth carrying and for how long
  • ACA marketplace income management — structuring withdrawals and income to qualify for subsidy tiers
  • Short-term and gap coverage options — reviewed and compared against marketplace alternatives
  • Coverage continuity planning — so no gap in the transition to Medicare Part A and Part B

IRMAA Is a Medicare Surcharge Most Executives Don't See Coming

Medicare premiums are not flat. If your income in the two years before Medicare enrollment exceeds certain thresholds, you'll pay Income-Related Monthly Adjustment Amounts — IRMAA surcharges — on top of your standard Part B and Part D premiums. For 2024, those surcharges can add several hundred dollars per month per person.

 

For executives with large equity compensation events — RSU vesting schedules, stock option exercises, ESPP sale proceeds — the income spike in the one to two years before Medicare enrollment can trigger IRMAA without any planning to prevent it. This is one of the clearest intersections between equity compensation planning and healthcare cost planning, and it's a connection that gets missed when those conversations happen in separate silos.

 

I model IRMAA exposure as part of retirement income planning for clients approaching Medicare eligibility. The goal is to anticipate the income events that trigger surcharges and sequence them in a way that minimizes the premium impact — before the two-year look-back window closes.

Your HSA Has a Timer on It

The Health Savings Account is the only triple-tax-advantaged account available in the U.S. tax code: contributions are pre-tax, growth is tax-deferred, and qualified withdrawals are tax-free. But the ability to contribute ends at Medicare enrollment — and most people don't maximize the window they have.

 

For clients in the years immediately before retirement, HSA strategy includes:

 

  • Tracking annual contribution limits and ensuring they're fully used before eligibility ends
  • Investment allocation within the HSA — treating it as a long-term healthcare reserve, not a checking account for current medical expenses
  • Identifying the optimal year to stop contributing based on Medicare enrollment timing
  • Coordinating HSA withdrawals with retirement income sequencing to minimize taxable income

 

An underused HSA is a missed tax opportunity with a fixed expiration date. If you're within five years of retirement and haven't maximized your HSA strategy, that's a gap worth closing now.

Healthcare Cost Is Modeled as a Variable, Not a Line Item

The retirement income plans that fail under healthcare pressure are the ones that treated healthcare as a fixed monthly expense. Healthcare costs don't follow a schedule. A single hospitalization, a chronic condition diagnosis, or a long-term care need can reshape a retirement income plan that looked sound on paper.

 

In retirement income planning at Verak, healthcare cost is modeled as a variable — one that responds to age, health status, coverage elections, and care needs over time. That means:

 

  • Running projections that stress-test the retirement income plan against elevated healthcare scenarios
  • Incorporating supplemental Medicare coverage analysis — Medigap versus Medicare Advantage trade-offs
  • Reviewing out-of-pocket maximum exposure and how it interacts with annual income draws
  • Evaluating long-term care risk as a distinct financial planning category, not a footnote

 

The plan that leaves healthcare as a fixed assumption isn't a complete plan. Modeling it honestly — including the scenarios you hope don't happen — is how a retirement income plan holds up over a thirty-year horizon.

Common Questions About Healthcare Planning in Retirement

  • How much should I budget for healthcare costs in retirement?

    Fidelity's annual Benefits Consulting estimate puts the figure at approximately $315,000 for a 65-year-old couple retiring today — and that excludes long-term care costs. The right number for your situation depends on your health status, coverage elections, retirement age, and geographic location. I model healthcare cost as a range within the retirement income projection, not a single fixed assumption, so the plan accounts for variation over time.

  • What are my health insurance options if I retire before 65?

    The three primary options for the pre-Medicare window are COBRA continuation coverage, ACA marketplace coverage, and short-term or gap coverage products. COBRA preserves your current plan but is expensive and limited to 18 months. ACA marketplace coverage can be cost-effective if your income is managed to qualify for subsidies — but that requires deliberate income sequencing during the early retirement years. Which option makes sense depends on your income structure, health needs, and how far you are from Medicare eligibility.

  • What is IRMAA and how do I avoid triggering it?

    IRMAA is the Income-Related Monthly Adjustment Amount — a surcharge added to Medicare Part B and Part D premiums when your income in the prior two years exceeds certain thresholds. For executives with large equity compensation events near retirement, a single high-income year can trigger surcharges that add hundreds of dollars per month to Medicare costs. Planning around IRMAA means anticipating those income events and sequencing them before the two-year look-back window affects your Medicare premiums.

  • When should I stop contributing to my HSA?

    You must stop contributing to an HSA in the month you enroll in Medicare — including retroactive enrollment, which can catch people off guard. If you enroll in Medicare Part A retroactively (which can happen if you delay enrollment past 65 while still on an employer plan), contributions made during that retroactive period may be subject to tax and penalty. The right time to stop contributing depends on your specific Medicare enrollment date and plan. For most clients, the goal is to maximize contributions in every eligible year before that date arrives.