When people think about retirement expenses, travel and leisure usually come to mind. But the reality is, health care often becomes one of the largest and most unpredictable costs you’ll face. With Medicare open enrollment approaching, now is the right time to take a closer look at how to keep these costs under control without sacrificing the care you need.
One of the biggest areas of confusion around Medicare is when you actually need to sign up. Just because you’re turning 65 doesn’t mean you have to enroll right away. It depends on your situation.
If you’re no longer working—or if your employer coverage is through a small company (fewer than 20 employees)—you’ll generally need to enroll at 65 to avoid penalties. Delaying Part B in that case can trigger a 10% penalty for every 12 months you waited, and that penalty sticks with you for life. For Part D, the prescription drug coverage, the penalty is 1% for every month you delay without creditable coverage.
On the other hand, if you’re still working at 65 and your employer provides what Medicare considers “creditable coverage” (typically a large group health plan), you may be able to delay Part B and Part D without penalty. The same goes if you’re covered through a spouse’s employer plan. Once that coverage ends, you’ll qualify for a special enrollment period, giving you time to sign up penalty-free.
Where people get into trouble is assuming their coverage counts when it doesn’t. Retiree health plans, COBRA, and health care sharing ministries usually don’t qualify as creditable coverage for Medicare purposes. In those cases, failing to enroll at 65 can set you up for lifelong higher costs.
The bottom line: don’t guess. Confirm with your employer’s HR department—or directly with Medicare—whether your current plan qualifies. Knowing the rules for your specific situation can save you thousands of dollars over your retirement.
Medicare doesn’t cover everything. That’s why many retirees add a Medicare Advantage plan or a Medigap policy. Here’s where careful shopping makes a difference.
Too often, I see people make their choice based on a friend’s recommendation or a commercial they saw on TV. Instead, compare plans side by side. Look at monthly premiums, deductibles, out-of-pocket maximums, and whether your preferred doctors and hospitals are in the network. Pay particular attention to prescription drug coverage, which can vary widely between plans.
This isn’t a one-and-done decision. Plans change every year, which is why open enrollment exists. Reviewing your options annually can help you avoid overpaying and make sure your plan still fits your needs.
For higher-income retirees, Medicare premiums can climb quickly because of something called IRMAA—the Income-Related Monthly Adjustment Amount. In plain terms, the more income you report on your tax return, the more you pay for Medicare Part B and Part D.
But here’s the good news: with planning, you may be able to reduce or avoid these surcharges. Strategies might include managing the timing of Roth conversions, spreading out withdrawals from retirement accounts, or carefully structuring charitable gifts through qualified charitable distributions (QCDs).
Because IRMAA is based on your income from two years prior, what you do today affects what you’ll pay two years down the road. This is where proactive tax planning really pays off.
The most cost-effective health care is the care that prevents bigger problems down the road. Medicare covers many preventive services at no additional cost—things like screenings, vaccines, and an annual wellness visit.
Take advantage of them. A simple screening can catch an issue early, when it’s cheaper and easier to treat. Staying current on vaccines, especially flu and pneumonia shots, can prevent costly hospital stays. And never underestimate the value of lifestyle—regular exercise, balanced nutrition, sleep, and stress management are all powerful tools to keep your health care spending lower in the long run.
Health care in retirement doesn’t have to be a financial minefield. By taking some straightforward steps—enrolling on time, shopping wisely, managing income for tax efficiency, and investing in preventive care—you can take much of the uncertainty out of the equation.
I’ve worked with many retirees who felt overwhelmed by the complexity of health care decisions, but once we broke it into manageable steps, the stress eased. The goal isn’t to game the system—it’s to be intentional, thoughtful, and prepared.
The truth is, you can’t eliminate health care costs in retirement. But with planning and vigilance, you can keep them from spiraling out of control. And that peace of mind means you’ll have more freedom to focus on what really matters in retirement: living life on your terms.