For many Americans, reaching Medicare eligibility marks a noticeable decrease in healthcare spending. Of course, that doesn’t mean that Medicare is free. For financial advisors helping clients prepare for retirement, understanding and planning for the costs associated with Medicare is critical. While these costs are often lower than those incurred through pre-65 health insurance, they remain significant, especially when viewed over a multi-decade retirement.

Starting with the basics, Medicare Part A is typically premium-free for most individuals. Those who have worked at least ten years—or have been married to someone who has—generally pay nothing for this hospitalization coverage. However, this is not universal, so confirming eligibility is always the first step. The real cost of Medicare begins with Part B, which covers outpatient care. This year, the standard Part B premium is $185 per month. People retiring with higher incomes may need to budget over 3 times that amount. This amounts to $3,000 annually per person. It's important to stress to clients that Medicare is an individual plan—there are no household rates—so a married couple should plan to spend $6,000 annually just for Part B. Once Social Security benefits begin, premiums are typically deducted automatically from those payments, but until then, beneficiaries are billed directly.

Prescription drug coverage has seen meaningful improvements recently, largely due to changes in Medicare Part D. The current recommendation is for clients to plan for up to $2,000 annually in out-of-pocket drug expenses, plus an average of $600 in premiums. While healthier individuals may spend less—especially those taking only generic medications—a sudden health event or the need for high-cost prescriptions can quickly lead to reaching the annual maximum. Planning for the full $2,600 per person is a prudent strategy.

Beyond Basic Medicare

When choosing between different ways to supplement Medicare, clients typically face two primary options: a Medicare Supplement plan (Medigap) or a Medicare Advantage (MA) plan. Each comes with its own cost structure, benefits, and risks, and financial advisors must help clients make choices that align with both their healthcare needs and financial situation.

Medigap policies generally involve higher monthly premiums but offer more predictable costs. At age 65, in the states I work, premiums average around $150 per month or $1,800 annually, with average increases of about 10% per year. Premiums vary based on the state of your client’s primary residence. Clients should also budget for the annual Medicare Part B deductible—currently $257—which is generally their only out-of-pocket medical expense beyond the premium. For many retirees, especially those who value consistency and broad provider access, this model offers peace of mind.

In contrast, Medicare Advantage plans can seem more attractive due to their lower (often $0) premiums. However, they come with greater variability in cost. Advisors should identify the maximum out-of-pocket (MOOP) limit for each client’s plan—typically around $5,000—and then double that figure to prepare for back-to-back medical events straddling two calendar years. That means a realistic estimate is $10,000 per person every two years in potential exposure. While many clients may never reach this maximum, advisors should prepare them for the possibility, especially if they face serious or chronic health issues later in life.

Additional Considerations

Beyond Medicare and major medical expenses, several other healthcare-related costs must be addressed in retirement planning. Dental care is not covered by Medicare, and while some Advantage plans offer limited dental benefits, others do not. Clients who want robust dental coverage may need to purchase separate insurance or pay out-of-pocket. Costs can vary widely depending on the provider, services, and geographic area.

Vision care is another area where advisors should tread carefully. While Medicare covers diagnosis and treatment of eye conditions such as glaucoma or cataracts as part of its basic benefit, it does not cover corrective lenses or elective procedures like Lasik. Clients should provide their own estimates for these expenses, as personal preferences range from inexpensive readers to luxury eyewear.

Transportation is a more localized concern. Urban clients often have access to public transportation or senior services, while rural clients may require more robust planning, especially as driving becomes less feasible with age. Advisors should not overlook this category, as a lack of transportation can become a major barrier to care.

Over-the-counter healthcare products, from pain relievers to wound care, remain a consistent expense into retirement. While some Medicare Advantage plans include limited coverage for these items, it is unreliable and subject to change. As such, clients should continue budgeting for them as they did before Medicare.

Finally, long-term care must be addressed explicitly and early. Medicare offers only very limited short-term care benefits and should not be counted on for long-term care needs. Advisors should direct clients to explore long-term care insurance or other strategies to protect assets against the potentially devastating cost of extended care. This area is complex and often requires specialized expertise, but it is too important to ignore.

The transition to Medicare does reduce overall healthcare expenses, but it introduces a new set of individualized, non-negotiable costs that must be budgeted for proactively. With Part B and Part D premiums, potential supplement or Advantage plan costs, and a range of out-of-pocket needs—from dental to transportation—advisors should expect clients to spend at least as much as they did pre-65, just in different ways. A single retiree might need to budget around $7,000–$8,000 annually for Medicare-related expenses, with higher exposures possible depending on their choices and health status. Helping clients understand these nuances and prepare accordingly is an essential part of any sound retirement plan.

Elie Harriett co-owns Classic Insurance & Financial Services Co., specializing in Medicare-related insurance, and is a trustee of NAIFA-Ohio. Harriett can be reached at elie@harriett.us.