A 65-year-old couple will need $395,000 in combined savings to afford the cost of specific Medicare plans in retirement. The average healthy 65-year-old retiring in 2024 is projected to spend significantly on health care throughout their remaining lifetime. A healthy 65-year-old man retiring in 2024 with a Medicare Advantage Part D (MAPD) plan is projected to spend $128,000 on healthcare in his remaining lifetime.
A woman with the same coverage is projected to spend $147,000. To afford these costs, a man with a MAPD plan needs to have at least $86,000 in savings, and a woman with the same coverage needs at least $96,000 in savings.
The costs are even higher for a 65-year-old man retiring in 2024 with Medicare plus Medigap plus Part D. They are projected to spend approximately $281,000 on healthcare expenses throughout retirement. A woman with the same coverage is projected to pay $320,000.
The difference in cost is mainly because women, on average, live longer than men. The cost of healthcare in retirement will depend on several factors. These include when someone retires, where they live during retirement, and what Medicare benefit plan they choose.
The cost of Medicare Advantage, Medigap, and Part D plans can vary significantly by state. For example, in Florida, a 65-year-old retiring in 2024 can be expected to spend upwards of $340,000 on health care. In Texas, the cost is around $260,000 to $280,000.
Retirees have less control over factors such as health status or how long they will live.
planning for Medicare costs
Both of these are primary drivers of how much their health care will cost.
A hypothetical couple retiring in 2024 will need to save approximately $7,000 more than they would have in 2023 if they had Original Medicare plus Medigap and Part D coverage. They will need $8,000 less if they have Medicare Advantage plus Part D coverage, all else being equal. The Inflation Reduction Act significantly changed Medicare Part D in 2024.
Out-of-pocket expenses were significantly reduced because the law eliminated cost-sharing in the catastrophic phase of insurance coverage. However, this increased plan liability, driving an increase in premiums. Additionally, there has been continued growth in spending on major brand-name drugs like GLP-1s and SGLT2s.
These drugs treat conditions like diabetes and heart failure but also contribute to increasing premium and out-of-pocket costs. Higher prescription drug costs have also increased short-term healthcare expectations over the next few years. Most people cannot apply for Medicare until age 65, so retiring early means healthcare costs can be much higher.
For example, suppose someone retires five years before they are eligible, at age 60. In that case, they can expect to pay 56% more for health care expenses if enrolled in Original Medicare plus Medigap (Plan G) plus Part D. They will pay 86% more if enrolled in a MAPD plan than they would if they waited until age 65 to enroll. Conversely, delaying retirement allows retirees to boost savings and continue earning income and employer-sponsored benefits like health care.
Retiring at age 70, for example, would allow a retiree to pay 29% less on health care expenses than if they retired at 65 and are enrolled in Original Medicare plus Medigap plus Part D., They would pay 30% less for health care with an MAPD plan. “Healthcare expenses are an important and sometimes overlooked component of retirement planning,” said Robert Schmidt, a principal and co-author of the Retiree Health Cost Index.
“By taking a realistic look at their health status and healthcare expenses, and then budgeting accordingly, people can take steps to enjoy a less stressful, financially healthier retirement.”
The complete Retiree Health Cost Index can be found on Milliman’s official website.
