Why planning for healthcare gaps matters

Healthcare is one of the largest unknowns in retirement. Research from the Employee Benefit Research Institute shows many couples face six‑figure medical costs in retirement (often cited near $300,000 for a typical couple retiring at 65), so unrecognized coverage gaps can quickly eat into savings (EBRI: https://www.ebri.org). Planning reduces the risk that a medical event will force withdrawals from long‑term investments or delay retirement.

Start with a gap audit: what to look for

A healthcare gap audit is a systematic review of what you have today and what Medicare/other programs will cover later.

  1. Inventory current coverage and costs
  • Employer plan(s), COBRA options, retiree health benefits
  • Current annual out‑of‑pocket (OOP) paid for prescriptions, provider visits, dental, vision, hearing
  • Any family history or chronic conditions that raise utilization
  1. Map coverage to future status
  • If you’ll be age 65 within the next 10 years, identify how your employer coverage coordinates with Medicare (see Medicare enrollment rules) (Medicare.gov: https://www.medicare.gov).
  • Identify services not covered by Medicare (most dental, vision, routine hearing, routine long‑term custodial care, many assisted living costs).
  1. Identify timing and enrollment traps
  • Medigap open enrollment lasts 6 months starting when you’re 65 and enrolled in Part B; guaranteed issue protections can vary by state and situation (Medicare.gov).
  • Part B and Part D late‑enrollment penalties can add cost for life; plan enrollment timing to avoid penalties.
  1. Run a spending projection
  • Use 3–5 years of medical spending as a baseline and inflate by a conservative health‑cost rate (many planners use 3–6% real, but adjust to your region and health needs).
  • Add likely one‑time costs: hearing aids, dental work, cataract surgery, and a long‑term care stress test (see long‑term care section).

How to cover the common gaps (practical options)

Below are practical strategies I use with clients to close the most frequent gaps.

  1. Medicare supplements and Advantage plans
  • Compare Medigap (Medicare Supplement) vs. Medicare Advantage. Medigap typically increases premiums but reduces OOP volatility; Advantage plans often lower premiums but have network and prior‑authorization rules. Use a side‑by‑side comparison of benefits, networks, drug formularies, and total annual expected OOP. (See our guide: How to Compare Medicare Supplement Plans: https://finhelp.io/glossary/how-to-compare-medicare-supplement-plans/)
  1. Prescription drug gaps
  • Evaluate Part D plans at initial enrollment and during each annual election period. If you take high‑cost drugs, include total annual drug costs (premiums + estimated OOP) in your projection.
  1. Dental, vision and hearing
  • These are not covered by traditional Medicare. Options include stand‑alone dental/vision/hearing policies, employer retiree plans, or setting aside a dedicated annual budget. For predictable needs (e.g., crowns), consider pre‑funding or low‑cost dental discount plans.
  1. Long‑term care (LTC)
  • Medicare generally doesn’t cover custodial LTC. You can self‑fund, buy traditional LTC insurance (typically best if purchased earlier, often ages 55–70), choose hybrid life/LTC products, or preserve assets by using Medicaid planning late in life (requires careful estate/timing strategies).
  • Our long‑term planning content explains pros/cons and local cost estimation: Long‑Term Care Planning: Options and Costs: https://finhelp.io/glossary/long-term-care-planning-options-and-costs-2/
  1. Bridge coverage if retiring before 65
  1. Use tax‑efficient accounts
  • HSAs (if eligible) are the most tax‑efficient way to save for future medical costs — pre‑tax or tax‑deductible contributions, tax‑free growth, and tax‑free qualified withdrawals for medical expenses. Consider treating an HSA like a retirement account for health costs after 65.
  1. Budgeting and reserve funds
  • Maintain a dedicated health‑cost reserve (liquidity bucket) for predictable annual spending and a secondary reserve for shocks (surgeries, rehab). I recommend modeling both in a cash‑flow projection so you can see when savings or annuity income will be needed.

Modeling a realistic healthcare cost scenario (step‑by‑step)

  1. Collect: 3 years of medical, dental, vision, and prescription receipts or EOBs.
  2. Normalize: average the last 3 years, adjusting for one‑off items and new diagnoses.
  3. Inflate: apply a conservative medical cost inflation rate (customize by local costs and health status).
  4. Add LTC probability: use conservative actuarial odds (e.g., 40–70% chance one spouse needs LTC at some point) and model a median length of stay for nursing‑home vs. assisted‑living alternatives.
  5. Test scenarios: best case, expected case, and stress case (major surgery + 2 years of LTC).
  6. Assign funding: allocate expected costs to Medicare/insurance, HSA, ongoing budget, or an LTC policy. Adjust savings targets and retirement withdraw plans accordingly.

Common mistakes I see (and how to avoid them)

  • Assuming Medicare covers everything: it doesn’t cover routine dental, vision, hearing or custodial LTC (Medicare.gov).
  • Waiting too long to buy Medigap: you can be underwritten outside guaranteed periods and pay higher premiums or be declined.
  • Forgetting premiums in cash‑flow plans: Part B, Part D, Medigap, and Advantage premiums all reduce disposable retirement income.
  • Ignoring IRMAA and tax interactions: high reported income in the years before Medicare (MAGI used by SSA) can trigger higher Part B and Part D premiums (IRMAA). Coordinate Roth conversions and taxable income timing with a planner (Medicare.gov explains IRMAA calculation).

Real‑world examples (anonymized, based on my practice)

  • A 63‑year‑old client planned to retire at 64. He assumed COBRA for one year and that Medicare would pick up primary costs at 65. When his employer ended retiree dental, a $5,500 dental bill and a temporary insulin pump requirement created a $9,000 shortfall that reduced his non‑taxable bucket. We implemented an HSA drawdown strategy and adjusted his retirement date by nine months to preserve liquidity.

  • A couple in their late 50s bought a hybrid life/LTC policy because they both had family histories of dementia. The hybrid product locked in premium stability and created a death benefit if LTC wasn’t needed — a compromise between outright self‑funding and traditional LTC insurance.

Practical planning timeline

  • 10+ years out: Inventory coverage, start an HSA if eligible, and review family health history.
  • 5 years out: Run multiple spending scenarios, evaluate Medigap vs Advantage tradeoffs, and research LTC options.
  • 12–18 months out: Finalize enrollment timing, lock in Medigap if you plan to buy during guaranteed periods, and confirm bridge coverage if retiring before 65.

Checklist: actions to take this year

  • Gather 3 years of medical and Rx costs.
  • Check your estimated Medicare enrollment dates and open enrollment windows (Medicare.gov).
  • If under 65 and retiring soon, compare COBRA vs ACA marketplace costs and subsidies.
  • Meet with a certified financial planner and an elder‑care attorney if LTC planning is a concern.
  • If eligible, maximize HSA contributions and invest the HSA balance for growth.

Sources and further reading

  • Employee Benefit Research Institute, Retirement Health Care Costs (EBRI): https://www.ebri.org
  • Medicare (official): https://www.medicare.gov — enrollment windows, Part B/Part D, Medigap rules and IRMAA information
  • Consumer Financial Protection Bureau, Health Care Costs (consumerfinance.gov)

Professional disclaimer
This article is educational and not individualized financial or medical advice. In my practice as a financial planner I use these frameworks with clients, but you should consult a certified financial planner, insurance broker familiar with Medicare and long‑term care, and legal counsel for Medicaid or estate planning questions.

If you want, I can convert your personal healthcare spending into a simple projection worksheet and show how that changes your retirement withdraw strategy.