healthcare costs in retirement
6 Oct 2025 Retirement Income Planning

Are You Underestimating Your Healthcare Costs in Retirement? 4 Key Factors To Consider Now

Are you heading into retirement and thinking that Medicare will take care of most, if not all, of your healthcare needs? 

Unfortunately, this can be a costly misconception. It’s estimated that the average 65-year-old may need $172,500 to cover healthcare expenses in retirement, excluding long-term care. Also, in California, where the cost of living and healthcare exceed the national average, the gap between Medicare coverage and retirees’ actual expenses continues to widen. 

So how can you prepare for these hidden costs and approach your medical care with greater clarity?

This article from Bulman Wealth Group examines four major factors that influence healthcare costs in retirement and their implications for your retirement planning in California.

1. The Basics of Medicare in California

Understanding what Medicare does—and doesn’t—include is essential for anyone approaching retirement in California. Deductibles, premiums, copayments, and certain types of care can add up quickly and often catch retirees off guard.

Here’s an overview of the various Medicare options:

Part A: Hospital Insurance
Most retirees in California qualify for Medicare Part A without a monthly premium, but that doesn’t mean it is free. In 2025, Part A includes a deductible ($1,676 in 2025) that must be met before coverage begins, as well as daily coinsurance costs for hospital stays that extend beyond 60 days. 

Part B: Medical Insurance
Part B covers outpatient care, doctor visits, and preventive services, but it comes with a standard monthly premium of $185.00 in 2025. For higher-income Californians, the Income-Related Monthly Adjustment Amount (IRMAA) increases these premiums.

Part D: Prescription Drug Coverage
Prescription drug coverage is not included with Original Medicare. Part D must be purchased separately, and premiums vary depending on the plan selected. This can mean an added expense that changes year to year, depending on medication needs and plan adjustments.

Supplemental Coverage: Medigap and Medicare Advantage
Original Medicare leaves significant gaps, such as coinsurance, copayments, and prescription drug costs. Many retirees choose a Medigap policy or enroll in a Medicare Advantage plan to help cover these expenses. Medigap coverage can play a key role in financial confidence in California by turning unpredictable medical bills into more predictable monthly premiums. 

2. The High Cost of Long-Term Care

It’s important to note that Medicare does not cover most long-term care needs, including extended stays in assisted living facilities, in-home personal care, or nursing homes.

According to recent estimates, the average annual cost of a private room in a California nursing home can exceed $180,000, while median prices for assisted living facilities are $72,924 per year, depending on location. Even part-time in-home care can amount to thousands of dollars each month.

Since traditional Medicare doesn’t cover these expenses, retirees need to plan ahead to manage them. Many opt for:

  • Dedicated long-term care insurance: Specifically covers long-term care expenses. Pros: Comprehensive coverage. Cons: Premiums can be expensive, and unused benefits may not be refunded. 
  • Hybrid life insurance with long-term care riders: Combines life insurance with long-term care coverage. Pros: Offers flexibility; unused benefits go to heirs. Cons: Higher upfront costs and potentially less comprehensive care coverage.

If you’re planning for long-term care in California, keep in mind that costs vary widely. Including these potential expenses in your retirement plan now can help you prepare for the realities of aging in California.

3. Lifestyle, Location, and Longevity

Your lifestyle choices—such as where you live and how long you live—play a significant role in shaping your expenses. 

Lifestyle: Your daily habits also impact your future healthcare needs. Staying active, managing chronic conditions, and maintaining regular preventive care can help keep costs down. On the other hand, pre-existing conditions or unhealthy habits may increase expenses. Investing in your wellness now can pay off in the long run. 

Location: In California, for example, healthcare costs can vary depending on the region. Urban cities tend to have higher premiums and healthcare expenses, while smaller towns and rural areas may be more affordable but often have fewer specialists or facilities. For retirees, balancing accessibility and affordability is a key part of planning. 

Longevity: People are living longer than ever, which means more years to enjoy retirement—but it also extends the time you’ll need to fund your healthcare. Factoring in your potential lifespan when estimating healthcare expenses is an essential step in building a solid retirement plan.

4. The Role of Tax Strategy in Healthcare Savings

Healthcare costs aren’t just an expense to budget for—they’re part of your overall financial strategy. The way you plan for these costs can directly affect how well your retirement income supports your needs.

Tax-advantaged accounts can help manage healthcare costs in retirement by offering potential tax-free contributions, growth, and withdrawals for qualified medical expenses. They may assist you in saving more and possibly reducing out-of-pocket costs.

If you’re still working, Health Savings Accounts (HSAs) offer a powerful way to prepare. HSAs provide triple tax advantages:

  • Contributions are deductible
  • Growth is tax-deferred
  • Withdrawals for qualified medical expenses are tax-free 

These funds can also be used for Medicare premiums and certain long-term care insurance premiums, making HSAs especially valuable for future healthcare needs.

Because taxes and healthcare planning go hand in hand, working with financial advisors in California can help you integrate healthcare savings with your broader retirement tax strategy. Factoring in available retirement tax benefits in California alongside your income planning can help you approach rising medical costs with greater confidence.

Taking Action for a More Informed Retirement With Bulman

Healthcare expenses often exceed expectations, which is why it’s vital to consider Medicare, extended medical needs, lifestyle choices, and tax strategies when approaching long-term care planning in California. 

At Bulman Wealth Group, our team of professionals has decades of experience, and we take pride in our collaborative, education-first approach that prioritizes your needs. 

Our services include investment planning, income strategies, tax considerations, healthcare in retirement, and legacy planning. We’re here to guide you through every stage of your financial life. 

If you’re ready to take a closer look at your retirement options, a financial consultation with us can offer a valuable perspective on healthcare and other key considerations.

Contact us today to start the conversation. 

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