Health Insurance Costs Require Careful Planning for U.S. Retirees

Health insurance remains a critical concern in retirement planning, highlighted recently by tennis star Venus Williams who returned to professional play partly to maintain her health coverage. This underscores the challenges retirees face in covering health care costs, even with Medicare, which typically covers about 80% of medical expenses starting at age 65.

According to Fidelity’s 2024 estimates, a 65-year-old retiring individual may need approximately $165,000 in after-tax savings specifically for health care, marking a 5% increase from the previous year. Planning for health insurance is especially important for those retiring before Medicare eligibility at 65, as they must navigate options such as COBRA coverage, state-subsidized insurance, or private health plans obtained via the Affordable Care Act (ACA). COBRA, which allows continued employer coverage for up to 18 to 36 months, can be prohibitively expensive since retirees pay the full premium without employer subsidies.

The ACA marketplace provides an alternative for extended coverage, though retirees must enroll within a 60-day window post-employment or during the annual open enrollment period. Premium costs depend on age, location, and income, with subsidies available for individuals earning up to 400% of the federal poverty level, potentially reducing monthly premiums substantially.

Financial advisors recommend obtaining quotes and developing a clear budget for health insurance before retirement to prevent costly financial decisions such as early Social Security claiming or premature withdrawals from retirement accounts. Proactive planning helps retirees avoid unexpected insurance expenses and maintain financial stability during retirement years.