The Gap Between Working and Medicare
Medicare eligibility begins at 65. If you retire before 65 — by choice or otherwise — you need to bridge the healthcare gap. Options include COBRA continuation coverage (expensive), marketplace insurance, or a spouse's employer plan. This gap can cost $500–$1,500+/month and is the #1 reason early retirement is financially complicated.
Medicare: The Four Parts
| Part | What It Covers | Cost |
|---|---|---|
| Part A | Hospital stays, skilled nursing, some home health | Usually free (if you paid Medicare taxes for 10+ years) |
| Part B | Doctor visits, outpatient care, preventive services | ~$185/month (2025, income-based) |
| Part C (Medicare Advantage) | Private plan covering A+B, often D; may include extras | Varies by plan |
| Part D | Prescription drugs | Varies by plan (~$20–$100+/month) |
What Medicare Doesn't Cover
Significant gaps that catch retirees off guard:
- Long-term care: Nursing home, assisted living, in-home caregivers — Medicare covers very limited skilled nursing, not ongoing custodial care
- Dental, vision, hearing: Standard Medicare does not cover routine dental, glasses, or hearing aids (some Advantage plans do)
- Most care outside the US: International travel coverage is minimal
- Deductibles and copays: Medicare has no out-of-pocket maximum — Medigap (supplemental) insurance fills this gap
The HSA Connection
If you're on KC's HDHP and contributing to an HSA, every dollar in that account can be used tax-free for Medicare premiums, deductibles, copays, and out-of-pocket costs in retirement. An HSA used this way is one of the most tax-efficient retirement savings vehicles available — and the savings don't expire.
Healthcare Cost Estimates in Retirement
Fidelity estimates the average 65-year-old couple will need approximately $315,000 saved just for healthcare costs in retirement (2023 estimate). This includes premiums, copays, and out-of-pocket costs — but not long-term care. Planning for healthcare as a distinct retirement budget line item is essential.