Health care is frequently one of the most significant expenses in retirement. According to a U.S. national poll conducted in early 2024, health care is the top financial concern for 56% of retirees. Despite the widespread concern, though, many retirees don’t adequately budget for health care expenses.
Medical care prices frequently rise at a faster rate than the rest of the economy, often outpacing headline inflation. J.P. Morgan Asset Management’s 2025 Guide to Retirement illustrated the escalating costs associated with health care. In 2025, the average 65-year-old is spending $572 per month on health care, a figure projected to rise to $1,611 per month (in today’s dollars) when that person reaches age 95. These projections, driven by more frequent and costly medical visits and procedures later in life, exceed what most Americans anticipate spending. This underscores the importance of informed financial planning well in advance of retirement.
An important first step in planning for health care and long-term care in retirement is understanding the options. In this article, we’ll cover the Medicare options available to those 65 and older, Medigap and long-term care planning – along with dispelling some myths about these options. For additional information, check out J.P. Morgan’s Wealth Planning & Advice team’s white paper on Navigating Health Care Before and During Retirement.
Medicare is a federal health insurance program in the U.S. designed primarily for individuals 65 and older, though it also covers younger people with disabilities or specific health conditions.
Medicare is divided into several parts, each offering different types of coverage. Let’s walk through them:
Medicare Part A (hospital insurance)
Medicare Part A covers inpatient hospital stays and related follow-up care, plus hospice care. Most people don’t pay a premium for Part A if they or their spouse paid Medicare taxes while working. While there are usually no premiums for Part A, deductibles and co-insurance apply for hospital stays over 60 days.
Medicare Part B (medical insurance)
Medicare Part B covers outpatient services, including doctor visits, outpatient care and surgeries, labs, X-rays and ambulance transport. It requires a monthly premium that varies based on income. Most enrollees have their premiums deducted from Social Security once they claim.
A monthly income-based surcharge – income-related monthly adjustment amount (IRMAA) – may be assessed in addition to the base premium for Medicare Part B (and Part D, if selected). When it comes to planning, you should seek guidance from a CPA, tax professional, or legal advisor if you choose.
Together, Parts A and B form the foundation of Medicare coverage, also known as “Original Medicare.”
Medicare Part C (Medicare Advantage)
Medicare Advantage offers an alternative to Original Medicare through a separate annual enrollment with Medicare-approved private insurance providers. In addition to including hospital (Part A) and medical (Part B) coverage, Part C can include drug coverage (Part D), as well as additional coverage for dental, vision and hearing services. These plans may have different rules, costs and coverage restrictions. Those enrolled in Medicare Part C pay Part B premiums plus a possible additional surcharge to the private insurance provider.
Many wonder if they should choose Part B or Part C Medicare Advantage. That decision can depend on several things, including case manager availability and an individual’s in-network medical providers.
“Snowbirds,” for example – those who live in different parts of the country at different times of year – often prefer Original Medicare (Parts A and B) for the largest network coverage possible.
If you develop a new illness while on Part C Medicare Advantage, you may not be able to return to the Original Medicare network during your next enrollment period. Even so, Part C Medicare Advantage can be appealing because it can cap some costs with an annual out-of-pocket maximum.
Medicare Part D (prescription drug coverage)
Medicare Part D, which helps cover the cost of prescription drugs, is offered through private insurance providers. It requires a separate premium and is designed to work alongside Original Medicare (Parts A and B) or with a Medicare Advantage plan. Those who opt in pay an additional premium to the private insurance provider, and co-pays vary based on the drug tiers in the plan’s formulary and whether the drugs are brand name or generic.
Medigap, also known as Medicare Supplement Insurance, is a type of supplemental insurance offered by private insurance providers to help cover costs that Medicare does not, such as co-pays, co-insurance and deductibles. It’s designed to fill the “gap” in coverage, making health care expenses more manageable.
To enroll in Medigap, you must have both Medicare Parts A and B. You cannot enroll in Medigap if you have Part C Medicare Advantage, Medicaid or military TRICARE. Medigap also requires its own monthly premium, separate from Part B, and each spouse needs their own Medigap policy.
Planning for long-term nursing care is a crucial aspect of retirement preparation alongside navigating through Medicare options.
According to Boston College’s Center for Retirement Research, 80% of older adults will likely need long-term care. Among that 80%, “needs vary dramatically in both intensity and duration. About 40% will have high-intensity needs for more than a year.”
With the annual median cost for a semi-private nursing home room reaching $111,324 in 2024 – and exceeding $150,000 a year in certain states and metropolitan areas – it’s important to consider various strategies to manage these expenses.
Here are some tips for how to prepare for long-term care.
Be realistic about your situation
Women are more likely to require care, and they’ll need more years of paid care if that’s an option. Many families may take for granted that wives will care for their husbands, since women are statistically expected to live longer than men. But sometimes mom can’t lift dad, or families lack necessary skilled nursing training. So, whether you’re married or not, you have kids or you don’t, developing a comprehensive plan is essential for effectively managing long-term care needs.
A well-structured care plan can help you have more control over your care, avoid burdening others and ensure your family understands your wishes.
Evaluate your options
When you start planning for long-term care well in advance, you can weigh your options – not only for financial and medical decisions but also for those that will impact your quality of life in the future. When it comes to the former, consider redirecting savings from reduced expenses, like travel, to care needs. You could also tap into your home equity if you need more cash or consider selling secondary properties if you own any.
As you do this, you may want to research long-term care insurance. Is buying a policy the right option for you, or will you fund your care in other ways? Read up on Medicaid to determine if that could be an option, given your total assets. And if you’re a veteran, you may be able to access long-term care benefits through the Department of Veterans Affairs.
Consider what’s most important to you in your later years
Beyond the administrative details, though, think about how you really want to live in your later years. Will you want to move closer to your loved ones for support? If you prefer care at home, consider how you’ll maintain vital social connections. Life plan communities – formerly known as continuing care retirement communities – offer a range of services from independent living to more intensive care while facilitating social interaction and regular activities.
By incorporating these strategies, you can secure the resources and support needed to enjoy a fulfilling retirement. Early and thoughtful planning empowers you to make informed decisions that reflect your personal needs and preferences.
There are several common misconceptions about Medicare, including what it covers when it comes to long-term care. Let’s examine them.
- Automatic enrollment: Medicare does not automatically enroll you. If you or your spouse are still working, you should coordinate with your employer’s health care plan. Otherwise, enroll during the initial window – from three months prior to three months after the month of your 65th birthday – to avoid a 10% lifetime penalty. For example, if you turn 65 in August, you can enroll as early as May 1 and as late as November 30. If you miss your initial six-month window, you may permanently pay higher premiums when you eventually enroll. The penalty is based on how long it’s been since your enrollment period, so even if you miss your initial enrollment, it probably makes sense to enroll as soon as possible.
- It’s not mandatory: While enrolling in Medicare is not mandatory when you turn 65, you will face financial penalties for delayed enrollment.
- Free coverage: Medicare is not entirely free. While Part A (hospital care) has no premiums, other parts come with costs.
- Comprehensive coverage: Medicare doesn’t cover everything. Expect co-pays, co-insurance and deductibles, with no annual out-of-pocket maximum.
- Long-term care: Medicare doesn’t cover long-term nursing care. Long-term care is covered by Medicaid, but Medicaid only covers people who have very limited income and assets.
Understanding the various health care options and their implications is crucial for making informed decisions about your health care coverage, ensuring you are well-prepared for future needs.
As you prepare for health care costs – and consider your Medicare options – it’s also important to prepare for long-term care costs, which aren’t covered by Medicare.
A J.P. Morgan professional can help you integrate health care savings into your comprehensive wealth strategy in conjunction with guidance from your personal tax and legal professionals.
