Is Your Retirement Plan Built for Healthcare Costs?

You’ve mapped out your retirement goals, saved diligently, and maybe even downsized the family home. But there’s one piece of the puzzle that catches many high-income earners off guard: healthcare.

It’s easy to assume that Medicare will take care of most of it. The reality? Healthcare is one of the biggest (and fastest-growing) expenses in retirement. And if your plan isn’t built to handle that, it could seriously impact your income, lifestyle, and legacy.

Here’s what you need to know and how to protect yourself.

1. Understand What Medicare Actually Covers

Many retirees are surprised to learn how much Medicare doesn’t cover. Yes, it helps with hospital and doctor visits, but it often excludes dental, vision, hearing, and long-term care. Plus, premiums, deductibles, copays, and prescription drug costs can quickly add up, especially for those in higher income brackets.

For high-income earners, Medicare Part B and D premiums are income-based, which means you’ll likely pay more just for basic coverage. Without a backup strategy, these recurring costs can quietly chip away at your retirement savings.

2. Prepare for the Hidden Costs of Long-Term Care

This is where many retirement plans fall short. Nearly 70% of retirees will need some form of long-term care, whether that’s in-home assistance, assisted living, or a skilled nursing facility. These services can cost thousands per month and they’re not covered by Medicare.

To prepare, some retirees choose standalone long-term care insurance. Others opt for hybrid policies that combine life insurance with long-term care benefits. Both options can help preserve your assets and reduce the financial burden on your family down the line.

3. Build Flexibility Into Your Plan with Tax-Free Resources

One of the smartest ways to pay for future healthcare expenses is by creating access to tax-free income. Tools like Health Savings Accounts (HSAs) and Indexed Universal Life (IUL) insurance can help.

HSAs offer a triple tax advantage where contributions are pre-tax, growth is tax-free, and withdrawals for qualified healthcare expenses are also tax-free. And if you no longer qualify to contribute, your spouse might be able to continue contributing on your behalf.

IUL policies are another powerful option. They provide permanent life insurance protection with a cash value component that grows over time, tied to the performance of a market index. You can access that cash value tax-free to help cover rising healthcare expenses, giving you more flexibility and less reliance on taxable withdrawals.

4. Protect Against Inflation and Income Risk

Healthcare costs tend to rise faster than inflation, and they usually increase as you age. If your income plan doesn’t include a way to keep pace, you may find yourself forced to make difficult trade-offs in the future.

Consider strategies that offer built-in growth or inflation protection. This might include IULs, annuities with healthcare riders, or investments designed for income longevity. The goal isn’t just to fund current needs, but to build in enough buffer to cover whatever comes next without drawing down your core assets too quickly.

5. Coordinate Your Withdrawal Strategy with Healthcare Timing

When you take money matters into your own hands, it pays to think a few steps ahead. For example, the way you structure your withdrawals from taxable, tax-deferred, and tax-free accounts can impact your Medicare premiums, tax bracket, and even your eligibility for certain healthcare programs.

A coordinated withdrawal strategy (especially one that accounts for Required Minimum Distributions (RMDs)) can help reduce tax surprises and give you more control over how you fund healthcare-related costs.

Your Health Deserves a Seat at the Planning Table

You’ve worked hard to build your wealth. Don’t let unexpected medical costs derail your retirement vision. By planning ahead and incorporating healthcare into your overall strategy, you can protect your income, support your family, and maintain the lifestyle you’ve earned.

At NPPSS, we help high-income earners create retirement plans that account for more than just investment returns. From income planning and tax efficiency to long-term care and healthcare funding strategies. Schedule a consultation to learn more and retire with clarity and confidence.