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A clear vision: Planning for health-related blind spots in retirement

It takes diligence to make things happen in life, including saving for retirement. But in your laser-focused efforts, have you thought about what you might not be seeing?

“People spend a lot of effort planning for retirement expenses,” says Matt Dickerson, advice services consultant at Thrivent. “But many think they just need to save for housing, food and travel or other interests. What they often overlook is how they plan to pay for their health care during those years.”

Not including this in your planning could be costly. “Recent surveys indicate an average couple will spend around $300,000 for health care needs during the course of their retirement years,” says Greg Mengel, a Thrivent wealth advisor in Schenectady, New York.

Not only can it be expensive, but it’s complicated to navigate, let alone plan for, and it’s easy to miss some important considerations. As you think about what you need to plan for, check out these common blind spots regarding health care in retirement.

The true cost of Medicare

“Many people believe that Medicare, which typically starts at age 65, is free,” Dickerson says. “While most people rely on it for health care coverage in retirement, it’s not free. There are some small portions of it that retirees don’t pay, but there are premiums, deductibles and copays that they must pay.”

While Medicare Part A (hospital insurance) is free for most retirees, Part B (medical insurance) is not. In 2023, Part B premiums start at $164.90 per month per person and can cost more, depending on your income. In addition, you pay a premium for prescription drug coverage. You also pay a percentage of every medical service you get and there’s no annual limit on out-of-pocket costs, unless you purchase a supplemental plan.

If you’re still working and participating in a health insurance plan offered by your employer, you may be enjoying relatively low costs for it.

“Just because your health insurance costs may be low during your working years doesn’t mean they will be when you retire and start Medicare,” cautions Katrina Kaschinske, a Thrivent financial advisor in Frankenmuth, Michigan.

Just because your health insurance costs may be low during your working years doesn’t mean they will be when you retire and start Medicare.
Katrina Kaschinske, Thrivent financial advisor in Frankenmuth, Michigan

The link between income & premiums

You might be planning to take a part-time job when you retire. You may want to supplement your income, or perhaps you simply want to keep busy or pursue a new interest. But Medicare premiums rise as your income hits certain thresholds, so consider this as you weigh your options.

Withdrawals from retirement accounts also affect your income, and therefore your Medicare premiums. If you’re thinking about making a big purchase, consider taking out a loan rather than withdrawing the money.

“A lot of retirees don’t want to have loans,” Kaschinske says. “But if you withdraw money from a retirement account to buy a car, it could raise your income and then your Medicare premium might go up.”

The costs of gaps in eligibility

If you plan to retire before age 65, you’ll need to find a way to get health insurance in those gap years before most people are eligible for Medicare.

“For many people, that means purchasing it on the open marketplace, and that can be very expensive,” Dickerson says.

The cost can be significantly more than an employer-sponsored plan, especially when you consider you may have higher deductibles or less comprehensive coverage. But you also might be eligible for financial assistance to help pay for the insurance.

“Currently, some people can qualify for a premium subsidy based on household income,” Kaschinske says. “If you start planning strategically before retiring at age 62 or earlier, you can be intentional about how you build up retirement savings and manage your income, which may result in a break on the cost of health insurance on the marketplace.”

The risks of employer-sponsored plans

Some employers offer retiring employees an opportunity to continue their health coverage under an employer-sponsored plan once they leave, Kaschinske says. But that plan might not be available when you retire. And even if it is, you need to carefully review the plan’s summary description to make sure the coverage is for life, according to the U.S. Department of Labor. If the employer reserves the right to change the plan at any time, you are at risk of losing the coverage during retirement.

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Thrivent’s retirement income planning calculator can give you a way to start planning for retirement. Simply enter information about your age, finances and expectations. You can make adjustments and see results.

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The best use of an HSA

“An HSA (health savings account) can be used as an investment product to help you grow assets for retirement,” says Robert Morse, a Thrivent financial advisor in Philadelphia and Mengel’s business partner. Deposits and withdrawals for qualified health care expenses are tax-free, and the balance in the account rolls over into the next year.

Kaschinske, also a fan of HSAs, recommends her clients make withdrawals only for big medical expenses.

“With HSAs, if you can pay for a doctor or medical bill from your cash flow, it allows the money in the HSA to stay there and grow,” she says.

HSAs aren’t for everyone; there are eligibility requirements, like having a high-deductible health insurance plan. There’s also an annual contribution limit, so you may need to combine an HSA with other solutions to cover your healthcare expenses. You can contribute to an HSA after 65 as long as you are covered by a high-deductible health plan and are not covered under Medicare.

However, when you sign up for Medicare, they look back six months for coverage, so you would need to stop contributing to the HSA at least six months before. If not, then the HSA contributions you made during that period would be considered an excess contribution. As a result, they would have to be removed and could be subject to penalty.

The value of emergency funds

In addition to your retirement investments, you also need an emergency fund that you can access easily, such as a savings account, says Kaschinske.

“I recommend my clients have six months of expenses in an emergency fund,” she says. While her clients might be tempted to put that money in an investment account instead, to potentially get higher returns, Kaschinske explains to them that every dollar needs a job.

“If that work is in an emergency fund, it doesn’t matter if it’s earning low interest. That’s its job.”

Kathleen Childers is a freelance writer in Minnesota.

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How Thrivent can help you plan for health-related costs

Thrivent financial advisors have several tools that can help you plan for health care costs in retirement, says Matt Dickerson, advice services consultant at Thrivent.

  • MoneyGuidePro: This interactive financial advice tool offered by Thrivent financial advisors takes information about you and gives recommendations on how much you might need to save for different health care scenarios.
  • Broadridge: Based on average costs of health care, this planning tool and calculator enables your Thrivent financial advisor to offer guidance on how much you might need in retirement health care savings. This is based according to your health status, age, when you plan to retire and other criteria.

In addition, the following websites offer information that can help you navigate Medicare:

  • This government site offers detailed information on all aspects of Medicare, including what it covers, opportunities to find and compare plans in your area, find care providers and other resources.
  • SHIP (State Health Insurance Assistance Programs) offices, available in every state, offer one-on-one counseling to help you understand the various Medicare plans and other options.
Thrivent and its financial advisors and professionals do not provide legal, accounting or tax services. Consult your attorney or tax professional.

Thrivent is not connected with or endorsed by the U.S. government or the federal Medicare program.