Key Takeaways

• Medicare starts at 65, but it doesn’t mean your healthcare costs disappear. Premiums, deductibles, coinsurance, and non-covered services can add up quickly.

• Understanding what Medicare does and doesn’t cover is crucial before you retire. Planning for the full range of healthcare expenses will help you avoid financial surprises in retirement.

Turning 65 Doesn’t Mean Healthcare Costs End

When you turn 65 and become eligible for Medicare, it may feel like a relief. You’ve paid into the system for decades, and now you expect it to take care of your medical needs. But in 2025, retirement at 65 still comes with healthcare costs that many people underestimate or overlook.

If you’re planning to retire at 65, you need to understand the real scope of Medicare-related expenses. It’s more than just a monthly premium. There are deductibles, coinsurance, out-of-pocket maximums (in some cases), and services that aren’t covered at all.

What Medicare Covers and What It Doesn’t

Medicare is divided into several parts, each with its own function and associated costs:

Medicare Part A (Hospital Insurance)

• Covers inpatient hospital care, limited skilled nursing facility care, hospice, and some home health care.

• Most people don’t pay a premium for Part A if they worked and paid Medicare taxes for at least 10 years.

• However, you must pay a deductible for each benefit period. In 2025, that deductible is $1,676.

• You also pay coinsurance if your hospital stay extends beyond 60 days.

Medicare Part B (Medical Insurance)

• Covers doctor visits, outpatient care, preventive services, and some home health care.

• You pay a monthly premium for Part B. In 2025, that standard premium is $185.

• There’s also an annual deductible of $257.

• After meeting the deductible, you typically pay 20% of the Medicare-approved amount for most services.

Medicare Part D (Prescription Drug Coverage)

• Covers prescription drugs through standalone plans.

• Plans have monthly premiums, annual deductibles, and copayments or coinsurance for medications.

• In 2025, there is now a $2,000 out-of-pocket maximum for prescription drugs, which is a relief, but you still need to budget for drug costs up to that cap.

Medicare Advantage (Part C)

• An alternative way to receive Medicare benefits, combining Parts A, B, and often D.

• These plans may offer extra benefits like vision or dental, but they usually have network limitations, prior authorizations, and cost-sharing rules.

• You still pay the Part B premium, and you may also pay an additional plan premium.

Timeline of Medicare Costs Throughout the Year

Even if you’re only enrolled in Original Medicare, you will incur costs throughout the year.

• January: You begin paying your Part B premium. If enrolled in Part D, your drug deductible also resets.

• First doctor visit: You pay the $257 Part B deductible. After that, you pay 20% of the costs for most services.

• Mid-year: You may hit your Part D out-of-pocket cap if you take high-cost medications.

• Throughout the year: You pay coinsurance for hospital stays if needed, and copays or coinsurance for drugs.

• December: If enrolled in a Medicare Advantage or drug plan, review Annual Notice of Change letters to understand next year’s costs.

Out-of-Pocket Costs You May Not Be Expecting

Even with all the parts of Medicare working together, you can still face unexpected expenses:

• Dental care: Routine dental visits, cleanings, dentures, and extractions are not covered.

• Vision services: Eyeglasses, contact lenses, and routine eye exams are generally excluded.

• Hearing aids: Medicare does not cover hearing aids or exams for fitting them.

• Long-term care: Custodial care in a nursing home or assisted living facility is not covered.

• Overseas medical care: Medicare usually does not cover health services received outside the U.S.

These are often the areas where retirees are most caught off guard, leading to high out-of-pocket costs.

Why Retiring at 65 Without a Plan Can Backfire

The idea of retiring at 65 may feel financially and emotionally right, but without a Medicare budget in place, you may run into these issues:

• Underestimating your total costs: Many retirees plan for their premium, but forget about the 20% coinsurance on doctor visits, diagnostic tests, and outpatient procedures.

• Choosing the wrong plan: Not reviewing your plan options each year can leave you stuck with a plan that no longer meets your needs or costs more than necessary.

• Late enrollment penalties: If you miss your enrollment windows, Medicare may permanently charge you higher premiums. Part B and Part D both carry penalties if you delay enrollment without creditable coverage.

• Income-related surcharges: If your income is higher, you may pay more for Parts B and D under IRMAA (Income-Related Monthly Adjustment Amount). These extra charges are based on your tax return from two years prior.

Medicare Costs by Type of Care in 2025

Let’s break down what you might pay out of pocket in 2025:

• Primary care visit: After your deductible, you pay 20% of the cost.

• Specialist visit: Also subject to 20% coinsurance under Part B.

• Emergency room visit: You pay coinsurance after your Part B deductible.

• Inpatient hospital stay: First 60 days are covered after deductible, then coinsurance applies. After 90 days, lifetime reserve days kick in with higher costs.

• Skilled nursing care: Covered for up to 100 days if you meet specific criteria. Days 21 through 100 require coinsurance.

• Prescriptions: Part D plans vary, but the out-of-pocket cost is capped at $2,000 annually in 2025.

Planning Ahead for Your Medicare Expenses

Rather than relying on assumptions or hearsay, it helps to structure your Medicare budget.

Estimate Your Annual Healthcare Costs

Include the following in your estimate:

• Monthly Part B premium ($185 in 2025)

• Prescription drug plan premiums and expected out-of-pocket costs

• Routine care copayments and 20% coinsurance

• Costs for dental, vision, and hearing needs

• Travel or international care plans, if needed

Account for Inflation and Health Changes

Healthcare costs typically increase with age and inflation. A budget built today should be reviewed and adjusted every year.

Consider Additional Coverage

You may want to look into supplemental options to help pay for what Medicare doesn’t. Some retirees consider plans that can help reduce coinsurance or cover services like dental and vision, though these come with additional premiums and restrictions.

Don’t Miss Enrollment Deadlines

The Initial Enrollment Period starts three months before you turn 65 and ends three months after your birthday month. Missing this window could mean:

• Higher Part B premiums for life

• Gaps in coverage

• Potential penalties on Part D coverage

There are Special Enrollment Periods too, but you must meet specific criteria.

The Reality of Medicare Spending in Retirement

In 2025, retirees spend a significant portion of their income on healthcare. According to current data projections:

• The average retiree spends about 12% to 15% of their income on Medicare-related healthcare.

• For couples, that percentage can be even higher, especially if both partners have chronic conditions or prescription needs.

This level of spending is often underestimated when people plan their retirement budgets.

How Medicare Changes Can Affect Your Costs

The healthcare landscape is shifting. Here are some changes happening now or expected in the coming years that could influence your costs:

• Prescription drug cost reforms: With the new $2,000 out-of-pocket cap in 2025, some relief is available for those with high drug expenses.

• Inflation and premium increases: Each year, Medicare premiums and deductibles are reviewed and typically adjusted upward.

• Coverage updates: New services are occasionally added to Medicare, such as coverage for mental health counselors, but gaps still exist.

• Policy proposals: Ongoing discussions about Medicare reform could introduce new costs or coverage rules. Staying informed helps you prepare.

Don’t Let Medicare Costs Derail Your Retirement Plan

Retiring at 65 sounds like the natural choice, but it takes more than reaching a birthday milestone to make it a financially sound decision. Medicare offers crucial health coverage, but it doesn’t pay for everything. From premiums and deductibles to out-of-pocket expenses for drugs and uncovered services, the full scope of Medicare costs in 2025 can surprise many retirees.

Build a realistic budget that includes Medicare costs, re-evaluate your plan options annually, and be sure to understand the services Medicare doesn’t cover. If you need help determining what coverage fits your healthcare needs and financial goals, reach out to a licensed agent listed on this website.