California Retirement Health Care: Before and After Medicare

What the estimates cover

Fidelity's 2026 Retiree Health Care Cost Estimate is that a 65-year-old individual retiring in 2026 may need approximately $185,500 in after-tax savings to cover health care expenses throughout retirement. The estimate assumes enrollment in Original Medicare, covering Part A, Part B, and Part D premiums, cost-sharing, and out-of-pocket prescription costs. It excludes long-term care, and actual costs will vary.

Two limits on that number matter for planning. The estimate is for one individual rather than a married couple, and actual household costs will depend on each spouse's age, health, longevity, coverage choices, and other circumstances. It also excludes long-term care entirely, which is a separate and potentially larger exposure covered in planning for long-term care costs in California.

It also starts at 65. For a household that stops working earlier, the years before Medicare eligibility carry their own costs, and those are often the least predictable part of the picture.

The years before 65

Retiring before Medicare eligibility means arranging coverage for the gap. The usual routes are these.

• Employer continuation coverage. Federal COBRA generally allows continuing an employer plan for a limited period, commonly 18 months, at the full premium plus an administrative charge. California has its own continuation rules for some smaller employers and certain extensions.
• Covered California. The state marketplace offers individual plans, and premium assistance is calculated from modified adjusted gross income rather than assets.
• Retiree health benefits. Some public and private employers, including many California public agencies, still offer retiree coverage. Terms vary considerably and are worth reading closely before a retirement date is set.
• A working spouse's plan. Often the simplest bridge where it is available.

The Covered California route is where tax planning and health coverage meet most directly. Because eligibility for certain marketplace financial assistance is based primarily on household income and other eligibility requirements rather than simply on investment assets, some households with substantial savings may still qualify for assistance. A Roth conversion, a large IRA withdrawal, or a realized gain in that same year may affect the amount of financial assistance for which the household qualifies. Those decisions need to be modeled together, or one of them will be made without the other in view.

Funding the bridge years from taxable accounts or cash, rather than from tax-deferred withdrawals, is one approach some households model to keep reported income lower during this period. Whether it helps depends on the size of each account and on the conversion opportunities those same low-income years might otherwise offer.

Income at 63 sets premiums at 65

Medicare Part B and Part D premiums include an income-related adjustment for higher-income beneficiaries. The adjustment uses the modified adjusted gross income on your tax return from two years earlier, which creates a timing effect that catches many people off guard.

Premium tiers and income thresholds are set annually. This table shows the timing relationship only.

Because the adjustment works in tiers, additional income that moves modified adjusted gross income above an applicable threshold can result in a higher income-related adjustment. Where income dropped because of a qualifying life-changing event such as retirement, the Social Security Administration allows a request to use a more recent year's income instead. That request is made on a specific form and is worth raising with your CPA in the first Medicare year.

Enrolling in Medicare

The initial enrollment period generally runs for seven months around your 65th birthday: the three months before, the birthday month, and the three months after. Missing it without qualifying coverage from current employment can lead to late enrollment penalties for Part B and Part D that may apply for as long as you have that coverage.

If you or a spouse are still working at 65 with employer coverage, the rules differ depending on the size of the employer and whether the coverage is based on current employment. Retiree coverage and COBRA generally do not constitute coverage based on current employment for purposes of the Part B special enrollment period. Confirm the rules applicable to your circumstances before delaying Part B.

Supplement or Advantage

Once enrolled, most people choose between Original Medicare with a Medicare Supplement policy and a Part D plan, or a Medicare Advantage plan that bundles coverage through a private insurer. The two structures differ in network rules, out-of-pocket exposure, and how costs arrive over time.

Changing coverage later may involve different enrollment or underwriting requirements. For example, moving from Medicare Advantage to a Medicare Supplement policy may require medical underwriting outside applicable guaranteed-issue periods. California has an annual birthday rule that allows existing Supplement policyholders, subject to conditions, to move to a plan with equal or lesser benefits without new underwriting, which adds some flexibility within the Supplement market specifically.

California's Health Insurance Counseling and Advocacy Program provides free, unbiased Medicare counseling and is a useful independent resource before making the choice.

The California HSA exception

Health savings accounts carry a well-known federal advantage: contributions are deductible, growth is tax-deferred, and withdrawals for qualified medical expenses are tax-free.

California does not follow that treatment. At the state level, HSA contributions are not deductible and earnings inside the account are not tax-deferred, which requires separate state tracking. An HSA can still be useful here, but the overall tax treatment of an HSA differs for California taxpayers from its federal tax treatment.

Contributions also stop once you enroll in any part of Medicare, including Part A, so the accumulation window closes at enrollment even if the account continues to be used for qualified expenses afterward. Because Medicare enrollment can sometimes be retroactive, individuals approaching Medicare while contributing to an HSA should confirm the applicable contribution cutoff with their tax professional.

How Avinci approaches it

Avinci Wealth Management is a Registered Investment Adviser registered in California, Arizona, Illinois, Texas, and Nevada, firm CRD #327780, headquartered at 23929 Valencia Blvd, Suite 404 in Santa Clarita, with additional offices in Beverly Hills and Woodland Hills. When providing investment advisory services, Avinci Wealth Management is subject to its fiduciary obligations under applicable investment adviser law.

Under the Retirement Blueprint, the bridge years and the first Medicare years are modeled against the same income projection as withdrawals and conversions, so the potential effect on marketplace assistance and Medicare premium tiers can be incorporated into the planning analysis before decisions are made. Founder Lindahl Lucas personally oversees the development of each Retirement Blueprint. Avinci does not enroll clients in health plans; coverage decisions are made with a licensed health insurance professional, and tax consequences are confirmed with your CPA.

Avinci receives advisory fees for investment advisory services. Separately, insurance and annuity products may be offered through our affiliated insurance agency, Lucas Insurance Services, which may receive commissions from issuing insurance companies. This compensation arrangement creates a conflict of interest and is disclosed in our Form ADV. Related reading: retiring in three years and RMDs and withdrawal order.