Healthcare Costs in Retirement: What to Expect and How to Prepare

The Number That Surprises Everyone

According to Fidelity's annual estimate, a 65-year-old couple retiring today will need approximately $315,000 for healthcare costs in retirement—and that doesn't include long-term care.

Healthcare is often the largest expense retirees underestimate. This guide will help you understand what to expect and how to prepare.

Healthcare Costs by Retirement Phase

Phase 1: Pre-Medicare (Before Age 65)

If you retire before 65, you're in the most expensive healthcare phase.

Options: 1. COBRA - Continue employer coverage (usually 18 months max) - Cost: $600-$2,000+/month for couple - Employer no longer subsidizes

1. **ACA Marketplace** - Healthcare.gov plans
2. - Cost: Varies by income (subsidies available)
3. - Full price: $1,000-$2,500/month for couple

1. **Spouse's employer plan** - If spouse still working
2. - Often the most affordable option

1. **Part-time work with benefits** - "Barista FIRE"
2. - Some employers offer benefits at 20-30 hours/week

1. **Health sharing ministries** - Faith-based cost sharing
2. - Lower cost but not insurance; limited coverage

Budget: $12,000-$24,000/year per person (ages 55-64)

Phase 2: Medicare (Age 65+)

At 65, you qualify for Medicare—but it's not free.

Medicare Parts:

What Medicare DOESN'T cover: - Dental care - Vision care - Hearing aids - Most long-term care - Care outside the US

Budget: $3,000-$6,000/year per person (Medicare premiums only)

Phase 3: Late Retirement (75+)

Costs typically increase with age: - More prescriptions - More frequent doctor visits - Higher likelihood of hospitalization - Potential need for long-term care

Budget: $8,000-$15,000/year per person (can be much higher)

Supplemental Insurance Options

Option 1: Medigap (Medicare Supplement)

Private insurance that fills Medicare's "gaps."

Pros: - Covers deductibles, copays, coinsurance - See any doctor that accepts Medicare - Predictable costs

Cons: - Monthly premium: $100-$400 - Doesn't include drug coverage (need Part D) - Premiums increase with age

Best plans: Plan G (most comprehensive after Plan F phase-out)

Option 2: Medicare Advantage (Part C)

Private plans that replace Original Medicare.

Pros: - Often lower premiums ($0-$150/month) - Usually includes drug coverage - May include dental, vision, hearing - Often includes gym memberships

Cons: - Network restrictions (HMO/PPO) - Prior authorization requirements - Quality varies by plan - May have higher out-of-pocket for serious illness

Best for: Those who want lower premiums and don't mind network restrictions

Which to Choose?

The HSA Retirement Strategy

A Health Savings Account (HSA) is the most tax-advantaged account available—and an excellent retirement healthcare tool.

HSA Triple Tax Advantage: 1. **Tax-deductible contributions** 2. **Tax-free growth** 3. **Tax-free withdrawals** (for medical expenses)

2026 HSA Contribution Limits: - Individual: $4,300 - Family: $8,550 - Catch-up (55+): Additional $1,000

The Retirement Strategy:

Working years: 1. Max out HSA contributions annually 2. Pay medical expenses out of pocket (don't reimburse from HSA) 3. Save receipts for all medical expenses 4. Invest HSA funds aggressively

Retirement: 1. Reimburse yourself for ALL saved medical expenses (no time limit!) 2. Use HSA for Medicare premiums, prescriptions, dental, vision 3. After 65, non-medical withdrawals allowed (taxed like Traditional IRA)

Example HSA Growth:

$8,000/year contribution for 20 years at 7% return = ~$350,000

That's $350,000 in completely tax-free money for healthcare.

Use our [HSA Calculator](/hsa-calculator) to see your potential growth.

Long-Term Care: The Elephant in the Room

The most underestimated healthcare cost in retirement.

The Statistics: - 70% of people over 65 will need long-term care - Average nursing home stay: 2.5 years - Average cost: $100,000+/year for nursing home - Medicare covers very little long-term care

Long-Term Care Costs (2026):

Options to Prepare:

1. Self-Insure - Set aside $200,000-$500,000+ specifically for LTC - Invest conservatively as you age - Requires significant wealth

2. Long-Term Care Insurance - Traditional LTC insurance: $2,000-$4,000/year (buy in your 50s) - Covers specified daily/monthly amounts - May have inflation protection - "Use it or lose it"

3. Hybrid Life Insurance/LTC Policies - Life insurance with LTC rider - If you need LTC, policy pays for care - If you don't, heirs get death benefit - Premium: $50,000-$100,000+ (often single lump sum)

4. Medicaid Planning - Medicaid covers nursing home for those with minimal assets - Requires "spending down" assets - Not ideal but a safety net - Consider consulting elder law attorney

Healthcare Cost Reduction Strategies

1. Stay Healthy The best healthcare strategy is prevention: - Regular exercise - Healthy diet - Preventive care (covered at 100% by most plans) - Don't smoke

2. Compare Medicare Plans Annually Medicare plans change every year. During Open Enrollment (Oct 15-Dec 7): - Review your drug costs under each plan - Check if your doctors are still in network - Compare total costs (premiums + expected out-of-pocket)

3. Use Generic Medications Brand name: $500/month → Generic: $20/month Ask your doctor about generic alternatives.

4. Consider Medical Tourism For major procedures, some retirees travel internationally: - Dental work: Mexico (50-70% savings) - Joint replacements: Costa Rica, Thailand (70-80% savings) - Research quality and accreditation carefully

5. Take Advantage of Medicare Preventive Services 100% covered preventive care includes: - Annual wellness visits - Flu shots, vaccines - Cancer screenings - Diabetes screening - Cardiovascular screening

6. Avoid Medicare Premium Surcharges (IRMAA)

High income in retirement increases Medicare Part B and D premiums.

2026 IRMAA Thresholds:

Strategies: - Manage income through Roth withdrawals (don't count toward IRMAA) - Do Roth conversions before 65 - Consider timing of large capital gains

Building Your Healthcare Budget

Sample Annual Healthcare Budget (Couple, Age 65-75):

Don't Forget: - Costs increase with age - Inflation in healthcare exceeds general inflation - Unexpected procedures/illnesses - Potential long-term care needs

Conservative budget: $400,000-$500,000+ per couple for 25-year retirement (plus LTC reserve)

The Bottom Line

Healthcare is likely your biggest retirement expense after housing. Prepare by:

1. **Max out your HSA** while working (if eligible)
2. **Budget $15,000-$25,000/year** per couple for healthcare
3. **Understand Medicare** before you turn 65
4. **Have a long-term care plan** (insurance, self-insurance, or Medicaid)
5. **Review coverage annually** during open enrollment
6. **Stay healthy** —prevention is the best strategy

Use our [Retirement Calculator](/) to include healthcare costs in your retirement projections, and our [HSA Calculator](/hsa-calculator) to plan your tax-advantaged healthcare savings.

---

This content is for educational purposes only and does not constitute medical or financial advice. Medicare rules are complex—visit Medicare.gov or consult a professional for personalized guidance.