Many people underestimate the cost of healthcare in retirement. In fact, a 2025 national survey found that only 41% of workers had calculated how much they might spend on medical expenses after they stop working. This gap in planning could affect the long-term success of your retirement strategy.
Understanding healthcare costs in retirement — and how to budget for them — can help you avoid financial surprises and maintain a stable income plan in your later years.
What Drives Healthcare Costs in Retirement?
As you age, medical needs tend to increase. Even with Medicare coverage, retirees face several categories of healthcare expenses that can affect their retirement budget. These costs typically fall into three main areas:
1. Medicare Premiums
Most retirees enroll in Medicare Part B and Part D, which help cover outpatient care and prescription drugs. While Part A (hospital insurance) is usually free, Parts B and D require monthly premiums.
These premiums are often automatically deducted from your Social Security benefits, which means many retirees don’t notice the cost unless they review their statements. As of 2025:
Medicare Part B premiums average $174.70/month
Medicare Part D premiums vary based on the plan and income level
If your income exceeds a certain threshold, you may pay IRMAA surcharges (Income-Related Monthly Adjustment Amounts), which increase premium costs further.
2. Copayments and Coinsurance
Medicare doesn't cover everything. You may face out-of-pocket costs like:
Doctor visit copays
Outpatient procedure coinsurance
Hospital stay deductibles
Emergency room fees
To reduce this burden, many retirees purchase Medicare Supplement Insurance (Medigap) or enroll in Medicare Advantage plans. These options help cover gaps in traditional Medicare but still leave room for some personal costs.
3. Services Not Covered by Medicare
Many essential health services are not included under standard Medicare. These include:
Dental care (cleanings, fillings, dentures)
Eyeglasses and vision exams
Hearing aids and tests
Long-term custodial care (e.g., nursing home stays, assisted living)
Because these services fall outside of Medicare coverage, retirees must pay out of pocket or seek alternative insurance, like dental or vision plans.
The Total Cost: What Should You Expect?
Healthcare spending in retirement varies by individual, but estimates help set expectations. According to a 2025 study, the average 65-year-old retiree will need approximately $165,000 to cover healthcare expenses throughout retirement. This figure assumes:
20–25 years of retirement
Average premiums for Medicare
Modest out-of-pocket spending
No long-term care
However, factors like chronic illness, rising drug prices, or long-term care needs can drive total costs even higher. Couples should expect to plan for at least $300,000–$350,000 combined.
Why These Costs Matter in Retirement Planning
Healthcare expenses are one of the biggest unknowns in retirement. They can impact:
How long your savings last
Your income strategy (especially withdrawals)
Your lifestyle choices (such as travel or homeownership)
Your need for long-term care coverage
Unlike housing or food, healthcare spending can spike unexpectedly. That’s why it’s important to account for medical costs in your retirement budget early — not once you're already retired.
How to Prepare for Healthcare Expenses
You can’t predict every medical cost, but you can take smart steps to reduce the risk of being unprepared.
Build Health Costs Into Your Retirement Plan
Work with a financial advisor to:
Estimate your expected premiums and out-of-pocket costs
Factor in inflation for healthcare (often higher than general inflation)
Set aside funds in a Health Savings Account (HSA) or designated investment bucket for medical expenses
Consider Long-Term Care Planning
Medicare does not cover long-term custodial care. If you need help with activities like bathing, dressing, or memory care, you'll need other resources. Explore:
Long-term care insurance
Hybrid life insurance with LTC benefits
State Medicaid planning for later life
Take Advantage of HSAs Before Retirement
If you’re still working and enrolled in a high-deductible health plan, contribute to a Health Savings Account. HSAs offer triple-tax advantages:
Contributions are tax-deductible
Growth is tax-deferred
Withdrawals for qualified medical expenses are tax-free
Unlike Flexible Spending Accounts (FSAs), HSA funds roll over year to year and stay with you into retirement.
How Much Have You Saved?
Many workers know how much they have in their 401(k), but they may not have considered how much of it will go toward medical needs.
When asked, most Americans underestimate the amount needed for healthcare in retirement. That’s why it’s important to treat healthcare planning as a core part of your retirement strategy, not an optional step.
Frequently Asked Questions (FAQs)
How much does the average retiree spend on healthcare?
A 65-year-old retiree may need around $165,000 to cover lifetime healthcare expenses, not including long-term care.
Does Medicare cover everything in retirement?
No. Medicare does not cover dental, vision, hearing aids, or long-term custodial care.
Are Medicare premiums taken from Social Security?
Yes. Medicare Part B and D premiums are typically deducted from your monthly Social Security check.
Can I use an HSA in retirement?
Yes. You can use HSA funds tax-free for qualified medical expenses, including Medicare premiums.
Should I buy long-term care insurance?
It depends on your health, age, and financial plan. Some people use insurance, others plan to self-fund or use hybrid policies.
What’s not covered by Medigap?
Medigap does not cover dental, vision, hearing, or long-term care.
Is healthcare inflation higher than general inflation?
Yes. Medical costs often rise faster than overall inflation, which makes long-term planning even more important.