When most people imagine retirement, they think about travel, hobbies, and more time with family.
But there’s one critical factor that can quietly undermine those dreams if you don’t prepare…
Healthcare costs in retirement.
Healthcare consistently ranks among the top three expenses for retirees, alongside housing and food.
And unlike groceries or utilities, medical expenses are notoriously unpredictable. A sudden illness, a lengthy hospital stay, or the need for long-term care can add tens of thousands of dollars to your annual expenses.
In fact, Fidelity estimates that the average couple retiring at age 65 in 2025 will need over $330,000 just to cover healthcare expenses during retirement. That figure doesn’t even include long-term care.
The good news?
With careful planning, you can anticipate these costs, build them into your retirement budget, and avoid unpleasant surprises.
This guide breaks down the averages, explains what Medicare covers (and doesn’t), highlights common out-of-pocket expenses, and offers strategies to manage and reduce your healthcare costs in retirement.
Article Highlights
- The average couple retiring in 2025 may need more than $330,000 for healthcare over their lifetime.
- Medicare helps, but it doesn’t cover everything—notably dental, vision, hearing, and long-term care.
- Out-of-pocket expenses add up, from copays and coinsurance to prescription drugs.
- Long-term care is the biggest unknown, with nursing homes costing over $127,000 a year.
- Planning with tools like HSAs, Medigap, and long-term care insurance can help manage costs.
Why Healthcare Costs Are a Major Retirement Concern
Rising Healthcare Inflation
Healthcare inflation outpaces general inflation almost every year.
While consumer prices might rise 2–3% annually, medical costs often increase 5–7%. That means what costs you $5,000 today could cost $10,000 or more two decades into retirement.
Without accounting for inflation, retirees risk underfunding their healthcare budgets.
What makes healthcare inflation particularly challenging is that it affects multiple areas of spending—premiums, hospital charges, prescriptions, and even medical technology.
As treatments become more advanced, they also become more expensive. This is good for outcomes but difficult for fixed-income retirees who must stretch their budgets.
Longevity Risk
Longevity is a blessing but also a financial risk.
Someone who lives to 90 could spend 25–30 years in retirement. That translates into decades of Medicare premiums, prescription drug costs, and out-of-pocket expenses.
The longer you live, the greater the chance you’ll need expensive long-term care at some point.
Even healthy retirees must plan for this possibility.
Many underestimate how quickly small costs add up. $50 for a specialist copay here, $100 for prescription refills there. Over decades, that can total tens of thousands.
Longevity magnifies even minor expenses into significant financial commitments.
Average Healthcare Costs in Retirement
Lifetime Estimates
According to Fidelity’s 2025 estimate, the average 65-year-old couple retiring in 2025 will need about $330,000 over their lifetime for healthcare. This includes Medicare premiums, deductibles, and out-of-pocket costs but excludes long-term care.
Annual Cost Averages
On an annual basis, the average retiree spends $6,500–$11,000 per year on healthcare, depending on health status, coverage choices, and prescription needs. Couples can expect $12,000–$22,000 annually.
| Expense Category | Average Annual Cost (Per Person, 2025) |
|---|---|
| Medicare Premiums (Parts B + D) | $2,600 approx |
| Medigap or Advantage Premiums | $1,800–$3,600 |
| Out-of-Pocket (copays, coinsurance) | $1,200–$2,500 |
| Prescription Drugs | $800–$1,200 |
| Total Annual Estimate | $6,500–$11,000 |
These averages also hide wide variability.
A healthy retiree with minimal prescriptions might spend only $5,000 annually, while someone with chronic conditions like diabetes, COPD, or cancer may see annual costs double or triple.
Couples should budget at the higher end to account for potential surprises.
Another factor: location. Healthcare costs in retirement vary significantly by state.
Retirees in Florida and Texas may pay less for long-term care than those in California or New York, where facility costs can be nearly double the national average.
Medicare Costs in Retirement
Part A, B, C, and D Costs
- Part A (Hospital): $0 for most (premium-free if you worked 10+ years), deductible $1,632 per benefit period.
- Part B (Medical): $185/month standard premium in 2025, plus $257 deductible, then 20% coinsurance.
- Part C (Advantage): Often $0–$100 premiums, includes A & B, usually D, sometimes extras like dental/vision.
- Part D (Drugs): Average $37/month premium, variable deductibles, plus formulary-based copays.
Premiums and Deductibles
Together, Parts B and D alone average about $2,600 annually per retiree.
Adding Medigap or Advantage increases costs, but limits financial risk. For many, paying higher premiums is worth the tradeoff for predictable out-of-pocket spending.
Supplemental Coverage (Medigap)
Medigap plans cover the 20% coinsurance Original Medicare leaves behind.
Premiums range $120–$300/month, but they provide predictable costs and nationwide provider access. Advantage plans offer lower upfront costs but more variability.
| Coverage Type | Premiums | Out-of-Pocket | Flexibility | Extras |
|---|---|---|---|---|
| Medigap + Original Medicare | Higher ($120–$300/mo) | Predictable, low | Any doctor nationwide | None |
| Medicare Advantage (Part C) | Lower ($0–$100/mo) | Variable, capped | Restricted networks | Often dental, vision, hearing |
It’s worth noting that Medicare costs increase with income.
Retirees with higher incomes may face IRMAA surcharges, adding hundreds of dollars annually to Part B and Part D premiums. This makes tax planning and income management crucial for affluent retirees.
Out-of-Pocket Healthcare Expenses
Copays and Coinsurance
Even with Medicare, you’ll face copays and coinsurance.
A specialist visit may cost $40–$50, while coinsurance for a hospital stay can be hundreds per day after deductibles. These costs can snowball if you require multiple hospitalizations or frequent specialist visits in a year.
Prescription Drugs
While Part D helps, retirees still pay out-of-pocket.
A generic may cost $10/month, while a brand-name can exceed $100. Those with multiple prescriptions often spend $1,000+ annually even with insurance. High-cost specialty drugs for conditions like cancer or autoimmune diseases can run into thousands per month, even after insurance.
Dental and Vision
Because Medicare excludes dental and vision, retirees pay directly or buy add-on plans.
A single dental implant can cost $3,000–$5,000, and eyeglasses $200–$600. Even routine cleanings at $150–$200 twice per year add up over decades. For many, neglecting dental care in retirement becomes an expensive mistake later.
Another overlooked out-of-pocket expense is medical travel.
Retirees who split time between states or travel abroad may face higher costs if their Medicare Advantage plan’s network doesn’t extend beyond their primary location. Medigap often provides better flexibility for snowbirds and frequent travelers.
Long-Term Care Costs
Nursing Homes
According to Genworth’s Cost of Care Survey, the average private room in a nursing home room costs $127,750 annually. Even semi-private rooms exceed $110,000. These figures can be significantly higher in metropolitan areas like New York or San Francisco.
Assisted Living
Assisted living facilities average $5,800/month ($70,000/year) nationwide.
These costs vary widely by state, with higher costs in the Northeast and California. Smaller, rural communities often offer more affordable options, but may lack the specialized care facilities available in major cities.
Home Health Aides
Hiring in-home help averages $33/hour, which can add up to more than $65,000/year for full-time care. Most retirees underestimate this need, yet 70% of people 65+ will require long-term care at some point.
Another challenge is that long-term care needs often arise suddenly—after a fall, a stroke, or an illness.
This means retirees may not have time to adjust their budgets or coverage in advance, underscoring the importance of planning for this expense.
How to Plan for Healthcare Costs
Budgeting for Medical Expenses
The first step is simply acknowledging healthcare as a major line item.
Build $6,000–$12,000 per person annually into your retirement budget, then adjust for inflation. Financial planners often suggest earmarking 10–15% of retirement income for healthcare.
Also, don’t forget to enroll for Medicare as soon as eligible (or your costs could rise signifacntly).
Using HSAs
Health Savings Accounts (HSAs) are powerful tools.
They are similar to traditional IRAs in that contributions are tax-deductible and growth is tax-free. Withdrawals for medical expenses are also tax-free. If you saved $100,000 in an HSA before retirement, that money can cover premiums, copays, and other costs efficiently.
Considering Long-Term Care Insurance
Policies vary, but many cover nursing homes, assisted living, or in-home care.
Premiums are lower if purchased in your 50s or early 60s, and they help protect retirement savings from being drained by long-term care. Hybrid life/long-term care insurance policies are another option, offering flexibility if you don’t end up needing extended care.
Strategies to Reduce Healthcare Expenses
Preventive Care
An ounce of prevention is worth a pound of cure.
Take advantage of free Medicare screenings and focus on diet, exercise, and regular checkups. Preventing diabetes or heart disease can save thousands.
Medicare Advantage Plans
For some retirees, Advantage plans provide good value by bundling dental, vision, and hearing at a lower cost. Just weigh the trade-off of limited provider networks.
Tax-Efficient Withdrawals
Pulling from HSAs, Roth IRAs, or even strategically timed taxable withdrawals can reduce the tax impact of healthcare expenses. Medical costs are often tax-deductible once they exceed 7.5% of adjusted gross income.
Another overlooked strategy is shopping around for care.
Costs for imaging tests, prescriptions, and procedures can vary dramatically between providers, even in the same city. Using price transparency tools can save hundreds per procedure.
Tools and Calculators for Estimating Costs
Online Calculators
Websites like ours (HeroRetirement.com), AARP, and Kaiser Family Foundation offer retirement healthcare cost estimators. These tools provide a ballpark based on age, location, and health.
Retirement Planning Software
Comprehensive retirement software can model healthcare inflation, long-term care risk, and out-of-pocket exposure. Many advisors use Monte Carlo simulations to stress test your retirement against unexpected healthcare events.
It’s wise to use multiple tools rather than relying on just one. Each uses different assumptions, and comparing estimates helps create a more realistic picture of what you may face.
Common Mistakes to Avoid
Relying Solely on Medicare
Medicare is essential, but it doesn’t cover everything. Assuming it will leads to big surprises in dental, vision, and long-term care bills.
Ignoring Inflation
Planning with today’s prices leaves a shortfall later. Build 5–7% annual inflation into healthcare expense projections.
Not Planning for Long-Term Care
Long-term care is the single biggest “wild card.” Without insurance or a plan, costs can wipe out savings quickly.
Underestimating Out-of-Pocket Costs
Even with good coverage, retirees may spend thousands per year on prescription copays, medical supplies, and travel expenses. Ignoring these “small” costs can derail a retirement budget over time.
Preparing for Healthcare Costs in Retirement
Healthcare costs in retirement aren’t optional—they’re inevitable.
Medicare will provide a strong base, but gaps and out-of-pocket expenses can easily overwhelm those who don’t prepare. Long-term care is the most unpredictable factor, and ignoring it can devastate a retirement plan.
The best strategy is proactive planning: build healthcare into your budget, leverage HSAs, evaluate Medigap or Advantage coverage, and explore long-term care insurance.
Pair those financial strategies with a focus on preventive health and you’ll reduce both your costs and your risks.
Bottom line: With smart planning, you can turn healthcare from a looming threat into a manageable part of your retirement strategy, giving you confidence and peace of mind in your golden years.
FAQs
How much should I budget for healthcare in retirement?
A healthy retiree should budget at least $6,500–$11,000 annually, while couples should plan for $12,000–$22,000. Over a lifetime, Fidelity estimates $315,000 for a 65-year-old couple retiring in 2025.
Does Medicare cover all medical expenses?
No. Medicare covers hospital and outpatient care, but not dental, vision, hearing aids, or long-term custodial care. Supplemental coverage (Medigap or Advantage) is often necessary.
What is the average cost of long-term care?
Nursing homes average $127,750/year, assisted living $70,000/year, and in-home aides about $33/hour. Long-term care is often the biggest unplanned medical expense.
Can I use HSA funds in retirement?
Yes. HSAs are triple tax-advantaged and can be used for Medicare premiums, copays, and out-of-pocket medical expenses tax-free. After age 65, you can even withdraw funds for non-medical expenses (taxed as income).
