Healthcare is one of the largest and most unpredictable expenses in retirement. Unlike a mortgage or car payment, medical costs can rise sharply with age and are difficult to predict. Planning for them — both the predictable annual costs and the harder-to-predict big expenses — is one of the most important parts of a retirement income plan.
The good news: Medicare covers much of the core healthcare cost for most retirees once you turn 65. The harder reality: Medicare doesn’t cover everything, and the gaps — premiums, deductibles, coinsurance, prescription drugs, dental, vision, hearing, and long-term care — add up to meaningful annual spending that lasts as long as you do.
How much should you budget?
Industry estimates of lifetime healthcare costs in retirement vary widely — commonly cited numbers range from $165,000 to $315,000 for a 65-year-old couple over their remaining lifetime, not including long-term care. The wide range reflects how much the answer depends on health, location, plan choices, and longevity.
More useful than a single lifetime figure is an annual budget. For a typical 65-year-old retiring with average health and Medicare coverage, plan for roughly $5,000 to $8,000 per person per year in current healthcare spending — rising over time as health needs increase and as Medicare premiums adjust upward.
That’s an estimate of out-of-pocket and premium spending; long-term care, if needed, is a separate and much larger potential expense covered later.
Pre-Medicare years (before age 65)
If you retire before age 65, healthcare is one of the biggest budget items in those gap years. Options:
- COBRA continuation: Continues your employer plan for up to 18 months, but you pay the full premium plus a 2% admin fee — often $700–$2,000+ per month for a family plan
- ACA marketplace plan: Subsidies are based on income; for retirees who can manage their taxable income, premium tax credits can dramatically reduce monthly cost
- Spouse’s employer plan: If your spouse is still working, joining their plan is often the cheapest option
- Retiree health benefits: Some employers (especially government and union jobs) offer subsidized retiree coverage that bridges to Medicare
For people retiring at 60 with no spouse coverage and no retiree benefits, healthcare costs in the five years before Medicare can run $15,000–$30,000+ per year. This is one of the most underestimated costs of early retirement and is a major factor in whether retiring before 65 is feasible.
Medicare costs at 65 and beyond
Once eligible for Medicare, the cost picture stabilizes — though it doesn’t become free. Typical components for someone with Medicare alone:
- Part A (hospital): Free for most people who paid Medicare taxes for 10+ years
- Part B (outpatient): Standard premium of $185/month in 2025 (rises annually). Higher earners pay more under IRMAA — up to several hundred dollars more per month per person
- Part D (prescription drugs): Premiums vary by plan, typically $25–$80/month, with higher IRMAA surcharges for higher-income retirees
- Medigap or Medicare Advantage: Most retirees add one or the other. Medigap premiums commonly run $150–$400/month depending on plan letter and age. Medicare Advantage often has $0 premiums but higher out-of-pocket exposure for actual care
- Deductibles, coinsurance, copays: Even with Medigap or Medicare Advantage, some out-of-pocket costs remain — budget another $1,000–$3,000/year for typical use
A common all-in number for a healthy 65-year-old with Medicare + a Medigap plan + Part D + dental/vision: $4,500–$7,000/year per person, with the higher end for higher-income retirees facing IRMAA surcharges.
What Medicare doesn’t cover
Several significant categories of healthcare are not covered (or only minimally covered) by Original Medicare:
- Routine dental care — cleanings, fillings, dentures, implants. Standalone dental insurance or Medicare Advantage plans with dental coverage are options.
- Vision care — routine eye exams, glasses, contacts (some exceptions for medical eye conditions)
- Hearing aids — not covered under Original Medicare. Some Medicare Advantage plans include hearing benefits.
- Long-term custodial care — non-skilled care in nursing homes, assisted living, or at home for help with daily activities. This is the largest potential gap and is covered separately below.
- Care outside the U.S. — generally not covered by Medicare, though some Medigap plans include limited foreign emergency coverage
Long-term care: the biggest unknown
Long-term care is the wild card in retirement healthcare planning. About 70% of people over 65 will need some form of long-term care at some point, and median costs are substantial:
- Home health aide: $25–$40/hour, often $30,000–$60,000/year for part-time help
- Assisted living facility: $4,500–$7,000/month (~$54,000–$84,000/year)
- Nursing home (semi-private room): $8,000–$10,000+/month (~$96,000–$120,000+/year)
Costs vary dramatically by region — nursing care in the rural Midwest may cost half of what it does in the Northeast or California.
Medicare covers very limited long-term care — only short-term skilled care after a hospital stay. Medicaid covers long-term care, but only after you’ve spent down most of your assets. Long-term care insurance is one option to consider; self-funding through retirement savings is another. Hybrid life/long-term-care policies have grown more common as standalone LTC insurance has become harder to find.
Prescription drug costs
Prescription drug spending is the most common day-to-day healthcare cost. Part D plans cover most prescriptions but have their own deductible, copay structure, and (under recent law) an annual out-of-pocket cap of $2,000 starting in 2025.
People taking expensive specialty medications — for cancer, autoimmune conditions, MS, and others — benefit most from the new $2,000 cap. Before this change, some retirees faced $10,000+ in annual drug costs even with Part D.
Strategies for managing drug costs: review your Part D plan annually during open enrollment (October 15 to December 7) since formularies and costs change every year, ask about generic equivalents, use the manufacturer’s assistance programs for brand-name drugs, and check whether mail-order delivers a meaningful savings.
Health Savings Accounts (HSAs) for the gap years
If you’re still working in your 60s with a high-deductible health plan, HSA contributions can build a tax-advantaged pool of money specifically for healthcare expenses. HSAs offer triple tax benefits: tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses.
Once you enroll in Medicare (typically at 65), you can no longer contribute to an HSA — but the existing balance keeps growing tax-free and can pay qualified medical expenses indefinitely, including Medicare premiums.
Some retirees treat the HSA as a healthcare-specific retirement account — max out contributions in the years before Medicare, leave the money invested, and use it for healthcare costs across retirement.
How to plan and budget
- Build healthcare costs into your retirement income plan as a separate line item, not buried in “miscellaneous”
- Plan for IRMAA — if your retirement income (including Roth conversions) might cross IRMAA thresholds, the additional Medicare premium is real money worth budgeting for
- Reassess plan choices annually during Medicare open enrollment — both Part D plans and Medicare Advantage plans change benefits and costs every year
- Set aside a healthcare reserve — 1–2 years of expected healthcare spending in safe assets, distinct from your general emergency fund
- Decide on a long-term care strategy explicitly — whether that’s insurance, self-funding, hybrid policies, or a Medicaid plan if assets are modest
Further Reading
- Medicare Costs and Premiums
- Understanding Medicare Part B Premiums and IRMAA
- Medicare Advantage vs. Original Medicare
- Medigap (Medicare Supplement) Explained
- Long-Term Care Insurance
- How Much Do You Need to Retire?
This article is for general educational purposes only and does not constitute financial or medical advice. Healthcare costs vary widely by region, plan, and personal circumstances — verify specifics for your situation before planning.