Healthcare is one of the largest and least predictable expenses you will face in retirement. Fidelity Investments' widely cited estimate puts the average cost of healthcare for a 65-year-old couple retiring today at roughly $315,000 over their remaining lifetimes—and that figure excludes long-term care. For a single retiree, the projected number is lower but still substantial. Because medical inflation has historically outpaced general inflation, treating healthcare as a minor line item in your retirement budget can quietly erode even a well-funded plan.
The good news is that healthcare costs in retirement are not entirely unknowable. Medicare, supplemental coverage, and health savings accounts give you levers to manage risk. This guide breaks down what you will likely pay, what Medicare does and does not cover, and the concrete steps you can take now to prepare.
Why Healthcare Costs Rise in Retirement
Several forces converge in retirement to push medical spending higher. Age itself increases the likelihood of chronic conditions, prescription needs, and specialist visits. At the same time, income often shifts from a salary to Social Security, pensions, and portfolio withdrawals, which changes how premiums and taxes interact.
Medicare also differs meaningfully from employer coverage. Most retirees are surprised to learn that standard Medicare has no out-of-pocket maximum unless they add supplemental coverage. According to the Kaiser Family Foundation (now KFF), Medicare beneficiaries spent an average of more than $5,000 per year out of pocket on premiums and services, and that figure climbs with age and health status. Planning for a rising curve—not a flat number—is the realistic approach.
What Medicare Covers—and What It Doesn't
Original Medicare consists of Part A (hospital insurance) and Part B (medical insurance). Part A is generally premium-free if you or your spouse paid Medicare taxes for at least 40 quarters. Part B carries a monthly premium that is income-adjusted through IRMAA (the Income-Related Monthly Adjustment Amount), meaning higher-income retirees pay more.
What Original Medicare does not cover is just as important:
- Most dental, vision, and hearing services, which become more necessary with age
- Long-term care, including most nursing home and in-home custodial care
- Routine care abroad in most cases
- Prescription drugs under Parts A and B—these require a separate Part D plan or a Medicare Advantage plan that includes drug coverage
Because of these gaps, most retirees pair Original Medicare with a Medigap policy (also called Medicare Supplement) or enroll in Medicare Advantage (Part C). Medigap plans help cover copays and coinsurance and often provide a predictable ceiling on annual costs. Medicare Advantage plans typically bundle drug coverage and may include dental and vision, but they use networks and prior authorization, so check that your doctors participate before enrolling.
Building a Realistic Healthcare Budget
A useful budget separates fixed premiums from variable out-of-pocket spending. On the fixed side, tally your Part B premium, Part D premium, and Medigap or Advantage premium. On the variable side, estimate copays, dental work, vision, hearing aids, and any uncovered services. Add a cushion for a bad year—a surgery, a new prescription, or a specialist referral.
Fidelity's retiree estimate is a reasonable starting benchmark, but it is an average. Your personal number depends on health history, family longevity, where you live, and the coverage you choose. If you have a chronic condition or a family history of serious illness, budget above the average. If you are in excellent health, you still need a reserve for the years when that changes.
It also helps to model healthcare costs alongside your other retirement income sources. Social Security, pension income, and required minimum distributions from traditional IRAs all affect your taxable income—and higher income can trigger IRMAA surcharges on Medicare premiums. Coordinating withdrawals from taxable, tax-deferred, and Roth accounts can keep your Medicare premiums lower in some years.
Strategies to Save and Prepare
The most powerful tool for many pre-retirees is a health savings account (HSA). If you are enrolled in a qualifying high-deductible health plan, HSA contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses—including in retirement. Unlike flexible spending accounts, HSA balances roll over year to year, so an HSA funded during your working years can become a dedicated healthcare reserve later.
Other practical steps include:
- Maximize catch-up contributions to retirement accounts after age 50 to build a larger healthcare reserve
- Review your Medicare enrollment timing carefully—missing your Initial Enrollment Period can trigger lifelong late-enrollment penalties
- Shop Medigap and Part D plans annually during open enrollment, since premiums and formularies change each year
- Consider long-term care insurance or a hybrid policy while you are still healthy enough to qualify
- Keep receipts for qualified medical expenses so you can reimburse yourself tax-free from an HSA at any point
Finally, do not overlook the role of preventive care. Medicare covers many preventive services at no cost, and managing chronic conditions early often reduces the largest expenses later. A written healthcare plan—reviewed with a financial professional and, where appropriate, a tax advisor—turns an intimidating unknown into a manageable line item.
The Short Version
Healthcare costs in retirement are substantial, rising, and only partly covered by Medicare. Expect to fund premiums, dental, vision, hearing, prescriptions, and long-term care largely on your own. Build a budget that separates fixed premiums from variable out-of-pocket costs, use an HSA if you can, coordinate withdrawals to manage IRMAA, and review your Medicare coverage every year. Planning early is far cheaper than improvising later.
