Originally published January 2016. Last updated March 2026.
Healthcare is the expense that derails more retirement plans than almost anything else. Not because people don’t expect it, but because they underestimate it by a factor of two or three.
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The Real Numbers
According to Fidelity’s 2024 Retiree Health Care Cost Estimate, an average 65-year-old couple retiring today needs approximately $315,000 (after tax) to cover healthcare expenses in retirement. That’s up from $300,000 in 2023 and $245,000 in 2018.
Per person, that’s roughly $157,500 over a 20-year retirement. And that doesn’t include long-term care (nursing homes, assisted living, home health aides).
What Medicare Covers (and What It Doesn’t)
Medicare Part A (Hospital): Most people pay no premium. Covers inpatient hospital stays, skilled nursing (limited), hospice. Deductible: $1,676 per benefit period in 2025.
Medicare Part B (Medical): Standard premium: $185/month in 2025 (higher if your income exceeds $106K single / $212K married — this is the IRMAA surcharge). Covers doctor visits, outpatient care, preventive services. Annual deductible: $257.
Medicare Part D (Prescriptions): Premiums vary by plan. The Inflation Reduction Act capped out-of-pocket drug costs at $2,000/year starting in 2025. Insulin capped at $35/month.
What Medicare doesn’t cover:
- Dental, vision, and hearing (mostly)
- Long-term custodial care
- International healthcare
- Most cosmetic procedures
Medigap (Medicare Supplement) plans can fill some of the gaps but add $100-$300+/month in premiums depending on your plan and location.
The Gap: Ages 60-65
If you retire before 65, you don’t qualify for Medicare yet. Covering the gap is expensive:
- COBRA: Continue your employer’s plan for 18 months. You pay the full premium (employer + employee share), often $800-$2,000/month for a couple.
- ACA Marketplace: Premium subsidies are based on income. If you’re managing your income carefully (Roth withdrawals, careful IRA distributions), you may qualify for significant subsidies.
- Spouse’s employer plan: If your spouse is still working, their plan may be the cheapest option.
How to Plan for Healthcare Costs
- HSA (if eligible): Triple tax advantage. If you have a high-deductible plan before 65, max out your HSA ($4,300 individual / $8,550 family in 2025). Let it grow. After 65, you can use it for Medicare premiums, copays, and any medical expense tax-free.
- Budget $8,000-$12,000 per person per year for healthcare in retirement as a starting point. Adjust for your health situation.
- Factor IRMAA into your income planning. High retirement income triggers Medicare surcharges. A well-timed Roth conversion strategy can keep your MAGI below the thresholds.
- Don’t ignore dental and vision. Medicare barely covers them. Budget $2,000-$4,000/year for dental, vision, and hearing expenses not covered by Medicare or supplemental insurance.
FAQ
Should I get a Medigap plan or Medicare Advantage?
Medigap plans have higher premiums but more predictable out-of-pocket costs and wider provider networks. Medicare Advantage plans have lower (sometimes $0) premiums but more restrictions on providers and may have higher costs if you get seriously ill. If you travel frequently or want provider flexibility, Medigap is usually the safer choice.
Does long-term care insurance make sense?
For many people, yes. The average cost of a semi-private nursing home room is about $8,000-$9,000/month. A three-year stay can wipe out $300,000+. Long-term care insurance or hybrid policies (life insurance + LTC rider) can protect your retirement savings. The younger and healthier you are when you buy, the cheaper it is.
Schedule a free 20-minute consultation to build healthcare costs into your retirement plan.
R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889
