Retirement Healthcare Costs: What to Expect and How to Prepare

September 2, 2025

When you picture retirement, thoughts of travel, family time, or finally taking up that hobby that’s been on hold may come to mind. What often slips under the radar, though, is healthcare. It is one of the largest expenses you’ll face once you retire, and unlike other costs, it does not fade away—it climbs as you age.

Current projections suggest that someone retiring at 65 can expect to spend about $172,500 on healthcare throughout retirement, including premiums, prescription drugs, dental, and vision care. That number does not include long‑term care, which can cost upwards of $111,000 per year for facility-based care or nearly $290,000 annually for 24‑hour in‑home assistance.

These expenses are unavoidable, but the encouraging part is that you can prepare for them strategically. By understanding how costs evolve across different stages of retirement, identifying the key drivers that influence your spending, and acting on specific planning steps, you create a robust foundation for managing healthcare in retirement.

Understand the Cost of Healthcare at Different Stages of Retirement

Ages 55–64 (Pre-Medicare years)

If you retire before 65, you’re not yet eligible for Medicare. During this stage, you’ll rely on private insurance, COBRA coverage from a former employer, or a plan purchased through the Affordable Care Act marketplace. This is often the most expensive period because you’re paying full premiums without the Medicare safety net.

• A healthy couple retiring at 60 may face more than $18,000 per year in combined premiums and out-of-pocket costs.
  
  
• If one spouse has a chronic condition, expenses can rise even higher because you’re fully exposed to deductibles, co-pays, and rising prescription prices.
  
  
• Some retirees bridge this gap by delaying retirement until Medicare eligibility or working part-time to maintain employer-sponsored coverage.

Ages 65–74 (Early Medicare years)

Medicare eligibility begins at 65, but it is not cost-free. At this stage, you’ll need to cover a mix of premiums and out-of-pocket expenses.

• Part B covers doctor visits and outpatient care, but you’ll pay a monthly premium that rises with income.
  
  
• Part D provides prescription coverage, but you’re responsible for premiums and co-pays that can add up quickly if you take multiple medications.
  
  
• Many retirees also choose either a Medigap policy to cover deductibles and co-insurance, or a Medicare Advantage plan for bundled coverage.

A healthy 68-year-old with moderate prescription needs might expect to spend around $7,000 annually between premiums and out-of-pocket costs. While this is far less than the pre-Medicare stage, budgeting for these expenses is still essential.

Ages 75+ (Advanced years)

The longer you live, the more likely it becomes that healthcare will take a larger share of your spending. Chronic conditions are more common at this stage, and the possibility of long-term care becomes very real.

• A semi-private nursing home room costs over $100,000 annually on average, and these costs vary widely by state.
  
  
• Even if you never require nursing care, prescription costs, co-pays, and supplemental insurance expenses continue to climb steadily as you age.
  
  
• Home health aides and assisted living facilities are alternatives, but these also come with significant out-of-pocket costs if you haven’t planned ahead.

Source: https://www.ssa.gov/retirement

What this means for retirees and people who are about to retire

Healthcare will be one of the largest and most unpredictable expenses in retirement, and it changes depending on which stage you’re in. If you retire early, plan for high insurance premiums before Medicare begins. Once you’re on Medicare, expect steady out-of-pocket costs that can still reach several thousand dollars each year. As you age into your late 70s and beyond, prepare for the possibility of long-term care, whether that’s nursing care, assisted living, or support at home.

The takeaway is clear: you need to build healthcare costs directly into your retirement plan. By accounting for these expenses early, you’ll avoid unpleasant surprises and protect your savings from being eroded by medical bills at the very stage of life when you most want stability.

Key Factors Influencing Retirement Healthcare Costs

Healthcare expenses in retirement don’t follow a single path. They vary from person to person and can shift significantly depending on your health, where you live, and the choices you make about coverage. Here are the factors that play the largest role in shaping what you’ll spend:

• Healthcare inflation: Medical expenses rise faster than general inflation. A cost of $7,000 today could be closer to $14,000 in 15 years if trends continue. That means planning with today’s numbers alone can leave you underprepared.
  
  
• Your health history: Chronic illnesses such as diabetes or heart disease raise the amount you need to budget. Family history matters too. If your parents or siblings required long-term care or had costly medical conditions, you may need to prepare for similar scenarios.
  
  
• Geographic location: Costs vary widely depending on where you live. A retiree in Florida may pay less for long-term care than someone in New York or Massachusetts, where daily nursing home costs run much higher. Even prescription drug prices can vary based on regional availability and pharmacy networks.
  
  
• Retirement age: Leaving the workforce before 65 means you’re responsible for covering insurance until Medicare begins. This could mean paying for COBRA, private insurance, or Affordable Care Act marketplace plans, often at a steep cost.
  
  
• Coverage choice: Medicare alone won’t cover everything. The choice between Medigap and Medicare Advantage comes with very different cost structures. Picking the wrong fit for your situation can cost you thousands in higher premiums, deductibles, or uncovered expenses.
  
  
• Income levels: Medicare uses income-based surcharges known as IRMAA. If your adjusted gross income is above certain thresholds, your Part B and Part D premiums rise. Higher-income retirees can easily see their annual costs increase by several thousand dollars.
  
  
• Prescription needs: Medication use tends to rise with age. If you’re managing multiple prescriptions, especially brand-name drugs without generic alternatives, your annual out-of-pocket costs can climb quickly even with Part D coverage.
  
  
• Longevity: The longer you live, the higher your cumulative costs. A healthy 65-year-old who lives into their 90s could spend far more than someone who passes away in their 70s, simply due to years of ongoing premiums and rising out-of-pocket expenses.
  
  
• Access to long-term care: Nursing homes, assisted living, and in-home care are among the most expensive aspects of retirement. Medicare does not cover most of these expenses, so unless you have long-term care insurance or a separate funding plan, this becomes a significant out-of-pocket risk.
  
  
• Lifestyle choices: The way you live also affects costs. Staying active, maintaining a healthy diet, and keeping up with preventive care may not eliminate expenses, but they can delay the onset of chronic conditions and reduce long-term costs.
  
  
• Spousal coverage: If you’re married, your healthcare plan needs to account for two people. If one spouse retires early or develops health issues, your combined costs can rise much faster than expected.

Each of these factors directly influences how much you should set aside for healthcare. When you build your retirement plan, it’s not just about estimating a single number. It’s about stress-testing your plan against different scenarios so you can see how inflation, longevity, or long-term care might impact your savings.

How to Prepare for Healthcare Costs in Retirement

Healthcare is one of the biggest variables in retirement planning. Costs change depending on when you retire, the coverage you choose, and how your health evolves over time. By preparing early and reviewing your options carefully, you can reduce uncertainty and make sure healthcare doesn’t overwhelm the rest of your retirement budget.

Here are the key steps to focus on:

• Consider your retirement age: Retiring before Medicare eligibility means paying out-of-pocket for private insurance.
  
  
• Talk to your financial advisor about healthcare: Professional guidance helps you align healthcare planning with your overall retirement strategy.
  
  
• Understand your coverage options early: Learn how Medicare, Medigap, and Medicare Advantage work before you need them.
  
  
• Choose your coverage carefully: Small differences in plans can add up to thousands of dollars over time.
  
  
• Plan for prescription drug costs: Medication expenses typically rise with age and can strain your budget if overlooked.
  
  
• Include long-term care in your plan: Nursing homes, assisted living, and home health care come with high costs that Medicare does not cover.
  
  
• Use tax-advantaged strategies to fund healthcare: Tools like HSAs and certain withdrawal strategies can help you pay medical expenses more efficiently.
  
  
• Build inflation protection into your plan: Medical costs rise faster than general inflation, so your projections should reflect that.
  
  
• Create a dedicated healthcare fund: Setting aside assets specifically for medical costs can help keep your retirement income steady.
  
  
• Revisit and adjust regularly: Your health and the healthcare system will change, which means your plan needs to evolve with them.

Let’s take a look at each of them.

Consider Your Retirement Age

Retiring early may sound appealing, but it comes with higher healthcare costs because you’re covering more years before Medicare eligibility. Leaving the workforce at 62 instead of 65 stretches the period where you must rely on private insurance, COBRA, or Affordable Care Act marketplace coverage. That three-year gap can easily add $50,000 or more in combined premiums and out-of-pocket expenses.

Example:

• A couple retires at 62 with no employer coverage. They purchase a silver-level ACA plan that costs about $1,400 per month in combined premiums. Over three years, that totals roughly $50,400.
  
  
• On top of premiums, they each face annual deductibles of $3,000, plus co-pays for doctor visits and prescriptions. If both use moderate healthcare services, that could add $6,000 to $8,000 per year in out-of-pocket costs.
  
  
• By the time they reach Medicare eligibility at 65, the couple could have spent over $70,000 on healthcare alone during those pre-Medicare years.
  
  

Now compare that with delaying retirement until 65. Medicare Part B, Part D, and a Medigap policy would likely cost them $6,000 to $8,000 per year combined, depending on their prescriptions and supplemental coverage choices. Over three years, that’s closer to $20,000. The difference in retiring at 62 versus 65 could be $50,000 or more, just on healthcare.

This example shows why your retirement age decision has a direct impact on your healthcare budget. If retiring early is part of your plan, you’ll need to set aside significant funds specifically for health coverage during that gap.

Talk to Your Financial Advisor About Healthcare

Healthcare should be a central part of your retirement plan, not an afterthought. A financial advisor can help you understand what your future costs might look like and how they fit into your broader strategy. One of the most valuable steps they can take is stress-testing your retirement plan against realistic healthcare inflation, which often runs at 5 to 6 percent per year. That way, you’re not surprised when medical costs grow faster than everyday expenses.

An advisor can also:

• Model different retirement ages: Retiring at 62 instead of 65 or 67 means higher out-of-pocket costs before Medicare. A stress test shows exactly how much that early decision adds to your expenses.
  
  
• Run scenarios for long-term care: By building in the possibility of assisted living or nursing care, you can see the impact on your savings if those costs arise.
  
  
• Estimate prescription drug spending: If you already take medications, projections can factor in expected price increases and the role of Part D or supplemental coverage.
  
  
• Align healthcare with income sources: An advisor can show how Medicare premiums, Medigap policies, or Advantage plans fit with Social Security, pensions, and portfolio withdrawals. This helps you see if you’ll have enough cash flow to handle annual costs without disrupting your investment plan.

By working through these numbers with your advisor, you’re not just looking at today’s costs. You’re seeing how healthcare fits into your long-term retirement picture, where inflation, longevity, and market cycles all play a role.

Understand Your Coverage Options Early

One of the most important steps in retirement planning is understanding how your healthcare coverage will work. Medicare is the foundation for most retirees, but it is not a single plan. You need to know what each part covers and where the gaps are.

• Part A covers hospital stays and is typically premium-free if you or your spouse worked and paid Medicare taxes.
  
  
• Part B covers outpatient care such as doctor visits, lab work, and preventive services, but comes with a monthly premium that increases with income.
  
  
• Part D covers prescription drugs, though costs vary depending on the medications you take and the plan you select.

On top of these, you’ll need to choose between Medigap and Medicare Advantage:

• Medigap policies supplement Original Medicare by covering deductibles, co-insurance, and other out-of-pocket expenses. Premiums are generally higher, but they provide more predictable costs.
  
  
• Medicare Advantage plans bundle coverage and often include extra benefits like dental or vision. They can have lower monthly premiums but usually involve networks and cost-sharing rules that vary by plan.

If you’re retiring before 65, Medicare won’t be available yet. That means you’ll need to review your options through the ACA marketplace, COBRA from a former employer, or private insurance. These years can be costly if you don’t plan ahead.

Example:

A 64-year-old planning to retire at the end of the year needs to cover healthcare for one year before Medicare eligibility. She compares two options:

• A COBRA plan through her former employer would cost $1,100 per month in premiums, or about $13,200 for the year, plus deductibles and co-pays.
  
  
• An ACA marketplace plan with a similar level of coverage costs $900 per month, or about $10,800 for the year, though it comes with a higher deductible.

By running the numbers before retiring, she can see the trade-off between higher premiums with lower out-of-pocket costs versus lower premiums but higher deductibles. Without planning this step early, she may have been forced into the more expensive option by default.

Getting clear on your coverage options before retirement allows you to avoid surprises and choose the structure that fits your income, health, and retirement timeline.

Choose Your Coverage Carefully

Medicare coverage is not one-size-fits-all. The plan you choose can have a major effect on both your monthly expenses and your long-term out-of-pocket costs. Your decision should reflect your health profile, how often you use medical care, and whether you value lower premiums or greater flexibility.

• Medicare Advantage: These plans typically have lower monthly premiums and often bundle services like dental, vision, or hearing. They work within provider networks, so you’ll need to stay within approved doctors and hospitals unless you want to pay higher costs. For retirees who are relatively healthy and see doctors occasionally, this option can keep ongoing expenses low.
  
  
• Medigap: Supplemental Medigap policies are purchased alongside Original Medicare. They cover deductibles, co-insurance, and other costs Medicare doesn’t. Premiums are higher, but you get broader flexibility when choosing providers. For retirees managing chronic health conditions or who want predictable costs for frequent care, Medigap often provides stronger protection.
  
  

Example:

• Retiree A: Age 67, healthy, takes one maintenance prescription, and rarely visits specialists. He chooses a Medicare Advantage plan with a $0 premium but a $25 co-pay for primary care visits. His annual healthcare spending is about $3,000, including premiums and co-pays.
  
  
• Retiree B: Age 70, with diabetes and heart disease, requires multiple prescriptions and sees several specialists each year. She chooses Medigap Plan G with a $200 monthly premium. Even though she pays $2,400 annually in premiums, her co-pays and deductibles are minimal. Her annual costs are around $4,500, but her expenses are stable and predictable regardless of how often she needs care.

The difference shows that the right coverage choice depends on your health, not just the premium price.

Plan for Prescription Drug Costs

Prescription spending can become one of the fastest growing parts of your retirement budget. While Medicare Part D provides coverage, the details of each plan vary significantly. Premiums, formularies, and co-pay structures can make the difference between affordable medication and thousands in unexpected bills.

One of the biggest surprises retirees face is the coverage gap, sometimes called the “donut hole.” This is the stage where your drug spending passes an initial threshold, and your share of costs temporarily increases until catastrophic coverage begins. Even though this gap has narrowed in recent years, it can still create spikes in out-of-pocket costs.

Because plans change every year, it’s critical to review your coverage during Medicare’s open enrollment period. Formularies can shift, premiums can rise, and a drug that was covered last year may suddenly move into a higher tier.

Example:

A 72-year-old retiree takes three brand-name prescriptions for chronic conditions. In 2024, her Part D plan costs $45 per month in premiums, with $25 co-pays for two of her drugs and $50 for the third. By midyear, her total spending pushes her into the coverage gap. For the next several months, her co-pays jump to 25 percent of the drug cost, raising her monthly out-of-pocket expense from about $100 to nearly $400. By year’s end, she has spent $3,500 more than she expected. During the following open enrollment, she switches to a different plan with a higher monthly premium but lower tier pricing, reducing her projected annual cost by nearly $2,000.

Careful review and plan selection can make a measurable difference in how much you pay for prescriptions.

Include Long-Term Care in Your Plan

Long-term care is the wildcard. About 70% of retirees will need some type of LTC service. That could be a home health aide, assisted living, or a nursing facility. With annual costs for nursing homes exceeding $100,000, you’ll want to evaluate LTC insurance, hybrid policies, or a self-funding strategy.

Use Tax-Advantaged Strategies to Fund Healthcare

Covering healthcare costs in retirement is easier when you use the right tax-advantaged accounts. These vehicles give you flexibility by lowering the tax drag on savings and helping you manage income-related surcharges later in life.

• Health Savings Accounts (HSAs): If you’re enrolled in a high-deductible health plan before retirement, an HSA is one of the most efficient ways to prepare for medical costs. Contributions are tax-deductible, growth is tax-deferred, and withdrawals for qualified healthcare expenses are tax-free. For a couple in their 50s contributing the combined annual limit of $9,300 (2024 limit with catch-up contributions), consistent savings over 15 years could build a fund worth more than $200,000 by age 65, assuming moderate investment growth. That balance can be used to cover premiums, prescriptions, and long-term care insurance in retirement.
  
  
• Roth IRAs and Roth 401(k)s: Withdrawals from Roth accounts in retirement are tax-free, which makes them a useful tool for healthcare spending. Because Roth withdrawals don’t count toward adjusted gross income, they can help you avoid or reduce IRMAA surcharges on Medicare Part B and Part D premiums. Using Roth distributions for healthcare expenses lets you preserve the tax efficiency of your retirement income strategy.
  
  
• Flexible Spending Accounts (FSAs): While FSAs are tied to employment and don’t carry over long-term like HSAs, they can still play a role if you’re retiring gradually or working part-time. Using an FSA in your final working years helps reduce taxable income while funding current medical costs.

Example:

A couple in their late 50s contributes the full HSA limit each year and invests the funds instead of spending them. By age 65, they have accumulated $210,000. In retirement, they use $7,000 annually from the HSA to pay for Medicare premiums and out-of-pocket costs. Because withdrawals are tax-free, they free up other retirement accounts for lifestyle expenses and keep their taxable income lower, which helps them avoid higher Medicare premium brackets.

Build Inflation Protection Into Your Plan

Healthcare costs typically rise faster than other retirement expenses, which means your budget at 65 may not look anything like your budget at 75 or 80. If you start retirement spending $7,000 a year on premiums and out-of-pocket costs, a 5 percent annual inflation rate could push that number to more than $14,000 by age 78. Without a plan for inflation, what once felt manageable can put real pressure on your savings.

You can prepare for this by using assets that either grow with inflation or adjust for it directly:

• Treasury Inflation-Protected Securities (TIPS): These bonds adjust their principal value based on changes in the Consumer Price Index, giving you protection when prices rise.
  
  
• Equities: Stocks provide long-term growth potential, which helps your portfolio keep pace with rising medical expenses. Global equity diversification also spreads your exposure across multiple economies.
  
  
• Annuities with inflation riders: While they come at a cost, annuities with inflation adjustments can provide income that rises over time, giving you a predictable way to offset future medical bills.

Example:

A retiree at age 65 budgets $7,000 per year for healthcare. If costs grow at 5 percent annually, by age 78 those expenses reach roughly $13,100. By 85, they’re closer to $18,500. To keep pace, the retiree allocates $100,000 into a mix of equities and TIPS. Assuming a blended 5 to 6 percent return, this portion of the portfolio grows to nearly $200,000 over 20 years, providing enough growth to cover rising healthcare costs without eroding the rest of the retirement plan.

Create a Dedicated Healthcare Fund

Healthcare is not a variable you can treat casually in retirement. It deserves its own allocation. By setting aside a specific bucket of your savings for medical expenses, you create clarity and avoid pulling from funds earmarked for lifestyle spending.

A common guideline is to allocate 15 to 20 percent of your retirement portfolio for healthcare costs. For someone targeting $1.5 million in total retirement assets, this means setting aside at least $300,000 exclusively for medical expenses. This pool can cover premiums, out-of-pocket costs, prescriptions, and potentially some long-term care needs.

Where you hold this money matters:

• Use HSAs if you built one during your working years, since withdrawals for medical expenses are tax-free.
  
  
• Consider Roth IRAs for added flexibility, as withdrawals won’t increase taxable income or trigger Medicare surcharges.
  
  
• Keep part of this allocation in conservative fixed-income assets like TIPS or short-duration bonds to match near-term medical bills while letting the rest grow.

Example:

A couple enters retirement with $1.6 million saved. They earmark $320,000 as their healthcare fund and split it into three segments:

• $70,000 in a short-term bond ladder to cover the next five years of premiums and out-of-pocket costs.
  
  
• $100,000 invested in TIPS to hedge against rising medical inflation.
  
  
• $150,000 in a Roth IRA for long-term flexibility, allowing tax-free withdrawals to cover unexpected prescriptions or supplemental insurance later in retirement.

This dedicated fund creates separation between daily living expenses and medical spending, reducing the risk of being forced to sell investments unexpectedly to pay for care.

Revisit and Adjust Regularly

Healthcare is not a static cost. Premiums, co-pays, prescription coverage, and even the structure of Medicare itself change from year to year. If you don’t revisit your plan regularly, you risk paying more than necessary or missing out on better coverage.

• Annual Medicare review: Every fall, use the open enrollment period to examine whether your current Medicare Advantage or Part D plan still makes sense. Formularies can drop or re-tier drugs, which may drastically raise costs. Networks also change, meaning your preferred doctor or hospital might not be included next year.
  
  
• Check supplemental coverage: If you have Medigap, review your premium increases and ensure the benefits still fit your healthcare usage. Some insurers raise premiums aggressively with age, making it worth comparing policies from other carriers.
  
  
• Financial advisor reviews: Regular planning sessions allow you to adjust assumptions for healthcare inflation, prescription costs, and long-term care. Advisors can also model how new regulations or income changes affect your Medicare premiums, particularly if IRMAA surcharges become a factor.
  
  
• Track your health usage: Compare what you expected to spend with what you actually spent in the past year. If your out-of-pocket costs are rising faster than anticipated, it may be time to allocate more from your retirement fund specifically toward medical needs.
  
  
• Stay aware of policy updates: Healthcare legislation and Medicare rules can shift. For instance, recent adjustments to insulin pricing and prescription drug negotiation rules show how quickly costs can change. Keeping current ensures you adapt before the changes hit your wallet.

Example:

A 73-year-old retiree initially budgeted $7,500 per year for healthcare at age 65. By reviewing her expenses annually, she noticed her costs rose steadily to $9,200 by age 72, largely due to prescription adjustments and rising Medigap premiums. During open enrollment, she switched to a new Part D plan that covered her cholesterol medication at a lower tier, saving $600 per year. Her financial advisor then updated her long-term projections using a 5.5 percent healthcare inflation rate instead of the 4 percent used previously. This raised her 20-year projection by nearly $80,000, allowing her to set aside more from her portfolio while she still had the flexibility to adjust.

Conclusion

Healthcare is one of the few costs in retirement that you can’t avoid. While you can’t predict every expense, you can prepare for it. By understanding how costs shift with age, factoring in the key drivers, and following specific planning steps, you’re helping yourself build a retirement plan that accounts for both lifestyle and care.

The earlier you start, the more options you’ll have. Make healthcare planning part of your retirement discussions now so you’re not forced to make difficult choices later.