Healthcare Costs in Retirement: How to Estimate and Plan for the Unknown

Table of Contents

• The $315,000 Number — What It Means and What It Doesn’t
• The Pre-65 Healthcare Gap: Five Years on Your Own
• Medicare Costs Breakdown: What You Will Actually Pay
• What Medicare Doesn’t Cover (The Expensive Surprises)
• Healthcare Inflation: Why the Math Gets Harder Every Year
• The HSA Advantage: Your Best Pre-Retirement Healthcare Tool
• Building a Healthcare Reserve Separate from Your Portfolio
• The Long-Term Care Wild Card
• The Early Retirement Healthcare Bridge: Age 55 to 65
• Healthcare Cost Estimation Worksheet
• Key Takeaways
• Frequently Asked Questions

Every year, Fidelity Investments publishes a retiree health care cost estimate that gets passed around financial planning circles — and consistently shocks the people seeing it for the first time. The 2025 estimate: a 65-year-old couple retiring today will need approximately $315,000 in savings to cover healthcare costs throughout retirement.

That number is after Medicare. After premiums, copays, and deductibles. It does not include long-term care. It does not include dental work, hearing aids, or eyeglasses.

After nearly 20 years studying how retirees actually budget, I can tell you that healthcare expenses are the number one thing people underestimate. Not investment returns. Not inflation on groceries. Healthcare. It arrives every year, it grows faster than general inflation, and it is not optional.

The good news: healthcare in retirement is plannable. You may not know exactly what your costs will be, but you can build a realistic range, create a dedicated funding strategy, and stop hoping this one takes care of itself. That is what this guide is for.

The $315,000 Number — What It Means and What It Doesn’t

The Fidelity estimate gets misread in both directions. Some people see it and panic. Others assume it must include something catastrophic and dismiss it as a worst-case scenario. Neither reaction is quite right.

Here is what the $315,000 figure includes:

• Medicare Part B premiums — the standard monthly premium that all Medicare beneficiaries pay for physician and outpatient coverage
• Medicare Part D premiums — prescription drug coverage
• Medicare supplement or Medicare Advantage premiums — coverage to fill the gaps in original Medicare
• Copays, coinsurance, and deductibles across all Medicare-covered services
• Out-of-pocket costs for prescription drugs not fully covered under Part D

Here is what it does NOT include:

• Long-term care — nursing home, assisted living, home health aide, or memory care costs (we will come back to this)
• Dental care — routine cleanings, crowns, implants, or dentures
• Vision care — eye exams, prescription glasses, or contact lenses
• Hearing aids — which can run $3,000 to $7,000 per set and are not covered by Medicare
• Over-the-counter medications — a real line item that adds up over decades

The $315,000 figure also assumes both members of the couple live to average life expectancy. A longer-lived spouse will spend more. Someone with a chronic condition — diabetes, heart disease, COPD — will likely spend more than average. A single retiree should plan for roughly $157,000 to $165,000 individually, though women statistically live longer and face higher lifetime costs.

The projection uses a net present value calculation, meaning it accounts for the fact that you are investing these funds and earning returns while also drawing them down over time. It is not a pile of cash you need the day you retire — it is what you need to have earmarked and growing.

Thomas’s Take: The $315,000 number is genuinely useful as a benchmark, but treat it as a floor, not a ceiling. Thomas’s Take: The $315,000 number is genuinely useful as a benchmark, but treat it as a floor, not a ceiling. Retirees with prescription-heavy conditions, a preference for Medigap over Medicare Advantage, or a family history of longevity should plan for more. A more conservative starting point for couples is $350,000 to $400,000 — before any individualized adjustments for actual health history.

The Pre-65 Healthcare Gap: Five Years on Your Own

Medicare eligibility begins at age 65. Full stop. There is no exception for early retirees, and there is no public option for the gap years. If you retire at 60, you need five years of coverage that has nothing to do with Medicare.

This is the planning problem that catches people most off guard — especially those who spent their careers with employer-sponsored health insurance and have never had to shop for coverage independently.

Your options for the pre-65 gap:

COBRA continuation coverage. When you leave an employer, you can typically continue your employer’s health plan for up to 18 months under COBRA. The catch: you now pay the full premium — both the employee share you were paying and the employer share your company was covering. The average employer-sponsored family plan costs about $24,000 per year in total premiums; COBRA means you pay all of it, plus a small administrative fee. COBRA buys you time, but it is expensive and it runs out.

ACA Marketplace plans. Once you separate from employer coverage, you can enroll in a plan through HealthCare.gov outside of the standard open enrollment window. At 60, 62, or 64, you are likely looking at Silver or Gold tier plans. A critical planning note: your ACA premium subsidies are tied to your income. Retirees who manage their taxable income carefully — drawing from Roth accounts, managing portfolio distributions — can qualify for significant premium tax credits that make marketplace plans surprisingly affordable. This is one of the most important coordinations between healthcare planning and tax planning, and it deserves explicit modeling rather than guesswork.

Spouse’s employer plan. If your spouse is still working and has employer-sponsored coverage that includes dependents, this is almost always the most cost-effective option. Losing your own coverage is a qualifying event that allows mid-year enrollment on a spouse’s plan.

Health sharing ministries. These are not insurance — they are cost-sharing arrangements through faith-based organizations where members contribute monthly amounts that are pooled to pay members’ eligible medical expenses. They are significantly less expensive than ACA plans but come with meaningful limitations: they typically exclude pre-existing conditions, apply sharing limits, and have less predictable reimbursement. I mention them because clients ask, but they are not appropriate for everyone and require careful vetting.

The fundamental planning principle: budget for at least $12,000 to $20,000 per year per person for pre-65 coverage, depending on your health status, desired plan quality, and ability to manage income for ACA subsidies. For a couple retiring at 60, that is potentially $120,000 to $200,000 in healthcare spending before Medicare even starts.

Medicare Costs Breakdown: What You Will Actually Pay

Medicare is excellent health insurance — I want to be clear about that. But it is not free, and understanding its cost structure helps you plan accurately.

Part A (Hospital Insurance) Most people receive Part A premium-free if they or their spouse paid Medicare taxes for at least 10 years (40 quarters) of work. However, Part A still has a deductible — $1,676 per benefit period in 2025 — and it does not have an out-of-pocket maximum.

Part B (Medical Insurance) Part B covers physician visits, outpatient services, preventive care, and durable medical equipment. The standard 2025 premium is $185.00 per month per person ($2,220/year). That number increases annually — it was $164.90 in 2023 and $174.70 in 2024. Budget for it to continue rising.

Part B also has an annual deductible ($257 in 2025) and typically covers 80% of approved costs, leaving you with 20% coinsurance — with no cap.

Part D (Prescription Drug Coverage) Part D premiums vary significantly by plan and drug formulary. National averages run approximately $40 to $60 per month, but costs depend heavily on your specific medications. The Medicare Plan Finder at Medicare.gov is the best tool for comparing Part D plans based on your actual drug list.

Medigap (Medicare Supplement) vs. Medicare Advantage This is one of the most significant cost decisions in Medicare planning, and I have written a full comparison at Medigap vs. Medicare Advantage. The short version:

• Medigap (also called Medicare Supplement) wraps around Original Medicare and covers the cost-sharing gaps — the 20% coinsurance, deductibles, and copays. Plan G, the most popular comprehensive option, typically runs $150 to $250 per month in your first year of eligibility. Your total cost is predictable but higher in premium dollars.
• Medicare Advantage (Part C) is an all-in-one alternative that often comes with $0 or low premiums but charges copays each time you use services. Costs can be lower for healthy retirees who rarely use care, but they can escalate significantly if you have ongoing medical needs.

IRMAA: The High-Income Medicare Surcharge If your income exceeds certain thresholds, you pay more for Part B and Part D. These surcharges — called IRMAA, or Income-Related Monthly Adjustment Amounts — are applied based on your income from two years prior. In 2025, single filers with MAGI above $106,000 and joint filers above $212,000 begin paying IRMAA surcharges that can push Part B premiums from $185/month to over $600/month per person.

IRMAA is a major retirement income planning consideration, and I have written a detailed guide on how it works and how to manage it at IRMAA Medicare Surcharge in Retirement.

Pro Tip: Medicare enrollment has strict timing rules — missing your initial enrollment window can result in permanent premium penalties for Part B and Part D. If you are approaching 65, review your enrollment deadlines now. My guide on Medicare Enrollment Deadlines and Penalties walks through every window and what happens if you miss it.

What Medicare Doesn’t Cover (The Expensive Surprises)

Many retirees discover Medicare’s gaps only when they get the bill. Here is what Original Medicare does not cover:

Dental care. Medicare has no dental benefit. No cleanings, no fillings, no root canals, no crowns, no dentures, no implants. At a stage of life when dental issues tend to compound — older teeth, receding gums, dry mouth from medications — this is a significant out-of-pocket exposure. A single crown runs $1,200 to $1,800. An implant, $3,000 to $5,000. Full-mouth restorations can reach $30,000 to $50,000.

Some Medicare Advantage plans include limited dental benefits, which is one reason people choose them. Standalone dental plans for seniors are available and are worth comparing through your state’s insurance marketplace. Budget $1,500 to $3,000 per year for dental expenses.

Vision care. Routine eye exams and corrective lenses are not covered under Original Medicare (though Medicare does cover treatment for eye diseases like cataracts or glaucoma under Part B). Prescription glasses average $300 to $600 per pair. Budget approximately $400 to $700 per year.

Hearing aids. The average hearing aid costs $2,300 to $3,500 per device — and most people need two. The average lifespan of a hearing aid is three to five years. Medicare Advantage plans are increasingly including limited hearing benefits, but Original Medicare covers nothing. Budget accordingly.

Most long-term care. Discussed in detail below, but the headline: Medicare covers skilled nursing facility care only for up to 100 days after a qualifying hospital stay, under specific conditions. It does not cover custodial care — the assistance with daily activities that makes up the bulk of what people need when age or illness limits their independence.

Overseas medical care. Generally not covered. If you plan to travel extensively in retirement — or live abroad for periods — international travel health insurance or expatriate health coverage deserves a line in your budget.

Healthcare Inflation: Why the Math Gets Harder Every Year

General inflation — the CPI number you see reported in the news — has averaged around 2.5% to 3% over long historical periods. Healthcare inflation is a different story.

Medical costs have historically increased at 5% to 7% per year — roughly double the general inflation rate. That gap matters enormously over a 20- or 30-year retirement. A healthcare expense that costs $10,000 per year today costs:

• $16,300 in 10 years at 5% inflation
• $26,500 in 10 years at 10% inflation (if the historical pattern accelerates)
• $43,200 in 20 years at 5% inflation

Healthcare inflation is driven by several compounding forces: aging demographics increasing demand for services, pharmaceutical pricing dynamics, hospital consolidation reducing competitive pressure on pricing, and the increasing cost of new medical technologies that extend life but carry significant price tags.

For retirement planning purposes, I project healthcare costs at 5% annual inflation as a baseline assumption — and I stress-test plans at 6.5% for clients who want to see a conservative scenario. This is meaningfully different from how most general retirement budgets are built, where 3% inflation across all categories gets applied uniformly.

The practical implication: your healthcare budget in your late 70s and 80s may be two to three times what it is in your early retirement years — both because of inflation and because utilization typically increases with age.

Thomas’s Take: Thomas’s Take: When readers push back on healthcare projections with ‘we’re really healthy,’ I don’t disagree. But healthy 65-year-olds still pay Medicare premiums, still need dental work, still pick up prescriptions. And the statistical probability of a significant health event rises every decade after 65. Plan for the cost. If you don’t use all of it, that money goes to your heirs or your legacy. But healthy 65-year-olds still pay Medicare premiums, still need dental work, still pick up prescriptions. And the statistical probability of a significant health event rises every decade after 65. Plan for the cost, hope you don’t use all of it — and if you don’t, that money goes to your heirs or your legacy.

The HSA Advantage: Your Best Pre-Retirement Healthcare Tool

If you are still working and have access to a High Deductible Health Plan (HDHP), a Health Savings Account is one of the most powerful tools in retirement healthcare planning. The HSA offers what is often called a triple tax advantage:

1. Contributions are tax-deductible (or pre-tax if made through payroll)
2. Growth is tax-free inside the account
3. Withdrawals are tax-free when used for qualified medical expenses

In 2025, the contribution limits are $4,300 for individual coverage and $8,550 for family coverage, with an additional $1,000 catch-up contribution for those 55 and older.

The key to maximizing an HSA for retirement is to treat it as an investment account rather than a spending account during your working years. If you can afford to pay current medical expenses out of pocket and leave your HSA untouched, the account grows tax-free for decades. At 65, any withdrawal for qualified medical expenses — including Medicare premiums, out-of-pocket costs, dental, vision, hearing, and long-term care premiums — comes out completely tax-free.

After age 65, HSA funds can also be withdrawn for non-medical purposes, with the withdrawal taxed as ordinary income — essentially the same treatment as a traditional IRA. This makes the HSA function as a bonus retirement account with no downside.

Important HSA and Medicare timing note: You cannot contribute to an HSA once you are enrolled in Medicare. If you plan to delay Medicare enrollment (because you have employer coverage past 65), be aware of the coordination rules — and once you do enroll in Medicare, even retroactively, you must stop HSA contributions. The Medicare.gov enrollment guides cover the timing rules.

For someone who maximizes HSA contributions for 15 to 20 working years, invested in a diversified portfolio, the account can realistically grow to $150,000 to $300,000 or more — a significant dedicated healthcare reserve built entirely with pre-tax dollars.

Building a Healthcare Reserve Separate from Your Portfolio

One of the practical mistakes I see in retirement planning is treating healthcare as just another line item in the overall budget — to be funded alongside groceries and travel and home maintenance from the same pool of assets. There is a better approach.

The healthcare reserve strategy involves earmarking a separate allocation within your retirement portfolio specifically designated for healthcare expenses. This does several things:

• It makes healthcare costs psychologically and financially explicit rather than buried in a general withdrawal rate
• It can be invested at an appropriate risk level — moderate, not aggressive, since you may need it on a defined timeline
• It prevents healthcare costs from cannibalizing the rest of your portfolio in years when a large medical expense hits
• It gives you a clear benchmark to monitor: is this allocation tracking at the pace I projected?

How much to earmark?

A reasonable starting framework for a couple:

These are rough ranges, not predictions. Your actual target depends on your health status, plan selections, income level (IRMAA exposure), and whether you are planning for long-term care within this bucket or separately.

Pro Tip: If you have a large HSA balance, it counts toward your healthcare reserve and is the most tax-efficient portion of it. Stack HSA funds first, then Roth IRA funds (which can cover healthcare in retirement tax-free), then taxable accounts. Traditional IRA or 401(k) withdrawals for healthcare costs are subject to ordinary income tax — they work, but they are the least efficient option.

For more on building a full retirement budget that accounts for healthcare alongside other expenses, see my guide on Building a Retirement Budget That Actually Works.

The Long-Term Care Wild Card

No guide on retirement healthcare costs is complete without addressing long-term care — because it is the expense that can dwarf everything else.

The Fidelity $315,000 estimate explicitly excludes long-term care costs. That is not an oversight — it is because long-term care is a separate planning problem with a different risk profile. Someone turning 65 today has a nearly 70% probability of needing some form of long-term care before they die, according to data from the Administration for Community Living. The average cost of a nursing home private room nationally exceeds $108,000 per year.

I have written a comprehensive guide to long-term care planning at Long-Term Care Insurance: When to Buy, What to Know, and Alternatives. The full analysis of traditional LTC insurance, hybrid life/LTC policies, self-insuring strategies, and Medicaid planning as a last resort is there.

The headline for this article: long-term care costs need to be planned for separately from your general healthcare reserve. They are larger, more uncertain, and more likely to be concentrated in a single period at the end of life. Whether you address them through insurance, a dedicated self-insure fund, hybrid policies, or a combination, this decision belongs in your retirement plan — it should not be an afterthought.

The Early Retirement Healthcare Bridge: Age 55 to 65

Early retirement is a goal for many of the readers I write for. It is entirely achievable — but healthcare is often the expense that makes or breaks the math.

Let me walk through a realistic example.

Scenario: Married couple, both age 55, plan to retire with $2.5M in assets.

They need 10 years of private healthcare coverage before Medicare eligibility at 65.

• Years 1–18 months: COBRA at approximately $2,200/month = ~$39,600 for 18 months
• Years 18 months – 10 years: ACA Marketplace Silver plans. At 55 with no income from wages, they can manage MAGI carefully to qualify for premium tax credits. Conservatively, $1,500 to $2,500/month for a family plan = $18,000 to $30,000/year for 8.5 years = roughly $153,000 to $255,000

That is $192,600 to $294,600 before Medicare even starts — and that is not including deductibles, copays, dental, vision, or any medications.

At $2.5M, those costs represent 7.7% to 11.8% of total assets consumed before traditional retirement healthcare costs begin. This is why for early retirement planning, healthcare belongs at the top of the model — not as the last line item before everything else is locked in.

Income management strategies for the ACA bridge years:

• Draw primarily from Roth accounts (not counted as income for ACA subsidy purposes) in early retirement
• Minimize Roth conversions in years when you want to maximize ACA subsidies
• Keep taxable portfolio dividends and capital gains distributions in check through tax-efficient fund selection
• Time any large taxable events (property sales, large Roth conversions) with awareness of the ACA cliff — the income level above which subsidies phase out sharply

Healthcare Cost Estimation Worksheet

Use the following framework to build a rough annual healthcare cost estimate for your situation. This is not a precise calculation — it is a starting structure you can refine with your advisor.

Step 1: Determine Your Coverage Phase

• Still working with employer coverage: Minimal out-of-pocket for now; focus on maximizing HSA contributions
• Pre-65, self-funded coverage: Estimate ACA or COBRA costs using the ranges in the section above
• 65+, on Medicare: Use Steps 2–4 below

Step 2: Estimate Your Annual Medicare Costs

Step 3: Estimate Out-of-Pocket Costs

Step 4: Add It Up and Project Forward

A reasonable rule of thumb: multiply your estimated annual Medicare-era healthcare costs by 15 to 20 to get a rough lifetime reserve figure (accounting for inflation and investment growth). For many couples, this math lands between $300,000 and $450,000.

Key Takeaways

• The $315,000 Fidelity estimate is a floor. It covers Medicare premiums, copays, and prescription drug costs for an average couple — but excludes long-term care, dental, vision, and hearing. Real-world costs for many retirees will exceed this figure.
• Early retirement is a healthcare planning event. If you retire before 65, you need a dedicated strategy for bridging to Medicare — COBRA runs out in 18 months, ACA plans are available but require income management for subsidy eligibility, and costs can total $150,000 to $300,000 before Medicare starts.
• Healthcare inflation runs 5–7% annually, roughly double general CPI, meaning your healthcare budget in your late 70s and 80s may be two to three times what it is at 65. Project accordingly.
• The HSA is the most tax-efficient healthcare planning tool available. If you are eligible, maximize contributions, invest them for growth, and preserve the balance for retirement healthcare spending.
• Long-term care costs are separate from — and in addition to — the $315,000 estimate. They require their own planning strategy. See the Long-Term Care Insurance Guide for a full analysis.

Frequently Asked Questions

How much should I budget for healthcare in retirement each year?

For a couple on Medicare with standard coverage (Original Medicare plus a Medigap Plan G), a realistic baseline is $12,000 to $18,000 per year in total healthcare spending — including premiums, out-of-pocket costs, dental, vision, and hearing. That figure grows at approximately 5% per year due to healthcare inflation, and it does not include long-term care. High earners subject to IRMAA surcharges should budget $18,000 to $25,000 or more. A single retiree should plan for 55–65% of the couples estimate.

Does Medicare cover dental, vision, and hearing?

Original Medicare covers none of these. Part A and Part B focus on hospital stays, physician services, and outpatient medical care. Some Medicare Advantage plans include limited dental, vision, and hearing benefits — this is one of the primary reasons clients choose Advantage plans over Original Medicare with a Medigap supplement. However, the coverage depth varies enormously by plan. Always review the specific benefits before enrolling. For a detailed comparison, see Medigap vs. Medicare Advantage.

Can I use my IRA or 401(k) to pay for healthcare in retirement?

Yes — withdrawals from traditional IRAs and 401(k) accounts can be used for any expense, including healthcare. There is no special tax treatment for healthcare withdrawals from these accounts; they are taxed as ordinary income. The more tax-efficient approach is to use HSA funds first (tax-free for qualified medical expenses), then Roth IRA funds (tax-free after age 59½ assuming the five-year rule is met), and taxable accounts next. Traditional IRA/401(k) withdrawals for healthcare work — they are simply the least tax-efficient option in the hierarchy.

What happens to my healthcare coverage if I retire at 62?

Retiring at 62 means you are three years from Medicare eligibility. You have several coverage options: COBRA from your former employer (up to 18 months), an ACA Marketplace plan through HealthCare.gov, coverage through a spouse’s employer plan if applicable, or less conventional options like health sharing ministries. The most important planning move for a 62-year-old retiree is understanding how your income in those three years affects ACA subsidy eligibility — managed correctly, you may qualify for significant premium tax credits that make marketplace coverage far more affordable than most people expect.

Healthcare costs in retirement are one of the most under-modeled line items in the average plan — but they don’t have to be a guessing game. Treat them as a modeled, funded, year-by-year projection, not an afterthought or a round number. New TCA posts arrive weekly — sign up at the bottom of this page if you’d like more on the modeling side of retirement planning.

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This article is published by Confluence Media Group LLC, an independent publisher of educational financial content. Thomas Clark is a Series 65 Investment Advisor Representative. The information provided is for educational and informational purposes only and is not personalized financial, tax, or legal advice. Past performance does not guarantee future results. All investing involves risk, including potential loss of principal. Consult a qualified professional before making financial decisions.

Confluence Media Group LLC is a separate entity from Confluence Capital Management, the investment advisory practice through which Thomas Clark provides advisory services. Advisory services are not offered through this publishing platform.

Thomas Clark

Thomas Clark is a Series 65 licensed investment advisor and experienced trader. He specializes in investing, retirement planning, and market analysis, helping individuals build wealth and make informed financial decisions.