Planning for healthcare costs in retirement means budgeting for more than Medicare premiums. You’ll need a line for out-of-pocket costs, a bridge plan if you retire before 65, and a separate strategy for long-term care. Build these costs into your retirement income plan early to keep them manageable.
Key Takeaways:
- Retiring before 65 can leave a coverage gap, and your household income can change what it costs.
- Medicare covers a lot, but not routine dental care, eye exams for glasses, hearing aids, or long-term custodial care.
- An HSA built during your working years can pay qualified medical bills tax-free in retirement.
Healthcare is one of the hardest retirement expenses to pin down. It depends on when you stop working, your coverage, your health, and how long you live in retirement.
Take Mike and Molly, a fictional Charlotte couple. Mike plans to retire at 62.
Molly is 3 years younger and wants to keep working. Their healthcare plan isn’t one timeline. It’s two.
The good news is that you can plan most of this. Separate the predictable costs (premiums) from the less predictable ones (medical bills and long-term care), and you can build both into your retirement income plan.
Retirement Healthcare Costs: What You Need to Plan For
Healthcare is more than a premium, so it deserves its own line in your budget.
Fidelity estimates a 65-year-old retiring in 2026 may need about $185,500 in after-tax savings, on average, to cover healthcare costs in retirement. That assumes Original Medicare with Part D and excludes long-term care.
Premiums are the visible part. Beneath them sit deductibles, copays, coinsurance, and prescriptions, plus routine dental, vision, and hearing care, like cleanings, glasses, and hearing aids, that Original Medicare generally doesn’t cover.
Couples should estimate each spouse separately. Different ages mean different Medicare start dates, coverage, and health needs. For Mike and Molly, that’s 3 years where one is on Medicare and the other isn’t.
Spending also shifts over time. A healthy 66-year-old and an 84-year-old with two chronic conditions won’t have the same bills, so one flat estimate tends to understate later years.
Healthcare Costs in Retirement Before Medicare
Retiring before 65 creates a temporary coverage gap that can be the most expensive stretch of retirement healthcare.
Options include a spouse’s employer plan, retiree coverage, COBRA, or an individual ACA Marketplace policy.
Look past the premium. Compare deductibles, networks, drug coverage, and the maximum out-of-pocket, which decides what a bad year costs.
This is where insurance and income decisions meet. Marketplace subsidies depend on your household’s modified adjusted gross income (MAGI).
The enhanced subsidies expired after 2025, so for 2026 coverage, income above 400% of the federal poverty level means no premium tax credit. For a 2-person household in the 48 contiguous states, that line is $84,600.
A Roth conversion or large IRA withdrawal in your early 60s can cost you subsidies, too.
Understand What Medicare Will and Will Not Pay For
Medicare becomes most retirees’ core coverage at 65, but it doesn’t make healthcare free.
Part A covers hospital stays. Part B covers doctor visits and outpatient care, with a standard 2026 premium of $202.90 a month and a $283 annual deductible. Part D covers prescriptions.
Medicare Advantage plans bundle coverage through a private insurer. With Original Medicare, a Medigap policy can fill many cost-sharing gaps. Our Medicare planning page covers enrollment in more detail.
Either way, budget for premiums, cost sharing, dental work, eye exams, glasses, and hearing aids.
Higher earners also pay IRMAA surcharges on Part B and Part D premiums, based on income from 2 years earlier. In 2026, surcharges start above $109,000 of MAGI for single filers and $218,000 for joint filers. That’s why tax planning and healthcare planning belong in the same conversation.
Account for Out-of-Pocket Exposure
Original Medicare has no annual out-of-pocket maximum for Part A and Part B on its own. Without supplemental coverage, a bad year has no ceiling.
Part D now caps your out-of-pocket costs for covered drugs at $2,100 for 2026. That cap applies only to drugs your Part D plan covers.
That’s why choosing between Medicare Advantage and Original Medicare with Medigap matters. Medicare Advantage plans must cap what you pay out of pocket for in-network Part A and Part B services, no higher than $9,250 in 2026. They often carry lower premiums, but they use networks and copays.
Medigap adds its own monthly premium, but most policies let you see any doctor or hospital that takes Medicare, anywhere in the U.S.
In my experience, the better fit depends on your health, your doctors, and how much variability you’re comfortable with.
One caution: if you try Medicare Advantage first, you generally have 12 months to switch back with a guaranteed right to buy Medigap. After that, in most states, insurers can use medical underwriting, so the first choice carries weight.
Review your Medicare Advantage or Part D plan each year during open enrollment, October 15 through December 7. Drug lists, networks, and premiums change. Open enrollment doesn’t give you a new right to buy Medigap.
Use HSAs and Other Assets Strategically for Healthcare
A Health Savings Account built while working can become your dedicated healthcare fund in retirement.
Contributions, including your employer’s, must stop once you enroll in any part of Medicare. Turning 65 alone doesn’t end eligibility, but claiming Social Security at 65 or later enrolls you in Part A automatically.
If you sign up after 65, Part A can start up to 6 months back, though never before the month you turned 65. Stop contributions before the month your Part A coverage will begin.
For 2026, the limit is $4,400 for self-only coverage or $8,750 for family coverage, plus a $1,000 catch-up at 55 and older.
In retirement, HSA withdrawals for qualified medical expenses are tax-free. After 65, that can include Medicare Part B and Part D premiums, though not Medigap premiums.
No HSA? Set aside a cash reserve or a specific account for healthcare, so a $4,000 dental bill doesn’t upend your spending plan.
Plan Separately for Long-Term Care
Long-term care belongs in its own bucket because the costs and coverage rules differ from ordinary medical expenses.
Medicare generally doesn’t pay for ongoing custodial care, meaning help with bathing, dressing, and eating. It may cover up to 100 days of skilled nursing care after at least 3 days as a hospital inpatient. Time under observation doesn’t count, and it won’t cover years of help.
The 2025 CareScout Cost of Care Survey put the national median for a private nursing home room at $129,575 a year.
Funding options include personal assets, traditional long-term care insurance, hybrid life or annuity policies, family resources, or Medicaid for those who meet its eligibility rules.
Each has trade-offs. Traditional policies can raise premiums later, and Medicaid generally requires spending down most assets.
The right mix depends on your assets, your family, where you’d want care, and how much risk you’re willing to keep.
Build Healthcare Into the Retirement Income Plan
Healthcare should be a line item in your income projections, not a surprise you handle later.
Good projections assume premiums and medical costs rise, and they allow for bigger out-of-pocket years. For Mike and Molly, the years Mike is on Medicare and Molly is on Marketplace coverage need their own math.
Income decisions ripple into healthcare costs. IRA withdrawals and Roth conversions can shrink your Marketplace subsidy before 65 and trigger IRMAA surcharges after. Because IRMAA looks back 2 years, a conversion at 63 can raise your Medicare premiums at 65.
Qualified HSA withdrawals don’t add to taxable income, so sequencing these sources is part of a coordinated financial plan.
Finally, build in enough cushion that a hard health year doesn’t derail your other goals.
Planning for Healthcare Costs in Retirement FAQs
1. How Much Should I Plan for Medical Expenses in Retirement?
Fidelity estimates a 65-year-old retiring in 2026 may need about $185,500 in after-tax savings, on average, not counting long-term care.
2. How Do People Afford Health Insurance When They Retire?
Before 65, the usual options are a spouse’s plan, retiree coverage, COBRA, or a Marketplace policy. With a Marketplace plan, managing your household income can lower premiums. After 65, most retirees pick between Original Medicare with a supplement and Part D, or a Medicare Advantage plan.
3. Does Medicare Cover All Healthcare Costs in Retirement?
No. Medicare has premiums, deductibles, copays, and coinsurance, and Original Medicare has no out-of-pocket cap for Parts A and B on its own.
4. What Healthcare Costs Does Medicare Not Cover?
Original Medicare generally doesn’t cover routine dental care, eye exams for glasses, hearing aids, or long-term custodial care. Some Medicare Advantage plans offer limited dental, vision, or hearing benefits.
5. Can I Use an HSA to Pay for Healthcare Expenses After I Retire?
Yes. Qualified medical withdrawals stay tax-free, including Medicare Part B and Part D premiums after 65. Non-medical withdrawals after 65 are taxed as ordinary income without the 20% penalty.
6. How Should I Plan for Long-Term Care Costs in Retirement?
Treat it separately from regular medical costs. Decide whether you’ll self-fund, buy traditional or hybrid coverage, or rely on Medicaid if you qualify, ideally in your 50s or early 60s, when you’re more likely to qualify for insurance.
Get Help Planning for Healthcare Costs in Retirement
Healthcare planning isn’t a single estimate. Coverage, premiums, taxes, and care needs shift throughout retirement.
A fiduciary advisor can build healthcare into your income projections, compare pre-Medicare coverage, plan around IRMAA, and decide which accounts pay for which expenses.
The goal is to make healthcare a planned part of your cash flow, so a medical bill is just a bill.
If you’d like help building that plan, schedule a complimentary consultation with our team.
Disclaimer: This article is for educational purposes only and isn’t individualized financial, tax, or legal advice. Medicare, HSA, and tax rules change, so confirm current figures before acting. Calamita Wealth Management is a fee-only fiduciary registered investment adviser.