Guide to Healthcare Costs in Retirement

Retirement is often a great time to travel and do the things you’ve been planning for years. You save and invest for multiple decades before deciding to retire and move into the next phase of your life. Unfortunately, it can be difficult to accurately plan for retirement expenses, which can cause a shift in your budget. One of these expenses that many don’t properly plan for is healthcare. With so many people retiring early, they retire before they become eligible for Medicare. Even if you plan appropriately, you may be surprised by how much your retirement healthcare costs.

Consult a financial advisor who can help you create a financial plan to prepare for these costs.

How Much Can Healthcare Cost in Retirement?

Failing to properly plan for healthcare costs in retirement can negatively impact your future quality of life.

The cost of healthcare is pinching the pocketbooks of today’s workforce who still need access to an employer-sponsored health plan. These plans typically cost much less than other health insurance options. Because of this, new retirees often struggle to pay the higher costs of post-retirement healthcare.

Indeed, healthcare costs have been on the rise over the past decade. Worse, they show no signs of slowing down, especially given recent inflation levels. According to Fidelity’s 2025 Retiree Health Care Cost Estimate, the average cost of healthcare in retirement is $172,500 for a 65-year-old. That’s a 4% increase from 2024.

A good estimate of what you’ll spend on healthcare in retirement is 15% of your income. If expected costs are more than 15% of your expected income, you will likely need to adjust your retirement budget.

Consider working with a financial advisor to prepare for these costs so they don’t spoil your golden years.

Types of Healthcare Coverage in Retirement

If you retire early, you won’t be eligible for Medicare yet. Therefore, you may need to combine multiple options throughout retirement.

You have several options for the type of healthcare coverage that you receive.

Medicare

Many people rely on this type of health insurance at traditional retirement age, as it is supplemented by the government. Many people make the mistake of thinking it won’t cost them anything, like Medicaid.

Still, this is likely to be the most affordable insurance coverage that you’ll have access to during retirement. Depending on the year and your income, you could pay between $200 and $600 per month in premiums.

Medicare plans also have a deductible, with certain expenses like hospital stays costing more.

Private Health Insurance

You can buy health insurance coverage directly from a broker. However, this will likely be your most expensive option when you retire between ages 60 and 90.

Many companies offer retiree-specific options, but these plans are generally focused on pre-Medicare-aged individuals. You will likely pay more than your current employer-sponsored plan since you won’t have a company subsidizing your insurance.

Employer-Sponsored Insurance

Many businesses have a retirement insurance plan for employees who have worked for them for a long time before retiring.

You can buy into this plan for something similar to what you received when working at the company. There may be some changes, however. For example, you may pay a little more in monthly premiums or accept less coverage for things like hospital stays.

Another option is to work part-time for a business that offers health insurance to part-time employees.

COBRA

When you retire, you can continue with your exact same insurance through your employer for up to 18 months through COBRA. ¹

Your premiums will increase because you’ll pay what you previously paid, plus the employer portion of your premium. This could be a good, though expensive, option to bridge the gap between retirement and Medicare eligibility.

Insurance Marketplace

Like the private health insurance option, you can buy a plan on the marketplace using a state or federal exchange when you are no longer covered or offered insurance.

These plans are typically a bit more affordable than buying private insurance. However, you have to pay close attention to what each plan covers and doesn’t before agreeing to buy.

If you don’t have a large amount of income, you may also qualify for tax credits to pay for coverage.

Insurance From a Spouse’s Workplace

If you’re older than your spouse and they are still working, you could access their health coverage. This could be beneficial when bridging the gap to Medicare, or cutting down total health costs temporarily until your spouse retires.

No matter what route you choose, there are no easy or ultra-affordable ways to pay for health coverage during retirement. It’s important to prepare for retirement by choosing the right investments to meet your future income needs.

How to Lower Healthcare Costs in Retirement

While healthcare is expensive, especially during retirement, there are still things you can do to lower your overall health costs.

Understand How Medicare Works

It’s important to get a good grasp on the various types of Medicare and how each applies to your situation.

You may not receive the most support when applying for Medicare. Therefore, it’s important that you know what type of coverage you need and how to cut costs when you can. Become familiar with qualification requirements so you can adequately prepare for the associated costs.

Have a Plan to Pay for Long-Term Care

Long-term care can be expensive, and the need for it can come along quite suddenly.

It can be expensive to get into a top-notch facility that preserves as much independence as possible. A lot of health insurance won’t cover long-term care even though most people over the age of 65 eventually need it. This includes many types of Medicare.

It’s important to put a plan in place in case you need to enter this type of facility. A private room at a facility providing full care averages almost $12,000 per month. Meanwhile, an assisted care facility can cost over $6,000 per month. ²

Open a Health Savings Account (HSA)

Health savings accounts (HSAs) can be an excellent way to accumulate funds solely for healthcare expenses.

If you currently have a high-deductible health plan, then you could qualify to contribute up to certain HSA limits annually. For 2026, the limits are $4,400 for yourself or $8,750 for a family plan.

By opening an HSA now, you can pay for unexpected health expenses now or keep rolling the funds over until retirement. This can give you quite a nest egg to draw on over 10 or 20 years. This can reduce how much of your retirement income goes toward your health.

Take Care of Your Health Now

The easiest way to lower future healthcare costs is to take care of your health now. Eat right and exercise regularly. These two things alone can make a world of difference during your retirement years.

Also, take advantage of your annual checkups with physicians under your current health insurance. Follow your doctor’s advice on how to live a healthy life now so you don’t pay for it later.

How to Budget for Healthcare Costs in Retirement

Healthcare is one of the few retirement expenses that does not follow a predictable monthly pattern. Premiums are relatively stable, but out-of-pocket costs for procedures, prescriptions and unexpected health events can vary significantly each year.

Making a retirement budget accounting for both fixed and variable components provides a more realistic picture of income requirements and healthcare costs.

Two Phases of Medicare

The starting point is separating retirement into two phases: the period before Medicare eligibility at 65 and the period after.

These two phases have very different cost profiles. Treating them as a single number yields a budget that’s too low in the early years and potentially overly conservative in later years.

Before Medicare

Before Medicare, you are responsible for the full cost of private insurance or marketplace coverage without the government Medicare subsidy. Depending on your age, health status and the plan you choose, monthly premiums for a single person in their early sixties can range from several hundred dollars to over a thousand.

This doesn’t account for deductibles, copays and any out-of-pocket maximums. Add those costs, and the annual cost of coverage in the pre-Medicare years can reach $15,000 to $25,000 or more for a couple, depending on how much care is needed in a given year.

After Medicare

After Medicare begins, costs drop but do not disappear.

Costs can still run $5,000 to $10,000 or more per year per person for the following coverage, depending on income and health needs.

• Medicare Part B premiums
• Part D prescription coverage
• Medigap supplemental policy
• Out-of-pocket expenses

Higher earners pay more through the IRMAA surcharge. This adjusts Medicare premiums based on income reported two years prior.

Using Buckets

A practical budgeting approach is to estimate costs in these three buckets.

• Premiums
• Predictable out-of-pocket costs, including regular prescriptions and routine care
• Reserve for unexpected expenses

Having a reserve matters because a single hospitalization not covered by Medicare can cause a cost spike in a single year that a flat monthly budget may not easily absorb.

Estimating Healthcare Savings

To estimate your monthly savings target, start with your expected annual healthcare costs in each phase and work backward.

Say you plan to spend $20,000 per year on healthcare during five pre-Medicare years. You also plan to spend $12,000 per year for 20 years after Medicare begins. The total comes to $340,000 ($20,000 x 5 = $100,000 plus $12,000 x 20 = $240,000).

Divide that by the number of working years remaining to find a rough annual savings target. Then, adjust for investment growth on those savings over time.

Tax Considerations

An HSA is the most tax-efficient vehicle for building that reserve.

There are three key benefits.

• Contributions reduce taxable income.
• The balance grows without annual taxation.
• Withdrawals for qualified medical expenses carry no federal tax liability.

Maximizing HSA contributions during working years and investing the balance rather than spending creates a dedicated healthcare reserve separate from general retirement savings. It is then available tax-free when costs arrive.

Long-term care is the largest wildcard in a retirement healthcare budget. Medicare does not cover most long-term care expenses. The cost of a private room in a nursing facility exceeds $100,000 per year in many markets.

There are a few critical decisions that significantly affect your overall budget.

• Deciding whether to self-insure against the risk of long-term care
• Purchase a long-term care insurance policy
• Use a hybrid life insurance product with long-term care benefits

Therefore, it is best to make this decision well before the need arises.

How Healthcare Costs Differ if You Retire Early

Retiring before 65 introduces a healthcare cost challenge that most retirement projections underestimate.

The years between leaving work and Medicare eligibility are among the most expensive for healthcare coverage. This gap can materially affect whether an early retirement is financially sustainable.

Type of Plan

Without employer-sponsored insurance or Medicare, early retirees typically fill the gap with COBRA, marketplace plans or a spouse’s employer plan.

COBRA allows you to keep your existing employer coverage for up to 18 months ³ . However, you pay both the employee and employer portions of the premium, plus an administrative fee. For a couple, that can add up to $2,000 or more per month, depending on the plan.

Marketplace plans may be more affordable, depending on your income in early retirement. Subsidies are based on projected income. Therefore, early retirees who draw down savings carefully can sometimes qualify for meaningful premium assistance.

Strategically managing withdrawals from taxable accounts, Roth accounts and traditional retirement accounts can keep reported income below the subsidy phase-out thresholds. This can significantly reduce the effective cost of marketplace coverage.

Length of Care

The critical planning variable for early retirees is the length of the pre-Medicare gap.

Someone who retires at 60 faces five years of private coverage costs before Medicare begins. Assume an average of $15,000 to $20,000 per year for a couple. That gap alone could represent $75,000 to $100,000 in healthcare spending before Medicare kicks in.

Someone retiring at 62 faces three years. Meanwhile, someone retiring at 64 faces only one. The difference in total cost between those scenarios is large enough that healthcare coverage should be modeled explicitly as part of any early retirement decision rather than treated as a footnote to the overall budget.

Bottom Line

One of the largest expenses in retirement is paying for your own healthcare. Estimates suggest that you could end up spending 15% or more of your annual income on your health. Therefore, it’s important to prepare your finances as early as possible so your budget works without sacrificing your retirement goals. There are things you can do now and during retirement that can cut overall costs or provide the extra cash you need to cover them.

Tips for Retirement

• Retirement can be a very exciting time, but you’ll want to make sure you’ve planned for all potential costs as you’re saving and investing. A financial advisor is trained to provide you with a proper financial plan that meets your goals. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Not sure how much money you’re going to need in retirement? You can use SmartAsset’s retirement calculator to estimate how much to save so that you aren’t caught off-guard when the healthcare expenses roll in.

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