How Much Will Healthcare Cost in Retirement? A Realistic Estimate

Healthcare is consistently the expense retirees underestimate most. You plan for housing, food, and travel — but healthcare has a way of consuming far more of a retirement budget than expected.

Fidelity’s 2024 estimate: a 65-year-old couple retiring today will need approximately $330,000 in today’s dollars to cover healthcare expenses throughout retirement, not counting long-term care. That’s a sobering number, and it deserves a detailed breakdown.

This guide explains what’s included, what’s excluded, and how to build a realistic healthcare budget for your specific situation.

Why Healthcare Costs Are Hard to Predict

Three things make retirement healthcare costs unusually difficult to estimate:

1. Longevity uncertainty — the longer you live, the more you spend. A 65-year-old has roughly a 50% chance of reaching 85 and a 25% chance of reaching 90.
2. Medicare premium volatility — Medicare Part B premiums have risen about 5–7% per year on average over the past decade. Standard projections often undercount this.
3. The long-term care wildcard — roughly 70% of people over 65 will need some form of long-term care. The costs are enormous and largely excluded from Medicare.

The Four Buckets of Retirement Healthcare Spending

Bucket 1: Medicare Premiums

Part B (Medical Insurance)

The 2025 standard Part B premium is $185.00/month per person. For a couple, that’s $370/month or $4,440/year — before any adjustments.

If your income exceeds certain thresholds, you’ll pay more due to IRMAA surcharges. In 2025:

Roth conversions, RMD income, and capital gains all count toward IRMAA income. Failing to plan for IRMAA can cost a couple an extra $1,700–$9,700 per year.

Part D (Prescription Drug Coverage)

Average Part D premiums range from $0 to $100+/month depending on the plan and your drugs. Part D also has an IRMAA surcharge ranging from $13.70 to $86.80/month per person in 2025.

The biggest Part D change: starting in 2025, out-of-pocket drug costs are capped at $2,000/year under the Inflation Reduction Act. This is a major improvement for people with expensive medications.

Medigap or Medicare Advantage

Original Medicare alone covers roughly 80% of approved medical costs — you’re responsible for the rest with no annual out-of-pocket limit. Most retirees add either:

• Medigap (Medicare Supplement): Private policies that fill the gaps. Plan G premiums typically range from $100–$200/month at age 65, rising with age. By 80, premiums of $250–$350/month are common.
• Medicare Advantage (Part C): Plans often have $0 premiums but include copays and out-of-pocket maximums. The statutory maximum in 2025 is $8,850 for in-network care.

See our detailed cost comparison of Medigap vs. Medicare Advantage for scenario-based analysis.

Bucket 2: Out-of-Pocket Medical Costs

Even with solid coverage, you’ll face ongoing out-of-pocket costs:

• Part A deductible: $1,676 per benefit period in 2025 (per hospital stay, not per year)
• Part B deductible: $257/year (2025)
• Copays and coinsurance: Under Original Medicare, you pay 20% of Part B costs after the deductible
• Specialist visits, procedures, labs: Even with Medigap, ancillary costs accumulate

A reasonable estimate for a healthy couple with Medigap Plan G: $3,000–$6,000/year in out-of-pocket costs beyond premiums. This rises with age and health status.

Bucket 3: Dental, Vision, and Hearing

Original Medicare covers almost none of this. No routine dental. No glasses or contacts. No routine hearing exams or hearing aids.

These costs are larger than most people expect:

• Dental: Cleanings, X-rays, crowns, bridges, implants. A realistic annual budget: $500–$2,000 for routine care; a major procedure (implant, crown) can run $1,500–$5,000.
• Vision: Glasses or contacts every 1–2 years: $200–$600. Cataract surgery (often Medicare-covered for the procedure, but not premium lenses): $1,000–$4,000/eye for upgraded lens implants.
• Hearing: OTC hearing aids now start around $1,000–$1,500/pair. Prescription hearing aids: $3,000–$7,000/pair. They typically need replacement every 5–7 years.

Budget estimate for dental, vision, and hearing: $1,500–$3,500/year on average, more if you have significant dental needs.

See our guide on Medicare dental, vision, and hearing coverage gaps for plan options.

Bucket 4: Long-Term Care

This is the wildcard that breaks retirement budgets.

What Medicare covers: Very limited. Medicare covers up to 100 days of skilled nursing facility care after a qualifying hospital stay (with significant daily copays after day 20). It does not cover custodial care — help with bathing, dressing, eating, or managing medications.

What long-term care actually costs (2024 national averages):

The average care need is about 2.5 years, but 20% of people need more than 5 years. The financial exposure can easily exceed $300,000–$500,000 for extended care.

Options to address long-term care risk:

• Long-term care insurance: Standalone or hybrid life/LTC policies
• Self-insurance: Enough assets to absorb the cost without derailing a spouse’s retirement
• Medicaid planning: Requires spending down to very low asset levels; complex and state-dependent
• Reverse mortgage: Home equity as a last-resort funding source

Lifetime Estimates by Health Scenario

The following estimates assume a single person retiring at 65, living to 85 (20 years), with Original Medicare + Medigap Plan G:

Scenario 1: Healthy retirement

• Annual healthcare spending: $8,000–$12,000/year
• Lifetime total (20 years, inflation-adjusted): $200,000–$280,000
• Long-term care: minimal or none

Scenario 2: Moderate health needs

• Annual healthcare spending: $12,000–$18,000/year
• Lifetime total: $280,000–$400,000
• Long-term care: 1–2 years, home care

Scenario 3: Significant health challenges

• Annual healthcare spending: $20,000–$30,000/year
• Lifetime total: $450,000+
• Long-term care: 3–5 years in assisted living or skilled nursing

For a couple, roughly double these figures — and plan for the possibility that one spouse outlives the other by a decade, carrying solo healthcare costs.

How Healthcare Costs Interact with Your Tax Plan

Healthcare costs aren’t just expenses — they’re part of your tax strategy.

Medical expense deduction: You can deduct medical expenses exceeding 7.5% of AGI. In high healthcare-cost years, this can create meaningful deductions — but only if you itemize.

HSA assets: If you have a Health Savings Account and are transitioning to Medicare, your accumulated HSA balance can pay Medicare premiums tax-free (except Medigap), Part D costs, dental, vision, hearing, and other qualified medical expenses. HSA assets are among the most tax-efficient funds to earmark for healthcare.

IRMAA management: Your Part B and D premiums in retirement are determined by your MAGI two years prior. Careful Roth conversion planning and retirement tax strategy can keep you below IRMAA thresholds, saving thousands per year.

Qualified Charitable Distributions (QCDs): Required Minimum Distributions that go directly to charity count as QCDs and reduce your MAGI — which means lower IRMAA tiers and potentially lower healthcare premiums.

How to Build Your Personal Healthcare Budget

Don’t use the Fidelity average as your number. Build a personalized estimate:

Step 1: Calculate your base premiums

• Part B: Start with $185/month, adjust for IRMAA if income may exceed $212,000 MAGI
• Part D: Average $30–$50/month for standard plans
• Medigap: Get real quotes at age 65 (HealthMarkets, eHealth, your state’s SHIP)
• Or if choosing Medicare Advantage: $0–$50/month premium, but model the out-of-pocket maximum

Step 2: Add out-of-pocket and ancillary costs

• Budget $2,000–$4,000/year for out-of-pocket costs
• Budget $1,500–$3,000/year for dental, vision, hearing

Step 3: Stress-test for IRMAA

• Run your projected income (Social Security, RMDs, investment withdrawals, Roth conversions) against IRMAA thresholds
• If you’re near a bracket boundary, it may be worth converting to Roth earlier to reduce future IRMAA

Step 4: Plan for long-term care separately

• Don’t build LTC costs into your annual healthcare budget — they’re lumpy and unpredictable
• Instead, decide whether you’ll purchase LTC insurance, self-insure, or rely on a combination
• If self-insuring, earmark $200,000–$500,000 per person in your asset allocation for this purpose

Step 5: Inflation-adjust

• Healthcare inflation runs 4–6% per year — faster than general inflation
• A $15,000/year healthcare budget in 2025 grows to roughly $22,000 by 2035 at 4% inflation

The Bottom Line

For most retirees, healthcare will be the second-largest expense after housing — and potentially the largest in the final decade of life. The components:

Long-term care is on top of this, potentially adding $50,000–$120,000/year for several years.

The retirees who handle this best are those who planned for it explicitly: earmarked assets, built a tax-efficient withdrawal strategy, and made deliberate decisions about coverage — not those who simply hoped healthcare would work out.