When planning for retirement, most people focus on the “big stuff”: How much savings is enough? When should I take Social Security? Do I need to downsize my home?
But there’s one crucial item that many retirees underestimate—or overlook entirely: healthcare costs.
And that mistake can be costly.
Healthcare is one of the largest expenses you’ll face in retirement, and if you don’t prepare for it, it can quickly derail even the best-laid retirement plans. From Medicare premiums and out-of-pocket expenses to the staggering cost of long-term care, healthcare deserves a front-row seat in your financial planning.
Let’s take a closer look at why healthcare costs can be such a budget buster—and what you can do now to avoid painful surprises later.
The Sticker Shock of Retirement Healthcare
Many retirees assume that once they reach 65, Medicare will cover everything. But that’s simply not the case.
According to recent estimates, a typical 65-year-old couple retiring today will need around $315,000 (after tax) to cover healthcare expenses throughout retirement. And that’s just for basic medical needs—it doesn’t include dental, vision, hearing aids, or long-term care.
Let’s break it down:
- Medicare Part B premiums (doctor visits and outpatient care): ~$175/month per person in 2025
- Medicare Part D (prescription drugs): Varies widely depending on the plan
- Medicare Supplement (Medigap) or Advantage plans: Extra premiums and copays
- Out-of-pocket expenses: Deductibles, coinsurance, and uncovered procedures
- Long-term care: Not covered by Medicare, and can cost $4,000 to $10,000/month depending on your location and level of care
If you haven’t included these in your retirement plan, you could be in for an unpleasant wake-up call.
Real-Life Example: The Cost of Getting It Wrong
Tom and Linda, a retired couple from Arizona, thought they had it all figured out. They had $500,000 saved for retirement, owned their home free and clear, and assumed that Medicare would take care of their health expenses.
But in their first year on Medicare, Tom needed cataract surgery and Linda was diagnosed with rheumatoid arthritis. They were shocked to discover:
- Their Medicare Advantage plan had a $7,500 out-of-pocket maximum
- Prescription drug costs for Linda’s medications added up to $350/month
- They needed to pay $2,200 out-of-pocket for hearing aids—something Medicare doesn’t cover
Within 18 months, they had withdrawn an extra $20,000 from savings just to keep up with their medical bills. That money was meant to last for years—and now it was gone.
The worst part? They could have avoided this by choosing better supplemental coverage and budgeting realistically.
Medicare Gaps You Should Know About
Here are some of the key services Medicare doesn’t fully cover:
- Dental care (including cleanings, fillings, dentures)
- Vision care (routine eye exams and glasses)
- Hearing aids
- Long-term care or nursing home care
- Most foot care
- Over-the-counter medications
To fill these gaps, retirees typically turn to:
- Medicare Supplement (Medigap) plans, which pay for copays and deductibles
- Medicare Advantage (Part C) plans, which bundle coverage but may have narrower provider networks
- Long-term care insurance, which can help offset future costs
Each option comes with its own pros, cons, and costs. The key is to plan ahead—not wait until you’re in crisis.
Don’t Forget Long-Term Care
One of the most commonly overlooked retirement expenses is long-term care—help with activities of daily living like bathing, dressing, or remembering to take medications.
Medicare does not cover long-term custodial care, and Medicaid only steps in when your savings are mostly gone.
A few facts:
- 70% of people over age 65 will need some form of long-term care
- The average stay in a long-term care facility is about 3 years
- The national average cost for a private room in a nursing home is now over $110,000/year
- In-home care averages $25–$35/hour, and costs add up fast
There are several ways to prepare for long-term care:
- Purchase long-term care insurance while you’re healthy enough to qualify
- Consider hybrid life insurance with long-term care benefits
- Set aside a dedicated savings fund specifically for future care needs
- Explore home-sharing or family caregiving options to reduce costs
Real-Life Example: A Preventable Crisis
Sharon, a retired schoolteacher in her early 70s, had always been independent. But when she suffered a stroke and needed in-home help for recovery, her Medicare plan didn’t cover the cost. She ended up hiring a part-time caregiver at $30/hour, and quickly burned through $15,000 in savings.
Had she invested in long-term care coverage in her 60s or built a care fund earlier, the financial stress could have been avoided.
5 Smart Ways to Plan Ahead for Healthcare Costs
It’s never too late—or too early—to prepare. Here are five things you can do today to stay ahead of rising healthcare costs:
1. Learn the Parts of Medicare.
Understand what Parts A, B, C, and D cover (and don’t cover). Don’t assume it’s “free” or comprehensive.
2. Compare Supplement vs. Advantage Plans.
Use Medicare’s Plan Finder to explore the best plan for your needs and budget. Each year, reassess during the open enrollment period.
3. Estimate Your Annual Healthcare Budget.
Don’t just guess—use tools like Fidelity’s retirement healthcare cost calculator to get a better sense of your likely expenses.
4. Consider Long-Term Care Insurance Early.
If you’re in your 50s or early 60s, pricing and coverage options are still reasonable. Once health issues arise, coverage becomes harder to obtain.
5. Create a Healthcare Emergency Fund.
Set aside a dedicated fund for out-of-pocket costs, dental, vision, and future caregiving. Even $10,000–$25,000 can make a big difference.
Planning Means Peace of Mind
The goal of retirement is to enjoy your freedom—not to lie awake at night worrying about how to pay your next medical bill.
Planning for healthcare costs now means:
- You won’t be forced to dip into your principal unexpectedly
- You can protect your spouse or loved ones from financial strain
- You’ll have more choices and better care if a medical issue arises
Healthcare costs are inevitable, but being unprepared is not. With a bit of foresight and smart financial planning, you can protect yourself from one of the biggest threats to your retirement security.
To dive deeper into this and 17 other common retirement mistakes, check out my book:
Financial Survival For Seniors: 18 Financial Mistakes Most Retirees Make and How to Fix Them — available now on Amazon in paperback and eBook formats.
Disclaimer: This post is for educational purposes only and should not be considered financial or medical advice. Please consult with a qualified financial planner or Medicare specialist for personalized guidance. All information is based on current data as of the time of publication and may change.