Healthcare Costs in Retirement
The hidden expense that can derail your retirement plans
The $315,000 Reality Check
A 65-year-old couple retiring in 2024 will need approximately $315,000 to cover healthcare costs throughout retirement, according to Fidelity's annual estimate. This doesn't include long-term care, which could add another $172,000 or more.
Healthcare is often the most underestimated expense in retirement planning. While Medicare provides essential coverage, it's not free and doesn't cover everything. Understanding the true costs and coverage gaps is crucial for maintaining both your health and wealth in retirement.
Understanding Medicare: What's Covered and What's Not
Part A: Hospital Insurance
Premium: Usually $0 (if 40+ quarters of work)
- ✓ Inpatient hospital care
- ✓ Skilled nursing facility care
- ✓ Hospice care
- ✓ Some home health care
2024 Deductible: $1,632 per benefit period
Part B: Medical Insurance
Premium: $174.70/month (2024 standard)
- ✓ Doctor visits
- ✓ Outpatient care
- ✓ Preventive services
- ✓ Medical equipment
2024 Deductible: $240/year + 20% coinsurance
Part C: Medicare Advantage
Premium: Varies ($0-200+/month)
- ✓ All Part A & B coverage
- ✓ Often includes Part D
- ✓ May include dental/vision
- ✗ Network restrictions
Alternative to Original Medicare + Supplement
Part D: Prescription Drugs
Premium: ~$40/month average
- ✓ Prescription medications
- ✓ Some vaccines
- ✗ Coverage gap ("donut hole")
- ✗ Formulary restrictions
Penalty if not enrolled when first eligible
What Medicare Doesn't Cover
- ✗ Dental care and dentures
- ✗ Eye exams and glasses
- ✗ Hearing aids
- ✗ Long-term care
- ✗ Cosmetic surgery
- ✗ Acupuncture
- ✗ Medical care abroad
- ✗ Custodial care
Real Healthcare Costs: Annual Budget Breakdown
Average Annual Costs for a 65-Year-Old Couple (2024)
Note: Costs increase 5-7% annually due to healthcare inflation, faster than general inflation. By age 85, these costs could double.
Ages 65-74
$12,000/year
Lower utilization, better health
Ages 75-84
$18,000/year
Increasing chronic conditions
Ages 85+
$28,000/year
Higher care needs, medications
Long-Term Care: The Budget Breaker
70% of people over 65 will need long-term care
The average stay in a nursing home is 2.5 years, costing $275,000. Medicare covers only the first 100 days of skilled nursing care, and only after a hospital stay.
2024 National Median Costs
- Nursing Home (Private)$9,733/month
- Assisted Living$5,350/month
- Home Health Aide$30/hour
- Adult Day Care$85/day
Protection Strategies
Long-Term Care Insurance
$2,500-4,500/year if purchased at 55-60. Covers 2-5 years typically.
Hybrid Life/LTC Policies
Combines life insurance with LTC benefits. Higher cost but guaranteed benefit.
Self-Insurance
Set aside $150,000-300,000 specifically for potential LTC needs.
Strategies to Manage Healthcare Costs
Before Retirement (Pre-65)
- •Max out HSA contributions: Triple tax advantage, no RMDs, Medicare-qualified expenses after 65
- •Consider COBRA or ACA marketplace: Bridge coverage if retiring before 65
- •Delay retirement to 65: Avoid expensive private insurance years
During Retirement
- •Shop Medicare plans annually: Plans and needs change; October 15 - December 7 open enrollment
- •Use preventive care: Medicare covers many preventive services at 100%
- •Generic medications: Can save 80-90% on prescription costs
- •Medical tourism: Consider for expensive dental work or elective procedures
Tax Strategies
- •Medical expense deduction: Deduct expenses over 7.5% of AGI
- •HSA as retirement account: Save receipts, reimburse years later tax-free
- •Roth conversions: Lower AGI can reduce Medicare Part B/D premiums
Planning Checklist by Age
Age 50-55
- ☐ Start maxing out HSA contributions ($4,150 individual, $8,300 family + $1,000 catch-up)
- ☐ Research long-term care insurance options
- ☐ Calculate retirement healthcare budget
Age 56-60
- ☐ Purchase long-term care insurance if desired
- ☐ Build dedicated healthcare reserve fund
- ☐ Understand employer retiree health benefits
Age 61-64
- ☐ Plan bridge coverage to Medicare
- ☐ Schedule preventive care before retirement
- ☐ Research Medicare options and supplements
Age 64.5
- ☐ Enroll in Medicare (3 months before 65th birthday)
- ☐ Choose between Original Medicare + Supplement or Medicare Advantage
- ☐ Select Part D prescription plan
Don't Let Healthcare Costs Surprise You
Healthcare expenses can consume 20-30% of your retirement budget. Planning ahead and understanding your options can save you hundreds of thousands of dollars and ensure you get the care you need.
Include Healthcare in Your Retirement Plan →