Healthcare Costs in Retirement: Here’s How Much to Budget

Healthcare is one of the largest expenses Americans face in retirement, but it’s also one of the hardest to estimate. According to Fidelity Investments’ 2025 Retiree Healthcare Cost Estimate, the average 65-year-old who retired in 2025 will spend an average of $172,500 on healthcare and medical expenses throughout retirement, not including long-term care costs. However, your specific retirement healthcare costs can vary greatly depending on factors like your income, the coverage you choose and the services you need throughout your life. Underestimating your healthcare costs in retirement can lead to unintended strains on your estate and long-term retirement savings.

The 3 Phases of Healthcare Costs in Retirement

With age often comes the need for more medical attention, which can lead to higher healthcare costs in retirement and a growing share of your overall retirement expenses. These costs can be broken down into three key phases: the years before you’re eligible for Medicare, the years you’re covered by Medicare and the years when long-term care may be needed.

Phase 1: The “gap” years (pre-age 65)

If you retire from a job with health insurance before reaching age 65, you’ll have a gap between the last day you’re covered under your employer’s health insurance plan and the first day you’re eligible for Medicare coverage. During this gap, you have a few options.

One option is paying for Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage. Under COBRA, you can continue your previous employer’s health insurance for 18 months, but doing so can be expensive. You‘ll be required to pay 100% of the plan’s premium (up to 102% to cover plan administration), not just the amount previously deducted from your paycheck.

Another option is to purchase a plan from the Health Insurance Marketplace at healthcare.gov. You’re guaranteed coverage even with preexisting conditions, and subsidies are generally available to households that meet certain income requirements. This can be a good option if COBRA is too expensive and you qualify for a subsidy, or if you need coverage for longer than 18 months.

A third option is getting coverage through your spouse’s plan, if your spouse is still in the workforce. Losing your own employer coverage typically qualifies you for a Special Enrollment Period, which allows you to join your spouse’s plan outside of the company’s regular open enrollment window, usually within 30 days of losing your prior coverage.

Gap years from retiring early will come with healthcare costs, no matter which route you take, so it’s important to have savings in place for medical emergencies and other out-of-pocket expenses. Researching COBRA and Marketplace options ahead of time can help you estimate likely healthcare costs in those early retirement years. You’ll also want to understand and plan for how your income can affect the cost of health insurance. Higher income levels will decrease available subsidies, so working with an advisor to adjust your investment mix to decrease taxable investment income may be beneficial. Lastly, you’ll want to understand how current subsidies apply to you and if they’re expected to continue until you reach Medicare eligibility. As an example, there were enhanced Affordable Care Act subsidies put in place during COVID that expired prior to 2026, increasing the cost of health insurance for many.

Phase 2: The core years (Medicare eligibility)

The Initial Enrollment Period (IEP) for Medicare  begins three months before your 65th birthday and continues for three months thereafter. During that period, you can sign up for Original Medicare (Medicare Part A and Part B), a Medicare Advantage plan (Part C) and prescription drug coverage (Medicare Part D). Signing up during your IEP is important, as it helps you avoid lifetime late-enrollment penalties for Part B and potential penalties for Part D. However, if you’re already receiving Social Security or Railroad Retirement Board benefits, you’ll typically be enrolled automatically in Medicare Part A and Part B as you approach age 65.

The cost of Medicare will vary depending on the plans you select, the services you use and the providers you see. The basic costs to maintain coverage  include:

• Medicare Part A – Part A coverage is premium-free if you’re at least 65 and paid Medicare taxes for at least 10 years of work. Otherwise, the Medicare Part A premium is either $311 or $565 per month in 2026, depending on how long you worked and paid Medicare taxes.
• Medicare Part B – Part B coverage comes with a premium that varies based on income. In 2026, the Medicare Part B premium ranges from $202.90 to $689.90 per month.
• Medicare Part C (Medicare Advantage) – Provided by private companies, Medicare Advantage costs vary by provider and plan design.
• Medicare Part D – Also provided by private companies, Part D premiums vary by provider and prescription coverage level.

In addition to premiums, you’ll want to understand deductibles, copayments, coinsurance and coverage limitations. For example, Original Medicare doesn’t cover routine eye exams, most dental care, long-term care or routine physical exams, and it doesn’t have a maximum out-of-pocket limit, which can increase your total healthcare costs.

Phase 3: The late stage (long-term care needs)

In the later stage of life, long-term care can become your largest healthcare expense in retirement. Long-term care is often needed for seniors with serious medical conditions, such as cancer, Alzheimer’s disease or other chronic illnesses. While not everyone will incur these costs, nearly half of Americans who live past 65 receive some type of paid long-term care.

Long-term care is expensive, and Medicare, disability insurance and traditional health insurance generally don’t cover most of it. In 2024, the national average cost for a semi-private room in a nursing home was $112,420, and home care averaged around $51,480 per year, according to the Federal Long-Term Care Insurance Program.

While many people only need two to three years  of care, the potential cost is still worth planning for to protect your estate from an unexpected multi-year drawdown. Planning can include steps such as building reserves into your portfolio, evaluating long-term care insurance or hybrid life/long-term care policies, and considering legal structures that help protect assets for care needs.

Planning for Pre-Medicare Costs: Retirement Before Age 65

Retiring before you turn 65 can be appealing, but it also creates a gap in access to Medicare, which can make it more difficult to calculate how long your money will last in retirement. To avoid being caught off guard, many people set up a savings bucket specifically for healthcare expenses in the gap years.

Maximize HSA contributions before you retire

One potential option is a health savings account (HSA). If you enroll in a qualifying high-deductible health plan (HDHP), you can contribute pre-tax dollars to an HSA and use those funds for qualified medical expenses. You can use untaxed dollars to cover various out-of-pocket costs, such as deductibles, copayments and coinsurance, though you generally can’t use HSA funds to pay premiums.

If you qualify, it’s often beneficial to contribute as much as you can each year. In 2026, you can contribute up to $4,400 if you have self-only coverage and $8,750 if you have family coverage. These funds can then help cover healthcare costs during your pre-Medicare years or later in retirement.

Medicare Costs at Age 65+: Planning Around Premiums, IRMAA and Coverage Design

After age 65, most Americans enroll in Medicare in one form or another. While Medicare typically costs less than coverage available through the Marketplace or COBRA, you’ll still need to plan for premiums and other out-of-pocket costs. For higher-income households, elective services, higher utilization and IRMAA surcharges can further increase total healthcare spending.

Budget for Part B and Part D premiums

Two of the primary costs to plan for are your Part B and Part D premiums. Medicare has a standard Part B premium, and private insurers set Part D premiums. However, Medicare also assesses income-related monthly adjustment amounts (IRMAA) on top of those base amounts for higher-income beneficiaries. These surcharges are based on your modified adjusted gross income (MAGI) from two years prior.

Note: Calculating MAGI involves adding certain items back to your adjusted gross income (AGI), such as some IRA deductions and rental losses.

For example, the standard Part B premium is $202.90 in 2026, but that amount only applies to individuals with a 2024 MAGI of $109,000 or less ($218,000 or less for married couples filing jointly). Above those thresholds, there are five progressive IRMAA tiers, with the highest 2026 Part B premium of $689.90 applying to individuals with a 2024 MAGI of more than $500,000 (or more than $750,000 for married couples filing jointly).

For Part D, individuals will pay only their base plan premium in 2026 if their 2024 MAGI was under $109,000 ($218,000 for married couples). Above that, surcharges range from $14.50 to $91 per month. As an affluent retiree, you’ll likely encounter IRMAA surcharges on top of your Part B and Part D premiums, which can affect both your retirement income and net Social Security benefits.

IRMAA surcharges in 2026

IRMAA thresholds are “cliff” based, meaning a single dollar of income above a threshold can push you into the next tier and increase your Medicare costs for a full year, two years later. If your income is close to a threshold, you can work with your advisor to see whether strategies such as timing capital gains, Roth conversions or IRA withdrawals can keep you in a lower tier.

Choose between Medigap and Medicare Advantage

You’ll also need to choose between Original Medicare with a Medigap (Medicare supplement) policy and a Medicare Advantage (MA) plan. In general:

• Original Medicare plus Medigap tends to have higher monthly premiums but lower deductibles and copays and offers access to any U.S. provider who accepts Medicare.
• MA plans typically have lower premiums but higher back-end costs and use narrower provider networks, often with more prior authorization steps.

Medigap rarely includes Part D coverage or dental, vision or hearing, while many MA plans include those benefits. Medigap coverage is generally available with guaranteed issue rights for only six months starting when you’re at least age 65 and enrolled in Part B; after that, medical underwriting may apply. MA plans are guaranteed issue annually, so you can typically enroll or switch each year without underwriting.

Original Medicare with Medigap may be a better fit if you value provider flexibility, predictable cost sharing and easy access to specialists or concierge medicine, including when you travel domestically. MA plans can be attractive if you’re comfortable with networks and cost-sharing variability and want lower premiums.

Planning for Long-Term Care Costs: The Biggest Variable

Assess your personal risk factors

Long-term care costs can be a large end-of-life expense that takes a heavy toll on families, both emotionally and financially. Understanding your family medical history, lifestyle and personal risk factors can help you gauge the likelihood and potential length of care needs.

Weigh self-insurance vs. hybrid policies

Affluent households often consider three main approaches to funding long-term care:

• Self-insurance – This approach generally involves setting aside a dedicated long-term care reserve within your portfolio with clear guidelines for how it’s invested and used. It preserves flexibility and control but leaves you exposed if costs run higher longer than expected.
• Traditional long-term care insurance – These policies provide a defined pool of benefits and leverage on premiums but are typically “use it or lose it,” subject to underwriting, and vulnerable to premium increases over time.
• Hybrid life/LTC insurance – These combine permanent life insurance with a long-term care rider. If you need care, benefits are advanced to cover costs; if not, your beneficiaries receive the death benefit. This structure can provide leverage and estate clarity but reduces liquidity and may produce more conservative growth than self-insurance.

Create a family care plan early

The sooner you create a family care plan, the better. You’ll want to identify a primary decision-maker, such as a spouse or adult child, along with backups if that person becomes unavailable. Ensuring that key legal documents — including powers of attorney and healthcare directives — are current and aligned with your estate plan is also essential.

Consider pre-selecting a care manager or coordination resource who can help navigate providers and facilities if care is needed. Also review how care decisions might interact with other aspects of your life, such as travel, household staff, multiple residences and privacy preferences. Done well, a family care plan can complement broader generational wealth transfer strategies and retirement tax planning, helping ensure that health events don’t derail your legacy or liquidity plans.

Checklist for Retirement Healthcare Budgeting

Now that you know the basics, here’s a quick checklist to use as you budget for healthcare in retirement:

• Gap coverage – If you plan to retire early, estimate the cost and duration of COBRA and Marketplace coverage, and build a reserve to cover healthcare in those years. If you don’t end up needing it, you can repurpose the funds after age 65.
• HSA strategy – If eligible, maximize contributions to an HSA during your working years so that you have tax‑advantaged funds for qualified medical expenses in retirement.
• Map Medicare premiums – Add up expected premiums for Medicare Part B and Part D, premiums for Medigap or MA plans, and any separate dental, vision, hearing or concierge costs. Include IRMAA surcharges you’re likely to face, and earmark funds to cover them.
• Consider back-end costs –Review deductibles, copays, coinsurance and coverage limits on your chosen plans, then look at your prior healthcare usage to estimate future out-of-pocket costs.
• Weigh Medigap vs. MA – Think about which option fits your provider preferences, travel patterns and comfort with networks and prior authorizations.
• Prescription strategy – Revisit Part D coverage annually and factor in current rules capping out-of-pocket prescription costs, especially if you use high-cost medications.
• Long-term care plan – Decide how you’ll fund long-term care if needed. Weigh your personal risk factors, compare self-insurance with traditional or hybrid LTC insurance, and put a family care plan in place.

Planning for healthcare in retirement is complex, particularly for affluent families. Multiple coverage options, IRMAA and long-term care risk all need to be considered within the context of your broader wealth and financial plan. Enlisting the help of retirement planning services or retirement planning advisors is often a smart way to coordinate these moving parts.

Frequently Asked Questions About Retirement Healthcare Budgeting

How much should I budget for healthcare in retirement?

The average 65-year-old American who retired in 2025 will need about $172,500 for healthcare expenses in retirement, not including long-term care. Long-term care costs can range from roughly $50,000 per year for home care to more than $110,000 per year for nursing home care, with an average need of about 33 months. Depending on your situation, budgeting an additional $150,000 to $300,000 (or considering insurance alternatives) for potential long-term care needs may be appropriate, but your actual costs will depend on your income, coverage choices and health needs.

How much should I budget for health insurance if I retire early?

If you retire before age 65, you’ll need to budget for coverage (typically through COBRA, Marketplace plans or a spouse’s plan) during your gap years. Estimating costs involves looking at premiums, expected out-of-pocket expenses and how long you’ll need coverage before Medicare starts. These pre‑age 65 costs should be built into your broader retirement plan and savings strategy.

What’s the average monthly health insurance cost for a retired couple?

The average monthly health insurance cost for a 65-year-old couple in their first year of retirement is around $1,070, including premiums, copays and other healthcare expenses. Your own costs may be higher or lower depending on MAGI, policy choices and health status.

What’s the single largest expense for a retiree in retirement?

For many U.S. retirees, housing is the largest personal expense, according to the Federal Reserve Bank of St. Louis, followed by food and then healthcare. Even so, healthcare and long‑term care remain significant variables that deserve dedicated planning.

We’re Here to Help

Planning for healthcare costs in retirement goes far beyond checking the Medicare premiums for the year. It involves comparing policy options, considering back-end costs, preparing for gap coverage and piecing together the different types of coverage within a comprehensive financial and retirement plan. For affluent families, this often means modeling IRMAA years in advance, stress-testing liquidity for unexpected medical events and aligning health-related decisions with legacy goals.

At Creative Planning, we approach healthcare the same way we approach taxes and investments — strategically, proactively and as part of your broader wealth plan. If you’d like help building a comprehensive strategy for healthcare costs in retirement, or reviewing one you already have, our integrated retirement planning services can help you navigate the process.

Schedule a call today.