Healthcare Costs in Retirement: The Number Most People Underestimate

Bill and Joanne had done everything right — or so they thought. Both 65, newly retired, they'd saved diligently in their 401(k)s for three decades, paid off the house in suburban Philadelphia, and enrolled in Medicare the month they turned 65. They sat down with a spreadsheet and budgeted $500 per month for healthcare. That felt generous.

Then year one happened. Between Medicare Part B premiums for two, a Part D prescription plan, a Medigap supplemental policy, dental crowns for Bill, new glasses for Joanne, and a knee replacement that Medicare covered at 80% — leaving them with a $4,200 out-of-pocket share — they spent $18,000 on healthcare in twelve months. That's $1,500 per month, triple their budget.

"We had no idea," Bill said. "We thought Medicare covered everything. It doesn't even come close."

Bill and Joanne aren't outliers. They're average. And the numbers only get worse from here.

The $315,000 number nobody wants to hear

Every year, Fidelity Investments publishes an estimate of how much a 65-year-old couple retiring today will spend on healthcare throughout retirement. The 2025 estimate: $315,000. That figure includes Medicare Part B and Part D premiums, supplemental insurance, copays, deductibles, and out-of-pocket costs. It does not include dental, vision, hearing aids, or long-term care.

Read that again. Three hundred fifteen thousand dollars, and it doesn't cover the dentist, the eye doctor, or the possibility that you'll need a nursing home.

The number is an average, which means half of retirees spend more. If you live into your 90s, if you develop a chronic condition, if prescription drug costs rise faster than general inflation — and they have, consistently, for decades — your total could easily reach $400,000 or $500,000.

This is the expense that can derail even well-funded retirements. A couple with a $500,000 portfolio drawing down 4% per year generates $20,000 annually. If healthcare consumes $15,000 to $18,000 of that in their later years, there's almost nothing left for everything else.

What Medicare actually covers — and what it doesn't

Medicare is remarkable for what it is: near-universal health insurance for Americans 65 and older. But it was never designed to cover everything, and the gaps are wider than most people realize.

What Medicare covers well: Hospital stays (Part A), doctor visits and outpatient care (Part B), preventive services like screenings and vaccines, and prescription drugs (Part D). If you need heart surgery, a hip replacement, or chemotherapy, Medicare will cover the majority of the cost.

What Medicare doesn't cover at all: Routine dental care, most vision care including eyeglasses, hearing aids (which can cost $2,000–$7,000 per pair), most long-term care including nursing home stays beyond 100 days, and cosmetic procedures. These exclusions aren't minor. The average 65-year-old will spend $50,000 or more on dental care alone over the remainder of their life.

What Medicare covers partially: Part A has a deductible of $1,632 per hospital stay in 2026. Part B covers 80% of approved charges after a $257 annual deductible — meaning you pay 20% with no cap on out-of-pocket costs. That knee replacement Bill needed? Medicare approved $21,000. They covered 80%. Bill owed $4,200. Without supplemental insurance, an extended hospital stay or a series of specialist visits could generate enormous bills.

The real cost of Medicare premiums

Most people know Medicare Part A is premium-free for anyone who paid Medicare taxes for at least 10 years. What surprises them is how much everything else costs.

Part B premiums in 2026 start at $185 per month per person — $370 per month for a couple. But that's the base rate. If your modified adjusted gross income exceeds $106,000 (single) or $212,000 (married filing jointly), you'll pay IRMAA surcharges that can push premiums past $600 per person per month. A couple with $300,000 in combined income could pay $1,200 per month in Part B premiums alone.

Part D drug coverage adds another $35 to $100 per month depending on the plan, plus its own IRMAA surcharges for high earners. Medigap supplemental insurance — the policy that covers your 20% copay on Part B services — runs $150 to $350 per month depending on your age, location, and the plan you choose.

Add it all up for a typical 65-year-old couple at standard income levels: Part B ($370), Part D ($70), and Medigap ($400) comes to roughly $840 per month — over $10,000 per year — before they see a single doctor or fill a single prescription. That's just the price of admission.

The early retirement gap: ages 60 to 65

If you retire before 65, you face a different problem entirely: you don't qualify for Medicare yet. This gap catches early retirees off guard, and it's one of the most expensive periods of your healthcare life.

Your options during the gap are limited and costly. COBRA lets you continue your employer's insurance for up to 18 months, but you pay the full premium — employer share and employee share — plus a 2% administrative fee. The average COBRA premium for family coverage exceeds $1,800 per month.

The ACA marketplace (Healthcare.gov) is the most common alternative. Premiums depend on your income: if you're living off savings and keeping taxable income low, you may qualify for substantial subsidies. But this requires careful income management. A large Roth conversion or 401(k) withdrawal could push your income above the subsidy threshold, leaving you with full-price premiums of $1,500 to $2,500 per month for a couple in their early 60s.

This is where tax-efficient withdrawal strategies become critical. Planning your income sources — drawing from Roth accounts (which don't count as income for ACA purposes) or managing traditional withdrawals precisely — can save tens of thousands during the pre-Medicare years.

Long-term care: the elephant in the room

Here's the number that keeps financial planners awake at night: the median cost of a private room in a nursing home is $9,733 per month — nearly $117,000 per year. A semi-private room is $8,669 per month. An assisted living facility averages $5,350 per month. An in-home health aide costs $6,292 per month for full-time care.

Someone turning 65 today has a roughly 70% chance of needing some form of long-term care during their remaining years. The average duration of care is about three years. For women, it's longer — 3.7 years on average.

Do the math on three years in a nursing home: $350,000. That's more than Fidelity's entire $315,000 healthcare estimate — which, remember, explicitly excludes long-term care.

Medicare covers skilled nursing facility care for up to 100 days after a qualifying hospital stay, and only if you're receiving skilled nursing or therapy services. It does not cover custodial care — the help with bathing, dressing, and eating that constitutes the vast majority of long-term care needs.

Medicaid covers long-term care, but only after you've spent down nearly all of your assets. For most middle-class retirees, qualifying for Medicaid means impoverishing yourself first.

Strategies that actually work

The healthcare cost problem is real, but it's not unsolvable. Here are the strategies that financial planners recommend most consistently.

Fund an HSA while you're still working. If you have access to a high-deductible health plan before retirement, a Health Savings Account is the single best vehicle for future healthcare costs. Contributions are tax-deductible, growth is tax-free, and withdrawals for medical expenses are tax-free. It's the only account in the tax code with a triple tax advantage. In 2026, you can contribute $4,300 (individual) or $8,550 (family). After 65, you can withdraw HSA funds for any purpose — medical withdrawals remain tax-free, while non-medical withdrawals are taxed as ordinary income (like a traditional IRA). The ideal strategy: fund your HSA every year, pay current medical expenses out of pocket, and let the HSA grow untouched for decades.

Choose Medigap over Medicare Advantage if you can afford it. Medicare Advantage (Part C) plans often have low or zero premiums and include dental and vision. They're attractive on paper. But they use restricted networks, require referrals, and can leave you with significant out-of-pocket costs for serious illness. Medigap (supplemental insurance) is more expensive upfront — $150 to $300 per month — but covers your 20% share of Part B costs with few restrictions. For retirees who travel, who want to see any doctor, or who are worried about catastrophic costs, Medigap provides predictability that Advantage plans don't.

Manage your income to avoid IRMAA. The income-related surcharge on Medicare premiums is based on your tax return from two years prior. A large Roth conversion or one-time capital gain at age 63 can spike your premiums at age 65. By managing your modified adjusted gross income — through strategic Roth conversions before Medicare enrollment, qualified charitable distributions, and careful timing of capital gains — you can avoid IRMAA surcharges that add thousands per year to your premiums.

Get standalone dental and vision coverage. Since Medicare excludes dental and vision, you'll need separate coverage. Dental plans cost $20 to $50 per month and typically cover preventive care fully, but cap annual benefits at $1,000 to $1,500. For expensive procedures — implants, crowns, bridges — you'll pay most of the cost out of pocket regardless. Vision plans are inexpensive ($10–$20 per month) and cover annual exams and basic eyewear.

Address long-term care before you need it. You have three broad options: traditional long-term care insurance (buy it in your 50s before health issues develop; premiums run $2,000–$4,000 per year for a couple), hybrid life/long-term care policies (a life insurance policy with a long-term care rider, so the premium isn't "wasted" if you never need care), or self-insuring (setting aside $300,000–$500,000 specifically for potential care costs). Each approach has tradeoffs. What doesn't work is ignoring the risk entirely.

What Bill and Joanne learned

After their $18,000 first year, Bill and Joanne sat down with a financial advisor and rebuilt their healthcare plan from the ground up. They switched from a Medicare Advantage plan to Medigap Plan G, which eliminated their worry about large copays for Bill's ongoing orthopedic care. They enrolled in a standalone dental plan. They adjusted their retirement withdrawal strategy to keep income below the first IRMAA threshold, saving $1,200 per year in premium surcharges.

The hardest conversation was about long-term care. Neither wanted to think about nursing homes. But their advisor walked them through the numbers: at current rates, a three-year stay for either of them would cost more than their entire investment portfolio. They purchased a hybrid life insurance policy with a long-term care rider — expensive at $3,200 per year, but it addressed the risk that kept them up at night.

"Healthcare is the biggest wildcard in retirement," Bill says now. "You can control where you live and what you drive. You can't control whether you get cancer or need a nursing home. All you can control is how prepared you are."

He's right. The $315,000 estimate isn't a scare tactic. It's a planning baseline. And for most retirees, it's an undercount. The couples who navigate this successfully aren't the ones who ignore it — they're the ones who budget for it honestly, choose their coverage carefully, and build a financial plan that treats healthcare as the major expense category it is.

Worried about healthcare costs derailing your retirement plan? Talk to a financial advisor who can help you choose the right Medicare coverage, plan for long-term care, and build a withdrawal strategy that keeps your premiums low.