How Much to Budget for Healthcare in Retirement

Ask most people what healthcare costs in retirement and you'll get some version of:

"I turn 65, Medicare kicks in, problem solved."

Medicare is genuinely great. It is also not free, does not cover your teeth, does not cover hearing aids, has no out-of-pocket maximum on its own, and does not pay for the single most expensive thing that can happen to you — long-term care.

You've probably seen the scary headline number: $172,500. We'll get to why that number is both true and nearly useless.

Here's what actually goes in the budget. 👇

2026 numbers, before anything interesting happens:

Most people get Part A premium-free thanks to their work history. Part B you pay for, monthly, forever.

For a couple, that's ~$4,871/year in Part B alone — before one prescription, one filling, or one specialist visit.

Two details that ambush people:

"Per benefit period" is not "per year." The $1,736 Part A deductible resets after you've been out of the hospital for 60 days. Two separate hospitalizations in one year can mean paying it twice.

Original Medicare has no out-of-pocket maximum. After the deductible, you generally owe 20% of the Medicare-approved amount for Part B services — with no ceiling. Twenty percent of a very large number is a very large number. This is the entire reason supplemental coverage exists.

KFF analyzed Medicare Current Beneficiary Survey data and found beneficiaries spent an average of $6,330 per person out of pocket in 2022 — premiums, private coverage, services, plus things Medicare doesn't cover like dental, vision, hearing and long-term supports.

That's the average. Now the part that should actually shape your plan:

Read that last line again. One in ten retirees hands over nearly four dollars in ten to healthcare.

So the useful question was never "what does the average person spend?" It's:

"What happens to my plan if I'm the one in ten?"

Fidelity estimated a 65-year-old retiring in 2025 could need roughly $172,500 in after-tax savings for healthcare across retirement.

It's a real estimate. It's also widely misread.

What it includes: Original Medicare plus Part D, premiums and cost-sharing.
What it excludes: long-term care, most dental, and several other health costs.

So it's not a savings target to park in cash on retirement day. It's a cumulative projection over decades — and it leaves out the two categories most likely to blow up a budget.

Healthcare also doesn't arrive evenly. You might spend $2,800 one year and $14,000 the next when a crown, a procedure and a pair of hearing aids show up together.

What you need isn't a lifetime average. It's liquidity.

Forget the lifetime total. Calculate these:

Part B + supplemental premium + Part D premium + routine copays + regular prescriptions + dental and vision.

This goes into your monthly retirement budget like rent.

Deductibles + coinsurance + a procedure + a big dental job + new hearing aids (usually thousands, usually not covered).

This lives in a cash reserve, not in your monthly budget. Its job is to stop a $12,000 medical year from forcing you to sell investments in a down market.

A separate strategy entirely. Different order of magnitude, different solution.

This is the section nobody writes, and it's worth more than any budget line.

The Medigap window closes and it does not reopen nicely. You get a six-month Medigap open enrollment period starting when you're 65 and enrolled in Part B. During it, insurers generally must sell you any policy they offer at their best available rate regardless of health. Miss it, and in most states you can later be medically underwritten — charged more, or declined. A health event between 65 and the day you want to switch can lock you out permanently.

Late enrollment penalties are lifetime penalties. Part B generally adds 10% for each full 12-month period you could have had it but didn't — and it sticks to your premium for as long as you have Part B. Part D has its own penalty, roughly 1% per month you went without creditable coverage. These aren't fines. They're permanent premium increases.

Medigap premiums are the same benefits at different prices. Standardized plan letters mean Plan G is Plan G. Medicare itself advises comparing prices across companies selling the same letter, because the coverage is identical while the premium isn't.

These produce completely different budget shapes, which is a big reason "average cost" numbers are so slippery.

It's a genuine trade: pay more every month for predictability, or pay less every month and carry more risk in a bad year.

So don't just budget the premium. Budget the answer to: what's the most I could plausibly pay in one terrible year? That number belongs in your reserve.

Original Medicare generally does not cover routine dental — cleanings, fillings, extractions, dentures. It generally does not cover hearing aids or the fitting exams.

These are not small numbers. A crown, an implant, a set of dentures, or a pair of hearing aids can each run into the thousands, and none of them respects your monthly budget.

The fix is a sinking fund. Set aside a fixed amount every month into a dental/vision/hearing pot and let it build during the quiet years, because the expensive ones are lumpy and unavoidable. Budgeting "this year's dental" only works until the year it doesn't.

Long-term care isn't healthcare in the medical sense. It's help with daily living — and Medicare generally doesn't cover ongoing custodial care or assisted living. Medicaid may, but only after you meet strict state eligibility and financial rules.

Genworth's 2024 Cost of Care Survey, national medians:

Put that next to a normal year's $6,330 and the scale problem is obvious. Three years of nursing care at the median private-room rate is roughly $383,000 — more than most people's entire retirement portfolio.

This is why long-term care cannot live inside your $8,000 healthcare line. It needs its own answer, and there are only a few:

Pick one on purpose. "We'll figure it out" is the option that gets picked by default, in a hospital hallway, at the worst possible moment.

Medicare starts around 65. Retire at 60 and you're buying your own coverage for five years.

Losing job-based coverage generally triggers a Special Enrollment Period on the Health Insurance Marketplace, and premium tax credits may be available depending on income.

Which creates a strange loop most early retirees miss: marketplace subsidies are income-tested, so your withdrawal strategy and your health insurance premium are the same decision. A big Roth conversion can cut your lifetime tax bill and raise your health premium in the same move.

Price that bridge before you pick the retirement date. It's frequently the largest single difference between retiring at 62 and 65.

If you're still working and on a qualifying high-deductible plan, the HSA is the most tax-efficient account in the code: deductible in, tax-free growth, tax-free out for qualified medical costs. Payroll contributions can also dodge FICA.

2026 limits: $4,400 self-only, $8,750 family, plus a $1,000 catch-up at 55+.

Three rules that decide whether you use it well:

1. It can pay Medicare premiums. Once you're 65+, Part B and Part D premiums generally count as qualified expenses — but Medigap premiums do not.

2. Medicare enrollment ends contributions. Once you enroll, you can't contribute anymore. The years before Medicare are your only window.

3. The six-month trap. Part A can be granted retroactively up to six months when you enroll after 65. Contributions made during that retroactive stretch can become excess contributions — so the standard guidance is to stop HSA contributions about six months before you enroll. Lots of people learn this after the fact.

And the best HSA move: pay medical bills out of pocket now, save the receipts, let the account invest for decades, reimburse yourself tax-free later. There's no deadline on reimbursement.

CMS projects national health expenditures growing about 5.4% annually from 2025 through 2034, against roughly 4.1% GDP growth.

Your personal costs won't track that exactly. But the direction is the point: healthcare inflation has historically outpaced general inflation, which means it eats a rising share of your budget over a 25-year retirement.

A budget that assumes your age-65 healthcare cost still applies at 85 isn't a budget. It's a wish.

Monthly line (the expected): Part B + supplemental + Part D + routine copays + prescriptions + a dental/vision/hearing sinking fund.

Reserve (the unexpected): enough safe, liquid money to absorb your worst plausible year — your plan's max out-of-pocket plus a major dental or hearing expense. This is what keeps a medical event from becoming a forced sale in a down market.

Separate strategy (the catastrophic): long-term care. Insurance, earmarked assets, or an explicit plan.

Couples: build it twice, separately. Two people, two health histories, two prescription lists, two premium bills — then one shared reserve. Doubling one person's estimate hides the spouse with four medications.

Already know you're expensive? Skip the averages entirely. Pull your last 12 months of premiums, prescriptions, visits, dental, vision, hearing and equipment, then split recurring from one-time. Your own history beats any national number.

Medicare restructures your healthcare costs. It doesn't erase them, it caps almost nothing on its own, and it walks away entirely at the exact moment the bills get largest.

So stop hunting for one magic lifetime figure. Build three:

Then protect the two decisions with deadlines: the six-month Medigap window at 65, and the enrollment timing that determines whether you carry a lifetime penalty. Those are worth more than any budgeting spreadsheet, and they expire.

The goal was never to predict your healthcare bill 25 years out. Nobody can.

It's to arrive at retirement knowing that even an ugly, expensive, unfair medical year already has a place to land.

See you next issue. 🪙

Penny Brief is for informational and educational purposes only and is not individualized tax, insurance, medical or investment advice. Figures reflect currently published guidance: 2026 Medicare amounts (CMS), KFF analysis of Medicare Current Beneficiary Survey data for 2022, Fidelity's 2025 Retiree Health Care Cost Estimate (which excludes long-term care and most dental costs), Genworth/CareScout 2024 Cost of Care Survey national medians, CMS National Health Expenditure projections, and IRS 2026 HSA limits. Medigap rules, enrollment protections and underwriting vary by state; plan availability, premiums and networks vary by location. Medicare premiums and limits change annually — refresh the dollar amounts every year and confirm your own situation with Medicare.gov, your SHIP counselor and a qualified professional.

Sources: Medicare.gov and CMS; KFF; Fidelity; Genworth/CareScout; National Institute on Aging; HealthCare.gov; IRS.