How do I plan for healthcare costs in retirement?
In one paragraph
Healthcare is typically the largest unplanned expense in retirement. The core plan: budget $300,000–$400,000 per couple for lifetime out-of-pocket costs, maintain an HSA as a dedicated healthcare fund, bridge the gap to Medicare at 65 with marketplace coverage or a part-time job that offers benefits, and build long-term care costs into the projection separately.
What this actually means
Fidelity's annual healthcare cost estimate for a 65-year-old couple retiring today consistently lands above $300,000 in out-of-pocket costs over a typical retirement — and that figure excludes long-term care. Most retirement projections underweight this line item, which is why healthcare surprises are among the most common causes of late-retirement financial stress.
The planning challenge splits into two distinct phases: pre-Medicare (before 65) and post-Medicare.
Before Medicare eligibility, retirees shoulder the full cost of private coverage. ACA marketplace plans vary widely by state and income; premiums can run $800–$1,500 per person per month at current market rates. MAGI-based premium subsidies can significantly reduce costs for retirees who manage income carefully — keeping modified adjusted gross income below certain thresholds (400% of the federal poverty level for full subsidies, though recent legislation extended enhanced subsidies further). Roth conversions, capital gains harvesting, and spending from taxable accounts rather than IRAs can all be used to optimize MAGI and reduce premiums.
The Health Savings Account is the most tax-efficient vehicle in the retirement healthcare toolkit. Contributions are pre-tax, growth is tax-free, and qualified medical withdrawals are tax-free — triple tax advantage. Savers who can afford to pay current medical expenses out of pocket and allow HSA funds to compound are accumulating a powerful tax-free reserve. After 65, HSA funds can be used for any purpose (like a traditional IRA), making unused balances a secondary retirement buffer.
Medicare at 65 reduces but doesn't eliminate costs. Part B premiums, Medigap or Medicare Advantage coverage, and Part D drug costs combine to cost most beneficiaries $5,000–$10,000 annually in premiums plus unpredictable out-of-pocket expenses.
Long-term care — nursing home, assisted living, in-home care — deserves its own line item. Median annual costs run $54,000–$108,000 depending on care type and geography. Self-insuring (building a separate dedicated fund), hybrid life/LTC policies, or traditional long-term care insurance each have trade-offs that depend on family health history and asset levels.
The earlier healthcare is built into the retirement model with realistic numbers, the less likely it is to derail an otherwise sound plan.
