Healthcare Costs in Retirement: The Expense Most People Underestimate by Half

Healthcare is the single largest unpredictable expense in retirement. Fidelity estimates a healthy 65-year-old couple will need $315,000 for medical expenses throughout retirement — and that doesn't include long-term care. Most people budget for Medicare premiums and call it done. The reality is far more expensive, and failing to plan for it is one of the fastest ways to deplete a nest egg.

What Medicare actually covers

Medicare Part A (hospital insurance) is premium-free if you paid Medicare taxes for 10+ years. Part B (medical insurance) costs $185+/month in 2026 and covers doctor visits and outpatient care. Part D (prescriptions) averages $55/month. But Medicare has deductibles, copays, and coinsurance — and it does not cover dental, vision, hearing aids, or long-term care. A Medigap or Medicare Advantage plan fills some gaps but adds premiums.

The real annual healthcare budget

• Medicare Part B: $2,200/year
• Part D prescription plan: $660/year
• Medigap supplemental: $2,400–$4,000/year
• Out-of-pocket costs: $2,000–$5,000/year
• Dental, vision, hearing: $1,500–$3,000/year
• Total for a healthy couple: $9,000–$18,000/year

Long-term care: the budget killer

Long-term care is the elephant in the room. A private room in a nursing home costs $100,000+/year. Home health aides run $60,000+/year. Medicare covers almost none of this — only short-term skilled nursing after hospitalization. Medicaid covers long-term care only after you've spent nearly all your assets. Long-term care insurance exists but is expensive and often has strict underwriting. Self-insuring by reserving $200,000–$400,000 is the strategy many planners recommend.

The HSA strategy

Health Savings Accounts are the most tax-advantaged vehicle in the U.S. tax code: deductible going in, tax-free growth, and tax-free coming out for medical expenses. If you have a high-deductible health plan before retirement, max your HSA ($8,550 family limit in 2026) and invest it aggressively. A $50,000 HSA balance at age 55, growing at 7%, becomes $140,000 by age 65 — enough to cover years of Medicare premiums and out-of-pocket costs.

Medicare enrollment deadlines

You must enroll in Medicare Part B within seven months of turning 65 (three months before, the month of, and three months after). Miss this window and you pay a lifetime late penalty of 10% per year delayed. If you're still working at 65 and have employer coverage, you may delay — but coordinate carefully to avoid gaps. The penalties are permanent and compound.