A 65-year-old retiring in 2025 can expect to spend an average of $172,500 on healthcare and medical expenses throughout retirement, according to Fidelity’s 2025 Retiree Health Care Cost Estimate. That figure covers Medicare premiums and out-of-pocket costs but does not include long-term care.
Healthcare costs in retirement typically include Medicare premiums, out-of-pocket expenses, prescriptions, dental and vision care, and the risk of larger care needs as you age. A strong retirement plan uses realistic estimates for all of these categories, adds a buffer for the unexpected, and reviews the budget annually as costs change. This guide walks through each cost bucket, why estimates vary by person, and how to build a healthcare buffer into your retirement income plan.
Key Takeaways
- Monthly premiums are only one component of healthcare costs in retirement, and often not the largest one over time
- Out-of-pocket spending tends to rise with age as healthcare utilization increases
- A healthcare buffer in your retirement income plan protects against the cost spikes that are a predictable part of aging
- Healthcare inflation has historically outpaced general inflation and should be built into any long-term projection
What Are the 4 Main Healthcare Cost Buckets?
The four main healthcare cost buckets in retirement are premiums, deductibles and copays, prescriptions, and uncovered care like dental, vision, and hearing. Looking at all four together gives you a more accurate picture than focusing on premiums alone.
How Much Do Medicare Premiums Cost?
Premiums are the most visible healthcare cost in retirement because they arrive monthly as a predictable bill. For most retirees on Medicare, the premium picture includes multiple components.
The standard Medicare Part B premium is $202.90 per month in 2026. Higher-income beneficiaries pay more through IRMAA surcharges, which are based on income from two years prior. Medicare Part D, the prescription drug plan, has its own monthly premium that varies by plan and location. Retirees who add a Medigap supplemental policy pay an additional premium on top of Parts B and D. Retirees enrolled in Medicare Advantage instead of Original Medicare pay their plan’s premium in addition to Part B.
Added together, total monthly premiums for a Medicare beneficiary commonly range from $250 to $600 or more per month depending on plan choices, income level, and whether IRMAA applies. For a couple, this figure roughly doubles. Premiums also rise over time as Medicare adjusts its rates annually and as IRMAA brackets shift with income changes in retirement.
How Do Deductibles and Copays Add Up?
What you pay when you actually use healthcare is often more significant over time than the monthly premium, yet it is the cost most retirement budgets undercount. Medicare Part A carries a hospital deductible of $1,736 per benefit period in 2026. Part B has a $283 annual deductible followed by 20% coinsurance on most covered services, with no out-of-pocket maximum under Original Medicare alone.
This 20% coinsurance with no cap is one of the main reasons many Medicare beneficiaries add a Medigap policy or enroll in Medicare Advantage, both of which limit annual out-of-pocket exposure. Without supplemental coverage, a major surgery or extended hospital stay can produce thousands of dollars in cost-sharing in a single year.
For retirees who see specialists regularly, undergo imaging, receive physical therapy, or manage ongoing conditions, the annual buildup of copays and coinsurance can add hundreds to thousands of dollars per year on top of premiums. Building a realistic estimate of expected use is the only way to model this accurately.
How Should You Plan for Prescription Costs?
Retirees pay for over-the-counter medications and prescription costs beyond what Medicare covers, making prescription planning an important part of the healthcare budget. The Part D out-of-pocket maximum for covered drugs in 2026 is $2,100, after which covered prescriptions cost nothing for the rest of the year. For retirees who take expensive specialty or brand-name medications, this cap provides meaningful protection. For those who take primarily generic medications, annual drug costs may be modest.
Generic drug costs under Medicare are typically low, often a few dollars per month per medication. Brand-name and specialty medications at higher formulary tiers can carry copays of $50 to $100 or more per fill, and some specialty drugs require significant coinsurance before the annual cap is reached. Building your drug cost estimate around your actual current medications, at their actual cost tier in the plan you choose, is more accurate than using a general average.
What About Dental, Vision, Hearing, and Other Gaps?
Original Medicare does not cover routine dental, vision, or hearing care. These are gaps most retirees encounter sooner or later, often at meaningful cost.
Routine dental care, including cleanings, X-rays, fillings, and preventive treatment, represents a consistent annual expense. More significant dental work, including crowns, bridges, implants, or dentures, can cost thousands per procedure and tends to become more necessary with age. A realistic annual dental budget for a retiree without supplemental dental coverage might range from $500 to $2,000 or more in routine years, with much higher costs in years that require major work.
Vision care including eye exams, prescription glasses or contact lenses, and the growing likelihood of procedures like cataract surgery in later years adds to the total. Hearing aids, which Medicare does not cover, cost $1,500 to $5,000 or more per pair and may need replacement every three to five years.
Some Medicare Advantage plans include dental, vision, and hearing benefits, but the scope of coverage varies significantly and often has annual limits that do not cover major procedures. Standalone dental and vision insurance plans are available for purchase but carry their own premiums and coverage limits.
Why Do Healthcare Cost Estimates Vary by Person?
Healthcare cost estimates vary by person because of differences in health conditions and medications, location and provider access, and plan choice. National averages are useful as a benchmark, but your own situation usually pulls the number up or down.
How Do Health Conditions and Medications Affect Costs?
The single largest driver of individual variation in retirement healthcare costs is existing health conditions and the medications and services required to manage them. A retiree with controlled hypertension and a few generic medications may spend significantly less than the national average. A retiree managing diabetes, heart disease, and chronic pain with multiple brand-name medications and regular specialist visits may spend considerably more.
Actual healthcare costs in retirement depend on actual health status, area of residence, and longevity. The Fidelity estimate is a useful planning benchmark, but your own healthcare history and trajectory is the most relevant input for your specific budget.
How Does Location and Provider Access Affect Costs?
Healthcare costs vary meaningfully by geography. The same procedure can cost dramatically more in a major metropolitan area than in a mid-sized city or rural market. State-level insurance markets affect Medigap premium pricing. Local availability of specialists affects how accessible specialist care is and whether travel is required.
Retirees who live in or plan to move to high-cost markets should research local healthcare costs specifically rather than relying on national averages. Conversely, retirees in lower-cost markets may find their healthcare expenses are meaningfully below national benchmarks.
How Does Plan Choice and Network Affect Costs?
The choice between Medicare Advantage and Original Medicare with Medigap significantly affects both the monthly premium and the out-of-pocket cost structure. A Medicare Advantage plan with a low or zero-dollar premium may carry higher cost-sharing when care is used. Original Medicare with a comprehensive Medigap policy typically carries higher monthly premiums but minimal cost-sharing at the point of care.
The plan you choose is one of the levers you actually control in your healthcare budget. Reviewing it annually and adjusting it as your health situation, medications, and care needs evolve is one of the most impactful actions you can take to manage healthcare costs in retirement.
How Do You Build a Healthcare Buffer in Retirement?
You build a healthcare buffer by setting a realistic base budget, adding a cushion for higher-cost years, planning for healthcare inflation, and reviewing the budget annually. Each piece keeps your retirement income plan aligned with what healthcare actually costs over time.
What Is a Realistic Base Budget Plus Cushion?
Start by building a realistic base monthly healthcare budget using your actual current costs as the foundation. Include all premiums, an estimate of annual out-of-pocket costs divided by twelve, an estimate of prescription costs, and a monthly contribution toward dental and vision expenses. This base budget is your expected annual cost in a normal year.
Then add a cushion of 15% to 25% above that base figure. Healthcare in retirement is not evenly distributed across years. Some years are routine and low-cost. Others involve a hospitalization, a major dental procedure, or a new diagnosis that requires new medications and specialist visits. The cushion absorbs those higher-cost years without disrupting your retirement income plan.
A separate healthcare reserve account, funded over time, can serve as the buffer for larger unexpected expenses. Think of it as the healthcare equivalent of a home maintenance reserve. You contribute to it regularly and draw from it when a significant healthcare expense arises rather than treating it as a surprise to your income plan. Coordinated investment management keeps the reserve liquid without sacrificing the rest of your portfolio’s growth.
How Should You Plan for Healthcare Inflation?
Healthcare inflation has historically run 5% to 6% per year, significantly higher than general inflation. Fidelity’s healthcare cost estimate has more than doubled, from $80,000 in 2002 to $172,500 in 2025. A retirement income plan that uses today’s healthcare costs throughout a 20 or 30 year retirement will materially understate what healthcare actually costs in the later years.
Apply a healthcare-specific inflation assumption of 4% to 6% per year when projecting healthcare costs forward. This adjustment is particularly important for expenses that do not have the same regulatory cost management as Medicare, including dental, vision, and hearing care, which tend to rise with general healthcare labor and supply costs.
How Often Should You Review Your Healthcare Budget?
Healthcare costs are not static, and a retirement income plan that does not adjust for actual changes in healthcare spending will drift from reality over time. Build an annual healthcare budget review into your regular financial planning cadence. The review should update your premium total based on plan changes or rate increases, adjust your drug cost estimate if your medications have changed, reflect any new diagnoses or treatment needs that affect expected use, and confirm that your healthcare reserve is adequately funded.
The Annual Open Enrollment Period for Medicare, which runs from October 15 to December 7 each year, is a natural trigger for the healthcare portion of your annual financial review. Pairing that window with your broader Retirement Planning Checklist (5 Years Before You Retire) keeps both your plan choices and your healthcare budget aligned.
FAQs
The most commonly overlooked expenses are dental care beyond cleanings, hearing aids, vision care including glasses and contact lenses, over-the-counter medications and supplements, medical travel for specialist appointments not available locally, and the accumulating cost of copays and coinsurance from regular specialist visits. Long-term care costs are separate from this budget entirely and represent an additional layer of planning. Retirees also frequently underestimate how costs escalate with age as healthcare utilization increases and as more significant interventions become necessary.
No. Medicare premiums adjust annually. Part B premiums, the IRMAA surcharges for higher-income beneficiaries, Part D plan premiums, Medigap premiums, and Medicare Advantage premiums all change from year to year. Medigap premiums in particular tend to increase with both age and general healthcare cost trends. A retirement income plan that assumes flat Medicare premiums will underestimate healthcare costs over time. Building in an annual premium increase assumption of 4% to 6% is more realistic than assuming current premiums persist throughout retirement.
Prescriptions can represent a modest or a very significant portion of retirement healthcare costs depending entirely on what you take. Generic medications are generally inexpensive under Medicare Part D. Brand-name medications at higher formulary tiers carry materially higher copays. Specialty medications, which include many newer biologics and targeted therapies for conditions like rheumatoid arthritis, cancer, and multiple sclerosis, can carry very high coinsurance before the annual out-of-pocket cap is reached. The 2026 Part D out-of-pocket maximum of $2,100 for covered drugs provides meaningful protection at the top end for retirees taking expensive specialty medications. For everyone else, actual annual drug costs depend on the specific medications, their formulary tiers, and the plan chosen.
A working estimate for routine dental care is $500 to $1,500 per year for preventive and basic restorative work. However, many retirees face significant dental expenses in the form of crowns, bridges, implants, root canals, or partial and full dentures, which can cost several thousand dollars per procedure. Building a separate dental reserve of $2,000 to $5,000, funded incrementally each year, provides a cushion for the major dental work that tends to arise unpredictably. If you have significant existing dental issues, higher-cost dental regions, or a history of extensive dental work, scale that estimate upward accordingly.
Chronic conditions increase expected healthcare costs in retirement in proportion to how actively they require management, what medications they require, and what specialist care they involve. A well-managed chronic condition with stable generic medications and periodic primary care monitoring adds modest cost above the baseline. A condition requiring regular specialist visits, frequent labs or imaging, brand-name or specialty medications, and ongoing interventions can add thousands of dollars per year in premiums and out-of-pocket costs above national averages. If you have one or more significant chronic conditions, build your retirement healthcare budget from your actual current spending rather than from the national average, and plan for costs to increase as the condition progresses with age.
Yes, significantly. The IRMAA surcharge adds to the standard Part B and Part D premiums for beneficiaries whose modified adjusted gross income exceeds certain thresholds. IRMAA is based on income from two years prior, so a high-income year from a home sale, a large Roth conversion, or elevated RMDs can produce higher Medicare premiums two years later even if current income is lower. In 2026, IRMAA surcharges begin for single filers with income above $109,000 and for married couples above $218,000. The surcharges are calculated on a sliding scale with multiple tiers. Coordinating large income events in retirement with your advisor and CPA to anticipate IRMAA exposure is one of the most practical ways to avoid unexpected increases in your Medicare costs.
For most retirees, treating healthcare as a dedicated category within the retirement income plan, rather than folding it into general living expenses, produces better visibility and better planning. Healthcare costs behave differently from other expenses. They tend to increase with age, are subject to higher inflation rates, and can spike unexpectedly. A dedicated healthcare budget line and a separate healthcare reserve fund allow you to track actual versus expected healthcare spending, identify when adjustments are needed, and absorb higher-cost healthcare years without disrupting the rest of the income plan.
At minimum, annually. Use the Medicare Annual Open Enrollment Period in the fall as a natural trigger for reviewing both your plan choices and your healthcare cost projections for the coming year. Update your premium total based on any plan changes, rate increases, or income changes that affect IRMAA. Adjust your prescription cost estimate if your medications have changed. Reflect any new diagnoses or significant care events that change your expected utilization. And review your healthcare reserve to confirm it is adequately funded relative to your current planning assumptions.
Build a Healthcare Budget That Works for Retirement
Healthcare costs are one of the most significant and most under-planned expenses in retirement. A clear plan protects your monthly budget, your reserves, and your peace of mind across a long retirement.
At Bauman Wealth Advisors, our Return on Life® process connects healthcare costs with your income, tax, investment, and estate plan so every part works together. We help you build a realistic annual budget, anticipate IRMAA implications, and make sure your plan reflects what healthcare in retirement actually costs at your income level and health situation.
If you want to make sure your retirement income plan accounts for realistic healthcare costs, anticipates IRMAA implications, and includes an appropriate buffer for what healthcare in retirement actually looks like, schedule a complimentary consultation with a CFP® professional at Bauman Wealth Advisors or meet our team to start the conversation. We do money. You do life.
