Health Care Costs in Retirement: What Every Senior Needs to Know

Retirement should be a time of peace, not panic over rising health care bills. However, between Medicare premiums, long-term care, and prescription drugs, health expenses can quickly become one of the largest line items in your retirement budget. If you’re not prepared, they can erode your savings faster than you might expect.

In this guide, we’ll walk you through:

• How much health care might really cost you in retirement
• What Medicare covers (and what it doesn’t)
• Costs before age 65 if you retire early
• Smart planning strategies for managing medical expenses
• How to unlock hidden cash from a life insurance policy you no longer need

Let’s get into it.

The Real Cost of Health Care in Retirement

How much does health care cost in retirement? A retired couple aged 65 in the U.S. can expect to spend around $330,000 on health care throughout retirement, according to Fidelity’s 2024 Retiree Health Care Cost Estimate. This figure assumes average health and longevity and excludes long-term care costs. (Fidelity)

Many retirees underestimate just how much they’ll spend on health care. A 2024 estimate from RBC Wealth Management puts the lifetime health care cost for a 65-year-old couple at $683,306, and that doesn’t include long-term care. Meanwhile, Charles Schwab cites research from the Employee Benefit Research Institute (EBRI) that estimates a couple may need $351,000 to have a 90% chance of covering their retirement health care expenses.

Why such a wide range? Because health care spending depends on many personal factors: your health status, where you live, what kind of insurance you carry, how long you live, and whether you need long-term care.

Without proper planning, these costs can be financially devastating. A 2023 EBRI report found that retirees spend an average of 12% or more of their income on medical expenses, with that number rising sharply with age.

By age 85, the average couple may spend around $40,000 per year just on health care. And yet, many Americans expect to spend less than $3,000 annually, a dangerous underestimation that can lead to financial strain and tough tradeoffs later in life.

What Medicare Covers (and What It Doesn’t)

Medicare is the federal health insurance program for Americans aged 65 and older, and it plays a key role in managing medical costs in retirement. But Medicare doesn’t pay for everything, and understanding its limitations is critical.

Here’s what each part covers:

• Part A (Hospital Insurance): Covers hospital stays, short-term skilled nursing facility care, hospice, and some home health care. Most people don’t pay a premium.
• Part B (Medical Insurance): Covers doctor visits, outpatient services, preventive care, and durable medical equipment. Requires a monthly premium (starting at $174.70 in 2024). (Medicare.gov)
• Part D (Prescription Drugs): Optional coverage for medications. Premiums vary by plan and income.
• Medigap (Supplemental Insurance): Private policies that help cover Part A and B costs not covered by Medicare, such as copayments and deductibles.
• Medicare Advantage (Part C): Combines Parts A and B and usually D into one plan offered by private insurers. May have lower premiums but limit provider networks.

What Medicare Covers vs. What It Doesn’t

Failing to plan for these gaps can lead to unexpected out-of-pocket expenses later in retirement. According to EBRI, even with Medicare, retirees can expect to pay 15% or more of their annual income on uncovered services. 

To close these gaps, many retirees purchase Medigap policies or opt for Medicare Advantage plans with broader coverage. Choosing the right plan depends on your health needs, preferred providers, and budget. Be sure to review plan details annually during the Medicare Open Enrollment Period (October 15 – December 7).

Health Insurance Costs Before Age 65

If you retire early before age 65, you’ll need to find private health insurance until Medicare kicks in. This can be a major expense.

A report from SmartAsset via Nasdaq found that early retirees between the ages of 62 and 64 can expect to pay the following for individual ACA coverage:

• Age 62: ~$1,072/month
• Age 63: ~$1,102/month
• Age 64: ~$1,120/month

For a couple, that’s more than $26,000 per year, and that doesn’t include deductibles, co-pays, or other out-of-pocket expenses. In other words, the average monthly health insurance cost for a retired couple ages 62–64 is approximately $2,100.

These plans are often purchased on the ACA (Affordable Care Act) marketplaces. While subsidies may be available, early retirees with moderate income may not qualify.

If you’re not eligible for COBRA, a spouse’s employer plan, or retiree benefits from a former job, planning ahead is essential. High insurance costs in early retirement can quickly drain your savings if not accounted for.

What’s the Average Monthly Health Insurance Cost for a Retired Couple?

For a retired couple between the ages of 62 and 64, the average monthly health insurance cost is approximately $2,100 if they purchase individual coverage through the ACA marketplace.

This figure is based on estimated monthly premiums of:

• $1,072 at age 62
• $1,102 at age 63
• $1,120 at age 64

These costs do not include deductibles, co-pays, or other out-of-pocket expenses. And without employer-sponsored insurance or subsidies, early retirees often bear the full cost themselves.

Disclaimer: Premium estimates are based on data from a SmartAsset report published via Nasdaq, which uses 2024 ACA marketplace benchmarks and age-based premium multipliers permitted under federal law. Actual costs may vary depending on state, plan selection, income-based subsidies, and other factors. Always consult a licensed insurance agent or use the KFF Health Insurance Marketplace Calculator to get a personalized estimate.

How to Manage Health Insurance Costs Before Age 65

• Incorporate these years into your retirement plan to make sure your savings will last.
• Consider high-deductible or short-term plans if you’re healthy and need to lower your monthly premium.
• Maximize your HSA (Health Savings Account) while you’re still working, and you can use it tax-free for medical expenses in retirement.
• Time your retirement strategically. Working even six months longer could extend your employer coverage and reduce the length of the gap.

Health insurance before Medicare can be costly, but with the right strategy, you can cover the gap without draining your savings.

6 Factors That Affect Your Health Care Costs

Health care expenses in retirement can vary dramatically from one person to the next. What you spend will depend on these six personal factors:

1. Your Health Status
   Chronic conditions like diabetes, heart disease, or arthritis often require ongoing medications, specialist visits, and more frequent care—all of which drive up costs.
2. Your Medicare Coverage Choices
   Choosing between Medicare Advantage, Original Medicare with Medigap, or standalone drug plans impacts what you’ll pay in premiums, copays, and deductibles.
3. Loss of Employer Subsidies
   Before retirement, your employer likely covered a significant portion of your health insurance premiums. Once retired, the full cost becomes your responsibility.
4. Your Retirement Age
   Retiring at 62 vs. 67 means you may need to cover private insurance premiums for several years before Medicare eligibility at 65, often at high out-of-pocket rates.
5. Where You Live
   Health insurance premiums, provider fees, and drug prices can vary dramatically depending on your state and even your ZIP code. Some retirees even relocate to manage health costs more effectively.
6. Your Income in Retirement
   Higher income can trigger Medicare surcharges known as IRMAA (Income-Related Monthly Adjustment Amounts), increasing your Part B and D premiums. Managing your income sources wisely can help reduce these costs.

Understanding these factors and adjusting your strategy accordingly can help you avoid surprises and stay on track financially.

Long-Term Care: The Sleeper Expense

One of the most significant yet often overlooked aspects of retirement planning is long-term care. This encompasses not only nursing homes but also services like home health aides, assisted living, and adult day care.

• 70% of individuals over 65 will require some form of long-term care during their lifetime (Bank of America).
• Medicare generally does not cover long-term custodial care.
• Home Health Aide: The national median annual cost is $77,792, based on 44 hours per week (according to CareScout).
• Nursing Home (Private Room): The national median annual cost is $127,750 (Genworth).
  

Long-term care insurance is one option to prepare for these expenses, but policies can be costly, especially if purchased later in life. Alternatives include hybrid life insurance policies with long-term care riders. Regardless of the approach, it’s crucial not to overlook this aspect of retirement planning, as long-term care costs can rapidly deplete retirement savings.

Health Savings Accounts (HSAs) and Roth Conversions

For those still working, a Health Savings Account (HSA) is one of the most powerful tools to prepare for health care costs in retirement. They offer a triple tax advantage:

• Contributions are tax-deductible.
• Earnings grow tax-free.
• Withdrawals are tax-free when used for qualified medical expenses.

Funds in an HSA can be used in retirement to pay for:

• Medicare premiums (excluding Medigap).
• Out-of-pocket medical costs.
• Dental and vision expenses.
• Prescription drugs.
• Certain long-term care services.

Unlike Flexible Spending Accounts (FSAs), HSAs roll over from year to year, making them ideal for long-term savings. Once you turn 65, you can even use HSA funds for non-medical expenses without penalty (though they will be taxed like regular income).

Roth Conversions

Another strategic move is converting a traditional IRA or 401(k) into a Roth IRA before you enroll in Medicare.

Roth IRA withdrawals in retirement are tax-free and, importantly, don’t count toward your Modified Adjusted Gross Income (MAGI). That can help you avoid IRMAA surcharges, which increase Medicare Part B and D premiums for higher-income retirees.

Tip: Medicare uses a two-year look-back to determine your premiums. That means income from age 63 affects what you pay at age 65.

A well-timed Roth conversion in your early 60s could help reduce your future Medicare costs. Be sure to talk with a financial advisor to determine the right amount and timing of any conversion.

These two tools, HSAs and Roth conversions, are often overlooked but can make a big difference in preserving your retirement savings and controlling your health care expenses.

Lifestyle Choices: Your Health Is Part of Your Financial Plan

While many health care costs in retirement are out of your control, your lifestyle can still have a powerful influence. Preventive habits can help you avoid costly chronic conditions and reduce your reliance on medical services.

Simple but impactful actions include:

• Eating a balanced, nutrient-rich diet
• Staying physically active with regular exercise
• Attending annual checkups and screenings
• Avoiding tobacco and limiting alcohol
• Managing stress and prioritizing sleep
  

According to the CDC (Centers for Disease Control and Prevention), chronic diseases account for 90% of the nation’s $4.1 trillion in annual health care costs, most of which are preventable with lifestyle changes.

Taking care of your physical and mental health doesn’t just improve your quality of life; it can also protect your savings. When you stay healthier longer, you reduce the risk of major medical events, hospital stays, or long-term care needs that could derail your retirement finances.

Think of it this way: every step you take to invest in your well-being now could save thousands in health care expenses later.

Turn a Policy Into Cash: Life Settlements Explained

What if you’re already retired or nearing it, and you don’t have time to grow savings?

If you have a life insurance policy you no longer need or want, a life settlement may offer a powerful solution.

What’s a life settlement?

A life settlement is a financial transaction where you sell your existing life insurance policy to a licensed buyer in exchange for a lump sum of cash, which is higher than the surrender value.

The buyer takes over premiums and collects the death benefit. You get cash to use however you need, health care costs, long-term care, debt relief, or peace of mind.

If you want to learn more, you can read our article about how to calculate the cash value from your life insurance policy.

You may qualify if:

• You’re 65 or older
• Your policy has a death benefit of $100,000 or more
• You’ve had a change in health or no longer need the policy

Start with a free estimate. No obligation. No hassle.

Final Thoughts: Take Control of Health Care in Retirement

Health care expenses can no longer be an afterthought. Between rising premiums, gaps in Medicare, and long-term care needs, the average retiree faces a real financial threat.

But you don’t have to face it unprepared:

• Understand your coverage
• Budget annually, not just in lifetime estimates
• Explore savings tools like HSAs
• And if needed, unlock cash from assets like your life insurance policy.

Retirement should be your time. Don’t let medical costs take it from you.

Need help now? See what your policy could be worth today.