Healthcare costs in retirement

According to RBC Wealth Management,¹ most of their pollees expect to spend about $2,700 a year on routine healthcare in retirement. This would cover modest out-of-pocket costs. In reality, the estimated healthcare costs in retirement are close to $6,500 a year for a healthy person at age 65 to 74, amounting to $13,000 a year for a couple in good health.

Estimated healthcare costs in retirement increase dramatically with age. Couples at age 75 to 84 have estimated routine healthcare costs of up to $23,000, increasing to $40,000 at age 85+ per year. These expenses don’t include long-term care costs, which could be up to $100,000 a year.

Keep also in mind that these are out-of-pocket costs, because Medicare doesn’t cover all expenses. So, people have to find ways to fill the gap between Medicare coverage and out-of-pocket healthcare costs that may deplete their savings.

Health insurance costs for retirees depend on factors such as inflation, the economy, premiums, deductibles, and co-pays. Healthcare expenses have been climbing at a rate of 1.5 to 2 times the rate of inflation. Even when considering Medicare coverage, it is estimated that by age 65, healthcare costs will take up to 15 percent of an individual’s overall spending.

The average monthly health insurance costs for retirees also depend on their age, health status, location, and their chosen insurance coverage. According to CNBC,² the monthly cost of health insurance in retirement is around $170.10. Such high healthcare costs for retirees put them at risk of outliving their retirement savings.

Therefore, it’s important to plan ahead and figure out how much you need to put aside for future healthcare costs, as well as understanding exactly what your health insurance covers.

Medicare coverage can be divided into different parts. Part A and Part B, also known together as Original Medicare, cover hospital stays and medical services. However, they generally don’t include coverage for vision, hearing, dental care, prescription drugs, or medical care outside the U.S.

Medicare Part C (Medicare Advantage) is a private insurance alternative that covers almost everything. The downside is that it is often restricted to a limited network of providers.

For a drug plan and coverage of out-of-pocket costs, there is Medicare Part D and a Medicare Supplement Insurance Policy (Medigap) that you need in addition to your Original Medicaid for it to cover your retirement healthcare costs.

Typically, Medicare Part A is premium-free, whereas there are monthly premiums for Part B ($174.70 or higher), some Part C plans, Part D prescription coverage, and Medigap.

Keep in mind, before Medicare Part A begins to pay, there is a $1,676 deductible per benefit period for each inpatient hospital stay in 2025. If you have many of these benefit periods in a year, you would have to pay the deductible each time, as there is no limit to the number of benefit periods you can have in a single year

The monthly premium for Medicare Part B depends on your income but starts at $185 in 2025, up from $174.70 in 2024. Medicare Part D premiums vary depending on your income and the plan you choose. In 2025, the national base premium is $36.78, but actual plan premiums can vary widely. On top of that, higher-income beneficiaries may pay an additional $13.70 to $85.80 per month.

What if I retire before age 65?

If your employer doesn’t cover healthcare costs in retirement, you might need to consider other options for health insurance that cover your expenses until you’re Medicare eligible.

To do so, you have various options:

• Joining your partner’s plan
• Keeping your employer’s insurance plan under COBRA (Consolidated Omnibus Budget Reconciliation Act)
• Purchasing health insurance
• Opening a health savings account (HSA)

Due to the increasing healthcare costs in retirement, it is crucial to plan ahead and allow for future medical expenses in your overall financial plan. By including at least a five percent inflation rate in your calculations, you might have a realistic view of your healthcare expenses per year. A retirement financial advisor may be able to help you to figure out how to pay for it and choose a suitable retirement savings account.

A crucial part of saving is time. The earlier you put money aside in your working years, the greater your nest egg will be. There are several other options to plan ahead:

401(k) and IRAs

Tax-advantaged accounts such as 401(k)s and IRAs might help cover costs of healthcare in retirement. With a 401(k) and traditional IRA, there are no taxes until withdrawal in retirement. A Roth IRA, in contrast, is funded with after-tax dollars, so your investments grow tax-free and withdrawals in retirement are also tax-free.

Health savings accounts

Health savings accounts (HSAs) allow you to save for the costs of healthcare in retirement with a rare triple tax benefit. Due to pre-tax contributions, your investments can grow tax-free, and eligible health care withdrawals are also tax-exempt.

Money can be withdrawn from an HSA at any time. It can make sense to use it as an investment vehicle for the future, as you have an annual contribution limit of $4,300 for individuals and $8,550 for couples. If you’re 55 or older, you can contribute an additional $1,000 as a catch-up contribution.

Once you enroll in Medicare, you can’t contribute to your HSA anymore, but you might be able to cover most out-of-pocket expenses and Medicare premiums.

Long-term care insurance

If you’re age 65 or older and your out-of-pocket costs remain high even after Medicare coverage, supplemental Medicare insurance, known as Medigap, might be a solution.

Medigap can be used to fund Medicare co-pays, deductibles, and coinsurance. To be allowed to use Medigap, you need to be enrolled in both Medicare Part A and Part B. In addition to your Medicare premiums, you must pay a separate premium for the supplemental insurance.

Another possibility is long-term care insurance that funds nursing home stays, assisted living, and adult daycare expenses. With a long-term care insurance policy, you have a monthly premium to a private insurance company. While everyone has different priorities, it can be wise to start saving for long-term care in your 40s or 50s.

A high-interest savings account can complement your healthcare savings plan. By exploring accounts with competitive interest rates, you can build up your own pot of savings to put towards those out-of-pocket costs in retirement. Compare the top rates on our marketplace and get started today!

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

1. https://www.rbcwealthmanagement.com/assets/wp-content/uploads/documents/insights/taking-control-of-health-care-in-retirement.pdf
2. https://www.cnbc.com/select/how-much-expect-to-spend-on-medical-expenses-in-retirement/