How to Plan for Medical Expenses in Retirement

Health care costs can skyrocket as you get older, so here's how to plan

By
Rebecca Lake
rebecca lake headshot
Full Bio
Rebecca Lake is a journalist with 10+ years of experience reporting on personal finance. She also assists with content strategy for several brands.
Learn about our editorial policies
Updated October 23, 2023
Reviewed by
David Kindness
David Kindness
Reviewed by David Kindness
Full Bio
David Kindness is a Certified Public Accountant (CPA) and an expert in the fields of financial accounting, corporate and individual tax planning and preparation, and investing and retirement planning. David has helped thousands of clients improve their accounting and financial systems, create budgets, and minimize their taxes.
Learn about our Financial Review Board
Fact checked by
Vikki Velasquez
Vikkie Velasquez
Fact checked by Vikki Velasquez
Full Bio
Vikki Velasquez is a researcher and writer who has managed, coordinated, and directed various community and nonprofit organizations. She has conducted in-depth research on social and economic issues and has also revised and edited educational materials for the Greater Richmond area.
Learn about our editorial policies

Health care can be one of the biggest expenses a person faces in retirement. A typical couple age 65 who retired in 2023 faces long term medical expenses of approximately $315,000, according to the annual Fidelity Retiree Healthcare Cost Estimate. This sum doesn’t include long-term care, over-the-counter medications, or dental services.

Whether you're early on in your career, close to retirement, or already making the transition out of the workforce, it's important to understand and plan for growing medical costs.

Key Takeaways

  • A typical 65-year-old retired couple in 2023 could face an estimated $315,000 in healthcare costs.
  • Individuals should plan for costs related to over-the-counter medications, long-term care, and dental care.
  • Medicare may pay for some health care in retirement but does not cover all of it.
  • HSA funds and long-term care insurance can help consumers prepare for healthcare planning costs.

Health Care and the Retirement Budget

A retirement budget depends on how much money will come in each month and total expenses. Only 41% of adults aged 60 and over feel confident that their retirement savings are on track. On average, those 65 and older spent $4,818 per month in 2022. Social Security is only expected to pay a maximum monthly benefit of $3,822 in 2024 to individuals who retire at the full retirement age.

Social Security is meant to supplement retirement savings and the Social Security Administration (SSA) reports that Social Security replaces about 40% of pre-retirement income for medium earners. Individuals need to look beyond Social Security and into other sources to cover medical expenses. How much retirement income to budget for health care depends largely on age and overall health.

Social Security benefits are subject to annual cost-of-living adjustments (COLAs), which are increases to keep up with inflation. The COLA for 2024 was 3.2%.

What Medicare Covers

Original Medicare plans are known as as Parts A and B. Part A covers hospital stays and procedures with an inpatient hospital deductible of $1,632 in 2024. The standard monthly premium for Part B, which covers doctor visits and outpatient treatments, is $174.70 in 2024. The Part B annual deductible for 2024 is $240. Plan premiums for Part D, the prescription plan, vary by income, but the average basic 2024 premium for standard Part D coverage is estimated at $55.50 in 2024.

Medicare does not cover long-term care. The program will cover some health care costs in retirement, but with limitations, according to Michael Gerstman, founder and financial advisor of Gerstman Financial Group. “For example, without a Part D prescription drug policy, Medicare does not cover medications.”

Parts A and B don’t cover dental and vision care, so you'll need to budget for deductibles, premiums, and other out-of-pocket costs. Private insurers approved by Medicare offer Medicare Advantage plans. These plans generally cover the same costs as Medicare and provide the Part D prescription drug benefit. Depending on the insurer and what the policy covers, one could pay less for a Medicare Advantage plan than Original Medicare. Some plans may also extend coverage to include costs associated with vision, dental, and hearing.

Order your copy of the print edition of Investopedia's Retirement Guide for more assistance in building the best plan for your retirement.

How to Pay for Healthcare

Health Savings Account (HSA)

If you're not yet enrolled in Medicare, you can save money for healthcare costs with a health savings account (HSA). HSA funds can be used to pay for certain medical premiums, including Medicare premiums and long-term care insurance premiums. These are available with high-deductible health plans (HDHPs) and offer triple tax advantages:

  • Deductible contributions
  • Tax-deferred growth
  • Tax-free withdrawals for qualified medical expenses

Those already in their 50s can maximize these plans by taking advantage of catch-up contributions and employer contributions. Individuals 55 or older can contribute $1,000 per year in addition to the maximum contribution limit. HSAs can be used for preventative screenings such as mammograms or annual physicals. For 2024, the regular HSA deduction limit is $4,150 for individual coverage and $8,300 for family coverage. These limits apply to employee and employer contributions combined.

Long-Term Care Insurance

Purchasing long-term care insurance is another way to fill the gap left by Medicare. This type of policy can pay a monthly benefit toward long-term care for either a specified amount of time, usually between two and five years, or for the remainder of your lifetime. Long-term care insurance premiums may not be affordable for everyone, but an alternative is buying a life insurance policy that has the option of adding a long-term care insurance rider.

How Can Retirees Plan for Dental Expenses?

If you do not have coverage for dental expenses via Medicare Advantage, you may also consider a standalone dental insurance plan. Many plans focus on the types of coverage that retirees need, including crowns, root canals, dentures, and tooth replacements.

How Do You Pay for Medical Expenses in Retirement?

There are a few ways to pay for medical expenses in retirement other than out of your pocket. This includes government programs such as Medicare, contributions you make to a Health Savings Account (HSA) before you turn 65, savings accounts, such as Roth or traditional IRAs, and long-term care and disability insurance.

What Is the Average Retirement Spending per Month?

Data from the Bureau of Labor Statistics show that the mean expenditure for those 65 and older was $4,818 per month in 2022.

The Bottom Line

Healthcare spending can account for a large share of a retirement budget. Estimating these costs and creating a strategy for spending can help preserve more of your retirement assets for other expenses.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. Fidelity. "How to Plan for Rising Health Care Costs."

  2. Social Security Administration. "Fact Sheet Social Security: 2024 Social Security Changes," Page 2.

  3. U.S. Bureau of Labor Statistics. "Table 1300. Age of Reference Person: Annual Expenditure Means, Shares, Standard Errors, and Relative Standard Errors, Consumer Expenditure Surveys, 2022," Page 1.

  4. Board of Governors of the Federal Reserve System. "Economic Well-Being of U.S. Households in 2022: May 2023," Page 69.

  5. Social Security Administration. "Retirement Benefits," Pages 4-5.

  6. Social Security Administration. "Cost-of-Living Adjustments."

  7. Centers for Medicare & Medicaid Services. "2024 Medicare Parts A & B Premiums and Deductibles."

  8. Centers for Medicare & Medicaid Services. “Medicare Advantage and Medicare Prescription Drug Programs to Remain Stable in 2024.”

  9. Centers for Medicare and Medicaid Services. "Long-Term Care."

  10. Centers for Medicare and Medicaid Services. "Your Medicare Coverage Choices."

  11. Centers for Medicare and Medicaid Services. "Medicare Advantage Plans Cover All Medicare Services."

  12. Internal Revenue Service. "Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans," Page 9.

  13. Internal Revenue Service. "Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans," Page 3.

  14. Internal Revenue Service. "Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans," Pages 4, 6.

  15. Internal Revenue Service. "Rev. Proc. 2023-23," Page 2.

  16. Internal Revenue Service. "Rev. Proc. 2022-24," Page 1.

  17. Internal Revenue Service. "Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans," Pages 3-4.

  18. Administration for Community Living. "What is Long-Term Care Insurance?"

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Part Of
After You Retire