How much should I budget for healthcare in retirement?

Plan for Medicare premiums plus supplemental coverage as a recurring monthly expense per person, plus a liquid reserve for dental, vision, and hearing that Medicare doesn't cover. Long-term care is a separate planning item with its own funding decision. Exact figures depend on your health, coverage choices, and location.

Does Medicare cover long-term care?

No. Medicare covers limited skilled nursing care after a qualifying hospital stay, but not extended custodial care — the help with daily living activities that most long-term care involves. That cost falls to you, long-term care insurance, a hybrid product with an LTC rider, or (after assets are spent down) Medicaid.

What is IRMAA and how do I avoid it?

IRMAA is a Medicare premium surcharge for higher-income retirees, based on your tax return from two years prior. Managing taxable income — timing Roth conversions, large withdrawals, and capital gains around the published thresholds — can reduce or avoid it. Crossing a threshold by even one dollar triggers the full tier.

What happens to healthcare costs if I retire before 65?

You'll need bridge coverage until Medicare begins — typically ACA marketplace insurance, COBRA, or a spouse's plan. The bridge years are often the most expensive insurance period of your life and should be priced explicitly before committing to an early retirement date.

Handling healthcare costs in retirement | Annuity.com

Healthcare is one of the largest — and most consistently underestimated — expenses in retirement. Fidelity's widely cited annual estimate puts lifetime healthcare costs for a 65-year-old retiring today well into six figures per person, and that figure excludes long-term care entirely. The good news: healthcare costs are plannable. They arrive in knowable categories with knowable ranges. The bad news: most retirement plans treat healthcare as an afterthought line item. This guide breaks the cost into its four real components and shows how to fund each one.

Component 1: Medicare premiums — the predictable base

Medicare is the foundation of retiree healthcare, but it is neither free nor comprehensive. Part A (hospital insurance) is premium-free for most people. Part B (medical insurance) carries a monthly premium set annually. Part D (prescription coverage) adds another premium that varies by plan.

Then comes gap coverage. What Medicare doesn't cover: most dental, vision, hearing aids, and the 20% coinsurance on Part B services with no out-of-pocket maximum. Most retirees fill the gaps one of two ways — a Medigap supplement plus standalone Part D, or a Medicare Advantage plan. Medigap costs more in premium but minimizes surprise bills and preserves provider choice; Advantage plans run cheaper monthly but use networks and shift more cost to point of service. The right answer depends on your health, your providers, and your tolerance for variable costs.

Planning takeaway: budget Medicare premiums plus supplemental coverage as a fixed monthly expense per person — and assume the category grows faster than general inflation, because historically it has.

Component 2: IRMAA — the surcharge that surprises retirees

Income-Related Monthly Adjustment Amounts (IRMAA) increase Medicare Part B and Part D premiums for higher-income retirees — and the thresholds are evaluated against your tax return from two years prior. A large IRA withdrawal, a Roth conversion, or a capital gain realized at 63 can raise your Medicare premiums at 65. Crossing a threshold by a single dollar triggers the full surcharge tier.

This makes income timing a genuine planning lever in the years around Medicare enrollment: coordinating withdrawals, conversions, and asset sales against the IRMAA brackets can save thousands. Our IRMAA risk checker shows whether your income trajectory is approaching a threshold.

Component 3: Out-of-pocket costs Medicare never touches

Dental work, vision care, hearing aids, and over-the-counter health spending fall largely outside Medicare. Individually small, they compound into a real annual figure — and big-ticket dental (implants, crowns) arrives in lumps. A dedicated health reserve — a liquid fund earmarked for these costs — keeps them from raiding your income plan. If you retire before 65, add the bridge problem: ACA marketplace coverage for the years before Medicare is often the single most expensive insurance period of your life, and it deserves its own line in any early-retirement budget.

Component 4: Long-term care — the unfunded risk

Medicare does not pay for extended custodial care — help with bathing, dressing, eating — whether at home or in a facility. Genworth's cost-of-care survey data puts private nursing home rooms above $100,000 per year in much of the country, with full-time home health aides not far behind. Roughly half of people turning 65 will need some form of paid long-term care in their lifetime, and care needs commonly arrive late in retirement, after years of inflation have compounded the prices.

The funding options, each with real trade-offs:

Traditional long-term care insurance — dedicated coverage, but premiums have risen sharply and policies can be hard to qualify for later in life.
Hybrid life or annuity products with LTC riders — combine a death benefit or annuity value with accelerated access for care; if care is never needed, the value isn't forfeited. Some annuities offer enhanced-withdrawal riders that increase income if you can't perform activities of daily living — see our guide to annuity riders.
Self-funding from earmarked assets — viable for larger estates; requires honestly sizing the earmark and protecting it from being spent twice.

The wrong answer is the common one: leaving long-term care as the plan's unstated gap and hoping.

A practical planning framework

Budget premiums (Part B + D + supplement) as a fixed per-person monthly expense growing faster than inflation.
Hold a liquid health reserve for dental, vision, hearing, and deductibles.
Coordinate withdrawals and Roth conversions with IRMAA thresholds in the years before and during Medicare enrollment.
Choose a long-term care funding mechanism deliberately — insurance, hybrid, or earmarked assets — and write it into the plan.
If retiring before 65, price the ACA bridge years explicitly.

Where guaranteed income fits

Healthcare costs are most dangerous when they collide with market losses — a health event forcing withdrawals from a portfolio that's down 25% does double damage. Covering essential expenses, including healthcare premiums, with guaranteed sources — Social Security plus lifetime annuity income — removes that collision scenario. Our longevity calculator is a useful starting point: healthcare planning horizons should run to your realistic lifespan, not the average.

If you'd like help sizing the healthcare line in your income plan — including whether an income floor or LTC-rider product fits — connect with a licensed agent. The consultation is free, with no obligation.

Handling healthcare costs in retirement