Healthcare is one of the largest and most unpredictable expenses many retirees face. According to Fidelity's 2026 Retiree Health Care Cost Estimate, a 65-year-old retiring in 2026 could expect to spend approximately $185,500 in after-tax dollars on healthcare throughout retirement, excluding long-term care.
For couples relying heavily on a traditional 401(k) or IRA, the amount needed can be significantly higher because withdrawals are generally taxable. Depending on their tax bracket and circumstances, funding healthcare expenses could require $500,000 or more in pre-tax retirement assets.
That's why healthcare planning isn't just about estimating medical expenses—it's also about understanding taxes, Medicare coverage, inflation, and where the money will come from.
Healthcare expenses are different from many other retirement expenses.
You can generally make adjustments to discretionary spending if travel or entertainment costs increase. Healthcare expenses, however, may be much less flexible.
A major illness, surgery, chronic condition, prescription medication, or need for assistance with daily activities can dramatically change a retiree's financial needs.
Healthcare costs can include:
And these expenses can change throughout retirement.
This makes healthcare inflation an important consideration when developing a long-term retirement income strategy.
There is no single "average healthcare cost per year in retirement" that accurately represents every retiree.
Some estimates focus on premiums and out-of-pocket medical expenses, while others include a broader range of healthcare costs.
For example, Fidelity's 2026 estimate projects that a 65-year-old retiring in 2026 could need approximately $185,500 after taxes over the course of retirement for healthcare and medical expenses. A couple retiring at 65 could therefore face substantially higher combined costs.
However, this should not be interpreted as a required savings target for every individual.
Actual costs can be significantly higher or lower depending on health, longevity, insurance coverage, location, and other circumstances. Importantly, the Fidelity estimate excludes long-term care.
The better question isn't simply:
"How much will healthcare cost?"
It's:
"How will I pay for healthcare throughout each stage of retirement?"
One of the most common retirement healthcare misconceptions is assuming that Medicare will cover virtually all medical expenses.
It doesn't.
Original Medicare covers many medically necessary healthcare services, but there are important exclusions and cost-sharing requirements.
For example, Original Medicare generally does not cover:
Medicare Advantage plans may offer additional benefits that Original Medicare does not, but coverage varies by plan.
Understanding what Medicare doesn't cover is an essential part of planning for healthcare costs in retirement.
Medicare isn't free simply because you have reached age 65.
For 2026, most people pay no premium for Medicare Part A because they or their spouse paid Medicare taxes for the required period. However, Part B has a monthly premium.
The standard 2026 Medicare Part B premium is $202.90 per month, although higher-income beneficiaries may pay more because of the Income-Related Monthly Adjustment Amount (IRMAA). The 2026 Part B deductible is $283. After the deductible, Original Medicare generally requires beneficiaries to pay 20% of the Medicare-approved amount for covered Part B services.
Medicare Part D prescription drug coverage also has premiums and other costs, and higher-income beneficiaries may pay an additional Part D IRMAA surcharge.
This means your retirement healthcare budget should account for more than just a Medicare premium.
Even with Medicare coverage, retirees may have significant out-of-pocket medical expenses in retirement.
These can include:
With Original Medicare, there is generally no annual limit on out-of-pocket costs for covered services unless you have supplemental coverage such as Medigap or use a Medicare Advantage plan. Medicare Advantage plans have annual out-of-pocket limits for covered services, although the limits and cost-sharing structures vary by plan.
For retirement planning purposes, it can be helpful to distinguish between predictable healthcare premiums and unexpected medical expenses.
Even if your medication costs are relatively low today, prescriptions may become more expensive as your healthcare needs change.
Medicare Part D can help cover prescription medications, but premiums, deductibles, formularies, and cost-sharing vary by plan.
For 2026, no Medicare Part D plan may have a deductible greater than $615, although some plans have lower deductibles or none at all.
Retirees should review prescription drug coverage periodically rather than assuming the plan that worked well several years ago will remain the most appropriate choice.
Healthcare planning can be particularly challenging for people who retire before age 65.
Medicare eligibility generally begins around age 65, meaning someone who retires at 62, 60, or earlier may need to fund several years of healthcare coverage before Medicare begins.
This raises an important question:
"How do I get health insurance before I qualify for Medicare?"
Individuals retiring before Medicare eligibility may have several potential sources of coverage, depending on their circumstances, including:
The cost and availability of coverage can vary substantially.
This is why retiring early requires healthcare planning that extends beyond simply estimating future Medicare premiums.
One of the biggest mistakes retirees can make is treating long-term care as though it were simply another Medicare expense.
It isn't.
Does Medicare cover long-term care?
Generally, no.
Medicare does not pay for most long-term custodial care, including assistance with activities of daily living such as bathing, dressing, and eating. Medicare may cover certain short-term skilled nursing services when specific conditions are met, but that is different from long-term custodial care.
This distinction is extremely important.
A person may have Medicare coverage and still face substantial costs if they eventually need long-term care.
Long-term care can be one of the largest expenses retirees face, and costs can vary significantly depending on where care is received.
According to Genworth and CareScout's 2024 Cost of Care Survey, the national median annual cost was approximately:
Virginia's statewide costs are already higher than some national medians, and Northern Virginia can be considerably more expensive than both the national and statewide averages, particularly for assisted living, memory care, and nursing home services.
This is important when considering long-term care costs in retirement planning. Using a national average may underestimate what a retiree could actually pay for care in Northern Virginia.
Long-term care planning should therefore consider not only the potential need for care, but also local costs, inflation, the length of care, and how those expenses would be funded. Options may include personal retirement assets, long-term care insurance, or a combination of strategies.
There isn't one right answer for every retiree.
Some people may choose to purchase long-term care insurance to transfer some of the financial risk to an insurance company.
Others may choose to self-fund potential care using retirement assets.
Still others may use a combination of insurance and personal assets.
When considering long-term care insurance, factors may include:
The goal isn't necessarily to predict whether you will need long-term care. It's to determine how your retirement plan would respond if you did.
Inflation is an important consideration in almost every retirement plan, but healthcare inflation deserves particular attention.
Healthcare costs can increase because of rising prices, increased utilization, medical advances, prescription costs, and the greater healthcare needs that often accompany aging.
Fidelity notes that healthcare costs have historically increased faster than general inflation and that healthcare expenses can become an increasingly important portion of retirement spending as people age.
That creates a potential planning problem.
A retirement income strategy that comfortably covers today's healthcare expenses may not provide the same purchasing power 10 or 20 years from now.
For individuals who are eligible to contribute to a Health Savings Account (HSA), an HSA can be a valuable retirement healthcare planning tool.
HSAs can provide significant tax advantages:
For this reason, some investors use an HSA as a dedicated way to build assets for future healthcare expenses.
However, there is an important limitation as you approach Medicare.
You generally cannot contribute to an HSA once you are enrolled in Medicare.
That means people who are eligible to use an HSA may want to consider how it fits into their broader retirement savings strategy before Medicare enrollment.
An HSA is not appropriate for everyone, and eligibility depends on having qualifying coverage and meeting IRS requirements.
There isn't a universal savings number.
A better approach is to estimate healthcare expenses across different stages of retirement.
For example:
Consider:
Consider:
Consider:
Rather than assigning one large healthcare number to retirement, incorporating healthcare expenses into a year-by-year retirement cash-flow analysis can provide a more useful picture.
A comprehensive healthcare planning strategy may include several steps.
Separate predictable costs from expenses that are more difficult to forecast.
Understand the premiums, deductibles, coinsurance, supplemental coverage, and prescription drug expenses that may apply to you.
Dental, hearing, vision, and long-term care can create expenses outside traditional Medicare coverage.
If you plan to retire early, determine how you will obtain health insurance before Medicare eligibility.
Consider whether insurance, personal assets, or a combination of strategies makes sense for your circumstances.
Healthcare costs today are not necessarily the costs you will face 10 or 20 years from now.
Healthcare expenses should be incorporated into your overall retirement cash flow—not treated as a separate issue.
Healthcare costs in retirement are too significant to leave out of a retirement plan.
Medicare can provide valuable coverage, but it doesn't cover every expense. Retirees may still have premiums, deductibles, coinsurance, prescription drug costs, dental and vision expenses, and other out-of-pocket medical expenses.
And perhaps most importantly, Medicare generally does not cover long-term custodial care.
The question isn't simply:
"How much should I save for healthcare in retirement?"
It is:
"What healthcare expenses could I face, and how will my retirement plan pay for them?"
A thoughtful retirement plan considers healthcare before Medicare eligibility, Medicare premiums and cost sharing, healthcare inflation, prescription costs, long-term care, and the potential role of an HSA.
Planning for these expenses in advance can help reduce the likelihood that an unexpected healthcare event forces significant changes to your retirement lifestyle or long-term financial goals.
At Legacy Wealth Management, we believe healthcare planning should be an integral part of comprehensive retirement planning.
Our team helps clients evaluate how healthcare expenses may interact with:
Whether you're approaching retirement, considering retiring before age 65, or already enrolled in Medicare, understanding potential healthcare expenses can help you make more informed decisions about your retirement strategy.
If you'd like help reviewing your retirement strategy and understanding how healthcare costs fit into your overall financial plan, you can schedule a complimentary meeting by visiting www.lwealthmanagement.com/contact or calling (877) 650-4738.
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