Retirement Healthcare Costs: The Real Price of Aging Well

Key Takeaways  

• Healthcare costs are rising twice as fast as inflation.

• Medicare doesn't cover routine dental, vision care, or long-term care expenses that many retirees mistakenly expect it to cover.  

• Budget $7,000-$10,000 annually per person for Medicare premiums, supplemental insurance, and out-of-pocket healthcare costs.  

• Don’t overlook Health Savings Accounts if you qualify.  

While many people save and invest smartly for their day-to-day living expenses in retirement, healthcare often gets overlooked – or at least underestimated. That’s because the cost of healthcare is rising about twice as fast as inflation due to increased utilization by an aging population, rising prices for medical supplies and pharmaceuticals, administrative complexities, and hospital consolidation that reduces competition and allows for higher prices.    

Bottom line: Many Americans are unprepared for the true cost of health care in retirement. For instance, a Fidelity study estimates that a 65-year-old couple needs about $330,000 saved to cover medical expenses in retirement, excluding long-term care, which can add hundreds of thousands more. In addition, surveys show that many retirees (and near-retirees) assume that Medicare will cover most of these expenses – it doesn’t. That leaves many families footing enormous bills that can quickly drain retirement savings, and too few are preparing sufficiently.

When clients first come to see us, we often find that they lack adequate coverage for dental and vision care. Seniors have a higher prevalence of cavities, gum disease, and tooth loss. This can be made worse by dry mouth, a common side effect of medications, and by pre-existing health conditions. Treatments for these issues often include expensive procedures like root canals, crowns, and implants. When it comes to vision, age-related conditions such as cataracts, glaucoma, and macular degeneration are common in seniors, often requiring surgery and specialty lenses. Traditional insurance options for seniors, including Original Medicare, provide very limited coverage for routine dental and vision care. 

Original Medicare Parts A and B do not cover routine dental exams, cleanings, fillings, dentures, or most routine vision exams and eyeglasses. It will only pay for "medically necessary" services, such as dental work needed before a major surgery. 

We often warn clients to expect the cost of going to the doctor to go up twice as fast as going to the grocery store. When building out financial plans for clients, we typically assume a 2.5% average inflation rate for day-to-day expenses, but closer to 5.3% annual rate of inflation for healthcare for reasons outlined at the beginning of this post. 

For retirees, it’s not uncommon for healthcare costs to account for 15% of their total expenses. As a starting point, we advise couples to budget $7,000 to $10,000 a year each for Medicare premiums, supplemental insurance, and out-of-pocket healthcare expenses in retirement.  Budgeting for long-term care (LTC) then goes on top of that because it can be a considerable item itself. 

Nearly 70% of Americans who turn 65 today will need some form of LTC during their lifetime, yet 41% doubt they will ever need it, according to a recent Nationwide survey. And the cost of LTC will likely be difficult for many Americans to pay for out of pocket, as it can easily top $100,000 a year and quickly drain savings. Nearly six in 10 adults (58%) mistakenly think that Medicare will cover LTC costs, according to the Nationwide survey. Yet, while Medicare helps with hospital visits and doctor appointments, it does little to offset the six-figure price tag of nursing homes, assisted living facilities, or in-home health aides. 

As we’ve written in previous posts, you can pay premiums for a traditional LTC insurance policy, or you can get an LTC rider to a hybrid whole life policy. However, those premiums can be significant unless you take out the policy much earlier in life and are in excellent health at the time. You can also choose to self-fund your LTC costs, but that takes discipline and a fair amount of net worth. Bottom line, self-funding is hard to do unless you have a skilled advisor to guide you.

Everyone’s situation is different, but you don’t want to overlook LTC expenses or roll the dice and hope you’re in the 30% who never need it.

Health Savings Accounts (HSAs) are another way you can plan for healthcare expenses, especially in retirement. An HSA is like a 401(k) for healthcare. You can make up to $8,750 in tax-deferred contributions to your account (family) or $4,400 (self-coverage), and there is no tax when you start withdrawing money from the account as long as those withdrawals are used for legitimate healthcare expenses. Even better, individuals aged 55 and older can make an extra $1,000 "catch-up" contribution to their HSA every year. So, if you started your HSA at age 40, you could reasonably accumulate a quarter of a million dollars in your account by age 65, given the normal inflation adjustments. 

Just remember, you can only contribute to an HSA if you have a high-deductible health plan (HDHP). For 2026, the IRS defines an HDHP as any plan with an annual deductible of at least $1,700 for an individual or $3,400 for a family. The maximum out-of-pocket expenses for an HDHP are $8,500 for an individual or $17,000 for a family. 

Medicare coverage decisions also matter. While original Medicare has gaps and no out-of-pocket maximum, supplemental policies, such as Medigap, can provide extra protection. The key is to match your health, family history, and finances with the right mix of tools before costs escalate, and that is what we are here to help you with.

Conclusion

Don’t hesitate to reach out if you or someone close to you has concerns about the strength of their retirement plan or how to prepare for rising retirement healthcare costs. We’re here to help you build a strategy that protects your financial well-being and supports the lifestyle you envision.

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BRENDEN LEESE, CFP®, is a Wealth Advisor at Novi Wealth Partners