Summary: Planning for healthcare costs in retirement is just as crucial as planning for your income. Health insurance premiums can be surprisingly high both before and after Medicare eligibility, and understanding these costs can prevent future surprises. This blog explores the typical expenses retirees face, strategies to manage healthcare costs, and how to incorporate these expenses into your retirement planning.
Key Takeaways
- The average couple may need $300,000+ for health care costs in retirement
- Early retirement can cost $1,000–$2,000+ per month for health insurance before Medicare
- After age 65, expect $300–$600+ per month per person in health insurance premiums
- Annual health care spending for retirees averages around $7,000–$8,000 per household
- Planning for retirement health is just as important as planning for retirement income
For many people, retirement is supposed to be the time when life finally slows down. But for a growing number of Americans, there’s a big question that keeps coming up: How am I going to afford health care?
If you’re in the boat, you’re not alone. A survey from D.A. Davison found that nearly four-fifths of respondents (78%) were concerned about how rising healthcare costs may affect their retirement.
However, only 48% reportedly explicitly accounting for higher healthcare expenses in their retirement planning, and that can be a problem.
Health care costs have steadily increased, and for those planning early retirement, the gap before Medicare can feel especially daunting. Understanding the retirement health insurance cost (and what you may actually pay each month) can help you plan and avoid surprises later.
Common Mistake: Many people assume Medicare will cover most of their retirement health expenses. In reality, Medicare covers only a portion of costs, and significant out-of-pocket expenses remain every year.
The Reality of Health Care Costs in Retirement
Even with Medicare coverage, retirees still face substantial health care expenses each year. While Medicare helps reduce some costs, it doesn’t cover everything, leaving individuals responsible for a range of ongoing and out-of-pocket expenses.
Per 2025 estimates shared by the National Council on Aging, American couples generally estimate their health care will cost $75,000 of the course of their retirement. However, Fidelity’s recent research indicates that most couples retiring at age 65 will actually spend an average of $330,000.
This estimate includes health insurance premiums, out-of-pocket costs like deductibles and copays, and prescription drug coverage. These are the recurring expenses that show up year after year and can steadily draw from your retirement savings.
Note: Long-term care (such as extended nursing home stays or in-home assistance) is not part of this estimate and can add significantly more to overall health care spending. For many retirees, that’s one of the largest unknowns when planning and budgeting for retirement health costs.
Out-of-Pocket Costs: These are health care expenses you pay directly, separate from your monthly premium. They include deductibles (what you pay before insurance kicks in), copays (a fixed fee per visit or prescription), and coinsurance (your share of a bill after the deductible is met).
What You’ll Pay Before Medicare Eligibility (Ages 55–64)
If you plan for early retirement, the gap before Medicare eligibility (age 65) is often the most expensive period for health insurance.
Average Monthly Premiums
For individuals buying coverage through the Affordable Care Act marketplace:
- Average monthly premiums: $400–$800+ per person
- Without subsidies: often $800–$1,200+ per month, depending on location and plan
For couples, that can mean $1,000 to $2,000+ per month in health insurance costs.
What Affects Your Costs?
Your actual health insurance premiums will depend on:
- Age (costs rise as you approach retirement age)
- Location
- Tobacco use
- Plan level (Bronze, Silver, Gold)
- Your modified adjusted gross income (MAGI), which determines subsidy eligibility
Lower-income levels can qualify for premium tax credits, reducing total health care expenses under the Affordable Care Act.
Tip: If you retire before 65, carefully manage withdrawals from retirement accounts in your early years. Keeping your MAGI below certain thresholds may qualify you for significant ACA premium subsidies that can reduce your monthly health insurance cost by hundreds of dollars. Source: Healthcare.gov
Health Insurance Costs After Age 65 (Medicare)
Once you reach Medicare eligibility, health coverage becomes more predictable, but not free.
Medicare Premium Breakdown (2026 estimates)
According to the Centers for Medicare & Medicaid Services:
- Medicare Part B premium: ~$202.90/month (standard rate)
- Medicare Part D (prescription drug coverage): ~$10–$200/month (varies by plan)
- Medigap or Medicare Advantage plans:
- Medigap: ~$100–$400/month
- Advantage plans: often lower premiums but higher out-of-pocket costs
This brings the total typical monthly health insurance premiums to around $300 to $600+ per person. That equals $3,600 to $7,200+ annually per person in baseline health care costs, not including additional health care expenses.
How It Works: Medicare is structured in parts. Part A covers hospital stays (usually premium-free if you’ve worked 10+ years). Part B covers outpatient care and carries a monthly premium. Part D covers prescription drugs. Most retirees add either a Medigap (supplement) plan or a Medicare Advantage plan to cover what Parts A and B don’t. Source: Medicare.gov
The table below summarizes the key differences between Medigap and Medicare Advantage to help you understand which approach may better fit your situation.
| Feature | Medigap (Medicare Supplement) | Medicare Advantage |
| Monthly Premium | $100–$400+ | Often $0–$50 |
| Out-of-Pocket Costs | Generally lower | Can be higher |
| Network Restrictions | None (use any Medicare provider) | Usually limited to network |
| Prescription Coverage | Separate Part D plan needed | Often included |
| Best For | Those wanting cost predictability | Those wanting lower upfront premiums |
Both paths lead to the same Medicare foundation, the difference is how you manage what Medicare doesn’t cover. Your health needs, budget, and preferred doctors will determine which is the better fit.
Total Annual Health Care Spending in Retirement
Looking at broader data from Fidelity Investments, most 65-year-olds retiring in 2025 and beyond are looking at an average of $172,500 or more in health and medical expenses through retirement. That’s a 4% increase from 2024.
While that number provides a helpful baseline, it doesn’t always capture unexpected or higher-cost years, such as when more advanced care or specialized treatment is needed. As a result, many retirees find that their actual health care expenses can vary from year to year.
These health care costs also tend to rise over time, driven by both inflation and the increased need for medical care as people age. What starts as a manageable monthly expense can gradually take up a larger portion of your retirement income, which is why planning ahead for retirement health is an incredibly important step.
What To Expect: Health care spending in retirement doesn’t stay flat. Most retirees spend relatively less in their 60s and early 70s, more in their late 70s and 80s as chronic conditions emerge, and significantly more in the final years of life. Building a plan that accounts for this curve, not just average costs, is what separates a good retirement health strategy from a reactive one.
The Hidden Cost of Early Retirement
On paper, early retirement sounds like freedom: more time, fewer obligations, and the ability to step away from work on your own terms. However, one of the biggest surprises for many early retirees is how expensive health insurance becomes without an employer’s health insurance plan.
Instead of having coverage partially paid for through work, you’re now responsible for the full cost on your own. Plus, without access to retiree health coverage, most people end up piecing together a solution through Affordable Care Act marketplace plans, COBRA (which is often temporary and expensive), or private health insurance plans.
That shift can be a tough adjustment. Monthly premiums alone can feel like a second mortgage, especially during the years leading up to Medicare eligibility. It’s not uncommon for people to spend five to ten years managing higher health insurance costs before they qualify for more predictable health coverage.
That’s why planning for early retirement isn’t just about replacing your income, but about making sure you can realistically cover health insurance during the gap years without putting unnecessary strain on your retirement income.
Before You Decide: If you’re considering retiring before age 65, ask yourself:
- Have I calculated my health insurance premiums without employer contributions?
- Do I qualify for ACA subsidies based on my projected retirement income?
- Can my retirement savings absorb 5–10 years of elevated health costs?
- Have I explored whether my spouse’s employer plan offers continued coverage?
How Retirement Savings Fit Into Health Care Planning
Your retirement savings strategy should directly account for retirement health expenses, not just everyday living costs. While it’s easy to focus on housing, travel, or lifestyle, health care costs often become one of the most consistent (and growing) expenses over time.
One of the most effective tools for planning ahead is a health savings account (HSA). For those who qualify, an HSA offers a unique combination of tax advantages: you can contribute pre-tax dollars, allow those funds to grow tax-free, and then use withdrawals tax-free for qualified medical expenses.
Over time, this can create a dedicated pool of funds specifically for health care needs in retirement. Unlike general savings, an HSA is designed to help cover things like health insurance premiums, prescriptions, and other out of pocket costs that can add up year after year.
For those eligible, using an HSA as part of a broader retirement savings plan can help reduce the financial pressure of future health care expenses and make those costs more predictable.
How It Works: An HSA works in three tax-advantaged stages:
- Contributions go in pre-tax, reducing your taxable income today.
- The balance grows tax-free through investments.
- Withdrawals are tax-free when used for qualified medical expenses.
After age 65, you can also withdraw for any reason, just like a traditional IRA, though non-medical withdrawals are taxed as ordinary income.
Let Us Help You Plan for the Future
When you take the time to learn the true cost of health care in retirement, you can form a much clearer picture of what your future may require.
At Terri Yurek Insurance, we help individuals and families in San Diego and beyond explore health insurance plans, compare options, and build a strategy that aligns with their retirement income and goals.
If you’re planning for early retirement or want to understand your future health coverage options better, now is the time to take a closer look. Get in touch with our trusted insurance broker team to explore all of your options.
Frequently Asked Questions (FAQs)
- How much should I budget for health care in retirement?
- A reasonable starting point is $330,000 per couple for lifetime health care costs, based on Fidelity’s 2024 estimate. For annual budgeting, plan for $7,000–$8,000 per household at minimum, increasing as you age.
- What health insurance options are available if I retire before 65?
- Your main options are ACA marketplace plans, COBRA (for up to 18 months after leaving your job), a spouse’s employer plan if available, or private health insurance. ACA plans are the most common long-term solution, and income-based subsidies can significantly reduce your premiums.
- Does Medicare cover everything once I turn 65?
- No. Medicare covers a significant portion of health costs but leaves gaps including deductibles, copays, coinsurance, and most dental, vision, and hearing care. Most retirees add a Medigap or Medicare Advantage plan to reduce these out-of-pocket expenses.
- What is the best way to save for retirement health costs?
- A Health Savings Account (HSA) is widely considered the most tax-efficient tool for this purpose, offering pre-tax contributions, tax-free growth, and tax-free withdrawals for medical expenses. It works best when started early and allowed to grow alongside your other retirement savings.
- How does early retirement affect my Social Security and Medicare eligibility?
- Retiring early does not affect when you become eligible for Medicare (age 65) or when you can claim Social Security (as early as 62, with reduced benefits). However, early retirement means more years without employer-sponsored insurance, which can significantly increase your health care costs during the gap period.
