Understand and manage your biggest expense in retirement.
© Petrik/stock.adobe.com; Photo illustration EncyclopÊdia Britannica, Inc
Health care costs in retirement have become the single greatest financial worry for millions of seniors, outweighing even fears of running out of money.
Itâs not surprising. Medical expenses tend to rise over time, and retirees must navigate complex insurance choices as their health needs change, sometimes quickly. The average 65-year-old retiring in 2025 can expect to spend about $172,500 on health care and medical expenses during retirement, not including potentially catastrophic long-term care costs, according to an annual survey by Fidelity.
Despite such daunting figures, older workers and retirees who understand these costsâand the tools available to manage themâare in a better position to maintain their financial security.
Key Points
- The average 65-year-old retiring in 2025 can expect to spend $172,500 on health care in retirement, excluding long-term care costs.
- Most seniors report that health care costs outweigh their fears of running out of money as they age.
- Over the past two decades, medical costs have risen faster than overall consumer prices.
How much retirees really spend on health care
Health care isnât just another line item in the post-career budget; it is the largest and most unpredictable expense for many retirees. How much you can expect to pay in retirement depends on many factors, including your health, location, and choice of insurance.
Individuals over age 65 have access to Medicare, the health insurance plan administered by the U.S. government, which has several parts. But even with Medicare, lifetime health care expenses can vary widely, even if youâre healthy. A healthy 65-year-old woman could face $313,000 in total health care expenses over her retirement, compared with about $275,000 for a man, according to the 2025 Milliman Retiree Health Cost Index. The disparity illustrates how personal circumstances shape out-of-pocket risk.
Anxiety over costs is real. Medical care prices have risen faster than overall consumer prices for more than two decades. From 2000 to June 2024, medical care prices increased 121.3%, compared with an 86.1% rise in all goods and services, according to Consumer Price Index data compiled by the Peterson-KFF Health System Tracker.
Even with Medicare coverage, out-of-pocket costs remain substantial. Parts A and B do not cover certain common health needs, including hearing aids, dental care, and vision services.
Building a comfortable retirement typically involves combining Social Security with other sources of income.
EncyclopĂŠdia Britannica, Inc.
Breaking down retirement health care expenses
Medicare premiums: What retirees pay each month
Premiums are the recurring monthly charges for Medicare, Medigap, Medicare Advantage, and prescription drug plans. Medicare Part B (doctor and outpatient services) and Part D (prescription drugs) both require premiums. Part Bâs standard monthly premium exceeds $170 a month, and Part D averages more than $40 (high-income retirees pay more).
- Medicare Parts A and B cover hospital and doctor visits, typically paying about 75% of approved costs (leaving retirees to cover the rest).
- Medigap is private insurance that covers most or all of the out-of-pocket costs not covered by Medicare, such as copayments and deductibles.
- Medicare Advantage are bundled alternatives to traditional Medicare offered by private insurers. The plans cover the same core benefits and often include supplemental options such as dental or vision care. Consumers can choose from many Medicare Advantage plans, each with different premiums, provider networks, and coverage limits. Premiums are often lower than those for Medigap policies, but provider choices may be narrower, and out-of-pocket costs can vary widely.
Defining âbenefit periodâ
Under Medicare rules, a benefit period refers to each cycle of care in a hospital or skilled nursing facility and determines when the Part A deductible applies.
- The benefit period begins the day youâre admitted as an inpatient.
- It ends after youâve been out of a hospital or skilled nursing facility for 60 days in a row.
- If youâre readmitted after those 60 days, a new benefit periodâand a new deductibleâapplies.
- Thereâs no limit to the number of benefit periods in a year.
How deductibles and co-pays add up in retirement
- Deductibles: These are the amounts retirees must pay out of pocket each year before insurance coverage begins. For 2025, the Medicare Part A hospital deductible is $1,676 for each coverage period, and the Part B deductible is $257 annually.
- Co-payments: Even after meeting deductibles, retirees must pay co-payments, fees for each service, and coinsurance (a percentage of the cost for care). These can add up quickly for frequent doctor visits or hospitalizations.
Prescription drug costs and the new Medicare cap
Out-of-pocket prescription expenses are among the fastest-growing health costs for retirees. Medicare Part D covers many drugs, but still requires enrollees to pay premiums, deductibles, and a portion of the price for each prescription, which can be significantly higher for newer or specialty medications. High costs drive about 20% of consumers to skip or ration prescriptions, a problem that can be especially acute for older adults living on fixed incomes. Before 2025, Medicare Part D placed no overall limit on out-of-pocket drug spending, leaving many retirees vulnerable to large medication bills.
Since 2025, Medicare Part D has limited annual out-of-pocket drug costs to $2,000. Once a beneficiaryâs spending reaches the limit, Medicare covers all additional drug costs for the rest of the year.
The high cost of long-term careâand how to plan for it
Long-term care, including nursing homes, assisted living, and extended in-home support, is often the single largest uncovered expense in retirement. Nearly 70% of retirees will require some form of long-term assistance, but Medicare covers very little of the cost. Medicaid, the health insurance program for low-income individuals, pays for long-term care only if you have few or no financial resources. If you have savings, youâll need to spend it before coverage begins.
Annual expenses for assisted living average more than $70,000, while a private room in a skilled-nursing facility can exceed $110,000 a year. Even part-time in-home care can add up quickly, making long-term care insurance or other planning strategies worth considering for those who can afford them.
A health savings account (HSA) can be a powerful way to prepare for medical expenses in retirement, if one is available to you. HSAs are offered only in conjunction with a high-deductible health plan (HDHP), and not all employers provide that option.
For those who are eligible, HSAs combine three tax advantages: pretax contributions, tax-free growth, and tax-free withdrawals for qualified medical costs. Your unused funds roll over from year to year and can build a long-term reserve for out-of-pocket expenses in retirement.
Once you enroll in Medicare, you can no longer contribute to an HSA, although existing funds can still be used for qualified expenses.
Smart ways to plan for health care costs in retirement
Health care costs in retirement can be significant, but planning helps make them more manageable.
- Begin early. Start saving for medical expenses well before retirement, using accounts such as HSAs if youâre eligible.
- Comparison shop. Review your Medicare and supplemental coverage every year, as plan options, premiums, and out-of-pocket costs change regularly.
- Consider long-term care insurance. Look into policies in your mid-50s to early 60s, when premiums are generally lower and eligibility is easier to secure.
- Estimate expenses. Use planning tools and calculators from reputable sources, and consider consulting with a financial advisor familiar with health care planning in retirement.
- Seek guidance. Medicare advocates and counselors, including free programs offered through the State Health Insurance Assistance Program (SHIP), can help you evaluate plan options, compare costs, and avoid enrollment mistakes.
The bottom line
Health care costs in retirement are a major concern for many older adults because of the unknownsâhow healthy youâll be, how long youâll live, and what kind of care you might need. These worries often outweigh concerns about market volatility or even running out of money, since nearly all retirees face out-of-pocket medical expenses.
Planning early, using savings tools like HSAs, and reviewing your Medicare choices each enrollment period are among the best ways to manage these costs. A financial advisor or Medicare advocate can help you review your coverage annually and plan for future expenses.
This article was most recently revised and updated by Debbie CarlsonThis article was most recently revised and updated by David Schepp
