How Healthcare Costs Affect Your Retirement Plan

Key Takeaways:

• Healthcare is one of the biggest costs in retirement, and it keeps rising. Medical prices tend to climb faster than your income, so healthcare takes up a growing share of your money over time.
• Medicare helps, but it doesn’t cover everything. You still pay premiums, deductibles, and costs for things Medicare leaves out, like dental, vision, hearing, and long-term care.
• Your income choices can raise your Medicare costs. A big withdrawal or Roth conversion can bump up your Medicare premiums two years later, so it pays to plan around it.

Healthcare is one of the largest costs you’ll face in retirement, and it’s easy to underestimate. One 2026 study projects that for a 65-year-old couple retiring that year, healthcare premiums and out-of-pocket costs will eat up about 84% of their Social Security benefits over retirement.1 For most people, that’s a huge share of their income going to one category.

The reason it’s so easy to miss is that healthcare doesn’t work like your other bills. It rises faster than most costs, it changes a lot at age 65, and your own income can even change what you pay. Building it into your plan on purpose, rather than hoping for the best, is what keeps it from catching you off guard.

The Healthcare Costs Your Retirement Plan Needs to Account For

Healthcare in retirement isn’t one bill; it’s several. Knowing the pieces helps you build an honest number instead of a guess.

The main costs are your insurance premiums (what you pay each month to keep coverage), your deductibles and copays (what you pay when you actually get care), and prescriptions. On top of those are the things insurance often barely covers, like dental work, glasses, and hearing aids, which can add up fast. And separate from all of it is long-term care, the help some people need later with daily tasks like bathing and dressing, which can be the highest cost of all.

These costs also don’t stay flat. Medical prices usually rise faster than regular inflation, so your healthcare spending tends to grow year after year, even if your health stays the same. A plan that pencils in one flat amount for 30 years will almost always come up short.

Healthcare Costs Change a Lot Before and After Medicare

Age 65 is the dividing line in retirement healthcare, because that’s when most people qualify for Medicare, the government health insurance for older adults. The years before and after it look very different, so it helps to plan for each.

Planning for Healthcare Before Medicare Begins

If you retire before 65, you have to cover your own health insurance until Medicare starts, and that can be a shock. Without an employer paying part of the bill, buying coverage on your own can cost a lot, sometimes over a thousand dollars a month per person.

You have a few options to bridge the gap: a spouse’s plan if they’re still working, COBRA (temporarily keeping your old job’s coverage, usually at full price), or a plan from the health insurance marketplace. Price these out before you pick a retirement date, because this bridge can be one of the highest costs of retiring early, especially if a younger spouse needs coverage even longer.

Budgeting for Healthcare Once Medicare Begins

At 65, Medicare takes over as your main coverage, and your costs usually drop. But Medicare isn’t free, and it doesn’t cover everything. You pay a monthly premium for Part B (which covers doctor visits), and most people add a drug plan and either a Medigap or Medicare Advantage plan to fill gaps, each with its own cost.

Medicare also leaves out some big things. It generally doesn’t cover routine dental, vision, or hearing care, and it doesn’t pay for most long-term care.2 So even with Medicare, you’ll want room in your budget for premiums, out-of-pocket costs, and the care Medicare skips.

Healthcare Costs Affect Both Your Withdrawals and Your Medicare Premiums

Healthcare doesn’t just sit as a fixed line in your budget. It pushes and pulls on the rest of your plan, in two directions worth understanding.

Higher Healthcare Spending Puts More Pressure on Your Withdrawals

Every dollar of healthcare cost is a dollar your savings has to produce. A big or unexpected medical year means pulling more from your accounts, and if that happens during a market downturn, you may be selling investments while they’re down, which does lasting damage.

This is why many plans keep a cash cushion set aside for healthcare surprises, so a rough medical year doesn’t force a bad-timing sale. Because healthcare costs also rise faster than other spending, it helps to give them their own higher-growth assumption in your plan rather than lumping them in with everything else.

Your Income Decisions Can Change What You Pay for Medicare

One piece many retirees miss: higher-income retirees pay a surcharge on their Medicare premiums, called IRMAA, and it’s based on your income from two years earlier.3 So a big withdrawal, a Roth conversion, or a large investment gain can raise your Medicare bill two years down the road.

The surcharge jumps at set income levels, so crossing one by even a little can cost you. Checking a planned withdrawal or conversion against those income limits first, and spreading large amounts across years, can keep you from tripping into a higher premium you didn’t see coming.

Stress-Test Healthcare and Long-Term Care Instead of Using One Flat Number

Because healthcare is so uneven, a single average number hides the true risk. Two people the same age can have wildly different bills, so it’s better to test your plan against the tougher scenarios than to hope for the average.

Long-term care is the biggest wild card. Many people will need some help with daily living late in life, and it isn’t cheap: a nursing home or assisted living can run tens of thousands of dollars a year, and Medicare mostly doesn’t pay for it. Because it might never happen, might last a few months, or might last years, it’s worth planning for as its own separate risk.

You can prepare for it a few ways: setting aside savings for it, buying long-term care insurance, or a mix of both. The right choice depends on your finances and your family history. What matters is deciding on purpose, rather than assuming it won’t happen to you. Running your plan against a long, expensive care event shows you whether it would hold up, while you still have time to adjust.

Healthcare Costs and Your Retirement FAQs

1. How much will healthcare cost me when I retire?

There’s no single number, since it depends on your health, your coverage, and how long you live. Studies estimate a retired couple may spend hundreds of thousands of dollars on healthcare over retirement, and one 2026 report found it could take up around 84% of a 65-year-old couple’s Social Security benefits. The best estimate comes from your own premiums, prescriptions, and recent medical costs, not a national average.

2. Does Medicare cover all of my healthcare costs in retirement?

No. Medicare covers a lot, but you still pay premiums, deductibles, and copays, and it generally leaves out routine dental, vision, and hearing care, along with most long-term care. Many people add a drug plan and a Medigap or Medicare Advantage plan to fill some gaps, but even then, you’ll have out-of-pocket costs to budget for.

3. How should I budget for healthcare if I retire before Medicare eligibility?

Price out coverage before you set a retirement date. Until Medicare starts at 65, you’ll need a spouse’s plan, COBRA, or a marketplace plan, and buying it on your own can be expensive. Add up the full monthly cost, factor in a younger spouse if needed, and keep accessible cash for those premiums so you’re not forced to sell investments to pay them.

4. Can withdrawals from my IRA or 401(k) increase my Medicare premiums?

Yes. Medicare charges higher-income retirees a surcharge called IRMAA, based on your income from two years earlier. A large withdrawal, Roth conversion, or capital gain can raise your income enough to increase your Medicare premiums two years later. Planning the timing and size of big withdrawals can help you avoid crossing an income line that triggers a higher bill.

5. How should long-term care costs fit into my retirement plan?

Treat long-term care as its own separate risk, not part of your regular healthcare budget. It can cost tens of thousands of dollars a year, and Medicare mostly doesn’t cover it. You can plan for it with dedicated savings, long-term care insurance, or a combination, and it’s worth testing your plan against a long care event to see whether it holds up.

6. Should healthcare costs change how much I need to save before retiring?

Often, yes. Because healthcare is a major cost that rises faster than most spending, underestimating it can leave you short. Building a realistic healthcare number into your plan, including the pre-Medicare years and possible long-term care, may raise your savings target, but it gives you a far more accurate picture of what you actually need.

Get Help Building Healthcare Into Your Retirement Plan

Healthcare is too high a cost to leave as a guess. Between rising prices, the gap before Medicare, the things Medicare doesn’t cover, and the way your income can raise your premiums, it touches nearly every part of your retirement plan. Planning for it intentionally keeps it from derailing everything else.

That’s the work our team at Barrister does with clients. We can build a realistic healthcare estimate into your plan, cover the years before and after Medicare, coordinate your withdrawals to keep your Medicare costs down, and stress-test your plan against a long-term care event.

We can also revisit the numbers as your health, coverage, and costs change, so your plan keeps up. If you’d like help building healthcare into your retirement plan, schedule a complimentary consultation with our team.

Resources:

1. Plan Sponsor Council of America: Health Cost Growth Expected to Outpace Social Security
2. Medicare: What’s Not Covered by Part A & Part B
3. Social Security Administration: Medicare Premiums, Income-Related Adjustments (IRMAA)