Preparing for healthcare costs in retirement is one of the most important factors when budgeting for retirement. Many moving parts, like understanding Medicare, exploring savings tools, and preparing for out-of-pocket costs, will impact how you approach health-related expenses in retirement.
Fortunately, with careful preparation, you can better understand health-related expenses in your retirement budget.
Key Health-Related Expenses in Retirement
There are a few main health-related expenses to consider for retiring in 2025, including Medicare insurance, different out-of-pocket costs, long-term care expenses, and preventative care. Let’s take a closer look at each category.
Medicare Costs and Coverage
Medicare is a health insurance program administered by the federal government for people 65 and older and certain people under 65. Preparing for health-related costs will revolve heavily around Medicare and its coverage.
The program consists of parts A, B, C, and D, as well as Medicare Supplement (Medigap) plans, each covering specific areas of medical care. Generally speaking, the Medicare program covers a wide range of health services, including doctor’s visits, lab work, surgeries, medical equipment, medications, preventative services, and more.
Out-of-Pocket Medical Costs
Although it covers many services, it does not cover everything, such as cosmetic procedures, routine physical exams, massage therapy, and more. Depending on the service or equipment needed, you will still be responsible for certain out-of-pocket expenses, such as copays, coinsurance, and deductibles.
One significant out-of-pocket cost to note is that Medicare does not cover routine dental, vision, and hearing care. This comes as a surprise to many beneficiaries, so it’s good to be prepared. Many pay for this care out-of-pocket or enroll in a standalone plan.
Long-Term Care Expenses
Long-term care is another common consideration for many retirees and families. It can be challenging to think about for yourself, but preparing ahead of time and understanding what coverage you may need can be helpful.
When researching long-term care, you’ll want to look at the different kinds, such as nursing homes, assisted living, and in-home care. Unfortunately, this type of medical care can be expensive and hard to afford for many people. Moreover, Medicare usually does not help cover long-term care as it’s typically custodial or non-medical care relating to daily tasks like bathing, dressing, and other everyday activities.
Because of the costs associated with long-term care, it’s best to plan as much as possible. To help, you can look into Medicaid assistance, standalone insurance policies, subsidized senior housing, and more.
Preventative and Wellness Costs
Preventive care tends to be less expensive than curative care. Taking advantage of preventative services can help manage health early on, hopefully reducing unexpected costs and costly health conditions.
Staying on top of routine check-ups, screenings, and vaccinations can all help keep you on track for good health or early detection. Consistently engaging in healthy physical and mental activities can also help you maintain good health and reduce the risk of developing health conditions.
If you’re still working, your employer may offer wellness program benefits, so be sure to take advantage of any tools at your disposal.
How to Plan for Health Expenses in Your Retirement Budget
There are many ways to approach financial planning for health expenses in retirement. You’ll want to research the different strategies available to determine what will be best for your situation.
Estimating Your Healthcare Costs
A good place to start financial planning for healthcare is to estimate how much you’ll need to save. Fidelity Investments estimated that a 65-year-old retiring in 2024 could expect to spend about $165,000 on healthcare costs in retirement.1 Although this is not an exact estimate, it can help give an idea of what to expect and how to save.
Different factors, such as your age, where you live, and which health conditions you have, can also affect your healthcare costs.
Building a Health Savings Fund
Many choose to utilize a Health Savings Account (HSA) to help save for medical costs due to its different benefits. An HSA can be a good way to save for medical care in retirement and sometimes provide certain tax benefits.
Setting aside money for unexpected medical bills is also helpful, especially for services not covered by Medicare or other insurance. Even putting away small amounts over time can be beneficial later down the road.
Many people also find using a financial advisor helpful, as they can provide useful knowledge and personalized budgeting strategies for retirement.
Exploring Insurance and Assistance Programs
When it comes time for you to enroll in Medicare, it’s important to know that there are different plans to choose from, all offering different coverage options. The two main options you will have are Medicare Supplement (Medigap) and Advantage plans. These two types of plans work differently from one another, so be sure to understand what they can offer.
If you’re concerned about affording healthcare costs, consider federal and state assistance programs such as Medicaid, Social Security, aging agencies, and more.
Summary
Healthcare costs are a significant part of retirement planning, and being proactive can make a big difference. Understanding Medicare coverage, preparing for out-of-pocket expenses, considering long-term care options, and prioritizing preventive care can help you better manage your healthcare budget.
Exploring savings tools like HSAs, researching insurance options, and seeking financial guidance can further strengthen your plan. With careful planning, you can confidently navigate retirement, knowing you have the resources to maintain your health and financial security.
