Every year, we see headlines warning us about the rapid rise in the cost of retirement healthcare. The Employee Benefit Research Institute reports that couples will need to save $189,000 to have a 90% chance of covering their healthcare costs in retirement. ¹ That number alone is enough to make any pre-retiree nervous.

But before panic sets in, it’s worth taking a look at what really drives the costs of healthcare premiums. While healthcare costs are expensive and require strategic planning, they may not be quite as overwhelming as they first appear. By factoring healthcare costs and their associated income brackets into your financial plan, retirement healthcare is more affordable than most people think.

What’s Really Included in My Healthcare Cost Estimate?

When people hear about six-figure healthcare costs, they often think only of doctor visits, hospital stays, and prescription drugs. But the truth is, a significant chunk of this figure includes premiums—particularly Medicare Part B premiums, which for most retirees are deducted directly from your Social Security check. Because of this, many retirees don’t even notice they are paying them.

So, when you hear that you may spend $189,000 on healthcare throughout retirement, remember: This includes insurance costs you might already be accounting for and not just direct out-of-pocket spending at the pharmacy or clinic.

Annual Costs Paint a Clearer Picture

The biggest issue with an up-front lump-sum retirement healthcare cost estimate, such as the $189,000 figure mentioned above, is that it’s not how retirees actually experience healthcare spending. You don’t pay $189,000 up-front—you pay it gradually, year by year. Each year, your monthly premium is subject to change based on your modified adjusted gross income (MAGI) from two years prior (2026 Medicare premiums are based on 2024 MAGI).

That’s why it’s often more useful to look at annual costs. Vanguard reports that a 65-year-old retiree with traditional Medicare incurs a median cost of about $5,200 per year on healthcare, including both premiums and out-of-pocket costs.²

In the grand scheme of things, nobody enjoys spending thousands on healthcare. However, compared to the lump-sum figure, $5,200 annually is easier to digest and, more importantly, easier to budget for.

What Impacts Your Healthcare Costs in Retirement?

Healthcare spending is highly personal and varies widely depending on your situation. Here are three major factors that influence your healthcare costs:

1. Personal Health

As expected, the better your health is, the lower your medical costs will be. Chronic conditions like diabetes, heart disease, and COPD can significantly increase your use of healthcare services and your expenses.

That said, this is something you can prepare for. If you know you have ongoing health concerns, a financial advisor can help build that into your retirement plan and make appropriate adjustments tailored to your specific circumstances. Your health is your most valuable asset and should be a central focus in any long-term plan.

2. Your Annual Income

Medicare Part A is free for most people, but Medicare Part B premiums are income-based. In 2025, if your income in 2023 was above $106,000 for those filing single, head of household, and married filing separately, and $212,000 for those married filing jointly, you could be paying significantly more.

These premiums rise progressively with income, so it’s crucial to consider strategies that keep your income as low as possible with respect to your other financial goals. Even a small increase in income can move you into a higher bracket, raising your monthly premiums significantly.

For example, the difference in Medicare costs between a married couple with a MAGI of $200,000 versus $250,000 is an increase of $73.60 in monthly premiums (2025). A married couple with a MAGI of $300,000 would have an additional $184.10 in monthly premiums compared to a married couple with a MAGI of $200,000 (a whopping $2,200 extra per year).

3. Selecting your Optimal Coverage Plans

The standard Medicare parts A (hospital insurance) and B (medical insurance) alone do not cover all of your potential needs. You’ll likely need to decide between Medigap (supplemental insurance) or a Medicare Advantage plan (Part C) to help with costs Medicare doesn’t cover.

Medigap is a policy offered by private insurers that is approved by Medicare. Medigap helps cover healthcare costs that are not covered by Medicare Parts A and B, such as deductibles, copayments, and co-insurance, filling in the “gaps” of the original Medicare policy. The premiums associated with Medigap policies are usually up front but reduce your out-of-pocket costs down the line. Medigap helps make your healthcare premiums more predictable but may be more costly to those who use less Medicare services.

Medicare Advantage (Part C) is another policy offered by private insurers that covers additional healthcare costs outside of Parts A and B. Most Medicare Advantage plans include Part D, which covers prescription drugs. They may also offer vision, dental, hearing, and even fitness services. However, Medicare Advantage comes with its own set of additional premiums, and the providers can charge different out-of-pocket costs. This plan also puts limitations on providers and has its own set of rules for how you get access to services. Medicare Advantage often has low additional-cost premiums, but this depends on the usage and plan structure.

Choosing the right coverage is a key part of your retirement healthcare strategy—and one where personalized advice can really pay off.

Additional Ways to Reduce Future Healthcare Expenses

In addition to Medicare and Medigap, two other tools may help alleviate the healthcare burden later in retirement:

1. Long-term care (LTC) insurance

LTC expenses such as in-home care or assisted living are not covered by Medicare. These services often involve nonmedical care, such as help with bathing or eating, which can become extremely expensive.

LTC insurance will provide you with a specified daily benefit amount, up to a specified maximum benefit (e.g., $300/day with a $300,000 policy maximum), in exchange for an annual premium. The higher your benefit, daily or maximum, the more the policy premiums will cost. LTC insurance features an elimination period, which is the number of days (30, 90, or 180) you must receive care before the benefits begin to be paid out. The longer the elimination period, the lower your insurance premiums will be, as you are less likely to use the benefit.

An LTC insurance policy can help protect your retirement assets and preserve your legacy by covering some of these potential future costs.

2. Using Your Health Savings Account (HSA) in Retirement

If you’re still working and enrolled in a high-deductible health plan, an HSA is a great tool for retirement healthcare planning. Contributions are tax-deductible, and funds grow tax-free and can be withdrawn tax-free for qualified medical expenses. HSAs get preferential pre- and post-tax treatment, unlike any other investment vehicle, as long as they are used for medical care.

You can keep using your HSA in retirement; however, you can’t contribute to it once you enroll in Medicare. But the savings you’ve built up can still be used for premiums, prescriptions, dental, vision, and other qualified costs.

When Should I Apply for Medicare?

All individuals without qualifying employer coverage must enroll in Medicare by age 65. Qualifying health coverage can extend this deadline, known as open enrollment. It is extremely important to enroll in Medicare within the given seven-month time frame (three months before and three months after your birth month). If you do not enroll in Medicare by the time this period expires, you will face a permanent 10% penalty on your Part B premium per year delayed.

Don’t Let Healthcare Costs Derail Your Retirement Plan

Healthcare is a significant expense in retirement, but proper planning can save individual retirees thousands of dollars a year. By choosing the right Medicare and supplement plans, and evaluating costs based on your individual health and income, you can create a cost-effective plan that covers precisely what you need. Most important, it is imperative to enroll in Medicare on time to avoid permanent penalties for late enrollment.

Working with a qualified financial advisor to build healthcare costs into your retirement plan can significantly reduce your retirement healthcare costs. Your financial advisor can help you navigate the many variables and work with you alongside healthcare professionals so you can focus on enjoying retirement instead of worrying about what medical bills may come.

Stay informed of any changes that may affect your financial life by working with a financial advisor. Your circumstances are unique to you. If you need assistance with your overall financial plan, we encourage you to reach out to our team.

[1] Projected Savings Medicare Beneficiaries Need for Health Expenses Increased Again in 2023

[2] How much does retirement health care cost? | Vanguard