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5 tips to plan for healthcare costs in retirement

Retirement should be a time to enjoy life—here are five tips to ease the stress of planning for healthcare.

By Betterment Editors

Published Jul. 07, 2025

5 tips to plan for healthcare costs in retirement Jul 7, 2025 11:01:26 AM Retirement should be a time to enjoy life—here are five tips to ease the stress of planning for healthcare. Healthcare is one of the biggest and most unpredictable costs retirees face. While Medicare provides a foundation, it doesn't cover everything. Planning ahead can help you stay financially prepared and reduce stress later. Here are five key tips to help you plan for healthcare expenses in retirement. Tip 1: Understand how Medicare works Many people assume Medicare covers all health expenses in retirement—but that’s not the case. There are different parts to Medicare, and understanding them can help you avoid unwanted expenses. Part A covers hospital stays and is usually premium-free. Part B covers outpatient care and doctor visits. In 2025, the standard premium is $185/month—but it could be higher depending on your income. Part C (Medicare Advantage) is an all-in-one alternative offered by private insurers. Part D covers prescription drugs. Part A and B together are referred to as “Original Medicare” Medigap plans are offered by private health insurance companies that can help cover out-of-pocket expenses not covered by Original Medicare (such as copayments and deductibles) You must enroll during your initial enrollment period (3 months before and after your 65th birthday month) to avoid late penalties. You can avoid penalties by enrolling in Original Medicare (Parts A and B) during your Initial or special enrollment period (if you qualify due to certain life events)—and potentially reduce out-of-pocket costs by adding Medicare Advantage (Part C) or pairing a Medigap plan with Part D drug coverage. Also, keep in mind that Medicare premiums are based on your Modified Adjusted Gross Income (MAGI) from two years prior. Higher earners may pay significantly more. Tip 2: Estimate how much you’ll need for medical expenses Healthcare costs in retirement are much broader than just your monthly Medicare premiums—they include a wide range of expenses that can add up significantly over time. The Milliman Retiree Health Cost Index estimated that a hypothetical couple retiring in 2024 will need $395,000 to cover healthcare if they have Original Medicare plus Medigap and Part D coverage. Where does all that money go? Monthly premiums for Medicare Parts B and D (or Medicare Advantage plans), which often increase with income. Deductibles, copayments, and coinsurance, which are your share of the cost each time you receive medical care. Services not covered by Medicare, such as routine dental visits, vision exams and eyeglasses, hearing aids, and custodial long-term care (like help with bathing, eating, and dressing). Everyday health-related expenses, including over-the-counter medications, supplements, medical devices like blood pressure monitors, or home safety equipment like shower chairs or walkers. Many of these costs are easy to overlook, especially if you're healthy now. But planning for them early can help you avoid financial surprises later. A realistic healthcare budget in retirement should factor in both predictable expenses (like premiums) and variable or unexpected ones (like dental work or mobility aids). Tip 3: Plan for long-term care expenses One of the most commonly underestimated healthcare costs in retirement is long-term care. Medicare does not cover extended stays in nursing homes or full-time, in-home care if it's custodial (help with bathing, dressing, etc.). According to the Genworth 2024 Cost of Care Survey, the median cost of a private room in a nursing home is nearly $10,646 per month, and the costs of an assisted living community is $5,900 per month. To prepare, consider: Long-term care insurance, ideally purchased in your 50s or early 60s. Self-funding, by setting aside a portion of your savings for future care. Medicaid planning, if you expect to need care but may not be able to cover the full cost on your own. Tip 4: Leverage a health saving account (HSA) If you contributed to a Health Savings Account (HSA) while working, you have a valuable tool for retirement. And under certain conditions, you can still contribute in retirement (more on that below). HSAs offer a triple tax benefit: Contributions are tax-deductible Growth is tax-free Withdrawals for qualified medical expenses are tax-free Even though you can’t contribute to an HSA once you enroll in Medicare, you can use the funds tax-free to pay for a wide range of costs in retirement—like Medicare premiums, long-term care, and dental or vision expenses. Tip 5: Plan for inflation in your healthcare budget Planning for inflation is easy to forget but it can pay off, especially if costs rise even more than expected. Historically, medical care prices have generally grown faster than overall consumer prices. According to the Peterson-KKF Health System tracker: Since 2000, the cost of medical care—including doctor visits, insurance, prescription drugs, and medical equipment—has risen by 121.3%. Over that same period, the overall cost of consumer goods and services increased by just 86.1%. From 2027-2032, per capita spending growth on healthcare will increase at an average annual rate of 5.0%. As you make your healthcare budget, planning for inflation can help ensure you’re not caught off guard by rising premiums, medical bills, or care costs down the road. Plan for a brighter retirement At Betterment, we’re here to help you build the future you want. We provide financial resources to help every step of the way. Take advantage of our free educational resources to help you prepare for and navigate retirement.

Healthcare is one of the biggest and most unpredictable costs retirees face. While Medicare provides a foundation, it doesn't cover everything. Planning ahead can help you stay financially prepared and reduce stress later.

Here are five key tips to help you plan for healthcare expenses in retirement.

Tip 1: Understand how Medicare works

Many people assume Medicare covers all health expenses in retirement—but that’s not the case. There are different parts to Medicare, and understanding them can help you avoid unwanted expenses.

Part A covers hospital stays and is usually premium-free.
Part B covers outpatient care and doctor visits. In 2025, the standard premium is $185/month—but it could be higher depending on your income.
Part C (Medicare Advantage) is an all-in-one alternative offered by private insurers.
Part D covers prescription drugs.
Part A and B together are referred to as “Original Medicare”
Medigap plans are offered by private health insurance companies that can help cover out-of-pocket expenses not covered by Original Medicare (such as copayments and deductibles)

You must enroll during your initial enrollment period (3 months before and after your 65th birthday month) to avoid late penalties.

You can avoid penalties by enrolling in Original Medicare (Parts A and B) during your Initial or special enrollment period (if you qualify due to certain life events)—and potentially reduce out-of-pocket costs by adding Medicare Advantage (Part C) or pairing a Medigap plan with Part D drug coverage.

Also, keep in mind that Medicare premiums are based on your Modified Adjusted Gross Income (MAGI) from two years prior. Higher earners may pay significantly more.

Tip 2: Estimate how much you’ll need for medical expenses

Healthcare costs in retirement are much broader than just your monthly Medicare premiums—they include a wide range of expenses that can add up significantly over time.

The Milliman Retiree Health Cost Index estimated that a hypothetical couple retiring in 2024 will need $395,000 to cover healthcare if they have Original Medicare plus Medigap and Part D coverage.

Where does all that money go?

Monthly premiums for Medicare Parts B and D (or Medicare Advantage plans), which often increase with income.
Deductibles, copayments, and coinsurance, which are your share of the cost each time you receive medical care.
Services not covered by Medicare, such as routine dental visits, vision exams and eyeglasses, hearing aids, and custodial long-term care (like help with bathing, eating, and dressing).
Everyday health-related expenses, including over-the-counter medications, supplements, medical devices like blood pressure monitors, or home safety equipment like shower chairs or walkers.

Many of these costs are easy to overlook, especially if you're healthy now. But planning for them early can help you avoid financial surprises later. A realistic healthcare budget in retirement should factor in both predictable expenses (like premiums) and variable or unexpected ones (like dental work or mobility aids).

Tip 3: Plan for long-term care expenses

One of the most commonly underestimated healthcare costs in retirement is long-term care. Medicare does not cover extended stays in nursing homes or full-time, in-home care if it's custodial (help with bathing, dressing, etc.).

According to the Genworth 2024 Cost of Care Survey, the median cost of a private room in a nursing home is nearly $10,646 per month, and the costs of an assisted living community is $5,900 per month.

To prepare, consider:

Long-term care insurance, ideally purchased in your 50s or early 60s.
Self-funding, by setting aside a portion of your savings for future care.
Medicaid planning, if you expect to need care but may not be able to cover the full cost on your own.

Tip 4: Leverage a health saving account (HSA)

If you contributed to a Health Savings Account (HSA) while working, you have a valuable tool for retirement. And under certain conditions, you can still contribute in retirement (more on that below).

HSAs offer a triple tax benefit:

Contributions are tax-deductible
Growth is tax-free
Withdrawals for qualified medical expenses are tax-free

Even though you can’t contribute to an HSA once you enroll in Medicare, you can use the funds tax-free to pay for a wide range of costs in retirement—like Medicare premiums, long-term care, and dental or vision expenses.

Tip 5: Plan for inflation in your healthcare budget

Planning for inflation is easy to forget but it can pay off, especially if costs rise even more than expected. Historically, medical care prices have generally grown faster than overall consumer prices.

According to the Peterson-KKF Health System tracker:

Since 2000, the cost of medical care—including doctor visits, insurance, prescription drugs, and medical equipment—has risen by 121.3%. Over that same period, the overall cost of consumer goods and services increased by just 86.1%.
From 2027-2032, per capita spending growth on healthcare will increase at an average annual rate of 5.0%.

As you make your healthcare budget, planning for inflation can help ensure you’re not caught off guard by rising premiums, medical bills, or care costs down the road.

Plan for a brighter retirement

At Betterment, we’re here to help you build the future you want. We provide financial resources to help every step of the way. Take advantage of our free educational resources to help you prepare for and navigate retirement.