Key takeaways

• Some couples could need as much as $413,000 to cover medical costs in retirement

• About 4 in 5 adults ages 65+ will have some long-term care needs

• 31% have a financial goal of building a healthcare fund before retirement

With rising medical prices, gaps in Medicare coverage, and the possibility of long-term care, out-of-pocket healthcare costs can be substantial — and one of the most unpredictable expenses that retirees can face. Proactively exploring Medicare options and making use of HSAs can be helpful steps to feel more prepared.

It’s one of the most common questions people have when planning their financial futures: “How much do I need to retire?” While there’s no one-size-fits-all number, Americans put the target retirement savings at $1,058,547 according to Empower research. But how far can that go when it comes to paying for healthcare needs in retirement?

For many Americans, the topic is top of mind: Almost 1 in 3 (29%) say access to healthcare is among the most important factors for a happy retirement and building a healthcare fund before retirement is a financial goal for 31%. Many are well on their way, with the average retirement savings reaching $1,148,441 for people in their 60s. And a growing number of younger savers are taking steps to build retirement savings by investing, rather than spending down, their Health Savings Accounts (HSAs): Millennials, who now hold 32% of all HSA accounts, saved 47% of their HSA contributions in 2024 — more than any other generation.

Still, healthcare can be a big budget item during golden years, and it’s not unusual to underestimate the costs — especially since they may increase with age depending on overall wellness, insurance coverage, prescription drug prices, long-term care needs, and other factors.

Read more: Retire well

Healthcare costs are on the rise

Keeping up with escalating costs could be a hurdle for some, with nearly half (47%) of Baby Boomers and older Gen Xers worried about the continued rise.¹ The Centers for Medicare and Medicaid Services projects National Health Expenditures will increase by 5.6% annually on average through 2032 — outpacing the GDP — with estimated yearly growth in these areas:²

• Medicare: 7.4%

• Medicaid: 5.2%

• Private health insurance: 5.6%

• Out-of-pocket: 4.7%

• Hospital: 5.7%

• Physician and clinical services: 5.6%

• Prescription drugs: 6.0%

According to Empower Personal Dashboard^TM data, Baby Boomers spent an average of $582 a month on healthcare for the 12-month period ending in July, compared with an average of $492 for all generations combined. 

Read more: What are the benefits of an HSA account?

Estimating healthcare costs in retirement

Medical issues often come as a surprise, so trying to anticipate out-of-pocket healthcare costs and pinpoint a budget can be tricky. The Employee Benefit Research Institute (EBRI) reports that some couples could need as much as $413,000 in savings to have a 90% chance of covering medical costs through retirement — though that scenario may be extreme, based on particularly high prescription drug expenses and coverage.³

The actual amount an individual or couple will need can vary significantly, but enrollees of Medicare Advantage plans generally could have lower savings targets than those who choose traditional Medicare coverage.⁴ For example:*

*Based on EBRI analysis.

What does Medicare cover?

Some assume that once they sign up for Medicare, most of their medical bills will be taken care of — and while Medicare can provide valuable coverage for certain services, it doesn’t cover everything. Generally, people need to budget for deductibles, copays, and supplemental insurance, as well as services ranging from dental care, vision exams, and hearing aids to long-term care. There are nuances to each option, from premiums and deductibles to eligible physician and hospital networks and medication coverage. Here’s a look at some of the basics:

Medicare Part A primarily applies to hospital and inpatient services, including hospital stays, skilled nursing facility care after a qualifying hospital admission, hospice care, and certain home health services.⁵

Medicare Part B covers medical and outpatient care such as doctor visits and preventative services, outpatient hospital care (lab tests, imaging, etc.), certain home health services, durable medical equipment (oxygen, walkers, etc.), and certain other medical and health services not covered by Part A.⁶

Medicare Advantage (Part C) plans, which are offered by private, Medicare-approved insurers, bundles all the benefits of Part A and Part B (with a few exclusions) with some supplemental coverage — this may include prescription drug coverage (Part D), dental, vision, or hearing services, depending on the plan choices.⁷

Medicare Part D is an optional benefit, also offered privately, available to Medicare enrollees to cover the cost of prescription drugs, including most vaccines.⁸

Medigap, another privately offered supplement, includes coverage support for out-of-pocket expenses like deductibles, coinsurance, and copayments.⁹

Long-term care can be a long-haul expense

About 80% of adults ages 65 and over will require some long-term care and support needs in their lifetime and 48% will receive some paid care such as a home health aide, assisted living, or nursing home services — yet most forms of health insurance do not pay for long-term care, with only about 4% of hours covered.¹⁰

While costs will vary, roughly 1 in 5 Americans age 65 and over will have long-term care costs of more than $200,000.¹¹

Be proactive

There’s no surefire way to predict healthcare expenses, but there are steps to help prepare so they don’t throw finances for a loop. For example, proactively consider estimated medical expenses and potential long-term care costs alongside Medicare eligibility and incorporate these into a financial plan. Determining the best timing for when to begin collecting social security benefits based on individual circumstance can also make a difference. Treating an HSA like a retirement account can be another option. Although eligibility to contribute to HSAs ends after enrolling in Medicare, enrollees can still use the funds to cover various healthcare expenses in retirement.¹²

Read more: Healthcare now, savings later

FAQs

How much can retirees expect to spend on healthcare?

There’s no one-size-fits-all number — it depends on individual circumstances. Depending on Medicare coverage, prescription drug costs, overall wellness, and long-term care needs, some retirees may spend anywhere from $57,000 to over $400,000 on healthcare in retirement.

Does Medicare cover all healthcare costs in retirement?

No, Medicare does not cover all healthcare expenses. For example, it generally does not include dental, vision, hearing aids, or most long-term care, so retirees may need to rely on supplemental insurance or out-of-pocket savings.

How can I prepare for medical expenses in retirement?

Some steps you can take to prepare for retirement healthcare costs include exploring the right Medicare or Medigap plan, contributing to an HSA, and building a dedicated healthcare fund as part of your financial plan.

What percentage of retirees need long-term care?

Around 80% of adults over 65 will need some form of long-term care, and nearly half will require paid services such as nursing homes, assisted living, or home healthcare.