How to Plan for Healthcare Costs in Retirement in 2026

Here is the retirement number almost nobody talks about: $165,000 per person. That is Fidelity's latest estimate of what a 65-year-old retiring today will spend on healthcare throughout retirement — and it does not even include long-term care.

While most retirement planning conversations revolve around 401(k) balances and Social Security checks, healthcare expenses quietly erode more nest eggs than almost any other category. A 2025 Employee Benefit Research Institute survey found that nearly 40 percent of retirees said medical costs were significantly higher than they expected.

The good news? With the right strategy, you can estimate these costs realistically, make smart Medicare decisions, and build a financial cushion that keeps a medical bill from derailing your retirement. Let us walk through exactly how to do it.

Why Healthcare Is Retirement's Biggest Financial Wildcard

Most people assume that once they hit 65 and enroll in Medicare, healthcare becomes cheap. That assumption is dangerously wrong.

Medicare covers a lot, but it does not cover everything. Original Medicare (Parts A and B) still leaves you responsible for:

• Monthly premiums — The standard Part B premium in 2026 is $185 per month, and high earners pay significantly more through IRMAA surcharges
• Deductibles and copays — Part A has a $1,676 inpatient deductible per benefit period, and Part B carries a $257 annual deductible
• Prescription drugs — Part D coverage has its own premiums, deductibles, and copays
• Dental, vision, and hearing — Original Medicare provides minimal to no coverage for these services
• Long-term care — Medicare does not cover custodial care in a nursing home or assisted living facility

When you add it all up, the average retired couple at age 65 should plan for roughly $6,800 to $9,200 per year in out-of-pocket healthcare costs, even with Medicare coverage. And that figure climbs as you age — healthcare spending for people over 75 is nearly double what it is for those between 65 and 74.

The Inflation Factor

Healthcare inflation has historically outpaced general inflation by 1.5 to 2 percentage points. While overall consumer prices might rise 2.5 to 3 percent per year, medical costs have been climbing at 4 to 5 percent annually. Over a 25-year retirement, that difference compounds dramatically.

A prescription that costs you $200 a month at age 65 could easily cost $500 a month by age 85 at 5 percent annual inflation. Planning for general inflation when budgeting healthcare is one of the most common — and costly — mistakes retirees make.

How to Estimate Your Personal Healthcare Costs

National averages are helpful starting points, but your healthcare costs in retirement will depend on your specific situation. Here is a framework for building a personalized estimate.

Step 1: Assess Your Current Health

Be honest about where you stand today. Do you manage any chronic conditions like diabetes, heart disease, or arthritis? Are you on any ongoing medications? Do you have a family history of conditions that may require treatment later?

Someone managing Type 2 diabetes, for example, can expect to spend an additional $3,000 to $5,000 per year on medications, testing supplies, and specialist visits compared to someone with no chronic conditions.

Step 2: Calculate Your Medicare Costs

Build a baseline annual budget using these 2026 figures:

Cost Category	Estimated Annual Cost
Part B Premium	$2,220 ($185/month)
Part D Premium	$420–$1,200 (varies by plan)
Medigap or Advantage Premium	$1,800–$3,600 (varies widely)
Part B Deductible	$257
Copays and Coinsurance	$1,000–$3,000
Dental, Vision, Hearing	$1,000–$2,500
Total Baseline	$6,700–$12,800

If your modified adjusted gross income (MAGI) exceeds $106,000 as an individual or $212,000 as a couple, you will pay higher Part B and Part D premiums through the Income-Related Monthly Adjustment Amount (IRMAA). At the highest income bracket, Part B premiums alone can exceed $500 per month.

Step 3: Add a Long-Term Care Estimate

About 70 percent of people turning 65 today will need some form of long-term care during their lifetime. The median costs in 2026 are staggering:

• Home health aide: $75,000 per year
• Assisted living facility: $65,000 per year
• Nursing home (private room): $120,000 per year

Even if you only need two years of home care, that is $150,000. Factor at least some long-term care cost into your plan, whether through insurance, savings, or a hybrid approach.

Step 4: Apply a Growth Rate

Take your annual baseline estimate and project it forward using a 5 percent healthcare inflation rate. If your baseline is $9,000 per year at age 65, here is what it looks like over time:

• Age 70: $11,500
• Age 75: $14,700
• Age 80: $18,700
• Age 85: $23,900

This is why a static retirement budget breaks down. Your healthcare line item needs to grow every single year.

Making Smart Medicare Decisions

The Medicare choices you make at age 65 — or whenever you first enroll — will shape your healthcare costs for years. Here are the key decisions and how to approach them.

Original Medicare + Medigap vs. Medicare Advantage

This is the single most important Medicare decision you will make.

Original Medicare + Medigap (Supplement):

• Freedom to see any doctor who accepts Medicare nationwide
• Medigap plans cover most or all of your out-of-pocket costs
• Higher monthly premiums but very predictable annual costs
• You will need a separate Part D plan for prescriptions
• Best for people who travel frequently, want maximum provider choice, or have complex health needs

Medicare Advantage (Part C):

• Lower monthly premiums, often $0 beyond your Part B premium
• Usually includes prescription drug coverage, plus dental, vision, and hearing benefits
• Requires using in-network providers in most cases
• Out-of-pocket maximums cap your annual spending (typically $4,000–$8,000)
• Best for healthy retirees who are comfortable with network restrictions and live in an area with strong plan options

A critical detail many people miss: in most states, you can only enroll in a Medigap plan without medical underwriting during your initial six-month enrollment window after turning 65 and enrolling in Part B. If you start with Medicare Advantage and later want to switch to Original Medicare with a Medigap plan, you may be denied coverage or charged higher premiums based on your health status.

Timing Your Enrollment

Medicare enrollment timing matters more than most people realize:

• Initial Enrollment Period: A seven-month window around your 65th birthday (three months before, your birthday month, and three months after)
• Late enrollment penalties: If you delay Part B or Part D without qualifying coverage, you will pay a permanent premium surcharge — 10 percent per year for Part B, 1 percent per month for Part D
• Special Enrollment Period: If you are still working and covered by an employer plan with 20 or more employees, you can delay Medicare without penalty

If you retire before 65, you will need bridge coverage — typically through COBRA, the ACA marketplace, or a spouse's employer plan — until you become Medicare-eligible.

The Health Savings Account Advantage

If you are still working and have access to a high-deductible health plan (HDHP), a Health Savings Account (HSA) is one of the most powerful tools for funding retirement healthcare.

HSAs offer a rare triple tax advantage:

1. Contributions are tax-deductible (or pre-tax through payroll)
2. Growth is tax-free
3. Withdrawals for qualified medical expenses are tax-free

In 2026, you can contribute up to $4,300 as an individual or $8,550 as a family, plus an extra $1,000 catch-up contribution if you are 55 or older. A couple both over 55 with family HDHP coverage can put away over $10,000 per year.

Here is the real strategy: if you can afford to pay current medical expenses out of pocket, let your HSA grow invested in index funds. A couple contributing the family maximum with catch-up from ages 55 to 65 could accumulate $130,000 to $170,000 depending on market returns — a dedicated healthcare fund that comes out completely tax-free.

After age 65, you can use HSA funds to pay Medicare premiums (Parts B, D, and Medicare Advantage — but not Medigap premiums), prescription costs, dental work, hearing aids, and hundreds of other qualified expenses. No other account gives you this combination of flexibility and tax efficiency for healthcare spending.

Important note: You cannot contribute to an HSA once you enroll in any part of Medicare. Plan your HSA contributions and Medicare enrollment timing carefully.

Building Your Healthcare Safety Net

Beyond Medicare and HSAs, you need a broader strategy to protect against catastrophic healthcare costs.

Option 1: Self-Insure With a Dedicated Fund

Set aside a specific pool of money earmarked for healthcare. This works best for people with strong retirement savings who can afford to designate $150,000 to $250,000 (per person) as a healthcare reserve. Keep this money in a conservative but inflation-beating allocation — a mix of short-term bonds and TIPS works well.

The advantage is full flexibility. The downside is that you are carrying the entire risk yourself.

Option 2: Long-Term Care Insurance

Traditional long-term care (LTC) insurance premiums have risen dramatically over the past decade, and many insurers have left the market. However, if you are in your mid-50s, healthy, and can lock in a policy, it can still be worthwhile.

Look for policies with:

• A benefit period of three to four years
• An inflation rider of at least 3 percent compound
• A daily benefit of $150 to $200
• A reputable carrier with strong financial ratings

Expect to pay $2,000 to $4,000 per year for a solid policy if you purchase in your mid-50s. Waiting until your 60s can double the cost.

Option 3: Hybrid Life Insurance / LTC Policies

Hybrid policies combine life insurance with long-term care benefits. You pay a lump sum or premiums over several years, and the policy provides a pool of money you can use for long-term care. If you never need care, your beneficiaries receive a death benefit.

These policies are increasingly popular because they eliminate the "use it or lose it" concern of traditional LTC insurance. A typical hybrid policy might cost $75,000 to $150,000 as a single premium and provide $250,000 to $400,000 in long-term care benefits.

Option 4: The Family Plan

Some families create informal care agreements where adult children plan to provide some level of care or financial support. If you are considering this path, have honest conversations now and put agreements in writing. Do not assume your children will be able or willing to provide care without discussing it explicitly.

Seven Action Steps to Take Right Now

No matter where you are on the retirement timeline, these concrete steps will put you in a stronger position.

1. Run your personal healthcare cost estimate. Use the framework from Step 2 above and build a spreadsheet projecting your costs from your planned retirement age through age 90. The number will be uncomfortable, but knowing it is better than guessing.

2. Max out your HSA if you have one. Every dollar you put in now is a tax-free dollar for future healthcare. If you are over 55, make sure you are using the catch-up contribution.

3. Review your Medicare options annually. During Open Enrollment each fall (October 15 through December 7), compare your current plan against alternatives. Drug formularies, premiums, and provider networks change every year.

4. Know your IRMAA brackets. If you are within two years of Medicare enrollment, manage your income carefully. A Roth conversion or large capital gain in the wrong year can push you into a higher IRMAA bracket and cost you thousands in extra premiums.

5. Get long-term care quotes before 60. If you are in your 50s and considering LTC insurance, get quotes now. Every year you wait increases the premium, and a new health diagnosis could make you uninsurable.

6. Create a health-related advance directive and powers of attorney. These legal documents ensure your healthcare wishes are followed and someone you trust can make medical and financial decisions if you become incapacitated. Every adult should have these regardless of age.

7. Invest in your health today. This is the highest-return investment you can make. Regular exercise, maintaining a healthy weight, staying socially connected, and getting preventive screenings can dramatically reduce your healthcare costs in retirement. People who exercise regularly spend 30 to 40 percent less on healthcare after age 65 compared to sedentary individuals.

The Bottom Line

Healthcare costs are not a reason to panic about retirement — they are a reason to plan for it. The retirees who struggle most are the ones who assumed Medicare would cover everything and never ran the numbers.

By estimating your personal costs, making informed Medicare choices, leveraging tax-advantaged accounts like HSAs, and building a safety net for long-term care, you can walk into retirement confident that a medical bill will not send your financial plan off the rails.

Start with one action from the list above this week. The earlier you build healthcare into your retirement plan, the more options you will have — and the less any single medical expense will threaten the retirement you have worked so hard to earn.