Health care is one of the trickiest parts of retirement planning. Medical needs aren’t fixed, and often can’t be known in advance.
For financial planning clients in their 50s, the challenge is turning awareness into rough cost estimates.
Before getting into details, here is a quick list of things to consider:
- Estimate $14,000 to $24,000 (in today’s dollars) per year for couple-level health care costs in retirement.
- Model any years before Medicare age (65) separately
- Build a dedicated health care funding source (health savings account if available)
- Assume medical costs will rise faster than general inflation over time
- Treat health care as a required baseline expense in retirement cash flow planning
How retirement health care spending breaks down
A useful way to think about retirement health care is to separate it into two main categories.
The first is ongoing insurance and routine care. This includes Medicare premiums, prescription drug coverage, supplemental insurance, and typical doctor visits.
The second is variable out-of-pocket spending. This includes dental and vision care, hearing-related expenses, and occasional medical procedures or tests that do not happen every year.
Separating these helps prevent two common mistakes: underestimating baseline costs and ignoring irregular but meaningful expenses.
A realistic annual budget
You must explicitly include health care in retirement cash flow rather than treat these necessary expenses as an afterthought.
For many retirees on Medicare, a reasonable planning range is often about $7,000 to $12,000 per person per year for routine health insurance and care. For couples, that typically lands somewhere between $14,000 and $24,000 per year depending on coverage choices, prescription needs, and income-related Medicare adjustments.
Some households will spend less, while others will spend more, particularly if they select richer supplemental coverage or face higher Medicare premiums due to income levels. Medical inflation also tends to push these numbers higher over time.
Bring on the Health Savings Account
If you have access to a health savings account through your employer or individual insurance plan, it can be one of the most efficient tools for future medical costs. Contributions are tax-deductible, growth is tax-deferred, and withdrawals for qualified medical expenses are tax-free.
HSA funds can be rolled from year to year, so the best move can be to pay out of pocket for current medical needs, then tap the HSA in retirement (either for past or current expenses).
For example, a couple in their early 50s who contributes consistently and invests the balance may build a meaningful six-figure medical reserve by retirement. That account can then be used to pay Medicare premiums, cover prescriptions, and handle routine out-of-pocket expenses without triggering taxes.
Planning without an HSA
Many people do not have access to an HSA because of their insurance structure or employer plan design. That requires a different approach.
The planning goal is the same: Build a dedicated pool of money for future health care expenses.
Some clients label a particular account in their portfolio as a health care reserve.
We encourage them to call it the care bucket.
For example, a couple planning to retire in their mid-60s might aim to have $200,000 to $300,000 in liquid assets earmarked for health care and insurance costs. The purpose is not to match a precise number but to ensure there is a clearly identified buffer for medical spending over time.
Retiring before Medicare
Many of our clients are very ready to retire before they turn 65, and health insurance and care costs are top-of-mind in the conversation. Folks who’ve always had group coverage face a harsh reality when they meet the high cost of shopping for their own health insurance.
(We’re sorry, but we don’t have great news on shopping for your own health insurance. It’s a tough environment out there.)
If someone retires at 60, they will need to rely on individual coverage or marketplace plans for several years. Premiums are often significantly higher than employer-sponsored insurance, and deductibles can increase exposure to out-of-pocket costs.
For some households, this period can result in annual health care costs ranging from $25,000 to $40,000 depending on income, location, and coverage choices.
Inflation matters … a lot!
Health care costs tend to rise faster than general inflation over long periods. That means today’s spending levels are not reliable guides for future health care costs.
For a household spending $10,000 per year today on health care, that number will not remain stable over a 20- to 30-year retirement. Both premiums and out-of-pocket costs tend to increase over time, sometimes significantly.
For planning purposes, it is more realistic to assume that medical costs will grow faster than general lifestyle expenses.
A reasonable approach to a great unknown
A practical way to think about health care costs in retirement does not require complex forecasting.
During working years, a good strategy is to maximize HSA contributions if available and invest them for long-term growth. If an HSA is not available, clients must still commit intentional savings rather than treating health care as something that will be figured out later.
At the retirement planning stage, it is helpful to explicitly include $14,000 to $24,000 per year for couple-level health care costs, model any pre-Medicare years separately, and assume higher-than-average inflation for medical expenses.
Health care in retirement is not a single number to predict. It is a structured set of ongoing and variable expenses that must be intentionally funded.
Instead of hoping health care costs will be manageable in retirement, the goal is to ensure you account for them in your financial plan.
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