How to Calculate Healthcare Costs in Retirement (And Why Most Estimates Are Too Low)

Key Takeaways

A 65-year-old couple retiring today needs approximately $315,000 for Medicare premiums, copays, and prescriptions alone. Long-term care adds another $172,000 to $350,000 on top of that.
Retirees who rely on the Fidelity headline figure without adjusting for their health status, location, or long-term care risk underfund healthcare by an average of $127,000.
Build healthcare costs as a separate budget line using a 5.4% annual inflation rate, not the general CPI rate of 3.2%, to produce an accurate projection.
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The Number Everyone Quotes Is Incomplete

Fidelity's 2024 Retiree Health Care Cost Estimate puts the figure at $315,000 for a couple retiring at 65. That number circulates constantly. It is also misleading on its own.

That $315,000 covers Medicare Parts B and D premiums, supplemental Medigap premiums, and out-of-pocket costs for covered services. It excludes dental care, vision care, hearing aids, and any form of long-term care. It also assumes both spouses live to average life expectancy. Change any of those assumptions and the number moves substantially.

The actual planning target for a couple with median health status, average long-term care exposure, and a 25-year retirement horizon sits closer to $487,000 to $662,000 in today's dollars. The gap between $315,000 and $487,000 is not a rounding error. It is a retirement plan that runs short.

What Healthcare Inflation Actually Costs You

General inflation compounds at roughly 3.2% annually over the long run. Medical inflation runs faster. The Centers for Medicare and Medicaid Services projects national health expenditure growth at 5.4% per year through 2032.

That 2.2 percentage-point difference matters enormously over a 25-year retirement.

Consider a retiree who spends $12,000 per year on healthcare at age 65. At 3.2% inflation, that annual cost reaches $26,700 by age 90. At 5.4% inflation, it reaches $44,400. The lifetime cumulative difference between those two inflation assumptions is $213,000 over 25 years.

Always use a healthcare-specific inflation rate. Using general CPI to project medical costs produces a number that will underperform reality.

Breaking Down the Four Cost Categories

Retirement healthcare costs fall into four distinct buckets. Each carries different inflation dynamics and different planning levers.

1. Medicare Premiums

Medicare Part B premium for 2025 is $185.00 per month per person, or $2,220 annually. High earners pay more through IRMAA surcharges. A couple with combined modified adjusted gross income above $212,000 pays $259.00 per person per month instead, adding $1,776 per year in premiums alone.

Medicare Part D (prescription drugs) averages $46.50 per month per person in 2025. Add a Medigap Plan G policy, which averages $183 per month per person for a 65-year-old, and total premium costs for one person reach approximately $5,094 per year at enrollment.

Project that forward at 5.4% annually for 25 years. A single retiree pays roughly $192,000 in Medicare-related premiums over a 25-year retirement in nominal dollars.

2. Out-of-Pocket Costs

Even with Medigap coverage, retirees face copays, coinsurance, and costs for non-covered services. HealthView Services estimates average out-of-pocket spending at $4,500 per person per year for a healthy 65-year-old. That figure rises steeply after age 80, often doubling to $8,900 or more as chronic conditions accumulate.

3. Dental, Vision, and Hearing

Original Medicare does not cover routine dental, vision, or hearing care. These costs are entirely out of pocket unless the retiree enrolls in a Medicare Advantage plan with those riders or purchases standalone supplemental coverage.

Average annual dental spending for adults over 65 runs $1,400. Vision care adds approximately $600. Hearing aids, which need replacement every three to five years, cost $4,000 to $7,000 per pair. Over a 25-year retirement, a couple spends roughly $85,000 to $120,000 on these three categories alone.

4. Long-Term Care

This is the category most retirement plans ignore or severely underweight. The 2024 Genworth Cost of Care Survey puts the national median for a private nursing home room at $9,733 per month, or $116,796 per year. Assisted living averages $5,350 per month.

Roughly 70% of people turning 65 today will require some form of long-term care. The average duration of care is 2.5 years, though 20% of people need care for five years or more.

The expected cost exposure for a single individual, probability-weighted across the population, is approximately $172,000 in today's dollars. For couples, the combined exposure exceeds $300,000 in most projections.

Two Worked Examples

Example 1: The 62-Year-Old Couple With Average Health

David and Susan are both 62. They plan to retire at 65. Both are in good health with no significant chronic conditions. Their household income in retirement will be $185,000, keeping them below the first IRMAA threshold.

Annual healthcare costs at age 65:

Medicare Part B premiums: $2,220 x 2 = $4,440
Medicare Part D premiums: $558 x 2 = $1,116
Medigap Plan G premiums: $2,196 x 2 = $4,392
Out-of-pocket costs: $4,500 x 2 = $9,000
Dental, vision, hearing: $2,400 combined
Total at age 65: $21,348 per year

Growing that at 5.4% annually for 25 years, their average annual cost over the full retirement period is approximately $38,200. Total cumulative spending reaches $955,000 in nominal dollars. Discounted back at 4%, the present value of that obligation at age 65 is approximately $591,000.

They have not yet accounted for long-term care. Adding a probability-weighted long-term care exposure of $300,000 brings their total healthcare liability to roughly $891,000 in today's dollars.

Their retirement plan had earmarked $400,000 for healthcare. The real number is more than double that.

Example 2: The Single 67-Year-Old With One Chronic Condition

Margaret is 67, recently widowed, and managing Type 2 diabetes. Her MAGI is $95,000, putting her below IRMAA thresholds.

Annual healthcare costs at age 67:

Medicare Part B: $2,220
Medicare Part D: $558
Medigap Plan G: $2,640 (age-adjusted premium)
Diabetes-related out-of-pocket costs: $7,200 (medications, supplies, specialist visits)
Dental, vision, hearing: $2,000
Total at age 67: $14,618 per year

Growing at 5.4% annually over a 23-year horizon (to age 90), her cumulative nominal spending reaches $528,000. The present value of that obligation at 4% is approximately $323,000.

Margaret's long-term care exposure as a single woman is higher than average. Women outlive men by an average of 5.1 years and have a higher probability of requiring formal care. Her probability-weighted long-term care liability sits at approximately $201,000.

Total healthcare retirement liability for Margaret: approximately $524,000. Her current retirement savings total $780,000. Healthcare alone will consume 67% of her portfolio if she does not separate that liability from her other spending.

The Planning Framework That Actually Works

Do not treat healthcare as a percentage of general retirement spending. That approach produces too much variance. Build it as a standalone projection with its own inflation rate and its own funding mechanism.

Step 1: Establish your baseline annual cost. Use current Medicare premium tables, your actual Medigap or Medicare Advantage plan cost, and your personal prescription spending. Do not use population averages if your costs differ materially.

Step 2: Apply 5.4% annual medical inflation. Project costs to age 90 at minimum. If you have longevity in your family history, extend to 95.

Step 3: Calculate a present value. Discount your projected future costs at your expected portfolio return, typically 3.5% to 5% in retirement. This gives you the lump sum you need today to fund those costs.

Step 4: Add long-term care exposure separately. Decide whether you fund this through a long-term care insurance policy, a hybrid life/LTC policy, a dedicated asset allocation bucket, or self-insurance. Each approach has different capital requirements.

Step 5: Stress test. Run the projection assuming 7% medical inflation instead of 5.4%. See how much your funding requirement changes. If the difference exceeds 15% of your total portfolio, you carry material healthcare inflation risk.

The Variables That Move Your Number Most

Three factors drive the widest variance in individual healthcare cost projections.

Health status at retirement. A 65-year-old with two or more chronic conditions spends 2.3x more on healthcare than a healthy peer, according to HealthView Services data. Retiring with managed diabetes, hypertension, or a cardiac history requires a substantially larger healthcare reserve.

Geographic location. Healthcare costs vary by as much as 40% across states. Alaska, Wyoming, and West Virginia carry the highest per-capita Medicare spending. Hawaii and Minnesota run significantly below the national median. Your ZIP code is a meaningful input.

Retirement age. Retiring before 65 means bridging to Medicare with private coverage. A 62-year-old purchasing a Silver-tier ACA plan in 2025 pays an average unsubsidized premium of $847 per month, or $10,164 per year. A three-year bridge from 62 to 65 adds roughly $30,500 to $42,000 in pre-Medicare premiums depending on plan selection and location.

Run Your Own Numbers

The figures above are anchored to national averages and typical assumptions. Your actual retirement healthcare cost depends on your age, health status, income level, state of residence, and long-term care preferences.

The CalcMoney retirement calculator lets you input your specific variables and produces a projection using current Medicare premium tables and healthcare-specific inflation rates. Run your own numbers before accepting a generic estimate. The difference between the generic number and your actual number may require you to rethink contribution rates, retirement timing, or asset allocation today.

Calculate your retirement healthcare cost now →

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