How Should You Prepare for Healthcare Costs in Retirement?
Tony PacioneAugust 12, 2026
Think you're in good shape? Great. That means you'll hopefully live longer. Which means your lifetime healthcare bill actually just got bigger.
How could that be? In a systematic review of 25 studies, the nine studies that directly compared active and inactive groups found that annual healthcare costs were 9.0% to 26.6% lower among the active groups.1
Great, right! The keyword, though, was annual.
Yet the only study in that review that modeled healthcare costs during added years of life found something significant. If an entire population became sufficiently active, the model projected higher total lifetime healthcare costs, not lower.1
So the reward for taking care of yourself is more years, better years, and a longer stretch of premiums, copays, and eventually care. Staying healthy changes what you spend money on, not whether you spend it.
None of that is an argument against the gym. It's an argument for planning, because the healthy version of you needs a plan that funds three or four decades, not two.
And the backdrop keeps getting more expensive. Three in four American adults live with at least one chronic condition, and more than half live with two or more.2 Health spending in the U.S. is projected to equal 18.7% of GDP in 2026 and reach 20.6% by 2034, with health spending growing faster than the overall economy throughout the projection period.3
A 65-year-old retiring in 2026 can expect to spend an estimated $185,500 on healthcare over the course of retirement. Using the same per-person estimate, a same-age couple would need roughly $371,000.4 The estimate is stated in after-tax dollars and covers Medicare premiums, cost-sharing, prescription drugs, and certain services Original Medicare does not cover. It excludes over-the-counter medications, most dental care, and long-term care. We'll get to that part, and no, you're not going to like it!
So how should you prepare for healthcare costs in retirement? Start with the lever that costs the least.
The Cheapest Healthcare Plan is Taking Care of Yourself
About 90% of the nation's annual healthcare spending goes toward people with chronic and mental health conditions.2 That figure covers a broad range of conditions, including heart disease, diabetes, and hypertension. Many risk factors for these conditions can be influenced by behavior, but not every case is preventable. About 40% of U.S. adults live with obesity, which is a risk factor for hypertension, type 2 diabetes, heart disease, stroke, and certain cancers. The connection between daily habits and medical risk is hard to ignore.5
Now compare price tags. A gym membership runs as low as $20 a month. Maybe even less depending on location and how fancy it is.
On the other hand, managing a chronic condition can run thousands per year in premiums, medications, specialist visits, plus lost quality of life, for decades. Nobody can promise that exercise and a decent diet will keep you out of the hospital, but they shift the odds, and the odds are what a financial plan is built on. Essentially, your health is one of the few line items in retirement where behavior today can shrink the bill tomorrow.
This is why we treat health like an asset class. A few positions worth holding.
Plenty of Movement. Strength training, walking, cycling, pickleball, golf without the cart.
Healthy Food. No fad required. Mostly whole foods, reasonable portions, and being honest about your snacking.
Mental health and sense of purpose. Social connection and meaningful activities are associated with better health and well-being in older adults.12
Sleep. Plenty of it! Chronic short sleep is associated with higher risks of obesity, diabetes, hypertension, heart disease, stroke, anxiety, and depression.13
A healthier saver and retiree spends less each year, stays independent longer, and gives their portfolio fewer emergencies to absorb. That brings us to the part you can't exercise your way out of.
The Costs You Can't "Outrun"
Even those who do everything right will pay for healthcare every year of retirement. That's just a fact of life. That's also why Medicare exists, and while Medicare is a genuine workhorse, it was never designed to make retirement healthcare free.
In 2026, the standard Medicare Part B premium is $202.90 per month with a $283 annual deductible, and higher-income households pay more through IRMAA surcharges that begin once modified adjusted gross income tops $109,000 for single filers or $218,000 for joint filers, pushing monthly premiums as high as $689.90.6
Two details are important. IRMAA generally looks at your tax return from two years earlier, so a big income year at 63 can raise your premiums at 65. Original Medicare still leaves gaps in routine dental, vision, hearing, and cost-sharing. Some retirees add Medigap and Part D coverage to Original Medicare, while others choose Medicare Advantage instead. Premiums and out-of-pocket costs vary by plan, and some Medicare Advantage plans have a $0 additional premium.6
Retirement Healthcare by the Numbers
Current Medicare, tax, and cost figures, plus cited long-term care estimates
Estimated lifetime healthcare cost for a 65-year-old retiring in 2026 (excludes long-term care)
$185,500
Standard Medicare Part B premium in 2026
$202.90/mo
Top Part B premium with IRMAA surcharges in 2026
$689.90/mo
2025 national median annual cost of a semi-private nursing home room
$114,975
2022 HHS/ASPE estimate for the share of people turning 65 who will need long-term services and supports
56%
2026 HSA contribution limit, family coverage (plus $1,000 catch-up at 55+)
$8,750
Lifetime QLAC limit for deferring IRA or 401(k) dollars into late-life income
$210,000
Sources listed at the end of the article. Includes national estimates, medians, and current 2025-2026 Medicare and tax figures. For illustration only.
Then there's the exposure Medicare mostly doesn't touch at all. A 2022 HHS/ASPE model estimates that 56% of Americans turning 65 will develop a disability serious enough to require long-term services and supports, including 45% who will use paid care. Meanwhile, a semi-private nursing home room had a 2025 national median cost of $114,975 per year.7
Original Medicare may cover limited skilled nursing facility care after a qualifying inpatient hospital stay, but it generally does not cover long-term custodial care.7
The risk also isn't spread evenly across retirement. It's concentrated in the final stretch, which is exactly what makes it plannable.
How Severe Long-Term Care Needs Rise With Age
2014 HRS-based estimates show 8% at ages 65-74, 17% at ages 75-84, and 40% at age 85 and older.
Probability
Will need LTSS
56%
Will receive paid care
45%
Will pay something out of pocket
35%
Duration and Exposure
Average LTSS need
~3 years
Need lasting more than 5 years
22%
Out of pocket over $100,000
14%
2025 National Median
Nursing home, semi-private
$114,975
Non-medical caregiver, 44 hrs/week
$80,080
Assisted living
$74,400
Sources: HHS/ASPE long-term services and supports research; CareScout 2025 Cost of Care Survey. Age-band estimates use 2014 HRS data; the connecting curve is illustrative rather than an exact probability for every age. Lifetime-risk estimates use HHS/ASPE's 2022 model. For illustration only.
Insuring the Long-Term Care Gap
Since Medicare won't carry this risk, your options come down to self-funding it, insuring it, or blending the two. The insurance market gives you three main tools.
Insurance
Traditional long-term care insurance pays for care once you can no longer perform a set number of daily living activities, usually two of six, and after a waiting period called the elimination period. You choose the monthly benefit, the benefit period, and whether the benefit grows with inflation, and every one of those levers moves the premium. The catch is underwriting. Insurers price these policies on your health at the time you apply, and they can decline you outright, which makes the mid-50s to early-60s window the practical time to shop, while your medical file still works in your favor.
Consider that one more financial argument for the gym!
There's also a tax layer here. For 2026, eligible premiums for tax-qualified policies can be treated as medical expenses up to $4,960 per person at ages 61 through 70 and $6,200 at age 71 or older. An itemized deduction is generally available only to the extent total eligible medical expenses exceed 7.5% of adjusted gross income, while different rules can apply to self-employed taxpayers. Under federal rules, HSA dollars can also pay qualified long-term care premiums tax-free, up to the same age-based limits. Using HSA dollars for eligible premiums can reduce their after-tax cost.8
Hybrid policies take a different route by wrapping a long-term care benefit inside a life insurance contract. If you never need care, a death benefit passes to your heirs, which answers the objection that stops many traditional-policy buyers, the fear of paying decades of premiums for a benefit they may never use. Premiums on these contracts are usually fixed at purchase, so they sidestep the rate-increase history that has dogged older traditional policies.
Annuities
Annuities round out the toolkit in two ways. Some contracts offer riders that increase the payout during years when you're receiving care. Separately, a qualified longevity annuity contract, or QLAC, lets you move up to $210,000 of IRA or 401(k) money into deferred lifetime income that can begin as late as age 85, and that money is excluded from your required minimum distribution calculation in the meantime.9 Look back at the curve above and the appeal becomes obvious. Income that switches on in your mid-80s arrives right as the odds of needing care climb, which turns a tax-deferral tool into a care-funding tool.
The right mix depends on your health, your balance sheet, your family situation, and how much of the risk you can afford to keep on your own books.
“I’m not the tax guy. I’m not the investment guy. I’m the everything guy.”
Now for the funding side, starting with the single most tax-favored account in the code. Under federal tax law, an HSA offers a triple tax advantage. Eligible contributions are deductible or excluded from income, investment growth is tax-free, and withdrawals for qualified medical expenses are tax-free. State tax treatment can differ. For 2026, the limits are $4,400 for self-only coverage and $8,750 for family coverage, plus a $1,000 catch-up at 55 and older.10
You can treat the HSA as a retirement account rather than a checking account. As in, invest your contributions, pay today's medical costs out of pocket, and let the account compound for decades as a dedicated healthcare fund. Save the receipts, too, because current federal rules do not impose a deadline for reimbursing yourself for a qualified medical expense incurred after the HSA was established, as long as the expense was not previously reimbursed or deducted. A knee surgery you paid out of pocket at 52 could support a tax-free withdrawal at 72 if those conditions are met, effectively converting twenty years of tax-free growth into spendable cash.10
Run your own numbers below. The second figure is the one that usually changes behavior, since every dollar you pull out today is a dollar that stops compounding tax-free.
HSA Growth Calculator
See what an invested health savings account could become by the time you retire.
$
%
$
Contributions
$175,000
Growth
$183,711
Medical fund at retirement
$358,711
Spend from the account each year instead of paying those bills out of pocket, and here is what never compounds.
$81,991
Assumes contributions at year end and a constant annual return. Investment returns vary and are not guaranteed. For illustration only.
Once the HSA owner is 65 or older, HSA dollars can generally pay Medicare Part B, Part D, and Medicare Advantage premiums tax-free, but not Medigap premiums. They can also pay qualified long-term care premiums up to the age-based caps.10 If you never use it all on medicine, withdrawals after 65 for anything else are simply taxed like a traditional IRA, so there's no penalty for overfunding.
Two timing rules apply. Contributions must stop once you enroll in Medicare, and because Part A coverage can be retroactive up to six months when you enroll after 65, contributions made during that lookback window can create excess-contribution headaches. Anyone working past 65 with an HSA should map their enrollment date before making that year's deposit.
Managing Income Around IRMAA
What is IRMAA? The income-related monthly adjustment amount is a surcharge Medicare adds to your Part B and Part D premiums once your income crosses certain thresholds. Think of it as a stealth tax on retirement income, and it works as a cliff, not a slope. Cross a threshold by a single dollar and the higher premium applies for the entire year, for each spouse on Medicare.
In 2026, one extra dollar of income above $218,000 on a joint return moves each spouse's Part B premium from $202.90 to $284.10 per month, roughly $975 more per person for the year.6 A couple can hand Medicare nearly $2,000 because one mutual fund paid a distribution in December.
2026 IRMAA Threshold Check
Enter the modified adjusted gross income from your 2024 return, the figure Medicare uses to set your 2026 premiums.
$
Part B premium, per person
$284.10/mo
Part D surcharge, per person
$14.50/mo
Annual surcharge, household
$2,297
You are $7,000 above the tier 1 threshold, which costs this household $2,297 this year. The next tier begins at $274,000.
Uses 2026 CMS premium amounts and assumes both spouses are enrolled in Medicare when filing jointly. The Part D surcharge is added to whatever your plan charges. This calculator does not cover married filing separately, which uses different thresholds. For illustration only.
The defense should start early because IRMAA is generally based on the tax return from two years earlier. Income at 63 will usually determine premiums at 65, but a qualifying life-changing event, such as retirement or another work stoppage, may allow Social Security to use more recent income information.6
The best window to act is usually the stretch between your last paycheck and your first required minimum distribution at 73, or 75 for those born in 1960 and later, when your income is at its lowest.11 Well-timed Roth conversions during those years shrink the future RMDs that would otherwise push you over a threshold, and smart asset location across account types keeps your portfolio from throwing off taxable income you don't need.
A flexible account mix also cushions surprises. A retiree with pre-tax, Roth, and taxable dollars can fund a $30,000 medical bill by blending sources so reported income barely moves. A retiree with only a traditional IRA pays income tax on the full amount, then higher Medicare premiums two years later, for the exact same surgery. And if you're retiring before 65, the same skills apply even earlier, since marketplace premiums and their tax credits key off reported income too, a gap anyone weighing an early retirement should price before setting a date.
In Conclusion
Healthcare in retirement can be astronomically expensive, and the healthier you are, the longer you'll be paying for it. The good news is that you hold more levers than you might think.
Medicare plus supplemental coverage handles the predictable expenses, an HSA and earmarked investments can handle the out-of-pocket layer, insurance or annuity income covers the long-term care tail, and withdrawal sequencing ties it together so the taxes and premiums stay as small as the rules allow. That's the coordination work we do inside a full plan here at Gasima Financial.
To talk through what this means for your plan, click the button below.
This article is for informational purposes only and is not tax, legal, or investment advice. Consult a qualified professional about your specific situation.
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