There’s no getting around it: Health care is expensive. Folks over 60 spend more than $1,300 a month. So it’s no surprise that 80% of people say they’re concerned about their ability to pay for health care costs in retirement. Thankfully, estimating what you might spend in retirement doesn’t have to be guesswork — or a panic spiral. It’s possible to land on a number you can actually plan around. Here’s the step-by-step.
Step 1: Guesstimate your budget
Thinking of your future health spending as separate line items for your budget instead of one big, scary unknown is a much better — and less stressful — way to go about it. The components include:
- Premiums: These are the monthly costs you’ll pay in order to have your health insurance — that includes Medicare plus Medigap or Medicare Advantage, or private coverage if you’re not on Medicare yet.
These costs are relatively predictable. Start with today’s Medicare Part B and D baselines, and get a Medigap or Advantage quote for your ZIP and age. Then add an annual inflation buffer — healthcare costs rose 7.5% from 2023 to 2024. According to an analysis by Kiplinger, those 64 and older spent an average of $1,458 per month on premiums. Yes, it’s a lot, which is why planning for it is a must.
- Out-of-pocket costs: This category includes deductibles, coinsurance, copays, dental, vision, hearing, routine meds, and other everyday care costs that aren’t fully covered, but also don’t come under the heading of your premiums. They also include bigger expenses like nursing homes, home health aides, and rehab. These costs are tricker to estimate but not impossible. For starters, you know you’re going to spend more on healthcare as you age — people over 55 spend as much as double on healthcare costs as those in their 20s, 30s or 40s. And if you’re looking for a ballpark number, for a typical 65-year-old woman, a Mercer-Vanguard model predicted annual health care expenses of $5,100. (Unfortunately, costs are only going to rise every year, so make sure to add an inflation buffer.)
Step 2: Get your baseline from today
Before you time-travel into retirement, pull a few current numbers:
- What are you spending on healthcare now? Add up your premiums + out-of-pocket + dental/vision + regular medications for the calendar year.
- Do you have any chronic conditions or ongoing prescriptions? These are strong predictors of future costs.
- What’s likely to change? If you’re planning to quit smoking, lose weight, or if you expect a difficult diagnosis may be in your future, this can move the math. Be more honest than optimistic. (Yes, we believe in you, but these changes are hard.)
It may take a little time, but it’s worth it — open your last two years of bank and credit-card statements and tag health-care line items. It will at least give you a starting point.
Step 3: Read your family’s health story — then personalize it
If you want a clearer picture of your future costs, look at your past; specifically, your parents and close relatives. No, your family history is NOT your destiny, but it can be a useful forecasting tool. If one or both of your parents encountered hefty medical bills due to chronic conditions (diabetes, heart disease, dementia, etc.) then you may want to build that into your worst-case scenario plan.
For example, if Mom had a knee replacement and Dad needed a pacemaker, that doesn’t guarantee the same for you — but it nudges the odds. Likewise, issues like heart disease often mean more specialist visits, testing, and meds, or more money needed for preventative care. Thankfully, we’re in a new era with better drugs and improved screening, so use your history as a guidepost, not a prophecy. In other words, don’t shortchange your longevity planning because your parents died young.
Step 4: Prevention is a financial strategy
Some of the biggest costs that hit us late in life are the ones we can postpone or eradicate with boring (but powerful!) habits. For example:
- Don’t smoke. Tobacco converts small, predictable costs into large, unpredictable ones.
- Strength + balance. Resistance training supports bone density and balance, reducing falls (and the cascade of ER visits, rehab, and lost independence).
- Move! 150 minutes a week of moderate activity is wildly effective for heart, mood, and glucose control.
- Stay current on your basics. Annual wellness visits, age-appropriate screenings (mammograms, colonoscopies), vaccinations, and hearing/vision checks catch small problems early.
- Guard your teeth. Dental neglect is a sneaky budget buster, because original Medicare (parts A and B) don’t cover dental. Crowns, implants, and periodontal work are unfortunately common in retirement.
- Eat like your future self is watching. More plants, more fiber, less processed food.
Step 5: Use an HSA strategically (if you’re eligible)
If you’re still working and HSA-eligible, then it’s time to treat your HSA like a mini “retirement health fund.” Contributions are pre-tax, your money grows tax-free, and then withdrawals come out tax-free. Even if you can’t max it out, it’s still great to build a cushion for your early retirement years when deductibles and copays can spike.
Step 6: Add it all up
Once you’ve built your baseline estimate, don’t stop there — run it through a few “what if” scenarios. For example: What happens if inflation averages 6% instead of 3%? If you or a partner develop a chronic condition that doubles your prescription costs? Or if one of you needs part-time home health care at $30-$50 an hour?
Fidelity’s Retiree Health Care Cost Estimate tool, AARP’s Health Care Costs Calculator, and the Medicare.gov Plan Finder all let you plug in your age, location, coverage choices, and health profile for a tailored projection. Using these tools can help you refine your estimate, double-check your assumptions, and make adjustments before you lock in a financial plan.
Stress-testing your number against these possibilities will show you how resilient your plan really is — and whether you might need to save more, work longer, or earmark a larger slice of your retirement income for health expenses. The more angles you test, the more confident you’ll feel that your retirement plan can handle whatever comes your way. You got this!
