Healthcare is one of the most significant, and often underestimated, expenses in retirement.

Recent analysis highlights that a man will need to have saved $191,000, and a woman will need to have saved $226,000 just to have a 90% chance of meeting their healthcare spending needs in retirement.

As medical costs continue to rise faster than inflation and life expectancy is higher than ever, planning for healthcare in retirement isn’t optional, it’s essential. In fact, it should be viewed as a “core liability” alongside housing, food, and other necessities.

The Steady Rise of Healthcare Costs

The landscape for retirees is shifting quickly. Employers are already bracing for the largest health benefit cost increases in 15 years, with premiums projected to rise by 6.5% in 2026, which is more than double the expected rate of inflation.

Doctor visits, ER usage, and mental health claims have surged since the pandemic, and while medical breakthroughs in areas like cancer, autoimmune diseases, and chronic conditions offer life-changing benefits, they often come with steep price tags. Even with insurance, patients can face limited coverage or complicated approval processes that push more of the burden onto them.

And it’s not just private plans feeling the pressure. Medicare Part B premiums are projected to exceed $200 a month by 2026, a 12.6% jump, with Part D premiums following suit.

Bridging the Gap Before Medicare

With the average retirement age hovering around 62, many retirees at this age find themselves in a healthcare “no-man’s land” – too young for Medicare (enrollment begins in at age 65) yet no longer covered by an employer plan.

Some manage the transition by staying on a working spouse’s insurance, which often allows for coverage changes through a Special Enrollment Period. Others rely on COBRA, which can extend employer coverage for up to 18 months, though retirees typically shoulder the full premium – a costly proposition when employers usually pay 70–80% during active employment.

For those without spousal or COBRA options, the Health Insurance Marketplace offers alternative coverage, sometimes with income-based subsidies that help lower premiums. And for retirees who prefer to keep a foot in the door, part-time work can sometimes come with access to benefits or partial premium assistance.

Avoiding Medicare Mistakes

Medicare, for all its value, is notoriously complex and missteps can be expensive. Missing your Initial Enrollment Period (the three months before and after your 65th birthday) can result in lifelong penalties. Many retirees also misunderstand how COBRA interacts with Medicare, assuming one delays the other. Others auto-renew their Part D or Advantage plans each year without reviewing changes in coverage or costs.

Fortunately, common missteps like these can be avoided with a thoughtful Medicare strategy. Let’s consider the following scenario: Tom retired at 65 and assumed his Medicare plan automatically included prescription coverage. It didn’t – and when he later needed an expensive GLP-1 medication, he found himself paying over $250 a month out of pocket. His wife, Jane, chose a low-premium Medicare Advantage plan that looked affordable, until a fall and a few medical procedures left her with $6,600 in uncovered bills.

After consulting their financial advisor, Tom enrolled in a more comprehensive plan that reduced his prescription costs to $50 a month, saving nearly $2,400 a year. Jane switched to a plan with a better balance between premiums and deductibles and found one that covered her heart specialist, cutting another $1,000 from their annual out-of-pocket expenses.

Making the Most of Your HSA Before and During Retirement

For those still working, Health Savings Accounts (HSAs) remain one of the most powerful savings tools available. Often described as “triple tax-advantaged,” HSAs offer tax-deductible contributions, tax-free growth, and tax-free withdrawals for qualified medical expenses – including Medicare premiums.

Funds can be invested in stocks, ETFs, or mutual funds to grow over time, allowing the account to serve as a future healthcare reserve. Once enrolled in Medicare, you can no longer contribute to an HSA, but you can still use existing funds to pay for Medicare Parts B and D, Medicare Advantage premiums, and other out-of-pocket medical expenses.

Planning tip: stop contributing at least six months before Medicare enrollment to avoid tax penalties, due to Medicare’s “six-month lookback” rule.

Long-Term Care: Plan Early, Save More

Nearly 70% of retirees will need some form of long-term care, yet Medicare covers very little of it. Nursing homes, assisted living, and home health services can quickly drain assets. The national average cost for a semi-private room in a nursing home is $100,740 per year.

Planning early, ideally in your 50s or early 60s, can make coverage more affordable. Traditional long-term care insurance offers peace of mind, though premiums have risen in recent years. Hybrid life and long-term care policies, which combine life insurance with long-term care benefits, have become increasingly popular since they eliminate the “use-it-or-lose-it” problem, a clause in long-term care policies where premiums were lost if you didn’t need care before death.

For couples with significant care needs or limited assets, Medicaid planning can also be critical. A financial advisor can help you understand the five-year lookback rule when applying for Medicaid and protect assets for the healthy spouse while ensuring quality care for the other.

The Often-Forgotten Healthcare Proxy

One of the simplest, yet most overlooked, parts of retirement planning is a healthcare proxy, or medical power of attorney. This document designates someone to make healthcare decisions on your behalf if you’re unable to. Without it, families can face legal delays or disagreements in moments that require quick, decisive action.

A proxy also ensures that your medical preferences and end-of-life wishes are honored. Requirements vary by state, so it’s important to review state laws as some combine the healthcare proxy with a Living Will or require additional forms.

Planning Your Healthcare in Retirement

Healthcare costs may be unpredictable, but creating a plan with a trusted financial advisor can help you be and feel prepared. Start by:

1. Estimating your annual healthcare costs, including premiums and out-of-pocket expenses
2. Maxing out your HSA contributions while eligible
3. Reviewing Medicare options and plan needs as you approach eligibility
4. Considering long-term care insurance or alternative funding strategies
5. Completing healthcare proxy and advance directive paperwork
6. Discussing your healthcare wishes with your family and proxy
7. Revisiting your plan with your financial advisor annually or after major life changes

And remember, healthcare in retirement is a moving target – and even the most carefully built plans can be disrupted by unexpected costs. But with foresight and guidance, those surprises don’t have to derail your financial future.

A trusted advisor can help you build a healthcare strategy that aligns with your values, spending goals, and long-term vision for retirement so you’re prepared for every milestone and the expenses that come with it.

Sources: Employee Benefit Research Institute, Mercer, The Federal Long Term Care Insurance Program

Please consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.