Retirement Healthcare Costs: What You’ll Actually Pay, and How To Plan for It

According to Milliman’s 2025 Retiree Health Cost Index, a healthy 65-year-old woman retiring can expect to spend approximately $313,000 on healthcare over her lifetime. A 65-year-old man can expect to spend about $275,000. 

Those figures assume Original Medicare, Medicare Part D for prescription coverage, and a Medigap Plan G supplement (a common coverage combination for more predictable out-of-pocket costs). They also do not include long-term care, which can add up to six figures.

Most retirement plans were not built to absorb a bill that size. That is not a scare statistic; it is a design flaw. Many retirement plans are optimized for accumulation (how much you save) rather than income durability (how reliably your money arrives each month regardless of markets or medical events).

For healthcare costs specifically, that difference matters more than it does for almost any other retirement expense. 

This guide explains what retirees actually spend on healthcare, why healthcare costs combined with market risk can damage retirement plans, and the structural options, including annuities with long-term care riders and Medicaid-compliant annuities, that can help protect retirement income.

How Much Does Health Care Cost in Retirement?

Milliman’s 2025 projections show just how expensive retirement healthcare can become.

Estimated Lifetime Retirement Health Care Costs at Age 65

Coverage Type	Male	Female
Original Medicare + Medigap + Medicare Part D	$275,000	$313,000
Medicare Advantage + Medicare Part D	$128,000	$148,000

The Medicare Advantage numbers are significantly lower, but that does not necessarily make Medicare Advantage the better fit. Original Medicare paired with Medigap generally offers more predictable out-of-pocket costs and broader provider access, while Medicare Advantage often involves narrower provider networks and more variable cost-sharing.

Either way, healthcare is one of the largest retirement expenses most households will face.

Why Healthcare Is the Risk That Breaks Retirement Plans

Retirement risk rarely arrives one problem at a time. It usually shows up as two or three problems happening at once. Unfortunately, healthcare is where that combination can do the most damage.

Imagine a retiree drawing income from a $1 million portfolio at age 70. Markets decline by 25% in a difficult year. At the same time, a spouse suffers a stroke, triggering rehabilitation costs, home modifications, and ongoing in-home care. Healthcare spending jumps by $80,000 above the original retirement plan.

Now the retiree must cover that extra cost from a portfolio that has already lost a quarter of its value.

Selling investments during a downturn locks in losses that may never fully recover. The problem isn’t just the healthcare bill. It’s the sequence-of-returns risk created when healthcare costs spike during a market decline.

This is where guaranteed lifetime income changes the math.

When guaranteed income covers essential expenses like housing, food, insurance premiums, and baseline Medicare costs, retirees are less likely to be forced to sell investments during a downturn. The investment portfolio gets time to recover instead of being drained at the worst possible moment.

This is why many planners view guaranteed income as more than a longevity hedge — it is also a sequence-risk hedge. The $313,000 healthcare cost estimate does not disappear. But separating essential expenses from market-dependent assets can prevent one bad year from permanently shrinking a retirement plan.

Long-Term Care: The Real Tail Risk

Long-term care is often the most expensive healthcare event retirees face.

According to the U.S. Department of Health and Human Services, most Americans who reach age 65 will need long-term care at some point in their lives. Long-term care can include help with bathing, dressing, mobility, medication management, or skilled nursing services.

Genworth and CareScout’s Cost of Care Survey found:

• Semi-private nursing home room: $9,581 per month
• Private nursing home room: $10,798 per month
• Assisted living facility: nearly $6,200 per month

That means a multi-year care event can easily cost $300,000 to $500,000 or more.

This is why long-term care needs a specific plan, not just a general “retirement emergency fund.”

How Do I Pay For Long-Term Care?

Medicare and other health insurance plans don’t generally cover long-term care. This means most retirees who don’t have long-term care insurance have few options.

According to a report by the American Health Care Association, Medicaid is the primary provider of coverage for 63% of nursing home residents.

But Medicaid coverage for long-term care varies by state, and the program’s strict income limits often leave retirees no choice but to deplete their savings before applying for assistance. A Medicaid compliant annuity is one option for some couples, but you should explore all of the common approaches for covering long-term care discussed below.

Three Ways to Fund Long-Term Care and How They Compare

Once retirees understand the size of long-term care costs, the next question becomes how to pay for them.

Most practical options fall into three categories: standalone long-term care insurance, annuities with long-term care riders, and hybrid life insurance plus long-term care products. Each takes a different approach to the core tradeoffs: Cost, underwriting, what happens if you never need care, and inflation protection.

Feature	Standalone LTC insurance	Annuity with LTC rider	Hybrid life/LTC
Cost structure	Ongoing premiums; can rise with insurer repricing	Premium built into the annuity; generally fixed once issued	Single premium or installments; fixed at issue
Underwriting	Strict. Health conditions can disqualify entirely.	Easier than standalone. Simplified underwriting common.	Moderate. Simpler than standalone, stricter than annuity rider.
If you never need care	Premiums paid are forfeited. Use-it-or-lose-it.	Annuity base value continues. Heirs receive remaining value.	Death benefit pays to beneficiaries.
Benefit triggers	Typically 2 of 6 ADLs or cognitive impairment.	Varies — often matches standalone but confirm per product.	Typically 2 of 6 ADLs or cognitive impairment.
Inflation protection	Available as a rider; typically 3% or 5% compound.	Limited. Often flat benefit; some products offer inflation rider.	Available as a rider; fewer options than standalone.
Tax treatment of benefits	Tax-free up to limits.	Tax-free for qualified LTC use up to limits.	Tax-free for qualified LTC use up to limits.
Best fit for	Younger, healthy buyers (50s–early 60s) who want maximum LTC coverage.	Retirement-age buyers already allocating to annuities; moderate LTC concern.	Buyers with a lump sum who want LTC protection + legacy benefit in one product.

Which Is Best?

There’s no one right answer to which is best, as it depends on your needs. 

• Standalone long-term care insurance offers the most robust LTC-specific coverage if you qualify and can pay the premiums — but premium increases have been a real problem in the category historically, and underwriting rejects many applicants. 
• An annuity with a long-term care rider is rarely the most efficient pure-LTC coverage per dollar, but it solves a different problem: The “what if I never need care” objection that keeps many people from buying standalone coverage. 
• Hybrid life/Long-term care products sit in between, and work well for readers who have a lump sum to commit and want LTC coverage plus a legacy component.

The right structure depends on three things a reader should think through explicitly: 

• Whether they can qualify for standalone underwriting
• Whether they’re more worried about wasting premiums on coverage they never use or about being underinsured if they do need care
• Whether they have a lump sum available or need to pay over time.

For readers whose primary concern is a spouse needing nursing-home care while the other spouse needs to preserve household income, a separate structural option — the Medicaid-compliant annuity may be best. 

Medicaid-Compliant Annuities for Married Couples

For married couples, a special planning tool may help protect the healthy spouse’s income if one spouse requires nursing-home care.

A Medicaid-compliant annuity can convert countable assets into an income stream for the healthy spouse while helping the spouse needing care qualify for Medicaid sooner.

This can prevent a healthy spouse from being forced to spend down nearly all household savings before Medicaid assistance begins.

Because eligibility rules vary by state and mistakes can be costly, this strategy should be handled carefully. It is one of the most important niche solutions for retirement healthcare planning and deserves much more attention than it usually gets.

What Does Medicare Cost and What Does It Cover?

Medicare helps significantly, but it does not eliminate healthcare costs.

Medicare Part A

Part A generally covers inpatient hospital care, up to 100 days of skilled nursing facility care, hospice care, and some home health services.

Most people do not pay a premium for Part A if they have paid Medicare taxes for at least 10 years.

Medicare Part B

Part B covers doctor visits, outpatient services, preventive care, mental health treatment, durable medical equipment, and other routine medical services.

The standard monthly premium for Medicare Part B in 2026 is $202.90, up from $185.00 in 2025, and the annual deductible is $283.

Medicare Advantage (Part C)

Medicare Advantage plans are private plans that replace Parts A and B and often include Part D drug coverage as well.

Many also include dental, hearing, and vision benefits, but costs, provider networks, and coverage vary significantly by plan.

Medicare Part D

Part D covers prescription drugs.

Premiums vary by plan, income, and medication needs, so comparing plan formularies is critical before enrolling. According to Humana, the average Medicare Part D monthly premium in 2025 is $46.50.

Medigap

Medigap policies supplement Original Medicare by helping cover deductibles, copays, and coinsurance. They are often preferred by retirees who want more predictable healthcare expenses.

What Medicare does not cover is just as important: long-term care, most dental care, dentures, hearing aids, and many other major retirement expenses remain largely out of pocket.

How to Lower Retirement Health Care Costs

Some healthcare expenses cannot be avoided, but many can be reduced.

Following medical advice, staying active, and managing chronic conditions can lower both costs and risk.

In fact, a 2024 study published in the Journal of the American Heart Association found that adults who consistently adhered to prescribed antihypertensive medications had significantly lower healthcare use and costs. Per 1,000 people with hypertension, medication adherence was associated with about 200 fewer emergency department visits and 90 fewer inpatient admissions, along with lower total medical costs and fewer missed workdays.

Small decisions made before retirement often create the biggest financial difference later.

Health Savings Accounts (HSAs)

HSAs are one of the best pre-retirement tools for healthcare planning.

They are available only to people with qualifying high-deductible health plans and no other disqualifying coverage. 

To be considered a high-deductible health plan, the insurance policy must have a deductible of at least $1,700 for self-only coverage and $3,400 for family coverage in 2026, up from $1,650 and $3,300 in 2025. These deductibles don’t apply to preventive care services

HSA accounts are not available to people who qualify for Medicare or are claimed as dependents on someone else’s taxes.

The accounts take pre-tax deposits to cover health care costs that are not covered by insurance. The unspent money in an HSA rolls over from year to year. The accounts are also portable and stay with you when you change jobs or stop working.

According to the Society for Human Resource Management’s 2025 Employee Benefits Survey, HSAs were offered by 61% of employers. If your employer doesn’t offer an HSA, some banks and other financial institutions offer them for people with high-deductible health insurance.

As of 2026, if you have a high-deductible health plan, you can contribute up to $4,400 to an HSA for self-only coverage and up to $8,750 for family coverage. If you are age 55 by the end of the tax year, you can contribute an additional $1,000 to your HSA. 

Because unused HSA funds roll over year to year and stay with you even if you change jobs, you can make contributions while working and allow the money to grow and be used in retirement.

The major advantage is tax treatment:

• Contributions go in pre-tax
• Growth is tax-deferred
• Withdrawals for qualified medical expenses are tax-free

That triple tax advantage makes HSAs uniquely valuable for retirement healthcare planning.

Health Care Options for Early Retirees

Although you can retire at age 62 and still receive Social Security benefits, if you retire before the age of 65, you will need to find health insurance to cover your medical costs until you’re eligible for Medicare. 

The price of health insurance can come as a shock to workers who are used to having their employers contribute to their plan premiums.

Postponing retirement or saving enough to cover health care costs until age 65 will allow you to defer your Social Security benefits. If you can wait until age 70 to begin collecting Social Security, you can, on average, collect more (assuming you live a long life).

However, if you do want to retire early, you have several options for early retirement.

Employer Retiree Coverage

Some employers offer retiree health benefits for a limited number of years or until Medicare eligibility begins.

Affordable Care Act Marketplace Plans

ACA marketplace plans can be more affordable than private individual coverage and may qualify for premium tax credits depending on income.

COBRA

COBRA allows you to continue employer coverage temporarily, usually for up to 18 months, but it is often the most expensive option because employers rarely subsidize it.

Spouse’s Employer Plan

Joining a spouse or domestic partner’s employer-sponsored plan is often the most cost-effective option for early retirees.

Planning for this bridge period before retirement can prevent major financial surprises.

Final Thoughts

• Plan for the combination, not just the number. The $313K lifetime estimate is important, but the specific risk most plans get wrong is what happens when healthcare costs spike during a market downturn. Any plan that doesn’t have an answer for that scenario has a gap.
• Long-term care needs a specific plan, not a general reserve. Most retirees underestimate long-term care cost exposure because most retirees never need extended care. For the ones who do, the bill can reach $300,000–$500,000 or more, which is far larger than a general healthcare reserve is usually sized for.

Product choices are decisions about risk distribution, not just cost. Standalone LTC, LTC riders, hybrid products, and guaranteed income don’t compete on the same axis. Each shifts a different slice of risk to an insurance company. The right combination depends on which risks you want to keep and which you want to insure against.