If you ask retirees what they underestimated most when planning for retirement, healthcare costs come up more often than almost anything else. Fidelity Investments estimates that a 65-year-old couple retiring today will spend an average of $315,000 on healthcare costs over the course of their retirement — and that figure does not include potential long-term care expenses, which can add hundreds of thousands more.
For adults in their 50s, healthcare costs are not a distant concern. They are an immediate planning reality, particularly for those who retire before 65 and must bridge the gap to Medicare eligibility on their own.
The Pre-65 Coverage Gap
Medicare eligibility begins at 65. If you retire before then — at 62, or 60, or earlier — you must arrange your own health insurance coverage for the intervening years. This is one of the most significant financial obstacles to early retirement, and one that is frequently underestimated.
Options for pre-65 coverage include: continuing employer coverage through COBRA (available for up to 18 months after leaving a job, but at full cost — often $600 to $1,200 or more per month for an individual); purchasing coverage through a marketplace plan on healthcare.gov; coverage through a working spouse’s employer plan; or qualifying for Medicaid if your income is low enough.
Marketplace plans are worth understanding in detail if early retirement is in your plans. Premiums are based on income, and subsidies (now significantly expanded through the Inflation Reduction Act) are available to individuals and couples whose income falls below 400% of the federal poverty level. Managing your retirement income carefully — keeping it below specific thresholds — can result in meaningful premium subsidy, sometimes covering the majority of your marketplace premium.
Medicare: What It Covers (and What It Doesn’t)
Medicare is not free, and it does not cover everything. Understanding what you are getting — and what you will need to supplement — is essential for retirement budget planning.
Part A (hospital insurance) is free for most people who have worked at least 10 years. It covers inpatient hospital care, skilled nursing facility care after a hospital stay, and some home health services.
Part B (medical insurance) covers doctor visits, outpatient care, preventive services, and durable medical equipment. The standard 2026 premium is approximately $185 per month per person. Higher-income individuals pay more through IRMAA surcharges.
Part D (prescription drug coverage) is purchased separately through private insurers. Premiums vary but average around $40–$60 per month. Part D now has a $2,000 annual out-of-pocket cap on covered drugs, a significant improvement from previous years.
Original Medicare (Parts A and B) leaves significant gaps: it does not cover dental, vision, or hearing. It does not cap your out-of-pocket expenses. It does not cover most long-term care. Most retirees address these gaps through either a Medigap supplemental policy or a Medicare Advantage plan.
Medigap vs. Medicare Advantage
This is one of the most consequential healthcare decisions you will make in retirement, and the right choice depends on your health, your priorities, and your geography.
Medigap (Medicare Supplement) policies pay most or all of the costs that Original Medicare does not cover — deductibles, copays, and coinsurance. Premiums run from approximately $100 to $300 or more per month depending on your age and the plan tier. In exchange, your out-of-pocket costs are predictable and often very low. You can see any doctor who accepts Medicare, with no network restrictions.
Medicare Advantage plans are private plans that replace Original Medicare. They often have lower premiums (sometimes $0) and may include extra benefits like dental, vision, and fitness memberships. But they have network restrictions, prior authorization requirements, and potentially significant out-of-pocket costs for serious illness. They work well for healthy retirees in areas with strong networks; they can be frustrating for those with complex health needs or in rural areas.
One important timing note: the best time to enroll in Medigap is during your initial Medicare enrollment period (the six months beginning when you are both 65 and enrolled in Part B). During this window, you cannot be denied or charged more based on pre-existing conditions. After this window closes, insurers in most states can underwrite based on health, which can make Medigap unaffordable or unavailable if you have significant health issues.
Long-Term Care: The Cost That Can Erase Everything
Long-term care — whether in a nursing home, assisted living facility, or through in-home care — is the single biggest financial wildcard in retirement. The national median cost of a private room in a nursing home exceeds $100,000 per year. Assisted living averages around $55,000 annually. And Medicare, despite being the foundational coverage for most retirees, covers virtually none of it beyond a brief skilled nursing stay following a qualifying hospital admission.
The risk is concentrated: approximately 70% of adults over 65 will need some form of long-term care, and roughly 20% will need it for more than five years. The financial impact of a multi-year long-term care need — without insurance or a specific plan to fund it — can be catastrophic, eliminating savings that were intended to support a spouse or leave a legacy to children.
Options for managing long-term care risk include: traditional long-term care insurance (increasingly expensive but still available); hybrid life/LTC or annuity/LTC products that combine death benefits with LTC coverage; self-funding through savings (viable primarily for those with substantial assets); or Medicaid planning (using legal strategies to qualify for Medicaid coverage of nursing home costs, which requires working with an elder law attorney).
The Health Savings Account (HSA) Opportunity
If you are currently enrolled in a high-deductible health plan (HDHP), a Health Savings Account is one of the most powerful retirement savings tools available — triple tax-advantaged, meaning contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are tax-free.
In 2026, individuals can contribute up to $4,300 to an HSA; families up to $8,550. Individuals over 55 can contribute an additional $1,000. If you invest HSA contributions rather than spending them, the account compounds tax-free indefinitely. After age 65, HSA funds can be withdrawn for any purpose (not just medical expenses) with only ordinary income tax due — making it essentially a second IRA. But withdrawals for qualified medical expenses remain completely tax-free, making a well-funded HSA an extraordinarily valuable asset in retirement.
If you have access to an HSA and are not maximizing it, consider making it a top priority alongside your 401(k) or IRA contributions — particularly before directing discretionary funds toward helping your children.
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