As people prepare for retirement, a common concern is identifying which expenses will be the highest during that stage of life1. While living expenses shift and sometimes decrease, one area often remains a significant financial factor: healthcare.
Healthcare costs tend to rise with age, and for most retirees, they represent the largest ongoing expense2. Healthcare can take up a substantial portion of a retirement budget, from insurance premiums to prescriptions and out-of-pocket medical care². Understanding what’s included in healthcare, how costs vary, and what factors affect them can help retirees prepare more effectively for the years ahead.
Why Healthcare Tops the List
Many people assume housing or travel will be the biggest expense after they stop working. But data consistently shows that healthcare takes the lead for most retirees⁴, especially as life expectancy increases and medical needs become more frequent and complex⁵.
Here are a few reasons healthcare costs can dominate retirement budgets:
- Increased usage of services: As people age, they typically require more doctor visits, tests, and treatments³.
- Rising healthcare costs: Medical inflation has consistently outpaced general inflation⁶, making services more expensive over time.
- Gaps in Medicare coverage: While Medicare provides a foundational level of insurance, it doesn’t cover everything⁷. Retirees often need supplemental plans or face out-of-pocket costs⁸.
- Long-term care needs: Services like assisted living or home healthcare can add significantly to overall spending, especially for individuals with chronic conditions⁵.
Breakdown of Typical Healthcare Expenses
Healthcare in retirement is not a single line item—it’s a combination of multiple expenses that vary by individual health status, location, and lifestyle choices among other factors. Here’s a closer look at some healthcare-related costs:
- Medicare premiums (Part B, Part D, and supplemental plans)
- Deductibles and copayments
- Prescription medications⁹
- Dental, vision, and hearing care (often not covered by Medicare)⁷
- Long-term care services⁵
- Medical equipment or home modifications¹⁰
Even retirees with Medicare coverage can face significant out-of-pocket expenses during retirement. According to recent studies, a 65-year-old couple retiring today might spend hundreds of thousands of dollars on healthcare throughout retirement, not including long-term care¹.
Comparing Healthcare Costs to Other Expenses
To put healthcare in perspective, it’s helpful to compare it to other common retirement spending categories. According to the Bureau of Labor Statistics (BLS) 2023 Consumer Expenditures report11, the table below provides a general overview of how retirees’ annual expenses are typically distributed.
| Expense Category | Estimated Annual Cost | Percentage of Total Budget |
| Healthcare | $7,000–$12,000 | 15%–20% |
| Housing (incl. utilities) | $10,000–$18,000 | 25%–30% |
| Food and groceries | $5,000–$7,000 | 10%–12% |
| Transportation | $4,000–$6,000 | 8%–10% |
| Entertainment and travel | $3,000–$6,000 | 7%–10% |
| Miscellaneous | $2,000–$4,000 | 5%–8% |
Note: These figures are averages and may vary significantly depending on lifestyle, location, and personal circumstances, among other factors.
Miscellaneous includes all other expenses not captured above, which make up the remaining portion of the total annual budget (~$60,087).
While housing may appear to outpace healthcare in raw dollars, many retirees eventually downsize or pay off mortgages, reducing housing costs over time. Meanwhile, healthcare spending often increases as retirees age.
Long-Term Care: A Major Healthcare Component
Long-term care—including nursing homes, assisted living facilities, and home health aides—is a unique category of healthcare spending. These services are typically not covered by Medicare12 but can be among the most expensive needs in later retirement years. A few examples of potential costs include:
Because these services are often needed for multiple years, especially in the case of chronic illness or cognitive decline, long-term care can significantly alter a retiree’s financial picture.
Factors That Influence Healthcare Spending
Healthcare costs in retirement are influenced by more than just age. Here are a few variables that can affect what retirees might pay:
- Chronic conditions: Ongoing medical issues like diabetes, heart disease, or arthritis increase the need for care and medications.
- Location: Costs vary widely depending on geography, both for insurance premiums and services.
- Plan selection: Choosing different Medicare Advantage, Medigap, or Part D plans can impact monthly and annual expenses.
- Lifestyle: Diet, exercise, and preventive care can all affect overall health and reduce medical costs over time.
- Marital status: Couples may be able to share costs or support one another, but may also face dual expenses.
Checklist: Preparing for Healthcare in Retirement
Thinking ahead about potential costs and coverage during retirement can help retirees plan more effectively. Here’s a checklist of actions to consider:
- Review Medicare eligibility and coverage options
- Estimate annual premiums and out-of-pocket costs
- Research long-term care services and average costs in your area
- Understand what Medicare does and does not cover
- Consider planning for dental, vision, and hearing expenses
- Review prescription drug needs and associated costs
- Stay current on preventive care to help manage long-term costs
Keeping healthcare in mind as part of an overall retirement plan can make it easier to prioritize how much to save and where to focus resources.
If you’re beginning to think more seriously about how healthcare may impact your retirement plan, now is a good time to take the next step. Contact Vantage Point today to start building a plan tailored to your needs.
Citations:
- NerdWallet.com, February 2, 2024
- HealthSystemTracker.org, March 20, 2024
- CMS.gov, December 13, 2023
- SSA.gov, 2024 (Medicare Premiums Page)
- HealthSystemTracker.org, March 20, 2024
- InflationData.com, December 3, 2024
- Medicareresources.org, August 29, 2023
- IRS.gov, Publication 502, 2024
- TaxPolicyCenter.org, April 17, 2024
- MarketWatch.com, March 14, 2024
- BLS.gov, May 22, 2025
- Genworth.com, May 22, 2025
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