How Much Should I Budget For Health Care Costs In Retirement?
The number is higher than you think. When you total up the deductibles and premiums for Medicare part A, B, and D, that alone can cost a married couple $7,000 per year. We look at that figure as the baseline number. That $7,000 does not account for the additional costs associated with co-insurance, co-pays, dental costs, or Medigap insurance premiums which can quickly increase the overall cost to $10,000+ per year.
Tough to believe? Allow me to walk you through the numbers for a married couple.
Medicare Part A: $3,352 Per Year
Part A covers inpatient hospital stays, skilled nursing facility stays, some home health visits, and hospice care. While Part A does not have an annual premium, it does have an annual deductible for each spouse. That deductible for 2025 is $1,676 per person.
Medicare Part B: $4,954
Part B covers physician visits, outpatient services, preventive services, and some home health visits. The standard monthly premium is $185 per person but it could be higher depending on your income level in retirement. There is also a deductible of $257 per year for each spouse.
Medicare Part D: $1,080
Part D covers outpatient prescription drugs through private plans that contract with Medicare. Enrollment in Part D is voluntary. The benefit helps pay for enrollees’ drug costs after a deductible is met (where applicable), and offers catastrophic coverage for very high drug costs. Part D coverage is actually provided by private health insurance companies. The premium varies based on your income and the types of prescriptions that you are taking. The national average in 2025 for Part D premiums is $45 per person.
If you total up just these three items, you reach $9,386 in premiums and deductibles for the year. Then you start adding in dental cost, Medigap insurance premiums, co-insurance for Medicare benefits, and it quickly gets a married couple over that $10,000 threshold in health and dental cost each year. Medicare published a report that in 2011, Medicare beneficiaries spent $5,368 out of their own pockets for health care spending, on average. See the table below.
Start Planning Now
Fidelity Investments published a study that found that the average 65 year old will pay $300,000 in out-of-pocket costs for health care during retirement, not including potential long-term-care costs. While that seems like an extreme number, just take the $10,000 that we used above, multiply that by 20 year in retirement, and you get to $200,000 without taking into consideration inflation and other important variable that will add to the overall cost.
Bottom line, you have to make sure you are budgeting for these expenses in retirement. While most individuals focus on paying off the mortgage prior to retirement, very few are aware that the cost of health care in retirement may be equal to or greater than your mortgage payment. When we are create retirement projections for clients we typically included $10,000 to $15,000 in annual expenses to cover health care cost for a married couple and $5,000 – $7,500 for an individual.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
