Healthcare is often one of the largest expenses you’ll face in retirement. With costs continuing to rise, how can you create a budget that not only covers this significant expense but also supports your broader financial goals?

In this week’s Money Wisdom Question Series, Nicholas J. Colantuono, CFP® unpacks the five key factors to consider when planning for healthcare costs in retirement.

Estimate Lifetime Healthcare Costs in Retirement

The average 65-year-old couple can expect to spend between $300,000 and $400,000 on healthcare alone during retirement, and that doesn’t include long-term care. Recognizing that you may need to set aside this much for medical expenses highlights the critical need for a comprehensive retirement plan.

Understand Medicare Costs

Medicare costs can add up quickly. Part B premiums alone can range from $2,000 to $3,000 per year. Add another $500 to $1,000 for Part D prescription coverage, and $1,500 to $2,000 for a Medigap or supplemental plan. Then factor in out-of-pocket expenses, and altogether, you could be spending $7,000 to $10,000 each year on Medicare-related healthcare costs in retirement.

Plan for Inflation and Healthcare Costs in Retirement

While overall inflation typically averages around 2–3% per year, healthcare expenses often increase at a rate of 5–6% annually. That means your medical costs could double much faster than other living expenses. As you build your retirement plan, it’s essential to account for this faster rate of inflation.

Take Advantage of Tax-Advantaged Accounts

If you’re still working and enrolled in a high-deductible health plan, fully leveraging a Health Savings Account (HSA) can be a smart move. HSAs offer rare triple tax advantages: contributions are made pre-tax, the money grows tax-deferred, and withdrawals for qualified healthcare expenses are completely tax-free.

Some employers also contribute, giving your savings an extra boost. If you’re eligible and not yet enrolled in Medicare, an HSA is worth considering as part of your long-term healthcare strategy.

Prepare for Long-Term Care Needs

Long-term care is another major consideration, especially if your family health history suggests future medical needs. Care often begins at home with help for daily tasks like bathing or medication management but may progress to assisted living or nursing homes. As needs grow, expenses can escalate quickly, so it’s crucial to start planning early.