Medical expenses in retirement will likely be larger than you expect, and planning now makes the difference between managing them and going into debt
Most people underestimate how much they will spend on healthcare after they stop working. Even with Medicare, you will pay for premiums, deductibles, copays, prescriptions, dental work, vision care, and long-term care — costs that can easily reach thousands of dollars per year. For lower-income Americans, these expenses can consume 15 to 20 percent of retirement income or more. The good news is that several programs exist to reduce these costs, and starting to plan now — even if retirement is years away — gives you real options.
This guide walks you through the programs available to you, how much you are likely to spend, and concrete steps to set money aside or reduce costs before you retire.
Key Takeaways
- Medicare covers hospital and doctor visits but does not cover dental, vision, hearing aids, or most long-term care, so you need a separate plan for these expenses.
- Programs like Medicaid, Medicare Savings Programs, and Low-Income Subsidy programs can cut your out-of-pocket costs significantly if your retirement income falls below certain thresholds.
- Dental and vision work done before you retire often costs less than the same work done after, so addressing these needs now can save thousands.
- A Health Savings Account (HSA) lets you set aside pre-tax money for medical expenses and carry it into retirement if you have a high-deductible health plan now.
- Knowing which programs you may be able to use before you retire lets you plan your income and savings more accurately.
What Medicare covers and what it does not
Medicare is the federal health insurance program for people 65 and older. It has four parts: Part A covers hospital stays and some skilled nursing care, Part B covers doctor visits and outpatient services, Part D covers prescription drugs, and Part C (Medicare Advantage) is an alternative to Parts A, B, and D offered by private insurers. Most people pay a monthly premium for Part B and Part D, and these premiums increase if you delay signing up.
What Medicare does not cover is just as important to know. Dental care, vision exams, eyeglasses, hearing aids, and most long-term care (nursing homes, assisted living, home health aides) are not included. You will also pay deductibles and copays for the services Medicare does cover. For 2024, the Part B deductible is $240 per year, and you pay 20 percent of the cost of most services after you meet it. Part D has its own deductible and coverage gaps. If you need dental work, a new pair of glasses, or hearing aids, you pay the full cost unless you have separate coverage.
Programs that reduce your out-of-pocket costs if your income is low
Medicaid is a joint federal and state program that covers low-income people of any age. If your income is below your state's threshold — which varies widely — Medicaid can cover services Medicare does not, including dental, vision, and long-term care. Some states have programs specifically for people on Medicare with low income; these are sometimes called "dual may be able to access" programs. To find out whether you may be able to use Medicaid in your state, contact your state Medicaid office or call 211 and ask for a referral.
Medicare Savings Programs help pay your Medicare premiums, deductibles, and copays if your income is low enough. There are three programs: may have access to Medicare Beneficiary (QMB), Specified Low-Income Medicare Beneficiary (SLMB), and may have access to Individual (QI). Income limits are set by the federal government but vary by state and household size. For example, in 2024, QMB covers individuals with income up to about $1,550 per month, though this changes yearly. You apply through your state Medicaid office, not through Medicare itself.
Low-Income Subsidy (LIS), also called "Extra Help," reduces what you pay for Part D prescription drug coverage. If your income is below 150 percent of the federal poverty line — about $2,175 per month for an individual in 2024 — you may be able to get this subsidy. You apply through Social Security, either online at ssa.gov or by calling 1-800-772-1213. The application takes about 15 minutes.
Supplemental Security Income (SSI) is a cash benefit for people 65 and older, blind, or disabled with very low income and few assets. If you receive SSI, you automatically may have access to for both Medicaid and Medicare Savings Programs in most states. The monthly benefit amount varies by state but is typically under $1,000.
Dental, vision, and hearing: plan and pay before retirement if you can
Because Medicare does not cover these services, they often become the largest unplanned medical expense in retirement. A crown can cost $800 to $1,500. A pair of eyeglasses runs $200 to $400. A hearing aid costs $1,000 to $6,000 per ear. If you need work done, doing it while you are still working and have employer insurance — or before you turn 65 — is almost always cheaper than paying out of pocket in retirement.
If you have dental or vision insurance through your employer now, use it. Get a full dental exam, address cavities and gum disease, and consider preventive work like cleaning or scaling. Get your eyes checked and update your prescription. If you do not have insurance, community health centers and dental schools often offer services on a sliding fee scale based on income. Some states also run programs that provide free or low-cost dental care for older adults; call 211 to ask what is available in your area.
For hearing aids, the cost has come down in recent years, and some states now cover them through Medicaid. If you think you need one, get a hearing test now — many audiologists offer them free or low-cost. If you do need a hearing aid, buying it before you retire may let you use insurance or employer benefits to offset the cost.
Health Savings Accounts: a way to set aside pre-tax money for medical expenses
A Health Savings Account (HSA) is a savings account you can use to pay for medical expenses with pre-tax money. To open one, you must be enrolled in a high-deductible health plan (HDHP) — a plan with a deductible of at least $1,600 for individual coverage or $3,200 for family coverage in 2024. You contribute money to the account, deduct it from your taxes, and withdraw it tax-free to pay for medical expenses.
The advantage for retirement planning is that money in an HSA carries over year to year and can be used in retirement. Once you turn 65, you can withdraw money for any reason (not just medical expenses), though non-medical withdrawals are taxed as income. If you use the money for medical expenses, there is no tax. This makes an HSA a powerful retirement savings tool if you have access to an HDHP now.
For 2024, you can contribute up to $4,150 per year to an individual HSA or $8,300 for family coverage. If you are 55 or older, you can contribute an extra $1,000 per year. Check with your employer or health insurance provider to see whether an HDHP is available to you.
Estimating your medical costs in retirement
A rough estimate helps you know how much to plan for. According to research from Fidelity, a 65-year-old couple retiring in 2024 can expect to spend about $315,000 on healthcare over their lifetime — but this is an average, and your costs may be higher or lower depending on your health, where you live, and which programs you use.
A simpler approach is to budget by category. Medicare Part B and Part D premiums together typically run $200 to $300 per month. Deductibles and copays add another $100 to $200 per month on average. Dental, vision, and hearing care are unpredictable but budget $50 to $100 per month if you want to set something aside. Long-term care is the wild card — a year in a nursing home can cost $80,000 to $120,000 depending on your state and the facility, though Medicaid covers this if you have very low income and few assets.
Write down your current health conditions and medications. Ask your doctor which services you will likely need in the next five to ten years. This gives you a more realistic picture than a national average.
Steps to take now, before you retire
Start by getting a full health checkup and addressing any dental or vision needs. This is the single most effective step you can take because these services are cheaper now than they will be in retirement.
Next, research which programs you may be able to use. Go to your state Medicaid office website and look for information about Medicare Savings Programs and Medicaid for older adults. Call 211 and ask what programs are available in your area. If you are close to retirement, ask the program staff what income level qualifies you — this helps you understand whether you should aim for a certain retirement income or whether you will be below the threshold anyway.
If you have access to an HSA through your employer, open one and contribute as much as you can afford. Even $100 per month adds up to $1,200 per year, and that money grows tax-free and carries into retirement.
Finally, create a simple spreadsheet or document listing your expected monthly income in retirement (Social Security, pensions, part-time work, savings withdrawals), your expected monthly expenses (rent or mortgage, food, utilities, transportation), and a line for medical costs. This shows you whether you will have room in your budget for medical expenses or whether you will need to rely on Medicaid or other programs.
Long-term care: the expense most people do not plan for
Long-term care — nursing home care, assisted living, or in-home care — is the medical expense most likely to derail a retirement budget. A year in a nursing home costs $80,000 to $120,000 or more depending on your state. Most people assume Medicare will cover this, but it does not. Medicare covers up to 100 days of skilled nursing care after a hospital stay, but not custodial care (help with daily activities) or care in an assisted living facility.
Medicaid does cover long-term care, but only after you have spent down your savings to a very low level (usually $2,000 or less in assets). Some people buy long-term care insurance, but premiums are expensive and increase with age. Others set aside savings specifically for this purpose. There is no perfect solution, but knowing the cost and the programs available helps you make a plan that fits your situation.
If you think you may need long-term care in the next few years, talk to an elder law attorney or call your local Area Agency on Aging (you can find it through the Eldercare Locator at eldercare.acl.gov). They can explain your options and help you understand how Medicaid works in your state.
Frequently Asked Questions
When should I sign up for Medicare?
You should sign up for Medicare Parts A and B when you turn 65, even if you are still working. If you delay, your Part B premium increases by 10 percent for each year you wait. Part D (prescription drug coverage) also has a late enrollment penalty. The sign-up period starts three months before your 65th birthday and ends three months after.
Can I use Medicaid and Medicare at the same time?
Yes. If your income is low enough, you can be on both programs at the same time — this is called "dual may be able to access." Medicaid covers services Medicare does not, like dental and long-term care. You apply for Medicaid through your state Medicaid office, separate from Medicare.
What if I cannot afford my Medicare premiums?
If your income is low, Medicare Savings Programs can pay your premiums, deductibles, and copays. You apply through your state Medicaid office. Income limits vary by state but are generally around $1,500 to $2,000 per month for an individual. Call 211 or your state Medicaid office to learn about you may have access to.
Is long-term care insurance worth buying?
Long-term care insurance is expensive and premiums increase with age. For lower-income Americans, Medicaid is usually a better option because it covers long-term care once your savings are low enough. If you have significant assets you want to protect, talk to an elder law attorney about whether insurance makes sense for your situation.
Can I get dental work done on Medicare?
Original Medicare does not cover dental care. Some Medicare Advantage plans (Part C) include dental benefits, but coverage is usually limited. If you need dental work, check whether your state Medicaid program covers it, or look for community health centers that offer sliding-scale fees based on income.