The Hidden Cost of Retirement: How Americans Can Reduce Six-Figure Healthcare Expenses

When Americans think about retirement, they tend to focus on housing, travel, and daily living expenses. What often gets overlooked is healthcare, which is one of the largest and most unpredictable costs retirees face.

According to Fidelity, the average 65-year-old retiring today needs about $172,500 to cover their own healthcare expenses in retirement. That estimate excludes long-term care and can be significantly higher for people with complex medical needs. As healthcare costs rise faster than inflation and Americans live longer, the financial impact of medical care in retirement is difficult to ignore.

Yet despite the size of the expense, many retirees fail to plan for healthcare until it’s too late.

Why healthcare costs catch retirees off guard

Healthcare spending in retirement is difficult to estimate. Premiums increase, medical needs change, and coverage options are complex. American retirees are faced with thousands of different Medicare plan options, and comparing them is overwhelming. Mistakes are common and can cost people thousands of dollars each year. 

The good news: retirees who plan ahead and make smart choices can significantly reduce their healthcare costs. Below are important steps you can take to offset the cost of healthcare in retirement.

Build healthcare into your retirement budget

If you’re not yet retired, make sure healthcare is a dedicated line item in your retirement budget. While it’s impossible to predict exactly how much you’ll spend—due to changing premiums, inflation, and unexpected health needs—using an average estimate like the $172,500 figure quoted by Fidelity can provide a helpful baseline.

Planning for healthcare early helps prevent surprises and reduces the likelihood of having to cut back on other retirement goals.

Use health savings accounts strategically

Health Savings Accounts (HSAs) remain one of the most tax-efficient ways to pay for healthcare in retirement. Funds can be used tax-free for qualified medical expenses, including Medicare Part B premiums.

If you’re still contributing, maximizing HSA savings before retirement can provide a dedicated pool of healthcare funds for later in life.

Make smart Medicare decisions

Medicare provides tremendous value to US retirees. Unfortunately, many people are overwhelmed by the number of Medicare options available, and making the wrong choice can cost you thousands of dollars every year. As a result, many retirees seek guidance from licensed Medicare agents to make sense of the system and choose the right coverage. 

Choose the right coverage for your needs

Choosing between Original Medicare and Medicare Advantage—and determining whether to add a Medigap plan and/or prescription drug coverage—can have a major impact on long-term costs. 

There is no single best Medicare option. Some retirees prioritize the predictable costs and provider flexibility that come with a Medigap plan, while others focus on lower premiums offered by Medicare Advantage.

Review coverage annually

Medicare plans change every year, as do drug formularies, provider networks, and benefits. Experts recommend reviewing coverage annually during Medicare’s Open Enrollment Period (October 15–December 7) to ensure your plan still meets your needs.

Use Medicare benefits strategically

Once enrolled, how you use your Medicare benefits can significantly affect spending. 

Use preventative care

Most preventative care services like vaccines, screenings, and annual wellness visits, are fully covered by Medicare. There’s no reason not to use your free preventative care services because they can help you catch issues early, reducing your healthcare costs in the long run. 

Understand provider networks

If you’re on Original Medicare (with or without Medigap), you can see any doctor that accepts Medicare, which is the vast majority of doctors nationwide. If you’re on a Medicare Advantage plan, your plan will have a specific local network.

Whether your plan has changed and no longer covers your regular doctor or you need to see a new specialist, always check that your providers are in network to reduce your costs. 

Maximize prescription savings

You can save on prescriptions by using your plan’s preferred providers. In many cases, there’s a preferred mail order option, so you don’t have to worry about your plan’s preferred pharmacy being too far away. 

Make use of ancillary benefits

Medicare Advantage plans can come with a number of extras, like OTC benefits, fitness memberships, and dental coverage. These benefits can help you offset your everyday expenses and stay healthy.

The bottom line

Healthcare costs in retirement shouldn’t be an afterthought. While costs can reach six figures over the course of retirement, thoughtful planning, informed Medicare decisions, and regular coverage reviews can significantly reduce the burden.