Medicare and Retirement: Budgeting for Healthcare After 65
Quick answer
Correction (31 July 2026): an earlier version of this page gave the Part B premium as $164.90/month (the 2023 figure) and the Part B deductible as $240 (the 2024 figure), and described the Part D "donut hole" as a current feature. The 2026 figures are $202.90 and $283, and the coverage gap was eliminated on 1 January 2025 by the Inflation Reduction Act and replaced with a hard annual out-of-pocket cap — $2,100 for 2026. Every downstream cost projection on this page has been recomputed. If you budgeted from the old figures, you understated Medicare premiums by about $456/year per person.
Medicare starts at age 65 and covers hospital (Part A) and medical (Part B), but costs $200–$450/month in 2026 premiums plus deductibles and copays. Supplemental insurance adds $100–$300/month. Most retirees need to budget $300–$500/month for healthcare in early retirement (65–75) and $500–$1,000/month in later years (80+) for prescriptions, dental, hearing, and long-term care. Without proper budgeting, healthcare costs erode retirement savings 40% faster than expected.
Medicare Basics in 2026
Medicare is available at age 65. It has four parts:
| Part | Coverage | 2026 Premium (if eligible) | Notes |
|---|---|---|---|
| Part A | Hospital, hospice, skilled nursing | $0 (if 40+ quarters work history) | Covers inpatient hospital |
| Part B | Doctor visits, outpatient services | $202.90/month (standard, 2026) | Higher if IRMAA applies |
| Part D | Prescription drugs | $35–$100/month (varies by plan) | Enroll when first eligible unless you have creditable coverage |
| Medigap (supplement) | Fills gaps in A/B | $100–$300/month | Optional but recommended |
Total estimated cost for 65-year-old in 2026:
- Part B premium: $203/month
- Part D (drugs): $50/month
- Medigap supplement: $150/month
- Total premium: $403/month
Plus deductibles and copays:
- Part B deductible: $283/year (2026)
- Part B coinsurance: 20% of costs after deductible, with no out-of-pocket maximum — this is the single biggest reason to carry Medigap or Advantage
- Part D out-of-pocket: capped at $2,100 for 2026 across all covered drugs
Healthcare Cost Inflation in Retirement
Healthcare costs increase faster than general inflation:
- General inflation (2026): ~3% per year
- Healthcare inflation: ~5–6% per year
Cost projection (age 65–85). Starting from the 2026 premium total of $403/month ($4,836/year) and inflating at 5%/year:
| Age | Annual Medicare Premiums | Cumulative From Age 65 |
|---|---|---|
| 65 | $4,836 | $4,836 |
| 70 | $6,172 | $32,894 |
| 75 | $7,877 | $68,704 |
| 80 | $10,054 | $114,408 |
| 85 | $12,831 | $172,738 |
Over 20 years (age 65–85), Medicare premiums alone cost roughly $173,000 per person. Add out-of-pocket (deductibles, coinsurance, non-covered services) and total healthcare cost is $300,000–$500,000 in retirement.
Medicare Enrollment Timeline
You must enroll at age 65. Missing the deadline results in permanent penalties.
Enrollment periods:
- Initial Enrollment Period (IEP): Starts 3 months before you turn 65, ends 3 months after
- Annual Enrollment Period (AEP): October 15 – December 7 (change plans once per year)
- Late enrollment penalties (both permanent, and they work differently):
- Part B: 10% added for each full 12-month period you were eligible and did not enrol
- Part D: 1% of the national base beneficiary premium for each month without creditable drug coverage — so a 3-year gap is about a 36% surcharge, not 30%
Action required:
- Go to Medicare.gov 3 months before turning 65
- Enroll in Part A (automatic if on Social Security) and Part B (must enroll)
- Choose Part D plan (drug coverage)
- Choose Medigap supplement or Medicare Advantage plan
- Confirm enrollment 1 month before birthday
Don't miss this deadline. The penalty is permanent.
Medicare Plans in 2026
Original Medicare + Medigap (Recommended for Most)
Original Medicare: Government plan (Part A + Part B)
Medigap: Private supplemental insurance fills the gaps
Example costs:
- Part B: $203/month
- Medigap (Plan G, best coverage): $180/month
- Part D (drugs): $50/month
- Total: $433/month
Out-of-pocket annual:
- Part B deductible: $283 (Plan G leaves this to you; Plan F covered it but is closed to anyone newly eligible after 1 January 2020)
- Medigap copays: $0–$200 (depends on plan)
- Part D out-of-pocket: capped at $2,100 for 2026
- Total OOP in a typical year: $300–$500
Total annual healthcare cost: $5,496–$5,696 ($433 × 12 = $5,196 in premiums, plus out-of-pocket)
Medicare Advantage (HMO/PPO)
Alternative plan: Instead of Original Medicare, enroll in Medicare Advantage (Part C)
Example costs:
- Premium: $0–$50/month (many $0)
- Copays: $20–$50 per visit
- Deductible: $0–$500
- Drug coverage included (Part D)
- Total: $200–$300/month
Trade-off: Lower premiums, but must use in-network doctors (restricted network)
Best for: Healthy seniors with few doctors, prefer low premiums
Worst for: Seniors with multiple conditions seeing many specialists
What Medicare Doesn't Cover
Significant costs not covered by Medicare:
| Service | 2026 Cost | Coverage |
|---|---|---|
| Dental (cleaning, filling) | $100–$500 | Not covered by Medicare |
| Vision (glasses, contacts) | $100–$300 | Not covered |
| Hearing aids | $1,000–$4,000 | Not covered (except audiologist exam) |
| Long-term care | $8,000–$15,000/month | Not covered (Medicaid does, if qualify) |
| Prescription drugs (expensive) | $200–$500/month | Part D covers them, and since 1 Jan 2025 your annual out-of-pocket is hard-capped ($2,100 in 2026). The "donut hole" coverage gap no longer exists. |
Budget impact:
- Dental: $1,000–$2,000/year
- Vision: $200–$400/year
- Hearing aids: $2,000–$3,000 one-time, then $500/year for batteries/repairs
- Long-term care: $8,000–$15,000/month if needed
Most retirees set aside $3,000–$5,000/year for these non-Medicare-covered costs.
Realistic Retirement Healthcare Budget
Age 65–75 (Early Retirement, Generally Healthy)
Monthly budget:
- Medicare premiums (B+D+Medigap): $433
- OOP deductibles/copays: $40/month average
- Non-covered (dental, vision, hearing): $100/month
- Total: $573/month
Annual: $6,876
Age 75–85 (Late Retirement, More Issues)
Monthly budget:
- Medicare premiums: $450 (increased with age/cost)
- OOP deductibles/copays: $100/month
- Prescription drugs (increased): $150/month (chronic conditions)
- Non-covered (dental, vision): $150/month
- Potential long-term care (50% probability): $500/month (partial cost, insurance pays partial)
- Total: $1,350/month
Annual: $16,200
Age 85+ (Advanced Age, Complex Care)
Monthly budget:
- Medicare premiums: $500
- OOP costs: $200/month
- Prescription drugs: $200/month
- Long-term care or home health aide: $2,000–$8,000/month
- Total: $2,900–$8,900/month
Annual: $35,000–$107,000
Note: Age 85+, most people are on fixed income (Social Security). Long-term care typically covered by Medicaid if savings below certain threshold.
Long-Term Care Insurance Decision
Long-term care (nursing home, assisted living, home health aide) costs $8,000–$15,000/month. Medicare doesn't cover it.
Option 1: Medicaid covers it
- Spend down to $2,000 in assets
- Medicaid pays for care (poor quality homes, limited choice)
- Not ideal but available
Option 2: Long-term care insurance
- Age 55–60: Buy LTC insurance
- Cost: $1,000–$2,500/year depending on coverage
- Covers 3–5 years of care (100% or 75% depending on policy)
- If never need care, money wasted
- If do need care, insurance covers $200,000–$500,000
Option 3: Self-insure
- Save enough money to pay for care ($100,000–$500,000)
- Hope you don't need extensive care
- If you do, use savings for care
For most people: Don't buy LTC insurance. Self-insure by having savings. At 85, if you need care and can't afford it, Medicaid takes over.
Budgeting Healthcare Into Your Retirement Plan
Work backwards from retirement date:
Scenario: Retire at 65 with $800,000 in savings
Annual expenses: $50,000 (living expenses)
Healthcare costs: $6,900 (ages 65–75)
Total annual spend: $56,900
Safe withdrawal rate (4%): $800,000 × 4% = $32,000/year
Shortfall: $56,900 – $32,000 = $24,900/year
Must use: Social Security + other income to cover gap
Social Security at 65 (average): $24,000/year
Complete picture:
- Social Security: $24,000/year
- Portfolio withdrawal (4%): $32,000/year
- Total income: $56,000/year
- Living expenses: $50,000
- Healthcare: $6,900
- Roughly $900/year short — close enough to break-even that a single bad year of health costs tips it negative
This scenario works. But if healthcare is higher (chronic disease), you'd go negative.
Planning Action Items
At age 55:
- Estimate healthcare costs in retirement (use $300–$500/month)
- Factor into retirement savings goal
- If retiring before 65, budget for private insurance ($400–$600/month) until Medicare
At age 62:
- Research Medicare plans (Original + Medigap vs. Advantage)
- Apply for Medicare at 65 (don't miss deadline)
- Decide on supplemental coverage
At age 65:
- Enroll in Medicare Part A, B, D
- Choose Medigap or Advantage plan
- Add healthcare costs to retirement budget
Throughout retirement:
- Review Medicare coverage annually (Oct 15 – Dec 7)
- Adjust for changing health needs
- Budget $3,000–$5,000/year for non-covered services
Your Healthcare Retirement Checklist
- Estimate annual healthcare costs (use $500–$800/month)
- Include in retirement savings goal
- Research Medicare plans at age 62
- Enroll at 65 (don't miss deadline)
- Choose Medigap (recommended) or Medicare Advantage
- Budget $3,000–$5,000/year for non-covered costs
- Review coverage annually
- Adjust retirement withdrawals for healthcare inflation
Sources
- Centers for Medicare & Medicaid Services. (2025). 2026 Medicare Parts A & B Premiums and Deductibles (fact sheet, 14 November 2025). https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles
- Medicare.gov. (2026). 2026 Medicare Costs (fact sheet). https://www.medicare.gov/publications/11579-medicare-costs.pdf
- Medicare.gov. (2026). Medicare & You 2026 (official handbook). https://www.medicare.gov/publications/10050-medicare-and-you.pdf
- Centers for Medicare & Medicaid Services. Medicare Part D Improvements under the Inflation Reduction Act (elimination of the coverage gap; annual out-of-pocket cap). https://www.cms.gov/inflation-reduction-act-and-medicare/part-d-improvements
- Centers for Medicare & Medicaid Services. Final CY 2026 Part D Redesign Program Instructions. https://www.cms.gov/newsroom/fact-sheets/final-cy-2026-part-d-redesign-program-instructions
- U.S. Bureau of Labor Statistics. Consumer Price Index — medical care components. https://www.bls.gov/cpi/