How Much Will Healthcare Cost in Retirement: The Line Item Many Plans Leave Out

You have a number in your head for retirement. It might be a 401(k) balance or a monthly income. What you probably don't have is a number for healthcare, and that gap is where a lot of careful plans come apart.

So how much will healthcare cost in retirement? Fidelity Investments' 2026 Retiree Health Care Cost Estimate puts the average at $185,500 for a 65-year-old retiring in 2026, and $371,000 for a couple retiring at the same age. That covers Medicare premiums plus the co-payments and other costs Medicare leaves to you. It does not include long-term care. A figure that size belongs in your income plan from day one, as its own line.

Why Healthcare Is the Cost Many Retirees Underplan

In many retirement plans, healthcare lands somewhere in the expenses column as a round number someone guessed at.

Healthcare doesn't behave like other expenses. It grows faster than general inflation, and it arrives unevenly: years of modest spending, then one expensive year. A serious health event can also force you to sell investments at the wrong moment, locking in losses and leaving the healthy spouse short.

This is the pattern I see in a Gap Analysis. The couple has done a good job accumulating. But the plan they walk in with treats healthcare as an afterthought rather than a core income need. Nobody has put a number on it.

How Your Withdrawals Set Your Medicare Premiums

Medicare premiums are not a flat rate. They are based on your income from two years earlier. Cross one of the thresholds and you pay a surcharge called IRMAA (the Income-Related Monthly Adjustment Amount) on Parts B and D. Each spouse pays it separately, so one income decision can raise the Medicare bill for both of you for a full year.

Many people trigger IRMAA without being wealthy. They drew income from the wrong account in the wrong order. You need money for a new roof, so you take it from the IRA because it's the easiest account to reach. Nothing seems wrong that year. Two years later your Medicare premium jumps, and nobody connects the two events. That is the Haphazard Withdrawal. Where the income comes from matters as much as how much you take, and it matters most when you are sitting near an IRMAA line. As an IRMAA Certified Planner, this is the part of a plan I spend the most time on.

Michigan adds a layer. The state does not tax Social Security, and under Public Act 4 of 2023 the retirement income deduction reaches full phase-in for 2026: $67,610 for a single filer and $135,220 for a joint return, per Michigan Treasury guidance. That makes a larger withdrawal cheaper at the state level than it used to be. The federal IRMAA thresholds don't move. If you plan around the Michigan deduction and forget Medicare, you have solved half the problem.

The Long-Term Care Cost Fidelity Leaves Out

The Fidelity figure stops at Medicare-covered costs. It says nothing about what happens if you need extended care, at home or in a facility. The 2025 Genworth and CareScout Cost of Care Survey puts the national median at $129,575 a year for a private room in a nursing home, and $80,080 a year for a home health aide at 44 hours a week. Half of all providers charge more than the median.

Think of a portfolio as a glass of water. Taking income from it in a down market drills a hole in the bottom, and the water drains faster than it can be replaced. A care event in a bad market widens that hole. Selling investments to pay for care in a down market is how a plan that looked solid at 65 runs short at 80.

I'm not going to tell you there is one right way to fund that risk. It depends on your health history and on what outcome matters most to you. What I can tell you is that "I'll deal with it if it happens" hands the decision to your spouse, at the worst possible time to be making it.

Where Healthcare Sits Inside the Four-Phase System

When I work through Phase 2 with a new client, the Gap Analysis, one of the first things we look at is where healthcare sits in the plan they already have. Often it is nowhere.

We project Medicare premiums, including where IRMAA lands under the income the plan expects to produce, and model the routine out-of-pocket costs on top. Extended care gets its own conversation: what it would cost, and what protecting the surviving spouse requires. Those numbers then go into the income plan as firm line items that don't get trimmed when the rest of the plan gets tight.

The withdrawal order gets built to protect those funds and stay under the IRMAA lines. The income floor for essentials no longer depends on the market cooperating in the year you get sick. Over 90% of the people who come in for a Gap Analysis are carrying more risk than they realise, and healthcare is usually part of it.

Find Out Where Healthcare Fits in Your Plan

If you have never seen a projection of your Medicare premiums, or tested your plan against a year of care costs, a Discovery Session is the place to start. I will look at your income sources and your account structure, and at where healthcare sits in the plan you have now. You'll leave knowing what is covered and what it would take to cover the rest.

Book a Discovery Session: https://www.newhorizonretirements.com/book