What can cause your retirement plan to crash and burn? Not understanding the reality of healthcare costs. It’s a common misconception that expenses will go down when you retire, and in some categories that may be true. But not healthcare. According to the HealthView Services “Retirement Healthcare Costs Data Report,” healthcare costs for people 65 and older increase at one-and-a-half to two times the rate of inflation.
The Bureau of Labor Statistics says U.S. households led by someone 65 or older spend an average of $8,027 a year on health care, which is about 13% of the average income of senior households ($60,087). Healthcare spending is the third largest category of senior spending, just behind transportation at 15% and housing at 35%.
By comparison, all U.S. households spend an average of $6,159 a year on health care, which translates to about 8% of the total spending across all households ($77,280 on average income).
The Bureau of Labor Statistics breaks it down this way.
Health insurance
Average spending for a U.S. household led by someone age 65 or older: $5,501 per year.
Average spending across all U.S. households: $4,049 per year
Medical services
Average spending for a U.S. household led by someone age 65 or older: $1,355 per year
Average spending across all U.S. households: $1,252 per year.
As defined by the Bureau of Labor Statistics, this type of health care expense includes:
- Hospital room and services
- Services from physicians and other professionals
- Eye and dental care
- Lab tests and X-rays
- Medical care in a retirement community
- Care in a convalescent or nursing home
Prescription Drugs
Average spending for a U.S. household led by someone age 65 or older: $836 per year.
Average spending across all U.S. households: $591 per year.
Drug spending includes prescription and nonprescription medications as well as vitamins.
Medical supplies
Average spending by a U.S. household led by someone age 65 or older: $335 per year.
Average spending across all U.S. households: $267 per year.
This type of spending covers:
- A variety of supplies, including dressings, antiseptics, bandages, first aid kits, syringes, ice bags, thermometers, sun lamps and heating pads
- Medical appliances — such as braces, canes, crutches, walkers, eyeglasses and hearing aids
- Rental and repair of medical equipment
“But wait. Doesn’t Medicare pay for this?”
Nope! Here’s an example from one of my clients who has Original Medicare, which is Part A-hospital insurance, and Part B-doctor insurance. Original Medicare pays for 80% of Medicare-approved expenses. He doesn’t want to pay the remaining 20% out of pocket because there is no cap on out-of-pocket expenses so he purchases a Medicare supplement (Medigap) policy that pays the 20% not covered by Original Medicare. The monthly costs look like this:
- Medicare Part A $0
- Medicare Part B $185
- Medicare Supplement $105
Original Medicare and the supplement policy do not pay for prescription drugs. So, he has to pay for drug coverage.
- Medicare Part D (drug coverage) $45
(These are his costs for 2025. The costs go up every year due to inflation.)
Original Medicare and the supplement also do not pay for dental, vision or hearing coverage. This client wants that coverage, which has to be purchased separately. In this instance, he found a single plan that provides some coverage for all three categories.
- Dental, vision, hearing coverage $60
The plan doesn’t pay for all dental, vision and hearing expenses, so there are out-of-pocket costs that have to be paid. Some people choose to buy individual dental, vision and hearing policies which are even more expensive.
Besides all that, there can also be:
- Copays
- Coinsurance
- Deductibles
- And Medicare does not cover long-term care. Approximately 70% of U.S. seniors will need some type of long-term care during their lifetimes.
Keep in mind, these costs are per person, so double the amount for a retired couple.
But what about those zero-dollar Medicare Advantage plans that include Parts A & B as well as coverage for drugs, vision, dental and hearing? Doesn’t that cover all the expenses?
Nope! You still have to pay the monthly Medicare cost of $185 in 2025. Then there are copays for each visit to a specialist, chiropractor, urgent care facility, emergency room and the various forms of physical therapy. If you have an inpatient hospital stay, you’ll pay on average $300 per day for the first 6 days. There are also copays for outpatient surgeries, x-rays, radiology procedures which includes MRIs and CT scans, etc.
Healthcare is expensive for everyone, but for seniors, it costs more than you think.
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