I budgeted for healthcare before I retired. I still underestimated it — not by a catastrophic amount, but enough that I’ve had to rebuild the line item twice since August. If you’re building your own retirement budget, here’s the fuller picture I wish I’d started with.
The premium is the visible cost. It’s not the whole cost. Whether you’re paying a Marketplace premium during a pre-Medicare gap or a Medicare Part B/D/Medigap combination once you’re eligible, the monthly premium is the number that’s easy to find and easy to plug into a spreadsheet. What’s harder to estimate up front: deductibles, coinsurance, copays for specialist visits, and out-of-pocket maximums that only get hit in a bad year. My first-draft budget had the premium and stopped there. It needed a second line for “everything else,” and I initially guessed too low on that line.
Dental and vision aren’t included in Original Medicare at all. This one caught me off guard. Original Medicare covers essentially none of routine dental or vision care. If you had employer coverage that bundled these in without a second thought, retiring means either budgeting for them separately, buying a standalone dental/vision plan, or choosing a Medicare Advantage plan that bundles them (with the network trade-offs that come with that choice, which I covered in an earlier post).
Prescription costs vary enormously by drug and by plan, not by a general “prescription budget” line. I made the mistake early on of putting a flat monthly number in my budget for medications, based loosely on what I’d paid through my employer plan. Once I actually ran my specific prescriptions through the Medicare Plan Finder tool, the estimated annual costs varied by hundreds of dollars depending on the specific plan, because formularies and tiering differ plan to plan even for common medications.
IRMAA can silently increase your Medicare premiums. As I mentioned in the RMD posts, income from two years prior determines whether you pay a surcharge on top of standard Part B and Part D premiums. This means a healthcare budget built only on “current year income” can miss a surcharge driven by a decision — a large withdrawal, a Roth conversion, a home sale — made two years earlier. I’m now tracking IRMAA thresholds as part of my annual tax planning, not as a separate healthcare-only conversation.
An emergency healthcare fund is different from a general emergency fund. I set aside a separate cash reserve specifically sized around my Medicare or Marketplace plan’s out-of-pocket maximum, rather than assuming my general emergency fund would absorb a bad health year on top of everything else it’s meant to cover — a home repair, a car replacement, a period of unexpectedly high expenses.
The bridge years before Medicare are usually the most expensive healthcare years of retirement, ironically. COBRA or full-price Marketplace coverage before subsidies (if your income is too high to qualify, or before you’ve optimized your MAGI) tends to cost more per month than Medicare will once you’re eligible. I underestimated this asymmetry — I expected costs to rise as I aged, when in reality my healthcare costs may actually *decrease* once I transition from my current bridge coverage onto Medicare.
None of this means healthcare costs are unmanageable in retirement — they’re not. But they’re a multi-line-item budget category, not a single premium number, and several of the lines interact with decisions (Roth conversions, income timing, plan selection) that live in entirely different parts of a retirement plan. Building the budget once and walking away from it undersells how much this category moves year to year.
If you had a Health Savings Account through a high-deductible plan before retiring, don’t overlook it in this budget either. HSA funds remain yours indefinitely — there’s no “use it or lose it” clock — and once you’re on Medicare, you can no longer contribute to an HSA, but you can still withdraw from an existing one tax-free for qualified medical expenses, including many Medicare premiums (though not Medigap premiums). I had a modest HSA balance from my last few working years that I’d nearly forgotten about, and folding it into the healthcare budget as a dedicated resource — rather than letting it sit untouched indefinitely — changed how I’m thinking about which account covers which near-term medical cost.
I’d also suggest keeping receipts for qualified medical expenses even in years you don’t plan to reimburse yourself from the HSA right away. There’s no deadline requiring you to reimburse an expense in the same year it occurred — as long as the expense happened after the HSA was established, you can reimburse yourself years later, which effectively lets the HSA keep growing tax-free while a documented pool of past qualified expenses sits available to draw against whenever it’s actually useful, rather than needing to time reimbursements to the year the cost was incurred.
I’m not a financial advisor or insurance broker. Healthcare cost estimates are highly individual — use tools like the Medicare Plan Finder and healthcare.gov’s subsidy estimator with your own actual numbers rather than a general estimate like mine.
Frequently Asked Questions
Does Medicare cover dental and vision care?
No — Original Medicare covers essentially none of routine dental or vision care, so these need a separate budget line, a standalone plan, or a Medicare Advantage plan that bundles them in.
Why are healthcare costs sometimes higher in the years before Medicare than after?
Pre-Medicare bridge coverage like COBRA or full-price Marketplace plans often costs more per month than Medicare will once you’re eligible, so healthcare costs can actually decrease after the transition.
What is IRMAA and how does it affect my healthcare budget?
IRMAA is an income-related surcharge added to Medicare Part B and Part D premiums when your income from two years prior exceeds certain thresholds — a large withdrawal or Roth conversion can trigger it years later.
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