Healthcare Spending Budget in Retirement

How much should you budget for healthcare in retirement? The honest answer is that there’s no single number, because healthcare isn’t one expense. It’s three very different ones, and the mistake is budgeting for the predictable part while ignoring the part that can actually hurt you.

Three buckets, not one

Split healthcare into what it really is.

Premiums. Predictable and recurring. For 2026, the standard Medicare Part B premium is $202.90 a month, plus a Part D drug plan and usually a Medigap supplement. Higher earners add the IRMAA surcharge on top, which can push a high-income couple’s combined Part B premium well past $1,300 a month. This bucket you can forecast almost to the dollar.

Out-of-pocket care. Deductibles, copays, dental, vision, and hearing, the gaps Medicare leaves. The Part B deductible is $283 for 2026. Routine in most years, lumpy in a bad one. Bigger than people expect, because dental, vision, and hearing largely fall outside Medicare entirely.

Long-term care. Rare, but potentially enormous and open-ended. This is the bucket that breaks plans.

Why the easy bucket is a trap

Here’s the cognitive error. Premiums and routine costs are predictable, so they’re easy to budget and easy to feel good about. People build a tidy monthly healthcare line, see that it fits, and call healthcare “handled.”

But the predictable buckets aren’t the risk. The risk is the long-term care bucket, the one you can’t predict and can’t cap. A multi-year care event dwarfs a lifetime of premiums. Budgeting carefully for the small, certain costs while waving off the large, uncertain one is like balancing your checkbook to the penny while leaving the front door unlocked.

Build the budget in layers

A way to think about it that respects all three buckets:

• Layer one: premiums. Forecast them, including any IRMAA surcharge tied to your income. This is your fixed healthcare floor.
• Layer two: a routine out-of-pocket reserve. A buffer for deductibles, copays, and the dental and hearing work Medicare skips. An HSA you built before 65 is the ideal source, since it pays most of this tax-free, premiums included.
• Layer three: a long-term care plan. Either an earmarked self-funding reserve or a policy. Not a vague hope that the portfolio absorbs it.

The angle for affluent households

If you have several million dollars, layers one and two are noise. A few thousand a month in premiums and copays won’t move your plan. So don’t over-engineer the easy buckets. Spend the planning energy on layer three, because a long, expensive care event is the only healthcare cost large enough to reshape a high-net-worth retirement, especially for the surviving spouse who may live decades on what’s left.

And factor in care inflation, which runs hotter than regular inflation, so the third bucket grows faster than the first two every year you’re not watching.

Healthcare isn’t one budget line you can set and forget. It’s a small certain cost and a large uncertain one wearing the same label. Budget the certain one, but protect against the uncertain one. That’s where the real money lives.