Healthcare in Retirement Costs: What You Need to Know Before 65

Healthcare in retirement can be one of the most misunderstood costs for people who retire before age 65. Before Medicare begins, health insurance premiums may be significantly higher than many pre-retirees expect, especially during the gap years between retirement and Medicare eligibility. In this video, Troy Sharpe explains what you need to know about healthcare costs before 65, why the commonly cited retirement healthcare cost number can be misleading without context, and how planning tools like tax diversification, HSAs, Roth conversions, Medicare timing, ACA subsidy planning, and long-term care strategies may help create more visibility in your retirement plan.

The transcript below walks through how healthcare expenses can affect retirement income planning, why healthcare should often be modeled separately from general living expenses, and how one overlooked planning assumption could make a retirement plan appear stronger than it really is. This discussion is educational only and should not be considered individualized financial, tax, or investment advice.

Who This Is For

This video and transcript may be especially helpful for:

• Adults age 50 and older who are planning for retirement
• Pre-retirees considering retirement before age 65
• Couples trying to estimate healthcare costs before Medicare
• Retirees who want more clarity around Medicare, IRMAA, HSAs, and long-term care
• Individuals with IRA, Roth, taxable, or HSA assets who want to better understand how account structure may impact retirement healthcare planning
• Anyone concerned about how rising healthcare expenses could affect their retirement income plan

Key Takeaways

• Healthcare costs in retirement can be significant, but the headline numbers need context.
• Retiring before age 65 can create a healthcare “gap years” problem before Medicare begins.
• Health insurance premiums may rise sharply in the years leading up to Medicare eligibility.
• Healthcare should often be modeled as its own retirement expense, not simply blended into general inflation.
• Tax location matters because where you withdraw income from may affect taxable income, ACA subsidies, Medicare premiums, and overall retirement cash flow.
• HSAs may provide tax advantages when used for qualified medical expenses.
• Roth conversions may be useful in some situations, but they can also affect taxable income and Medicare IRMAA surcharges.
• Long-term care is separate from regular healthcare costs and should be planned for as its own category.
• A coordinated retirement plan can help bring more clarity to healthcare costs, taxes, income, and long-term financial decisions.

Transcript

How Much Will Healthcare Cost in Retirement?

How much does healthcare really cost once you retire? If you’ve seen the headline that a couple needs almost a half a million dollars just for medical care, that number can stop you cold. But here’s the truth. It’s a real number, but it’s also one of the most misunderstood numbers in all of retirement planning. And reacting to it the wrong way can quietly wreck an otherwise solid plan. So stick with me, because by the end of this video, you’re going to know four things. One, what’s the average healthcare right now actually cost you at every age in five-year increments from 50 to 65? Two,

Where that scary half million dollar number really comes from and why it’s a bit misleading. Three, the four moves that do the real work of bringing your costs down in retirement. And then four, the one planning mistake that can make a retirement plan look far safer than it really is. That last one is easy to miss, so don’t click away before we get there. Quick credit before we dive in here. So a lot of this data was pulled together in a Greg Kiplinger article by Adam Schell with contributions from Ellen B. Kennedy.

It’s linked in the description. And what I’m adding is how we actually use these numbers inside a real retirement plan. How we can take these large averages that the data tells us is likely to happen to large populations and help you understand the parts that you need to know so you can apply the thinking and the strategy to your individual situation. Let’s start with the part nobody loves hearing. And that’s that health insurance gets more expensive every year. And of course, it gets more expensive every decade.

Why Health Insurance Costs Rise Before Medicare

After age 50, the cost of health insurance

Premiums really start to accelerate. So here are some of the latest numbers that come from Value Penguin’s analysis of average marketplace premiums. A 40-year-old pays somewhere in the mid 700s a month right now in 2026. By age 50, that number grows to 1,000 a month, to over 1,000 per month. By age 55, it’s over $1,300 per month. And by age 64, right before Medicare kicking in, the average monthly health insurance premium cost is $1,800 per month.

And that’s per person. So if you retire at age 60 and you’re not yet on Medicare, you could be staring at $15,000 to $20,000 a year in health insurance premiums alone, and that’s per person, before you’ve paid for a single doctor visit and have any out-of-pocket costs or drugs or anything else. And this isn’t theoretical. The average benchmark premium nationally jumped about 21% heading into 2026. So a big reason is that Congress let the enhanced ACA tax credits expire.

So when they did, about 14% of people did not make their January 2026 payment. You see, the government’s been subsidizing your health insurance premiums or anyone who’s on the exchange for many years now. So they stopped subsidizing those payments. And as a result of that, premiums increased 21%. And as a second order effect, 14% of people did not make their premium payment. So what this really means is

The Gap Years Before Age 65

You have less people that have health insurance because the government is no longer subsidizing to keep the premiums low, but with less people in the pool to pay health insurance premiums to pay these large numbers in subsequent years, it’s likely that health insurance costs will continue to rise. Premiums, that is. If you’re planning to retire before age 65, this is the Gap Years problem, and it’s one of the biggest blind spots we see. So this is why it’s important to have tax diversification when it comes to your retirement savings.

Most people talk to you about diversifying your assets, but you need accounts that are diversified from a tax standpoint. So some IRA dollars, some Roth dollars, some non-IRA and non-Roth dollars. So the reason is once you get to retirement, if you do retire before age 65, now you have choices of where you can pull your income from, which means you can control what goes on your tax return. So if I pull all of my income from the Roth and the non-qualified account, leave the IRA alone, I have zero dollars that goes onto my tax return.

Which means I potentially will qualify for a much larger subsidy. And instead of my health insurance premiums being twenty, twenty-five, thirty thousand dollars a year, they very well may be zero dollars a year or or five thousand or ten thousand, something much more reasonable. So this is the healthcare planning. This is what we do from a retirement standpoint when it comes to retiring before age sixty-five and looking at income planning and tax planning. Now, who needs to plan for healthcare the most? Well, two two groups of people really.

The first one are ones that are a little bit less healthy and are likely to incur a lot of out-of-pocket healthcare expenses, higher health insurance premiums, but also the ones that are extremely healthy or or very healthy, because the healthier you are, the longer theoretically you will live, and therefore you will incur more cost for many more years than someone who is less healthy. So someone who is less less healthy, more costs sooner. somebody who’s more healthy, more costs over time.

Why Healthy Retirees Still Need to Plan for Healthcare

So healthcare costs are clearly going up. Remember, we talked about $469,000 is the expected out-of-pocket cost for healthcare. But a couple things here. One, which group of people are more likely to incur this cost? And this cost doesn’t include long-term care, which I think a lot of people find shocking. This is just healthcare. So you have two groups of people that essentially are most likely to incur these large expenses over time, and for two completely different reasons.

So the first group is the group of people that are a little bit less healthy, let’s say less than average health. They can expect to have larger out-of-pocket medical costs sooner than those that are more healthy. But the second group, believe it or not, is actually the healthy people. So even though they may not have as many out-of-pocket costs early in retirement, because of their health, that comes with increased longevity and the likelihood that when you get into your 70s and 80s and 90s, because you’re living longer, that is when you’ll need more.

out of pocket costs. And that’s when the cost because of inflation of healthcare is expected to be tremendously more expensive than it is today. So this is why planning is so important. It’s not just here’s a number that the data says is the average out of pocket cost. It’s really personal. And how you structure your accounts, where you place your assets, which accounts you’re withdrawing from, what you’re doing from a tax planning standpoint, all of these things matter because the healthcare planning process is very, very, very personal.

And needs to be tied to not just your your circumstances from a health standpoint, but also the assets that you’ve contributed, where they’re located, IRA versus non-IRA. And then we need to be able to model out various different scenarios. So but here’s the thing that healthier people need to understand that when you hear this $469,000 number, that is only talking about healthcare costs. That does not include long-term care. Long-term care is it’s an entirely different category.

Healthcare vs. Long-Term Care Costs

I know as a person, when I hear healthcare, my natural instinct is to think hospital costs, out of pocket costs, prescription drugs, nursing home, anything like that, all should be included in healthcare. But from a data reporting standpoint, you have healthcare and you have long-term care. They’re two completely different categories. Medicare, for example, is healthcare. It only covers the first 90 days of a long-term care event in a qualified care facility. After that, you’re completely on your own.

If you have no money, no assets, no income, can go on to Medicaid, but that’s that’s not the best facility you probably want to spend time in. So the point is this if you’re healthy and expected to have a longer life, you’ll have less out-of-pocket expenses more likely early in retirement. But later, because you’re living longer, you’re likely to have much larger out-of-pocket medical expenses. And the probability of needing long-term care, which is an entirely different line item, is greater for you because of your longevity.

So that’s why health insurance costs are increasing at a much higher rate than general inflation, the two groups of people who they apply to, and generally the difference between health care costs in retirement and long-term care costs whenever you hear those terms bandied about. But here’s a way, or here’s a part that’s easy to get wrong. And we see it happen all the time when we have people come in, they have their spreadsheets and they’ve modeled out their expenses. And this can actually make your retirement plan look far more confident than it actually is. 

The Retirement Planning Mistake Most People Miss

A common way to map out spending is two buckets: your base spending, which is all of your essentials, and then your discretionary spending, which is your travel, the hobbies, all the fun stuff. Healthcare typically gets folded into one of those, usually the base expense, and grows at the same general inflation rate as everything else. But that’s a mistake. Healthcare clearly doesn’t behave like the rest of your budget. It rises faster than general inflation, historically speaking, and as we just saw, it climbs steeply in the exact years you’re retiring.

Now the 21% jump from 2025 to 2021 to 2026 is a bit of an outlier, but it is not uncommon to see health insurance premiums increase at a rate far greater than the normal inflation rate in this country. So the right way to model this is with three buckets, not two. You have your base expenses, your discretionary costs, and then healthcare as its own separate line item with its own higher inflation rate that’s applied to just that cost.

When you bury healthcare inside a general spending at a general inflation rate, what you’ll see typically is that your plan may show a probability of success that’s much, much higher than it actually is. It may show you have a 95% chance of success when just $5,000 a year mismodeled could possibly drop you from 95% to 65%. So most modeling software is going to look out to age 90 or age 95. And if you’re 65 today and you’re $5,000 off on your estimate, then you’re looking at

50 over 10, 100,000, 150,000. It’s not just that 150,000, it’s that your plan that’s improperly modeled assumes that that 150,000 is also in that account, earning interest all of those years over 10, 20, 30 years. So it’s a big deal if you mismodel these expenses because of the expected inflation rate. And that’s how we model it for the families that we work with. We’ll look at healthcare as a separate expense and we have a much higher inflation rate.

And then we can customize that, of course, to your individual circumstances. Okay, now we have the levers that you can pull that can that can actually bring down your health insurance costs. Now, some of these will bring them down significantly, and some of them are more tax strategies that you can apply to help you simply save money out of pocket. Stay with me through number four here because number four is the one that most people underestimate the most. Okay, now we have the levers that you can pull to help keep more money in your pocket.

But make sure to stay with me through the last one because it’s the one that people underestimate the most.

Lever 1: Tax Location and Account Structure

Okay, the first lever is tax location. And this means where does your money live? And this can matter just as much, almost as much, as how much you have. So if you have all of your money inside your retirement accounts and you have to pull your living expenses plus your health insurance expenses out, there’s a potential that you get pushed up into higher marginal income tax brackets. You have to, of course, pull more money out just to cover those expenses, and you

may drag social security or other sources of income into a higher state of taxation. So tax location, understanding where your assets are and trying to plan before you get to retirement is the biggest thing that you can do.

Lever 2: Roth Conversions and Medical Deductions

The next lever is understanding Roth conversions and the possibility of keeping more money in your retirement account to take advantage of the ability to itemize deductions, which would allow you to take money out of your IRA and pay no tax on those distributions for medical expenses potentially. Now,

The rule today is if your medical expenses exceed 7.5% of your adjusted gross income, you can deduct those medical expenses. That means you can pull money out of your retirement account and pay no tax on it if you itemize and those expenses exceed 7.5% of your adjusted gross income. So this is a very advanced part of retirement planning, tax and income planning, especially if you’re healthy and you are planning on living a long life.

And you’re wondering, hey, can I use this law, this itemization possibly for keeping money in my retirement account, but pulling out later to pay for those increased health care expenses that we talked about, possibly long-term care expenses. So there’s a lot of unknowns. The trade-offs, of course, we don’t know what the future tax laws will be. You don’t know how long you’re going to live, what medical costs will be. There’s a lot of considerations there, but this is an advanced area of tax and income planning.

Just be aware that you can convert money to Roth, of course. Most of you know that. And you can pull that money out tax-free as long as they are a qualified Roth distribution. But you can also keep money inside that retirement account possibly and take advantage of the ability to itemize medical expenses that exceed currently it’s 7.5% of your adjusted gross income. In the future, it may be a different number. Just understand you have that option, but it’s a little bit risky because that law almost certainly will change over the next 5, 10, 15, 20, 25 years multiple times.

Lever 3: How HSAs Can Help Fund Healthcare Costs

Okay, the next lever is your health savings account. So if you have a high deductible health insurance plan, you have the ability to contribute to a health savings account, HSA as we like to call them. So it’s my favorite account in the entire world because it’s the only account in the tax code that has this triple advantage. The money goes in pre-tax, it grows tax-free, and then comes out tax-free for qualified medical costs. And in 2026,

The IRS says a family can put in up to $8,750 into the HSA, get a tax deduction for it. Again, gross tax-free comes out tax-free for medical expenses. But if you’re over the age of 55, you can, if you’re 55 or older, you can add another $1,000 on top of that, making it $9,750. So used RIPE, your HSA becomes a dedicated tax-free healthcare fund for your entire retirement. And you can use it for Medicare premiums later in life.

So my health savings account, so I have a high deductible plan. My health savings account, I put money into it, it gets invested, and I don’t plan on touching it until I retire.

Lever 4: Medicare Timing, IRMAA, and ACA Subsidies

the next lever is understanding Medicare timing, Irma trap, but also subsidy planning. So really this could be three or four different letters, levers, but the Medicare timing is just understanding that whatever your income is two years prior determines what your Medicare premiums will be today.

So if you do a big Roth conversion, you need to be aware that one of the trade-offs of that conversion is possibly you could have these surcharges that are called Irma that increase your Medicare premium. So there’s there’s different tiers, and depending on how large your income is determines which tier you fall into, but it could potentially increase your Medicare premiums thousands and thousands of dollars per year per spouse. So understand that the timing of your income matters for Irma. Now the subsidy planning.

This goes back to a concept I’ve touched on two times already, and that’s having tax diversification when you get into retirement. When you have non-IRA dollars, non-IRA dollars, or Roth dollars, if you can pull them in that window prior to Medicare, you can keep your income down and potentially qualify for a subsidy to help your health insurance premiums stay smaller. So that is a little bit about Medicare timing, Irma, and then subsidy planning.

Why Long-Term Care Needs Its Own Plan

The next lever is long-term care.

So this is the one that’s easy to underestimate and then the one I told you to stay for. So I kind of let the cat out of the bag a little bit earlier when I said that when we talk about these healthcare costs, the $469,000 number that the data tells us is the average person is going to spend out of pocket in retirement, that does not include long-term care. So long-term care is very tricky. So I had a client a long time ago come in, he was 87 years old, and he said, Troy, he says, I’m 87, but I don’t think you can help.

And he gave me a piece of paper and he said, I want you to read this. And it was a note saying that his long-term care premiums were going up 100%. He then told me this was the third year in a row that he received that letter. And let me correct the record, he’s not a client, he wasn’t a client, he was a prospect, but he wanted to come in for some help. And I said, No, sir, I can’t help you. That’s what long-term care costs at age 87. The point being is he had a policy that he purchased many years ago, never made any adjustments, never looked at some of the newer options that are available.

And I think most importantly, he wasn’t going to have it when he needed it because he couldn’t afford to keep it. So long-term care separate from healthcare. But according to the federal government, about 70% of adults over the age of 65 will need some form of long-term care. And standard Medicare, of course, doesn’t cover it. It’ll cover the first 90 days in a qualified care facility, but after that, you’re on your own. And that’s when you either pay out of pocket, which is an addition to that average of 469,000, or you have some type of policy, hybrid strategy.

Some type of annuity that has long-term care benefit features, something like that to help you pay for the care. And you do have a lot of new innovations in the marketplace today. You have life insurance that can accelerate the death benefit to help you pay for long-term care. Certain annuities can double the income if you need long-term care, but all of them have real trade-offs. They’re not appropriate for everyone. So it’s a planning conversation. It’s not a product that you just simply grab off the shelf and think you’re okay. Because just like Arthur, he grabs something off the shelf.

And 30 years later, he found out it was not the right thing for him.

Bringing Healthcare Planning Into Your Retirement Strategy

So let’s bring this all together. Healthcare is very expensive. The cost climbs faster from an inflation standpoint than other expenses in retirement. And the headline numbers are typically scary on purpose. So you click on the article and you read what the author has to say. But once you understand that that healthcare cost is a monthly budget that’s a personal number that should be coordinated with your other assets and part of an overall retirement plan.

It helps you to feel a little bit more comfortable about the decisions that you have to make. And in my opinion, that can help increase your probability of success throughout retirement because you’re making coordinated decisions with more information that’s customized to your particular situation. So whether you’re using a certain tool like an HSA or the itemized deduction planning that we talked about, or Medicare planning, all of these tools and levers are available to you. They just need to be

Coordinated, they need to be customized, tailored to your particular situation. So understanding that it is manageable and that it is something that can be addressed hopefully alleviates some of the fear that some of you may feel when it comes to these large numbers you see in the headlines about potential healthcare costs. And if you want to see how prepared you actually are, we built a free retirement readiness score quiz. It takes a couple of minutes and it’s right in the description below. You can click on that link. It’s pretty cool. I actually developed this thing myself. 

So it’s like two or three minutes. You go through, you answer the questions, and it’s gonna give you a score. So now this is a rough estimate based on the input that you gave. Some of the tools here are far more robust that we use with clients, but I thought it’s really cool and I think you’ll like it as well. So there’s a link down there if you want to do the retirement readiness quiz. I’m Troy Sharpe with Oak Harvest Financial Group. And if this video was helpful, please subscribe to the channel or share it with somebody who you think would benefit because the goal is of this channel is simple. It’s to help you retire with confidence instead of crossing your fingers.

I’ll see you in the next video.

[End of transcript]

FAQ: Healthcare in Retirement Costs Before 65 

How much does healthcare cost in retirement before Medicare?

Healthcare costs before Medicare can vary widely based on age, income, location, plan type, subsidies, and health needs. In the video, Troy explains that marketplace health insurance premiums may rise significantly in the years before age 65, with average premiums becoming especially expensive for people retiring before Medicare begins. This pre-Medicare period is often called the “gap years” problem.

What are the “gap years” before Medicare?

The gap years are the years between when someone retires and when Medicare typically begins at age 65. For example, someone who retires at 60 may need to cover several years of health insurance before Medicare eligibility. Troy explains that this can become one of the biggest blind spots in retirement planning because premiums may be much higher during this window.

What is the health insurance age 62 to 65 average cost?

The transcript does not provide a specific average for every age from 62 to 65, but it does discuss the pre-Medicare years and notes that by age 64, average monthly health insurance premiums may be around $1,800 per month per person. Troy also explains that someone retiring before Medicare could be looking at roughly $15,000 to $20,000 per year in health insurance premiums alone, per person, before doctor visits, prescriptions, or other out-of-pocket costs.

Why is the $469,000 retirement healthcare number misleading?

The $469,000 number can be useful as a broad estimate, but it can also be misleading if people treat it as a single, fixed amount that applies equally to everyone. Troy explains that healthcare planning is personal and depends on health, longevity, income, taxes, account structure, and whether long-term care is planned separately. He also notes that the number does not include long-term care costs.

Does the $469,000 healthcare estimate include long-term care?

No. Troy explains that the $469,000 estimate discussed in the video refers to healthcare costs, not long-term care costs. Long-term care is a separate category and may require its own planning strategy.

Why should healthcare be modeled separately in a retirement plan?

Healthcare often does not behave like other expenses in retirement. Troy explains that many people group healthcare into general living expenses and apply the same inflation rate to everything. That can make a retirement plan look stronger than it may actually be. In his view, healthcare should often be modeled as its own line item with its own inflation assumption.

How can tax diversification help with healthcare costs before Medicare?

Tax diversification means having money in different types of accounts, such as IRA, Roth, and non-retirement accounts. Troy explains that this can give retirees more choices about where to pull income from before age 65. Managing taxable income may help some retirees qualify for larger ACA subsidies, depending on their situation.

Can Roth accounts help with pre-Medicare health insurance planning?

Roth accounts may help in some situations because qualified Roth withdrawals generally do not increase taxable income. Troy explains that having Roth and non-qualified assets may give retirees more flexibility to manage what shows up on their tax return, which can matter when planning for ACA subsidies before Medicare.

How can an HSA help with retirement healthcare costs?

A health savings account, or HSA, can provide tax advantages when used for qualified medical expenses. Troy explains that money can go into an HSA pre-tax, grow tax-free, and come out tax-free for qualified medical costs. He also notes that HSAs may be used later in life for certain Medicare premiums.

What is IRMAA, and why does it matter for Medicare?

IRMAA is an income-related surcharge that may increase Medicare premiums for higher-income retirees. Troy explains that Medicare premiums are based on income from two years prior, so large taxable income events, such as a Roth conversion, may affect future Medicare premiums.

Can Roth conversions affect Medicare premiums?

Yes. A Roth conversion may increase taxable income in the year of the conversion, which could potentially affect Medicare premiums later through IRMAA. Troy explains that this does not automatically mean Roth conversions are good or bad. It means the timing and tax impact should be considered as part of a broader retirement income plan.

Who needs to plan most carefully for healthcare costs in retirement?

Troy identifies two groups that may need to be especially thoughtful: people who are less healthy and may face higher costs sooner, and people who are very healthy and may live longer, potentially facing more years of healthcare and long-term care costs.

Does Medicare cover long-term care?

Troy explains that Medicare is healthcare coverage, but long-term care is a separate category. In the transcript, he notes that Medicare may cover only a limited initial period in a qualified care facility, and after that, retirees may need other resources or strategies to cover long-term care expenses.

What is the biggest planning mistake discussed in the video?

The biggest mistake Troy highlights is burying healthcare inside general retirement expenses and inflating it at the same rate as everything else. He explains that if healthcare is under-modeled, even by a few thousand dollars per year, it could meaningfully change the perceived strength of a retirement plan.

What resources does Troy mention in the video?

Troy mentions a free Retirement Readiness Score Quiz available in the video description. He also references a Kiplinger article by Adam Shell, with contributions from Ellen B. Kennedy, as a source for some of the healthcare cost data discussed in the video.

Want help understanding what your Retirement Readiness Score could mean for your bigger picture? Schedule a conversation with Oak Harvest Financial Group to review your results and talk through how healthcare costs, taxes, income planning, Medicare timing, and long-term care may fit into your retirement strategy. This is an educational conversation designed to help you gain more clarity and visibility, not a one-size-fits-all recommendation. Schedule here.