Retirement Healthcare Costs: Common Misestimates | SafeMoney

By Brent Meyer — SafeMoney.com Founder & Editor Reviewed by Licensed Financial Professionals  |  SafeMoney.com — Trusted Since 2011  |  Updated Regularly Quick Answer: Discover why retirees often underestimate healthcare costs. Learn to plan effectively for retirement healthcare expenses. Get started today! The Healthcare Cost Gap: Why Retirees Get It Wrong Study after study arrives at the same conclusion: Americans consistently and significantly underestimate what healthcare will cost in retirement. This is not simply a knowledge problem — it reflects a systematic set of planning assumptions that do not align with the reality of retirement healthcare costs. The consequences of underestimating healthcare costs are concrete and serious: retirement income that runs short, forced reductions in other spending categories, depletion of savings that were intended for other purposes, and in some cases, financial hardship in later years when healthcare needs — and costs — are at their peak. How Large Is the Underestimation? Research on retirement preparedness consistently finds that retirees estimate healthcare costs at half to two-thirds of what they actually end up spending. A couple who expects to spend $150,000 on healthcare in retirement is more likely to actually spend $300,000 or more — and that is before any long-term care costs are included. When long-term care is added, total lifetime healthcare exposure for a couple can easily exceed $500,000 to $600,000. The Most Common Mistakes in Healthcare Cost Estimation Mistake 1: Assuming Medicare Is Nearly Free Many people enter retirement with the impression that Medicare is essentially free or very low cost because they have paid Medicare taxes throughout their career. In reality, Medicare has meaningful premiums — Part B premiums are paid monthly by all enrollees and increase with income. Part D prescription drug plans carry additional premiums. And most retirees benefit from adding supplemental coverage (Medigap or Medicare Advantage) to manage cost-sharing, adding another layer of premium cost. Mistake 2: Forgetting Medicare's Gaps Original Medicare has no out-of-pocket maximum, meaning a serious illness could generate unlimited cost-sharing without supplemental coverage. Dental, vision, and hearing — common and significant expenses for older adults — are largely excluded. Many retirees are surprised to find that a dental procedure, hearing aids, or vision correction represent costs t