How Much Money The Average Middle Class Retiree Spends On Healthcare

When a person retires, they say goodbye to the daily stress that comes with the workplace and, along with it, a monthly, weekly, or biweekly paycheck. What they can't say goodbye to are the day-to-day living costs. Pricing for most of the expenses stays the same, but the balance shifts — health care costs more in retirement than it did before. 

According to a Consumer Expenditure Survey (CES) carried out by the Bureau of Labor Statistics (BLS) between 2004 and 2018, retirees aged 65 and older spent roughly 18% more on health care than people just 10 years younger (55 to 64). In comparison, the average total income between the two age groups dropped by over 40% from $88,342 to $51,624. But those figures are mere averages. For the middle class, the transition can seem more like a squeeze than a shift, with the median household income pegged at $83,730 in 2025, according to the US Census Bureau. 

The reality is that the cost of health care, even for the middle class, is a lot to bear. Fidelity estimates that a 65-year-old retiring in 2025 will have to spend up to $172,500 on health care over the course of their retirement. According to the BLS 2023 Consumer Expenditure Survey (via the Federal Reserve Bank of St. Louis), Americans aged 65 and over spend $8,027 a year on health care — that's almost $700 a month. In the first year of retirement, however, a couple will spend even more — up to $12,850, per Fidelity. Per data from the Census Bureau, which places the median income for households 65 and older at $56,680, this means the average retiree spends roughly 14% of income on health care — and that's before factoring in long-term care. That's why it's important to understand these costs and plan for them.

The seemingly staggering health care expenditures don't come as one bill in the mail. They're piled up from a mix of recurring payments like premiums, co-pays, and prescriptions, and those one-off charges that accumulate over the months. There are four main categories comprising health care spending: insurance premiums, medical services (consultation, inpatient care, and lab services), prescription drugs, and medical supplies (walkers, wheelchairs, or casts and bandages). 

Nevertheless, Medicare insurance premiums and prescription drugs tend to make up the largest slice of that annual bill. T. Rowe Price estimates a percentage share of 73% to 81%, depending on whether the insurance plan is Original Medicare, Medigap, or Medicare Advantage. The leftover 20% to 30% are those services Medicare won't cover, and they can range from relatively small items like dental care to larger items like extended inpatient hospital stays. Long-term care is one of the most expensive out-of-pocket costs, with pricing in retirement communities ranging from $26,000 to $128,000 annually. 

Data from the Congressional Research Service (via the Library of Congress) shows that only 47% of households aged 65 and over have retirement savings. Of those that do, 59% have a balance of under $250,000. Breaking the math down shows that the average, middle-class retiree would have to spend more than half of their entire retirement savings on health care alone. Thankfully, there are ways to reduce health care costs in retirement. 

For one, choose the most suitable Medicare plan. Original Medicare (Parts A and B) will usually cover inpatient and outpatient care, doctor visits, and preventive services. But it doesn't automatically include Part D (prescription drugs), so you'll need to cover the average cost of Part D — just under $50 for retirees. The private insurer alternative, Medicare Advantage (Part C), on the other hand, will cover Parts A, B, and a range of prescription drugs. You still have to pay deductibles, coinsurance, and copays. So, it might be wiser to get a supplemental policy like Medigap to cover these extras.

Also, consider opening a Health Savings Account (HSA), one of the most tax-efficient retirement planning tools, especially if you're on a high-deductible health plan. HSAs offer a triple tax advantage. You contribute money from pre-tax income and withdraw tax-free for qualifying medical expenses. When set up early, the balance can grow to a substantial amount without you paying taxes on the earnings. Finally, an emergency fund for the worst-case scenario, like a terminal illness or an accident, can take care of months of living expenses, including extended hospital stays, which fall out of Medicare coverage.