Saving for healthcare costs in retirement

Along with replacing your paycheck in retirement, you may also need to prepare for taking on a larger share of your healthcare expenses. While Medicare will cover some costs once you turn 65, you can still expect to pay a considerable portion of your medical expenses out of pocket. According to the 2025 Fidelity Retiree Health Care Cost Estimate, a 65-year-old individual may need $172,500 in after-tax savings to cover healthcare expenses in retirement.

The good news is that you can take steps today to help cover your healthcare expenses tomorrow. Here’s how:

Maximize your retirement plan contributions

Saving as much as possible into your 401(k) and any IRAs can help you build a healthy nest egg from which to cover healthcare costs. As you near retirement, you can save more through catch-up contributions. For savers age 50 and over, this means you can contribute an additional $8,000 per year to a 401(k), for a total contribution of $32,500, and an additional $1,100 to an IRA, bringing that limit to $8,600.

Savers on the cusp of retirement can contribute even more to their 401(k)s, thanks to recent legislation. Individuals ages 60 to 63 can save up to $35,750 per year in a 401(k).

Open and fund a health savings account        

A health savings account (HSA) allows you to set aside money for health expenses today and provides significant benefits for saving for retirement healthcare costs. These accounts offer a triple tax advantage: contributions made through payroll deductions are pre-tax, investment earnings are tax deferred, and, in retirement, you can withdraw HSA money for any purpose, though non-medical withdrawals are taxed.

HSAs are offered by many employers as part of their benefits packages. You can open and fund an HSA if you are covered by a high-deductible health plan. In 2026, plans with a minimum deductible of $1,700 for individuals and $3,400 for families qualify.

In 2026, individuals can contribute up to $4,400 into an HSA or $8,750 for an account covering a family. Savers 55 and older can contribute an additional $1,000 into an HSA.

HSA accounts also provide flexibility by allowing you to invest your money and letting it grow over time. Unlike some other benefit accounts, HSAs do not require you to use the funds each year or forfeit unused balances. You can roll over your balance from year to year and take the account with you even if you change jobs.

Get professional guidance

For help understanding how to save for healthcare costs in retirement, contact your EY Navigate™ financial planner. Your planner can help you select a mix of accounts that align with your expected expenses and your ability to save.