How Do You Budget for Healthcare in Retirement? | Columbus, Ohio

How Do You Budget for Healthcare in Retirement?

Quick answer: Budgeting for healthcare in retirement means planning for the full range of costs — Medicare Part B and Part D premiums (plus IRMAA surcharges for higher-income retirees), supplemental coverage (Medigap or Medicare Advantage), out-of-pocket costs (deductibles, copays, coinsurance), dental/vision/hearing (generally not covered by Original Medicare), long-term care reserves, and bridge coverage if you retire before 65. A realistic approach plans for both a normal year and a higher-cost year, accounts for healthcare inflation (which tends to outpace general inflation), and recognizes a key connection: because Medicare premiums increase with income through IRMAA, your withdrawal and Roth conversion decisions affect your healthcare costs. For Columbus, Ohio retirees, healthcare budgeting is one of the most important — and most underestimated — inputs into the retirement income plan. This article is educational; specific budgeting and tax decisions should be made with your financial and tax advisors.

Key Takeaways

• Healthcare is one of the three largest spending categories in retirement, alongside housing and taxes.
• The cost categories include premiums, IRMAA, out-of-pocket costs, dental/vision/hearing, long-term care, and bridge coverage.
• Original Medicare doesn't cover most dental, vision, and hearing, so these are separate budget items.
• IRMAA surcharges increase Medicare premiums at higher income levels, connecting healthcare costs to income decisions.
• A realistic budget plans for both a normal year and a higher-cost year, and accounts for healthcare inflation.
• Healthcare costs should be built into the retirement income plan, not treated as an afterthought.
• Coordinating healthcare budgeting with income and tax planning produces better outcomes.

Table of Contents

• Why Healthcare Budgeting Matters
• The Cost Categories to Plan For
• Medicare Premiums and IRMAA
• Out-of-Pocket Costs
• Dental, Vision, and Hearing
• Long-Term Care Reserves
• The IRMAA-Income Connection
• Planning for a Normal Year and a High-Cost Year
• Healthcare Inflation
• How Healthcare Budgeting Fits the Whole Plan
• Frequently Asked Questions

Why Healthcare Budgeting Matters

Healthcare is one of the three largest spending categories in retirement, alongside housing and taxes — and it's the one most people underestimate.

Why it gets underestimated:

During working years, healthcare costs are often largely hidden — premiums are payroll-deducted, the employer pays a big share, and out-of-pocket costs are modest. In retirement, the full cost becomes visible and falls more directly on you: Medicare premiums, supplemental coverage, prescriptions, out-of-pocket costs, and the things Medicare doesn't cover at all.

Why a realistic budget matters:

• Healthcare is a large, recurring, lifelong cost
• It tends to grow faster than general inflation
• It can spike unpredictably with a major health event
• It interacts with income and tax decisions (through IRMAA)
• Underestimating it can undermine an otherwise-solid retirement plan

The synthesis role of this article:

This is the capstone of my healthcare-in-retirement series. The earlier pieces covered the individual decisions — Medicare enrollment, the Advantage vs. Medigap choice, Part D, HSAs, long-term care, and bridging coverage before 65. This piece pulls them together into the practical question underneath all of them: how do you budget for all of this as part of your retirement plan?

For Columbus-area retirees and pre-retirees, getting the healthcare budget right is one of the most important inputs into the overall retirement income plan — and one of the most commonly underestimated.

This article is part of my broader guide on how to plan for healthcare in retirement in Ohio, which covers each of these healthcare decisions in depth.

The Cost Categories to Plan For

A complete healthcare budget accounts for several distinct categories. Missing any of them produces an unrealistically low estimate.

The main categories:

• Medicare Part B premium — the monthly premium for medical insurance, plus any IRMAA surcharge
• Medicare Part D premium — the monthly premium for prescription drug coverage, plus any IRMAA surcharge
• Supplemental coverage — either a Medigap premium (with Original Medicare) or a Medicare Advantage premium
• Out-of-pocket costs — deductibles, copays, and coinsurance for the care you actually use
• Prescription drug costs — the actual cost of your medications beyond the Part D premium
• Dental, vision, and hearing — generally not covered by Original Medicare, so often separate costs
• Long-term care — either insurance premiums or reserves set aside for potential care
• Bridge coverage — if retiring before 65, the cost of coverage until Medicare eligibility

Why listing them all matters:

Many retirees budget only for the obvious items (Medicare premiums) and miss the rest. The out-of-pocket costs, the dental/vision/hearing gap, and the long-term care dimension are easy to overlook — but they're real costs. A budget that includes only premiums will be substantially too low.

The structure of a healthcare budget:

A useful approach is to build the budget category by category, estimating each one, then combining them into a total annual healthcare cost. From there, you can stress-test it (the high-cost year, covered below) and build it into the overall retirement income plan.

For Columbus-area retirees, working through each category systematically — rather than using a single rule-of-thumb number — produces a far more realistic healthcare budget.

Medicare Premiums and IRMAA

Medicare premiums are the foundation of most retirees' healthcare budgets, and IRMAA is the surcharge that catches higher-income retirees off guard.

The premium basics:

• Part A — typically premium-free for those with sufficient work history
• Part B — a monthly premium that most retirees pay
• Part D — a monthly premium for prescription drug coverage
• Supplemental — a Medigap premium or Medicare Advantage premium (which may be low or $0 beyond Part B)

What IRMAA is:

IRMAA — the Income-Related Monthly Adjustment Amount — is a surcharge added to Medicare Part B and Part D premiums for higher-income retirees. Above certain income thresholds, retirees pay more than the standard premium, with the surcharge increasing in tiers as income rises.

Why IRMAA matters for budgeting:

• It can significantly increase Medicare premiums for higher-income retirees
• It's based on income (specifically, a measure of income from a prior tax year)
• It operates in tiers, so crossing a threshold can increase the surcharge
• It connects healthcare costs directly to income and tax decisions (covered in detail later)

The two-year lookback:

IRMAA is generally based on income from two years prior. This means the income you generate in one year can affect your Medicare premiums two years later. For retirees doing Roth conversions or taking large withdrawals, this lookback is an important planning consideration — a high-income year can raise Medicare premiums two years down the road.

The budgeting implication:

For most retirees, budget for the standard Medicare premiums. For higher-income retirees, budget for the IRMAA surcharge as well — and recognize that income decisions (especially Roth conversions and large withdrawals) can push you into higher IRMAA tiers. The specific premium and IRMAA threshold amounts change annually; check Medicare.gov for current figures.

Out-of-Pocket Costs

Beyond premiums, the actual cost of receiving care — out-of-pocket costs — is a major budget category that varies with how much care you use.

The components:

• Deductibles — what you pay before coverage kicks in
• Copays — fixed amounts for specific services or prescriptions
• Coinsurance — a percentage of costs you pay for certain services
• Costs above coverage limits — depending on your plan structure

How this varies by coverage choice:

• With Original Medicare plus Medigap, a comprehensive Medigap plan can make out-of-pocket costs very predictable (you pay higher premiums but face fewer variable costs)
• With Medicare Advantage, you typically pay lower premiums but face copays and coinsurance as you use care, up to an annual out-of-pocket maximum

This is one of the trade-offs covered in the Advantage vs. Medigap decision — the balance between predictable premium costs and variable out-of-pocket costs.

Budgeting for out-of-pocket costs:

• Estimate your typical annual care usage (routine visits, prescriptions, expected procedures)
• Factor in the cost structure of your specific coverage
• Plan for the out-of-pocket maximum as the worst-case annual exposure (for plans that have one)
• Recognize that out-of-pocket costs vary year to year with your health

The variability:

Out-of-pocket costs are inherently variable — a healthy year costs little beyond premiums, while a year with a major procedure or health event can reach the out-of-pocket maximum. This variability is exactly why the budget should plan for both a normal year and a high-cost year (covered below).

Dental, Vision, and Hearing

This is one of the most commonly overlooked categories: Original Medicare generally doesn't cover routine dental, vision, or hearing care.

The coverage gap:

• Dental — Original Medicare generally doesn't cover routine dental care, cleanings, fillings, dentures, or most dental procedures
• Vision — Original Medicare generally doesn't cover routine eye exams, glasses, or contacts
• Hearing — Original Medicare generally doesn't cover routine hearing exams or hearing aids

These are real, recurring costs that many retirees don't anticipate because they were covered (or partially covered) under employer plans during working years.

The options:

• Medicare Advantage plans often include some dental, vision, and hearing benefits as part of the bundle — one of the appeals of Advantage
• Standalone dental/vision plans can be purchased separately
• Out-of-pocket payment — many retirees simply pay for these directly and budget accordingly

The budgeting implication:

If you have Original Medicare plus Medigap, budget separately for dental, vision, and hearing — either through standalone plans or out-of-pocket. If you have Medicare Advantage with these benefits included, understand what's actually covered (the benefits are often limited). Either way, these costs belong in the healthcare budget.

The hearing aid note:

Hearing aids in particular can be a significant cost, and they're generally not covered by Original Medicare. For retirees who need them, this is a meaningful budget item worth planning for specifically.

For Columbus-area retirees, the dental/vision/hearing gap is one of the easiest categories to forget — and one worth deliberately including in the budget.

Long-Term Care Reserves

Long-term care is the largest potential healthcare cost, and how you've planned for it affects the budget.

The budget connection:

As covered in the long-term care piece, there are four broad approaches — self-funding, long-term care insurance, hybrid policies, and Medicaid. Each affects the healthcare budget differently:

• Self-funding — requires earmarking or reserving assets for potential care, which affects the overall asset plan rather than the annual budget
• Long-term care insurance — adds an annual premium to the budget
• Hybrid policies — typically involve a larger upfront or limited-pay commitment
• Medicaid — functions as a backstop after assets are spent down

Why it belongs in the budget conversation:

Even though long-term care may never be needed — and even though it's a potential future cost rather than a current annual one — it belongs in the overall healthcare planning picture. Whether through insurance premiums (a current cost) or reserved assets (an asset-allocation decision), planning for long-term care is part of the complete healthcare budget.

The reserve approach:

For those self-funding, this often means setting aside a portion of assets as a long-term care reserve rather than building it into the annual budget. The reserve sits in the background, available if needed, while the annual budget covers the ongoing premium and out-of-pocket costs.

For Columbus-area retirees, integrating the long-term care approach into the broader healthcare and retirement budget — whether as a premium or a reserve — ensures this large potential cost isn't left out of the plan.

The IRMAA-Income Connection

This is one of the most important planning insights in healthcare budgeting: because IRMAA is income-based, your income decisions directly affect your Medicare premiums.

The connection:

IRMAA surcharges increase Medicare Part B and Part D premiums at higher income levels. Because the surcharge is based on income (from two years prior), the income you generate — through withdrawals, Roth conversions, capital gains, and other sources — can push you into higher IRMAA tiers and increase your Medicare premiums.

Why this creates planning opportunities and traps:

• A large Roth conversion can push income into a higher IRMAA tier, raising Medicare premiums two years later
• A big capital gain (from selling property or investments) can do the same
• Large traditional account withdrawals can trigger IRMAA increases
• The tiered structure means crossing a threshold — even by a little — can increase the surcharge

The planning tension:

This creates a genuine tension, similar to the one in the bridge-years piece:

• Roth conversions and strategic withdrawals can be valuable for long-term tax efficiency
• But the added income can increase IRMAA surcharges, raising healthcare costs
• The right balance depends on weighing the long-term benefit against the IRMAA cost

Why this requires coordination:

This is one of the clearest examples of how healthcare costs and tax planning intersect. Optimizing requires looking at the IRMAA impact alongside the tax planning, not separately. A retiree doing a large Roth conversion without considering IRMAA might inadvertently raise their Medicare premiums; one who avoids all conversions purely to dodge IRMAA might miss valuable tax planning. The goal is to manage income with awareness of the IRMAA thresholds.

The practical approach:

• Be aware of the IRMAA thresholds when planning income, conversions, and large transactions
• Recognize the two-year lookback — this year's income affects premiums two years out
• Coordinate income decisions with the IRMAA impact in view
• Work with a tax professional and financial advisor to model the trade-offs

For Columbus-area retirees, the IRMAA-income connection is a key reason healthcare budgeting and tax planning should be done together — managing income with the IRMAA thresholds in mind can meaningfully affect healthcare costs over retirement.

Planning for a Normal Year and a High-Cost Year

Because healthcare costs are variable, a realistic budget plans for both a typical year and a difficult one.

The two-scenario approach:

• A normal year — premiums, routine care, regular prescriptions, predictable costs. This is your baseline annual healthcare budget.
• A high-cost year — a major health event, a hospitalization, an expensive procedure, reaching the out-of-pocket maximum. This is the worst-case scenario the plan should be able to absorb.

Why both matter:

Budgeting only for a normal year leaves you exposed when a high-cost year arrives — and over a long retirement, high-cost years are likely to happen. Building the plan to absorb a difficult year, without forcing portfolio damage or derailing the broader plan, is what makes the healthcare budget resilient.

How to plan for the high-cost year:

• Know your out-of-pocket maximum (the cap on annual out-of-pocket costs for plans that have one)
• Ensure your retirement income plan and reserves can absorb a max-out year
• Recognize that consecutive high-cost years are possible with chronic conditions
• Maintain flexibility in the broader plan to handle healthcare spikes

The resilience principle:

A healthcare budget that only works in good years isn't really a plan. The goal is a budget — and a broader retirement income plan — that can handle the difficult years too, because those are exactly when financial stress compounds health stress. Planning for the high-cost year in advance turns it into a manageable event rather than a crisis.

For Columbus-area retirees, building both scenarios into the plan — and ensuring the income plan can absorb the high-cost year — is one of the more important aspects of healthcare budgeting.

Healthcare Inflation

Healthcare costs tend to rise faster than general inflation, which affects long-term budgeting.

The inflation reality:

Healthcare costs have historically increased faster than general consumer prices. Over a 25-30 year retirement, this faster growth compounds — meaning healthcare consumes a growing share of the budget over time, even if everything else stays level.

Why this matters for planning:

• A healthcare budget that's adequate at 65 may be inadequate at 80 if it doesn't grow with healthcare inflation
• The healthcare share of total retirement spending tends to increase with age (both from inflation and from increased care needs)
• The retirement income plan needs to account for healthcare costs growing faster than general spending

The budgeting implication:

• Build healthcare inflation into long-term projections, using a higher rate than general inflation
• Recognize that the healthcare budget will likely grow as a share of total spending over retirement
• Ensure the income plan can support rising healthcare costs in later retirement
• Revisit the healthcare budget periodically as costs and needs change

The later-retirement shift:

Healthcare and long-term care costs tend to concentrate in later retirement, while discretionary spending (travel, hobbies) often declines. This natural shift — sometimes part of the "go-go, slow-go, no-go" pattern — means the budget's composition changes over time, with healthcare taking a larger role later.

For Columbus-area retirees, accounting for healthcare inflation in long-term planning prevents the unpleasant surprise of a healthcare budget that was adequate early but falls short later.

How Healthcare Budgeting Fits the Whole Plan

Healthcare budgeting is the synthesis point where all the healthcare decisions — and the broader retirement plan — come together.

The connections:

• With Medicare decisions — your enrollment, coverage structure, and Part D choices all determine the premium and out-of-pocket components of the budget
• With income planning — healthcare is a major spending category the income plan must support, and the IRMAA connection links income decisions to healthcare costs
• With tax planning — the IRMAA-income connection makes healthcare budgeting fundamentally intertwined with tax planning
• With long-term care planning — the chosen approach (insurance premium or reserve) feeds into the budget and asset plan
• With the bridge years — if retiring before 65, bridge coverage costs are part of the early-retirement healthcare budget
• With estate and reserve planning — long-term care reserves and high-cost-year buffers connect to the broader asset plan

The synthesis insight:

The recurring theme across this entire healthcare series is that healthcare decisions don't happen in isolation — they connect to income, taxes, and the broader plan. Healthcare budgeting is where that connection becomes most concrete. The premium choices, the IRMAA management, the out-of-pocket planning, the long-term care approach, and the high-cost-year resilience all feed into the retirement income plan, and the income plan in turn affects healthcare costs through IRMAA.

The coordinated approach:

The retirees who handle healthcare best are the ones who treat it as an integrated part of the retirement plan — budgeting realistically across all the categories, managing income with the IRMAA thresholds in view, planning for both normal and high-cost years, and accounting for healthcare inflation over the long run. This coordination is what turns healthcare from a source of anxiety and surprise into a managed, planned-for part of retirement.

For Columbus-area retirees, this integrated approach — bringing healthcare budgeting together with income, tax, and the broader retirement plan — is best handled as part of comprehensive retirement planning, working with a tax professional for the IRMAA and income-coordination piece and a financial advisor for the overall plan.

Frequently Asked Questions

How much should I budget for healthcare in retirement?
Healthcare costs vary significantly by individual situation, so there's no single right number. Build the budget category by category — Medicare premiums (plus IRMAA if applicable), supplemental coverage, out-of-pocket costs, dental/vision/hearing, and long-term care planning — and plan for both a normal year and a high-cost year. Healthcare is one of the three largest retirement spending categories, and most people underestimate it.

What healthcare costs does Medicare not cover?
Original Medicare generally doesn't cover routine dental, vision, or hearing care (including hearing aids), or extended long-term custodial care. It also leaves deductibles and coinsurance that supplemental coverage (Medigap) or a Medicare Advantage plan's structure address. These gaps are real budget items that need to be planned for separately.

What is IRMAA and how does it affect my budget?
IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge that increases Medicare Part B and Part D premiums for higher-income retirees. Because it's based on income from two years prior, your withdrawal, Roth conversion, and capital gains decisions can push you into higher IRMAA tiers and raise your Medicare premiums two years later.

How does income affect my Medicare costs?
Through IRMAA. Higher income raises Medicare Part B and Part D premiums via the IRMAA surcharge, which operates in tiers based on income from two years prior. This means decisions like large Roth conversions or capital gains can increase your Medicare premiums, connecting your income planning directly to your healthcare costs.

Should I budget for dental and vision separately?
Yes, if you have Original Medicare plus Medigap, since these aren't generally covered — budget through standalone plans or out-of-pocket. If you have Medicare Advantage, some dental, vision, and hearing benefits may be included, though they're often limited, so understand what's actually covered. Either way, these costs belong in the healthcare budget.

How do I plan for a major health event?
Plan for both a normal year and a high-cost year. Know your out-of-pocket maximum (the annual cap for plans that have one), and ensure your retirement income plan and reserves can absorb a max-out year without forcing portfolio damage. Over a long retirement, high-cost years are likely, so building resilience for them is essential.

Does healthcare cost more as I age?
Generally yes. Healthcare costs tend to rise faster than general inflation, and care needs often increase with age. Healthcare typically consumes a growing share of the retirement budget over time, particularly in later retirement. Long-term projections should use a higher inflation rate for healthcare than for general spending.

How does long-term care fit into the healthcare budget?
It depends on your approach. Long-term care insurance adds an annual premium to the budget; self-funding involves reserving assets rather than an annual cost; hybrid policies typically involve a larger upfront commitment. Either way, planning for this large potential cost is part of the complete healthcare budget.

Why should I coordinate healthcare budgeting with tax planning?
Because of the IRMAA-income connection. Your income decisions (withdrawals, Roth conversions, capital gains) affect your IRMAA surcharges and therefore your Medicare premiums. Managing income with the IRMAA thresholds in view — coordinating healthcare budgeting with tax planning — can meaningfully affect your healthcare costs over retirement.

Do I need a financial advisor for healthcare budgeting?
Healthcare budgeting connects to income planning, tax planning (through IRMAA), long-term care, and the broader retirement plan. Coordinating all of these — particularly managing income with the IRMAA thresholds and building the budget into the overall income plan — typically benefits from working with a financial advisor and a tax professional.

Build Healthcare Into the Plan, Not Around It

For Columbus-area retirees and pre-retirees, budgeting for healthcare is one of the most important — and most underestimated — parts of retirement planning. It's a large, recurring, lifelong cost that grows faster than general inflation, can spike with a health event, and connects directly to income and tax decisions through IRMAA.

The pattern that produces better outcomes: budget realistically across all the categories (premiums, IRMAA, out-of-pocket, dental/vision/hearing, long-term care, bridge coverage), plan for both a normal year and a high-cost year, account for healthcare inflation over the long run, manage income with the IRMAA thresholds in view, and integrate the healthcare budget into the overall retirement income plan rather than treating it as a separate concern.

The goal isn't to predict healthcare costs exactly — that's impossible. It's to plan for them realistically and resiliently, so healthcare becomes a managed part of your retirement rather than a source of anxiety or an unwelcome surprise.

This piece concludes my series on healthcare in retirement for Ohio retirees. Together, the series covers the full arc — Medicare enrollment, the Advantage vs. Medigap decision, Part D, HSAs, long-term care, bridging coverage before 65, and budgeting for it all. For the complete picture of how these pieces fit together, see my pillar guide on how to plan for healthcare in retirement in Ohio (coming soon in this series).

At Blue Advisors, I help Columbus-area retirees and pre-retirees build healthcare into a coordinated retirement income plan — including the IRMAA-income management and the integration with tax planning that make healthcare budgeting so consequential. Blue Advisors is a fee-only fiduciary registered investment advisory firm based in Columbus, Ohio. I work in partnership with my clients' tax professionals — not in place of them.

Schedule a conversation: If you're a Columbus-area retiree or pre-retiree thinking through healthcare costs and how they fit into your retirement plan, you can book an introductory call here: calendly.com/jimblue/blue-advisors-meeting.

By James Blue, Fee-Only Advisor | Blue Advisors

James Blue is the founder of Blue Advisors, a fee-only registered investment advisory firm based in Columbus, Ohio, serving retirees, pre-retirees, and busy professionals across Central Ohio and nationally.

This content is provided for informational and educational purposes only and should not be construed as personalized investment, tax, legal, insurance, or medical advice. Medicare premiums, IRMAA thresholds and surcharges, out-of-pocket costs, coverage rules, long-term care costs, and healthcare inflation change periodically and depend on individual circumstances. Blue Advisors is a fee-only registered investment advisory firm and is not an insurance agency, Medicare broker, tax preparation firm, or law firm. Readers should consult Medicare (medicare.gov), the Ohio Senior Health Insurance Information Program (OSHIIP), a licensed insurance professional, a qualified tax professional, and where applicable an attorney before making healthcare or financial decisions. The views expressed are those of the author as of the date published and are subject to change without notice. Advisory services are offered only pursuant to a written advisory agreement and to clients in the State of Ohio, the Commonwealth of Pennsylvania, and other jurisdictions where Blue Advisors is properly registered or exempt from registration. Past performance is not indicative of future results. Specific premium amounts, IRMAA thresholds, and cost figures have been kept general — consult current official guidance for specific figures.