By Elizabeth O'Brien

Medicare doesn't go as far as expected in covering retirement healthcare costs. A little planning can help you build a more realistic budget.

Nearly six in 10 retirees anticipated that Medicare would cover a greater share of their healthcare costs, according to a new survey from investment management firm Schroders. Covering 70 million Americans, Medicare is a government health insurance program for those 65 and over and younger people with certain disabilities.

Many people don't realize the program's limitations until they are already enrolled. For starters, it isn't free. For 2026, the standard Part B premium costs $202.90 a month -- higher-income retirees pay more. (For those on Social Security, this amount is automatically deducted from your monthly check.) The Part B premium covers outpatient services after a deductible of $283 in 2026. Most people don't pay a premium for Part A hospital coverage, but they will pay a deductible of $1,736 per "benefit period," which refers to hospitalizations.

All told, retirees report spending 16% of their total monthly income on healthcare costs, according to Schroders' 2026 U.S. Retirement Survey. This includes insurance premiums, out-of-pocket costs, and medications.

Medicare alone covers only 80% of your covered costs. You are on the hook for the other 20%. And that's just costs that are Medicare-approved. Medicare also comes with big gaps in coverage -- notably, Medicare doesn't pay for assisted living, home health aides, or other long-term care. Coverage for dental work is limited to Medicare Advantage plans and is basic.

Also known as Part C, Medicare Advantage is an alternative to traditional, government run Medicare. More than half of beneficiaries have opted for Medicare Advantage, which is run by private insurers like Humana and UnitedHealth. Advantage bundles Part A hospital coverage, Part B outpatient coverage, and often Part D drug coverage along with extras that traditional Medicare doesn't cover, such as basic dental coverage and hearing aids.

Advantage enrollees still pay the Part B premium, but many Advantage plans charge $0 monthly premiums on top of that. But while total healthcare costs can be lower under Advantage, the program typically involves more administrative headaches than government-run Medicare. Many plans require prior authorization, or preapproval, for many services, your doctor choices are often limited, and you generally need a referral to see a specialist.

Retirees on traditional, government-run Medicare often buy a Medigap supplement policy to pay for the copayments, coinsurance, and deductibles that make up the 20% of covered costs. In that scenario, you swap payments at the point of service for a premium that averages $180 a month in 2026, according to ValuePenguin, although actual costs can vary greatly by location.

At a time when retirees are feeling the pinch of inflation, remember that healthcare costs typically rise at an even higher rate than the consumer price index (CPI). The average long-term inflation rate of Medicare Part B premiums is 7%, Part D drug premiums are 4.8%, while Medigap plans are a whopping 8%, according to HealthView Services, a firm that provides healthcare cost tools and data to financial advisors.

Write to Elizabeth O'Brien at elizabeth.obrien@barrons.com

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May 19, 2026 05:00 ET (09:00 GMT)

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