Maximizing Your Medical Deductions in Retirement

Retirement is supposed to be a time to relax, not worry about rising healthcare bills. But for many older adults, medical expenses are one of the biggest costs they face. A 65-year-old retiring today can expect to spend around $165,000 on healthcare over the course of their retirement – double the amount from 2002. Most individuals underestimate their likely retirement healthcare expenses by half. Even with Medicare, many costs like dental care, long-term support, or home modifications can fall squarely on you. It can be hard to know what to expect; as Robert Kennedy, SVP at Fidelity, explains, “Health care costs are among the most unpredictable expenses, especially when it comes to retirement planning.”

That’s where smart tax planning comes in. If you itemize your deductions on your federal tax return, the IRS allows you to deduct qualified medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI). That can add up to meaningful savings. But only if you know what qualifies, how to track it, and when to ask for help.

What you can deduct

Many of the largest medical costs in retirement also happen to be deductible. These include your Medicare premiums for Parts B and D, Medicare Advantage (Part C) plans, and supplemental Medigap policies. If you carry long-term care insurance, those premiums may also be deductible with age-based limits. For example, in 2024 people aged 61-70 could deduct $4,710 while those 71 and over could deduct $5,880; these amounts are typically adjusted annually.

More significant expenses such as assisted living, memory care, or nursing home stays can qualify if the individual needs help with at least two activities of daily living or is under a physician’s plan of care. Additionally, wages paid to in-home aides, home modifications like wheelchair ramps or widened doorways (if prescribed), and even travel costs for medical treatment, including mileage or public transit and limited lodging, can also be deducted. However, it’s important to know the conditions and limitations for these deductions. If you are paying for a loved one to receive care, then you may only be able to deduct costs if the individual is claimed as a dependent. If modifying a home, deductions are only allowed if the main purpose is medical care, not increasing home value.

Deductions you might miss

Some qualifying expenses fly under the radar. For example, out-of-pocket costs for hearing aids, dentures, eye exams, and prescription lenses are all eligible. So are medical alert systems and remote monitoring devices, as long as they’re medically necessary. Even diabetes education, weight-loss programs, or fall-prevention workshops could count if prescribed by a healthcare provider. These smaller expenses might not seem like much on their own, but together they can help push you over that 7.5% AGI threshold needed to claim the deduction.

Smart timing can maximize savings

Reaching the deduction threshold isn’t always easy, but timing can make a big difference. One strategy is to “bunch” medical expenses into a single calendar year. For instance, if you’ve been delaying a dental implant or cataract surgery, scheduling both in the same year may help you meet the deduction threshold more easily.

Medicare Part D out-of-pocket costs are being capped at $2,000 annually starting in 2025. While this is a financial relief for many, it also means that reaching the 7.5% threshold will rely even more on tracking other deductible expenses.

Keep records for the pay off

To take full advantage of available deductions, good recordkeeping is essential. A simple log of medical expenses with date, provider, service, and amount can go a long way at tax time. Keep receipts, explanation of benefits, and prescription summaries, ideally grouped by tax year. If you receive care at a facility, request an itemized statement that separates medical services from nonmedical amenities.

Digitizing your records can save time and stress. A folder labeled “2025 Medical Deductions,” either in the cloud or in your filing cabinet, helps ensure everything’s ready when it’s time to file.

Avoid common mistakes

Some expenses, while health related, don’t qualify. Cosmetic procedures or spa treatments usually cannot be deducted. Nor can any expenses reimbursed by insurance or an employer’s health plan. If you still have a Health Savings Account and use it to cover qualified expenses tax-free, you may not be able to count the expense toward your itemized deductions. Check your state’s tax rules, since some states follow the federal deduction guidelines and others do not.

When to bring in a professional

There are times when working with a financial or tax professional is the smartest move. That’s especially true if you use part of your home or equipment for both medical and business purposes, or if you’re transferring assets to help cover long-term care costs, a move that can affect Medicaid eligibility. Coordinating deductions with other financial strategies, like IRA withdrawals or Roth conversions, is another area where expert guidance can make a real difference.

At Longevity Income Solutions, we understand the financial side of healthcare because we’ve lived it. Our team collaborates with you to map out your projected care needs and connect them with tax-deductible expenses. We help document medical necessity, so more of your costs qualify. And we collaborate with tax professionals to make sure you claim every dollar you’re entitled to—money that can be reinvested in the high-quality care you deserve.

Bottom line: With careful planning, solid documentation, and the right support, those rising medical costs don’t have to drain your retirement. In fact, they can help you save more, stretch your income further, and live with greater confidence and peace of mind.