When you think about how you'll spend your retirement savings, you probably imagine traveling the world, getting more involved in your hobbies, or spoiling your grandchildren. What you probably don't envision is spending every spare dime on healthcare expenses.

Unfortunately, that's the ugly reality some retirees face.

The average 65-year-old couple retiring today can expect to spend roughly $280,000 on healthcare during retirement, according to a recent report from Fidelity Investments. That includes costs like premiums, deductibles, and other out-of-pocket expenses.

Mature man talking to a doctor about healthcare costs

Image source: Getty Images.

This may come as a shock to some, as many people mistakenly believe that Medicare will cover all their healthcare expenses during retirement. The truth is that while Medicare can offer significant financial assistance, it doesn't cover everything. And some of the costs it doesn't cover can put a serious crack in your nest egg.

What Medicare does (and doesn't) cover

First, it's important to understand what Medicare does cover and how much you're paying for it. Original Medicare consists of Part A and Part B. Part A covers hospital visits, visits to skilled-nursing facilities, and in-home healthcare services. As long as you've been working and paying taxes for at least 10 years, you generally don't need to pay a premium for Part A coverage. You do have a deductible for each benefit period, though, and for 2018, that deductible is $1,340. Also, if you have to spend an extended period of time in a hospital or skilled-nursing facility (typically longer than 60 days for hospital stays and 20 days for visits to a skilled-nursing facility), you may have to make coinsurance payments, which range from $167 to $670 per day -- or Medicare may not cover your stay at all.

Part B covers more routine care, like doctor visits and flu shots, and the amount each person pays varies based on their income. Those earning less than $85,000 per year (or $170,000 for married couples filing jointly) pay $134 per month for Part B premiums. You also have to pay a yearly deductible, which for 2018 is $183. After you meet that deductible, you pay 20% of the remaining expenses.

You also have the option of enrolling in Part D, which covers prescription drugs. This coverage is provided by private insurance companies, though, so the amount you pay will vary widely depending on which plan you have.

Even considering all that Medicare Part A and Part B cover, there's a variety of expenses that basic Medicare won't touch. For example, you still need to pay for all copayments, deductibles, and coinsurance out of pocket, and those costs can add up quickly. You're also not even eligible to enroll in Medicare until you turn 65, so if you retire before that and lose your health insurance when you leave your job, you'll need to find coverage outside of Medicare.

Then there are healthcare expenses that most people don't realize aren't covered. Most dental care, for example, isn't covered by Medicare, and neither are eye exams, hearing aids and exams, dentures, or long-term care.

These aren't necessarily hard rules, because there are always exceptions. Expenses that are considered medically necessary are often covered by Medicare, while routine care is not. So if, for example, you have a dental emergency, then Medicare may pick up the tab, but if you simply get your teeth cleaned or have a cavity filled, then you'll likely need to pay for that out of pocket. And even routine care can cost hundreds of dollars per visit. If you're not prepared for those expenses, they can drain your savings quickly.

Don't let healthcare costs catch you off guard

The best way to avoid paying tens (or hundreds) of thousands of dollars in healthcare costs is to do your research, understand what Medicare does and doesn't cover, and figure out how to pay for uncovered medical care before you retire.

One option is to enroll in a Medicare Advantage Plan (also known as Medicare Part C). A Medicare Advantage Plan is a health plan offered through private insurance companies that includes all the benefits of Medicare Part A and Part B, as well as some additional coverage for vision, hearing, and dental. Advantage Plans are similar to the insurance plans you likely enrolled in while you were working: You have to visit a doctor within your plan's network or risk not being covered, and the premiums and deductibles vary by plan and provider.

Although prices vary, you typically get more coverage with an Advantage Plan. Depending on the type of care you need, it could be worth it to pay more for an Advantage Plan in order to pay much less out of pocket for routine care.

Another option is to use a health savings account (HSA) to cover some of your medical expenses. An HSA is essentially a retirement savings account just for healthcare costs. You're eligible for an HSA if you have a high-deductible health insurance plan, and for 2018, that means you have a deductible of $1,350 for an individual or $2,700 for a family, as well as maximum out-of-pocket costs of $6,650 or $13,300 for an individual or family, respectively.

If you're eligible to open an HSA, you can contribute up to $3,450 per year (or $6,850 for family health plans) in pre-tax dollars. Those aged 50 and over can contribute an extra $1,000 per year. When you withdraw the funds, so long as you spend them on qualified medical expenses, you don't need to pay taxes on withdrawals either.

Regardless of which route you choose, it's crucial to have a plan in place. If you go into retirement assuming you won't need to pay a dime more in medical expenses than you used to, you'll be in for a rude awakening. But if you prepare yourself and come up with a plan before you make the leap into retirement, your wallet will thank you.

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