How Much Will Health Costs Eat Into Your Retirement?

5 Cost Drivers to Plan For

Health care is one of the most significant—and unpredictable—expenses in retirement.

While many people focus on budgeting for travel, hobbies, and housing, the real risk to retirement security often lies in medical costs that escalate over time. And unlike other expenses, health care is not optional.

For women, especially, the stakes are higher. Women tend to live longer, face higher rates of chronic illness in later years, and are more likely to be single or widowed in retirement. That makes planning for future health costs not just smart—but essential.

Why Health Costs Are One of the Biggest Retirement Wild Cards

You can’t predict exactly when you’ll need care or how much it will cost—but you can be sure that health expenses will grow.

According to recent estimates, a healthy 65-year-old couple retiring today could need over $315,000 to cover health expenses throughout retirement. That doesn’t include long-term care.

These costs vary widely based on geography, personal health, insurance choices, and inflation. That uncertainty makes it difficult to know how much to save—and how much risk your retirement plan can really handle.

Five Major Cost Drivers to Watch

Understanding the biggest health-related cost drivers can help you build a more resilient retirement plan.

1. Hospitalization and Outpatient Care

Hospital stays, surgeries, diagnostic tests, and specialist visits are often the most expensive events in retirement. Even with Medicare, these services often come with deductibles, coinsurance, and out-of-pocket limits.

2. Prescription Drugs

Medication costs continue to rise, particularly for brand-name and specialty drugs. If you take several prescriptions or require long-term treatments, this can add up quickly—especially if your Medicare Part D plan doesn’t fully cover them.

3. Dental and Vision Care

Medicare does not cover routine dental or vision care. Procedures like crowns, root canals, or corrective lenses come entirely out of pocket unless you have a separate dental or vision plan.

4. Long-Term Care (LTC)

Most long-term care—including assisted living, in-home caregiving, and nursing homes—is not covered by Medicare. The average cost of a private room in a nursing home is now over $100,000 per year. Without a plan for LTC, this can quickly deplete retirement savings.

5. Medical Inflation

Health care costs have historically risen faster than the overall rate of inflation. Even modest annual increases can erode purchasing power and put pressure on your investment withdrawals over time.

How to Estimate Your Future Health Expenses

Health care forecasting isn’t perfect, but you can model expected costs based on a few personal factors:

• Your current age and retirement timeline

• Location and cost of living in your area

• Family history of chronic illness

• Your current health and lifestyle habits

• Your insurance plan’s coverage and out-of-pocket limits

  
  

Online tools like the Fidelity Retiree Health Care Cost Estimate or calculators from health insurers can provide a baseline. A financial planner can layer this into your overall retirement plan, taking into account both near-term needs and long-term risks.

Strategies to Build a Health Care Buffer

A well-thought-out insurance and savings strategy can reduce your exposure to health-related financial shocks.

Health Savings Accounts (HSAs)

If you’re still working and eligible, HSAs are one of the most tax-efficient ways to save for future medical costs. Contributions are pre-tax, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free.

Supplemental Insurance

Consider Medigap or Medicare Advantage plans that can limit your out-of-pocket exposure. Some retirees also explore stand-alone dental, vision, or cancer insurance depending on their family history and personal risk profile.

Long-Term Care Insurance or Alternatives

While LTC insurance has become more expensive and harder to qualify for, it can still make sense for certain retirees. Alternatives include hybrid life insurance with LTC riders, dedicated investment buckets, or Medicaid planning strategies if you qualify.

Emergency Reserve Fund

Keep a separate cash reserve specifically for health-related surprises. This buffer can help you avoid selling investments at a loss or interrupting your income plan.

What to Monitor Each Year

Your health and your insurance plan can change every year. Revisit the following annually:

• Your Medicare plan and whether it still fits your needs

• Drug plan formularies and out-of-pocket limits

• Premium and deductible increases

• Emerging health concerns or changes in your household

• Long-term care needs and caregiving resources

Fall Open Enrollment (Oct 15–Dec 7) is the ideal time to review your Medicare coverage and make changes.

A Tale of Two Retirees: Why Planning Matters

Joan, age 66 Joan retired at 65 and enrolled in Original Medicare with a Medigap policy and Part D plan. She also has a fully funded HSA and an LTC policy. When she needs knee surgery at 68, she pays her deductible but avoids major expenses. Later, when her spouse needs memory care, their LTC coverage kicks in. Their retirement income plan stays intact.

Lisa, age 67 Lisa delayed Medicare enrollment while covered under a retiree health plan—but missed a Special Enrollment Period. She now faces a lifetime Part B penalty. Without Medigap or LTC insurance, she pays high out-of-pocket costs for a hospitalization and must begin drawing down investments earlier than planned.

Conclusion

Health care will be one of the most complex and costly parts of your retirement. But with careful planning, it doesn’t have to be unpredictable.

By understanding the key drivers, modeling realistic expenses, and building strategic buffers, you can protect both your health and your financial future.

If you’re unsure where to begin, or want help aligning your retirement income plan with future health needs, we’re here to guide you.