Retirement is often envisioned as a period of freedom, relaxation, and the reward for decades of hard work. People dream of traveling, spending time with family, and finally having the time to pursue hobbies without the constraint of a nine-to-five job. But one often-overlooked reality can disrupt this idyllic vision: the rising and unpredictable cost of health care.
Health care costs in retirement are not only inevitable—they can also be a major financial burden if not planned for strategically. While many assume that Medicare will cover most expenses, the truth is more complex. As life expectancy increases, so do the chances of requiring long-term care, multiple prescriptions, surgeries, and ongoing treatments that may or may not be covered by insurance. Failing to plan for these costs can quickly deplete retirement savings, turning a secure future into a financial tightrope.
In this essay, we’ll explore why health care planning should be a central pillar of any retirement strategy, the types of expenses retirees commonly face, and the tools and steps that can help prepare for what lies ahead.
The Scope of the Challenge: Understanding What Health Care Really Costs
Many people are surprised to learn just how much they might spend on health care after leaving the workforce. A 2024 Fidelity study estimated that a 65-year-old couple retiring today can expect to spend over $315,000 in out-of-pocket health care costs during retirement—not including long-term care. That’s nearly the cost of an average home in some parts of the U.S.
These expenses are spread over decades, and they include:
Medicare premiums and deductibles
Supplemental insurance (Medigap or Medicare Advantage)
Prescription drugs
Dental, vision, and hearing services (not covered by basic Medicare)
Out-of-pocket expenses for surgeries, hospital stays, or treatments
Assisted living or long-term care facilities
When you add inflation into the mix, particularly for medical services—which tend to rise faster than the general inflation rate—the challenge becomes even more daunting. The takeaway is clear: relying solely on Social Security or basic Medicare is a risky move.
Common Misconceptions About Medicare
One of the key reasons many retirees are caught off guard is the overestimation of what Medicare covers. While it’s a critical part of retirement health care, it is far from comprehensive.
Medicare Part A covers hospital stays, but it comes with deductibles and limitations. Part B covers doctor visits and outpatient care but also requires monthly premiums and typically only covers 80% of approved costs. That 20% can still represent thousands of dollars a year.
Moreover, Medicare doesn’t cover:
Routine dental care
Eye exams for prescription glasses
Hearing aids
Most long-term care services
To fill these gaps, many retirees purchase supplemental policies or enroll in Medicare Advantage plans. However, those come with additional premiums, provider restrictions, and complex rules. Understanding the scope—and the limits—of Medicare is crucial for building a comprehensive health care plan.
The Rising Importance of Long-Term Care Planning
One of the most financially devastating and least prepared-for components of retirement health care is long-term care. According to the U.S. Department of Health and Human Services, about 70% of people turning 65 today will need some form of long-term care during their lifetime.
Assisted living facilities, nursing homes, or even in-home aides come with substantial costs:
Assisted living: $4,500/month on average
Private nursing home room: $9,000/month or more
Home health aide: $28/hour, depending on location
What makes this particularly challenging is that Medicare does not cover long-term custodial care. Medicaid does, but only for those who have already spent down their assets to poverty levels. That leaves a financial gap that must be addressed through personal savings, long-term care insurance, or other planning strategies.
Strategies for Planning Ahead
So how do you plan for an uncertain, potentially expensive future? Here are several practical strategies:
- Start Planning Early
Like all aspects of retirement planning, the earlier you start, the more flexibility you have. Begin estimating your potential health care costs at least a decade before retirement. Use retirement calculators that factor in medical inflation and adjust them annually as new information becomes available. - Consider a Health Savings Account (HSA)
If you’re still working and have access to a high-deductible health plan (HDHP), you can contribute to an HSA. These accounts offer triple tax advantages: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free.
Importantly, after age 65, you can use HSA funds for any purpose (though non-medical withdrawals will be taxed as income), making it a flexible tool. Many financial advisors now view HSAs as a valuable complement—or even alternative—to traditional retirement accounts.
- Review and Optimize Insurance Coverage
Supplemental plans like Medigap or comprehensive Medicare Advantage policies can limit your out-of-pocket exposure. However, it’s important to weigh the trade-offs:
Medigap offers more predictable costs but may have higher premiums.
Medicare Advantage often includes extra benefits like dental and vision but may restrict you to network providers and come with variable co-pays.
Shop around each year during open enrollment. Plans change, and the best option today may not be the best next year.
- Evaluate Long-Term Care Insurance
Though premiums can be high and underwriting strict, long-term care insurance can help protect your retirement savings. Some newer hybrid policies combine long-term care coverage with life insurance, offering more flexibility and ensuring the policy delivers value in some form.
When shopping for a policy, look for features like inflation protection, elimination period, and daily benefit amount. Buying in your 50s or early 60s usually offers the best balance of cost and coverage.
- Build a Dedicated Health Care Fund
Even with insurance, out-of-pocket expenses will occur. Consider setting aside a specific portion of your retirement savings for health care—separate from your travel or general spending funds. This could be a simple brokerage account or even part of a Roth IRA, which offers tax-free withdrawals in retirement.
Don’t Overlook Non-Financial Aspects
Health care planning isn’t just about money. It’s also about making decisions that protect your quality of life and autonomy. Key considerations include:
Health proxies and advance directives: Ensure someone you trust can make decisions on your behalf.
Lifestyle choices: Investing in your health today—through diet, exercise, stress management, and regular screenings—can reduce your costs tomorrow.
Location planning: Where you retire can impact your access to quality care and your overall expenses. Rural areas may be cheaper but lack specialists; urban areas may offer better care but at a higher cost.