Key Takeaways
- Failing to plan for health care can ravage your retirement finances and even family relationships.
- A typical 65-year-old couple will need about $330,000 for health care in retirement, according to Fidelity.
- Medicare covers only part of medical costs and provides little help with long-term care.
- Long-term care can cost more than $100,000 a year and quickly drain savings.
Most Americans are woefully unprepared for the true cost of health care in retirement. Fidelity estimates that a 65-year-old couple needs about $330,000 saved to cover medical expenses in retirement, excluding long-term care, which can add hundreds of thousands more.
In addition, surveys show many retirees wrongly assume Medicare, which covers 98.2% of retirees 65 and over, will take care of most of these expenses. In reality, Medicare won’t pay for all your medical care, and its support for long-term care is limited. That leaves many families footing enormous bills that can quickly drain retirement savings, and too few are preparing.
Why So Few Americans Save Enough
“Too many Americans are entering the most vulnerable stage of life with a false sense of security,” said Holly Snyder, president of Nationwide’s life insurance business. “We underestimate how long we’ll live, how likely we are to need long-term care, how much that care will cost, and how we’ll pay for it, leaving a growing number of Americans—and their families—unprepared for the financial and emotional toll that often comes with aging.”
Lily Vittayarukskul, founder of the long-term care planning platform Waterlily, agreed, telling Investopedia that saving for health care and long-term needs in retirement isn’t just a financial or health care issue. “I saw firsthand a lot of the core devastating effects of not talking about [health care and long-term care issues] ahead of time—on your finances, your family, your familial relationships, and honestly, the quality of life that you get by not planning,” she said.
For most retirees, the first layer of health care costs comes from routine medical needs. Medicare premiums, prescription drugs, doctor visits, and hospital stays can quickly add up. Fidelity suggests that you factor in the fact that about 15% of your annual expenses are for health care (excluding long-term care costs). While Medicare covers a share of your hospital and medical costs, you’ll be responsible for co-payments, deductibles, and prescription drug expenses—all of which will climb with age. Chronic conditions like diabetes or heart disease can multiply prescription costs and doctor visits, while premiums themselves rise over time.
Don’t Forget About Long-Term Care
Even those saving to cover Medicare premiums, prescription drugs, or occasional hospital bills may stop short of planning for long-term care. Nearly 70% of Americans who turn 65 today will need some form of long-term care during their lifetime, yet 41% doubt they will ever need it, according to a recent Nationwide survey.
Nearly six in 10 (58%) mistakenly say that Medicare will cover those costs, according to the same survey. Yet, while Medicare helps with hospital visits and doctor appointments, it does little to offset the six-figure price tag of nursing homes, assisted living facilities, or in-home health aides.
Even when people try to budget, they often overlook how quickly these costs are expected to rise. Health care inflation consistently outpaces general inflation, making today’s numbers misleading, Vittayarukskul said.
Tip
Experts caution that health care planning isn’t one-size-fits-all. Even well-meaning financial advisors may rely on averages or simplified models, which can underestimate your potential health care costs in retirement. You should ask your advisor how they account for health care inflation and long-term care needs to ensure the advice you’re getting is specific to your needs.
Planning Ahead
The good news is there are ways to prepare. Health Savings Accounts (HSAs) let you contribute pretax dollars, grow that money tax-free, and spend it tax-free on qualified medical expenses.
Medicare coverage decisions also matter. While original Medicare has gaps and no out-of-pocket maximum, supplemental policies, such as Medigap, can provide extra protection. Long-term care insurance is another option, but it’s best to explore it in your 50s or earlier—premiums rise sharply with age and may be out of reach by the time you’re in your 70s.
Planning for long-term care goes beyond buying insurance. Some retirees set aside a dedicated portion of their retirement savings for potential care needs, while others use home equity through downsizing or a reverse mortgage to help cover costs. Hybrid products, such as life insurance or annuities with long-term care riders, offer additional options. The key is to match your health, family history, and finances with the right mix of tools before costs escalate.
Vittayarukskul emphasized how even small steps can make a meaningful difference. “Anything is actually better than nothing,” she said. Tools like Waterlily can help you and your family project costs, compare insurance options, and start conversations early—reducing the risk of financial strain and family conflict down the road.
The Bottom Line
Health care costs are more than just another thing to consider in retirement—they’re the wild card that can derail even careful planning. Fidelity’s $330,000 estimate is daunting enough, but adding long-term care can drive the figure far higher, erasing savings and eventual inheritances. Medicare won’t cover it all, and waiting until care is needed could leave you and your family scrambling. The time to plan is now.