One of the biggest challenges in retirement is paying for health care costs, and most retirees grossly underestimate what health care will cost them. Fidelity Investments’s “2024 Retiree Health Care Cost Estimate” found that Americans expect to spend around $75,000 on health care in retirement—less than half Fidelity’s estimate of $165,000.

By the time you retire, inflation will most likely increase this figure. In 2025, PwC’s Health Research Institute projects the year-on-year medical cost trend to be 8%, up a whole percentage point from 7% in 2024. 

Of course, your personal health care expenses will depend on many factors, but proactive retirement planning and budgeting are essential to ensure you can pay for unexpected health care costs should (and when) they arise.

The Importance of Planning Ahead

While Medicare insurance is available to Americans aged 65 or older, presuming they meet the requirements such as having paid into Social Security, it doesn’t cover everything you may need in retirement, and you have to pay a premium for some of it. In 2025, the monthly premium for Medicare Part B, which covers, among other things, doctor visits, is $185 a month or even higher, depending on your income.

Your future expenses could include out-of-pocket expenses like co-pays, prescription medications, in-home care, and nursing facility stays. And none of these costs are cheap. It could cost you $6,292 a month, according to Genworth’s latest figures (2023), for a home health aide to help you with daily living tasks.

Medicare also doesn’t cover health care costs that could disrupt your income stream in retirement, including:

• Dental work
• Massage therapy
• Hearing aids
• Glasses or contact lenses
• In-home care or custodial services provider
• Private nursing facilities

“Most individuals are caught by surprise at the high health care costs in retirement. They don’t realize that medical insurance [Medicare] does not cover the activities of daily living and custodial care,” said Donna Stefans, founder and lead attorney at Stefans Law Group PC. Stefans has over 25 years of experience in elder law and retirement income planning. “Unfortunately, for the majority of folks, they don’t realize the differences until they are being hit by a bill. People who proactively plan for long-term care expenses are prudently way ahead of the game.” 

Many factors drive health care costs upward in America; these include the expense of treating chronic diseases, unhealthy lifestyle choices, and the growth (and rising cost) of prescription drugs.

In addition, health care inflation is usually higher than general inflation, meaning prices for medical and health care are rising faster than salaries or Social Security benefits. Because of these factors, unexpected health care emergencies can wipe out your assets or even drive you into bankruptcy, according to research conducted by KFF.

How To Prepare For Retirement Health Care Costs

Thankfully, financial tools are available to help you cover the high cost of health care in retirement. Most of them can be used in conjunction with Medicare. 

1. Take Out a Long-Term Care Insurance Policy

Long-term care insurance (LTC) pays for in-home help with daily tasks, adult daycare, and nursing home care, among other eldercare services.

While premiums can be high, without LTC, the out-of-pocket prices for care could theoretically wipe out retirement savings. For example, in 2023 (the most recent figures), the median annual cost of a home health aide was $75,504, while the median cost of a private room in a nursing home was $116,796, according to a recent Genworth long-term care report.

“I can’t emphasize this enough: long-term care planning is a vital part of overall retirement financial planning because it is the highest and heaviest cost a retiree can experience,” said Stefans.

Long-term care insurance costs will vary depending on your age and other factors. To get a snapshot of potential premiums, according to the American Association for Long-Term Care Insurance (AALTCI), a couple (both 55 years old) can expect to pay an annual premium of $2,080 for two policies with an initial $165,000 benefit–approximately $173 a month.

If you are considering shopping around for a policy, one strategy is to purchase LTC insurance as a rider when you buy life insurance, so you get two benefits in one. Similar to life insurance, the cost of long-term care insurance generally depends on the individual’s health, the amount of coverage, and the age when you apply.

2. Contribute To a Health Savings Account

If you have a high-deductible health plan as your insurance, you may be able to open a tax-advantaged health savings account (HSA). This account allows you to take tax-free withdrawals for qualified medical and health care expenses.

HSA funds can be used for in-home care, Medicare and long-term care insurance premiums, co-pays, dental, hearing, and vision, and other health care expenses. Funds roll over year to year, so your tax-free savings can build up.

In 2025, the annual HSA tax-deduction contribution limit (for employees and employers combined) is $4,300 for individual coverage and $8,550 for family coverage. If you are age 55 or older, you can contribute $1,000 annually, in addition to the maximum HSA limit for the year, as a catch-up contribution.

While opening an HSA earlier in your work life will give you more time to save, individuals closing in on retirement in their 50s should still consider opening an HSA and maxing out the contribution limits.

3. Purchase Medicare Supplemental Insurance

When you turn 65 and are eligible for Social Security benefits, you’ll be automatically enrolled in Medicare: Part A, which covers hospital expenses, and Part B, which covers doctor visits, labs, X-rays, and ongoing care. Because basic Medicare (Parts A and B) do not cover everything you may need, there is a supplemental insurance called Medigap.  

You can purchase Medigap insurance from private insurers during Medigap’s annual six-month open enrollment period, who are required by law to offer standardized policies designed to help retirees supplement basic Medicare (Parts A and B). The cost of its premiums will depend on where you live, the insurance company selling it, and the Medigap plan you choose.

4. Explore a Health Reimbursement Arrangement

A health reimbursement arrangement (HRA) is an employer-funded group benefit some employers offer their retired employees. While less common than other benefits, this plan reimburses up to a fixed amount each year. An HRA for retirees (also called a post-employment benefit) allows retired employees to access the HRA funds for health and medical expenses, including Medicare and insurance premiums.

Like all retirement benefits, HRA terms and conditions vary by employer, but there are no IRS rules around annual limits to contributions (unlike an HSA). So, if your employer offers an HRA, it can be a good tool in your financial arsenal to cover health care expenses in retirement. 

5. Use Telehealth and Preventive Care Options

Many insurance plans cover telehealth visits. These virtual appointments allow you to speak to a medical professional when you feel unwell without leaving your home. Telehealth consults aren’t just for medical care either. You can get assistance and support for weight management, lowering cholesterol, and even support for chronic health conditions. 

Preventing certain diseases and illnesses or catching health complications early may save you money in the long run, making telehealth and preventive care options good tools to fight the high cost of health care in retirement. 

6. Plan for the Unexpected

Having a contingency plan and setting aside emergency funds for unexpected health care expenses is another layer of financial protection. TIAA recommends individuals save at least six months (and ideally 12 months) worth of expenses in a money market or other easily accessible savings account to cover medical and other types of emergencies, including coverage for a one-time or isolated medical event.

Developing a financial plan that allows for flexibility but also considers guaranteed income sources is paramount to planning for potentially “unplanned” expenses, said Jeffrey Mellone, an executive wealth management advisor at TIAA-CREF. “If you can pair [a financial plan] with an understanding of your options for care, even if you don’t know what the future may hold, this is likely the best way to plan for unknown or unpredictable expenses,” he said. 

If you don’t plan for long-term care, you may need to use Medicaid, a joint state and federal program designed to help low-income individuals and families. Unfortunately, if you need to use Medicaid and have assets, you will be required by law to spend them down to qualify for nursing services with Medicaid.

Resources for Health Care Cost Planning

When you are in the early stages of health care cost planning, online financial planning tools, and other resources can help you start to think about what you will need. 

The Bottom Line

It’s impossible to know what kind of health care emergencies will occur during your retirement–your age, health history, lifestyle, and genetics will all play a role. “People are not born with expiration dates, and while you may not end up experiencing long-term medical issues, you should feel comfortable knowing that if one were to present itself, you are prepared to meet that cost,” said Mellone. 

By researching financial tools that can help you save on health care costs, like savings accounts and long-term care insurance, and talking to a retirement financial professional, you can protect yourself against unexpected health care costs in retirement.