The Hidden Reason So Many Retirees Run Out of Money
A stock market crash during your retirement years is a scary prospect. But there’s another threat that many retirees aren’t considering: the high cost of health care as you age.
A 65-year-old who retired in 2025 can expect to spend an average of $172,500 on health care and medical expenses throughout retirement, according to a study from Fidelity Investments.
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The reality of high health care costs
Healthcare costs may not be as high as the above estimate when you're in your 50s and 60s. But as you age, your likelihood of needing health care — and facing a steep bill for that need — increases.
Many retirement planning strategies account for inflation. For example, the 4% rule entails withdrawing 4% from your retirement savings accounts during the first year of retirement, then adjusting for inflation from there. While this strategy may work for the general cost of living, it may not work for healthcare costs. Those prices tend to rise faster than prices for general consumer prices. Fidelity’s estimate for 2025 was more than 4% higher than the figure for a year earlier. The more recent $172,500 estimate of projected health care costs continues an upward trend experts have been seeing for years. It was just $80,000 in 2002.
Medicare doesn’t give you financial immunity from healthcare costs, and any sub-optimal choices can make healthcare costs more expensive. Missing the initial enrollment period or picking the wrong supplement plan can result in significant co-pays and deductibles. Carefully review your Medicare plan to ensure it provides the right coverage for you.
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Don’t forget about long-term care
Fidelity’s estimate doesn’t include the cost of long-term care, which almost 70% of people over age 65 will need at some point in their remaining years, according to the Department of Health & Human Services. And the cost can be steep: The medium annual cost of a semi-private room in a nursing home was $111,325 in 2024 while an assisted living community came with a $70,800 price tag per year and a home health aide, around $77,796, according to a report from CareScout.
Medicare does not cover long-term care. This can catch many retirees by surprise, but you can protect yourself with a long-term care insurance policy.
How to save for health care costs
Your nest egg will ideally cover your living expenses in retirement. But with healthcare costs so high, it’s important to also save for any health care needs you may face in the future.
Your savings plan will depend on your specific situation, including your other goals, income and risk tolerance. For some retirees, it may make sense to create a separate fund for future healthcare costs, much like an emergency fund that financial advisors tend to recommend people have throughout their lives.
Putting money aside in a health savings account (HSA) is also a good idea. These accounts are triple-tax advantaged: contributions are tax-deductible, the money grows tax-deferred and withdrawals are tax-free.
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