When people think about retirement planning, they often focus on saving enough to replace their income or preparing for the possibility of needing long-term care someday. While it is essential to plan for potential care needs such as assisted living, memory care, or skilled nursing, or in-home care, another major expense often flies under the radar: routine healthcare costs throughout retirement.
Many older adults assume Medicare will cover most of their medical expenses after age 65. While Medicare provides invaluable health coverage, it does not eliminate all out-of-pocket medical costs. Premiums, deductibles, copayments, prescription medications, dental care, vision services, hearing aids, and other healthcare expenses can add up quickly over a 20- to 30-year retirement.
New research suggests that these ongoing healthcare costs, combined with the possibility of also needing long-term care, represent one of the greatest financial risks older adults face today. Understanding both types of expenses can help you make more informed decisions about retirement, senior living, and your long-term financial security.
Retirement healthcare costs may be higher than you think
According to Fidelity Investments’ latest (2025) retirement healthcare estimate, a 65-year-old retiring today will spend an average of $172,500 in out-of-pocket healthcare expenses during their retirement years, up 4% from the previous year. That estimate includes Medicare premiums, deductibles, copayments, and prescription drug costs, but notably, it does not typically include long-term care expenses, which can dramatically increase a person’s total lifetime costs.
Many retirees are surprised by this figure because Medicare is often viewed as comprehensive coverage. In reality, the program leaves beneficiaries responsible for a variety of expenses like premiums, deductibles, coinsurance, and services that Medicare doesn’t cover, including most routine dental care, hearing aids, and vision care, as well as most long-term care costs. (Note: Medicare may cover skilled nursing care on a temporary basis if certain requirements are met.)
What’s more, healthcare costs tend to increase as people age. Chronic conditions become more common, prescription drug use often rises, and older adults may require more frequent physician visits, specialist care, rehabilitation services, or hospitalizations, further increasing the financial burden on older adults.
The biggest threat to retirement savings: health unknowns
While market downturns and inflation often dominate retirement planning discussions, new research from the LIMRA Retirement Income Institute (originally the Life Insurance Marketing and Research Association) suggests that health-related costs now pose an even greater long-term threat to retirees’ finances.
In “The Growing Influence of Health Risks on Retirement Security,” LIMRA researcher Chris Heye, PhD, concludes that healthcare expenses, long-term care needs, and caregiving responsibilities consistently rank among Americans’ greatest concerns about retirement security. Unlike stock market declines, which historically recover over time, health events often create ongoing expenses that may last for years or even decades.
The LIMRA study highlights several important realities:
- More than 3 out of 4 adults in America live with at least one chronic illness, and more than 1 in 2 have multiple chronic conditions.
- About 40% of Americans will develop cancer at some point during their life, with diagnoses most often occurring around age 65 (retirement age).
- Cardiovascular disease affects over 50% of Americans age 40+ and remains the nation’s leading cause of death.
- As life expectancy increases, many Americans will spend their last 10 to 12 years living with chronic illness or disability.
These findings align with data from the Centers for Disease Control and Prevention (CDC), which reports that chronic diseases are the leading drivers of healthcare costs in the United States.
>> Related: Why Healthy Aging Starts Long Before You Need Care
Long-term care presents a separate financial challenge
One of the biggest misconceptions in retirement planning is assuming healthcare costs and long-term care costs are the same thing. They are related but very different.
For instance, healthcare costs generally include things like:
- Medicare premiums
- Physician visits
- Hospital care
- Prescription medications
- Diagnostic testing
- Other out-of-pocket medical expenses
Long-term care costs, on the other hand, include expenses related to assistance with activities of daily living, everyday activities such as:
- Bathing
- Dressing
- Eating
- Transferring (such as from a bed to a chair)
- Toileting
- Managing cognitive impairment
These long-term care services may be provided at home or in an assisted living, memory care, or a skilled nursing care community.
Again, it is critical to understand that Medicare generally does not pay for long-term care, making it one of retirement’s largest potential expenses. And importantly, according to the Administration for Community Living, most people who reach age 65 will need some type of long-term services and supports during their lifetime.
This distinction between healthcare costs and long-term care costs is key because someone could spend more than $170,000 on routine healthcare during retirement and still face significant long-term care expenses if they ever need ongoing assistance.
The cost of all types of care continues to rise
The LIMRA research notes that increasing premiums, deductibles, copayments, prescription drug costs, and long-term care expenses continue to expose older adults to substantial financial risk even after they become eligible for Medicare.
For instance, healthcare inflation (again, up 4% from 2024 to 2025) has consistently outpaced general inflation over the long term, placing pressure on retirement savings. Though medical advances have helped Americans live longer, they have also increased the likelihood of managing multiple chronic conditions over many years, and those expenses can really add up.
Similarly, long-term care costs are increasing each year. According to CareScout, depending on the type of care and the location it is delivered, the cost of long-term care is increasing by as much as 5% annually.
For many families, these healthcare and long-term care cost increases don’t occur all at once. Instead, they accumulate gradually over decades, making them easy to underestimate during retirement planning.
>> Related: How to Talk to Aging Parents About Future Care Needs
Care planning before you need it
Planning ahead for your potential healthcare and long-term care costs during retirement isn’t simply about saving money; it’s also about understanding the resources available to you and making informed decisions before a health crisis occurs. A comprehensive retirement plan should consider questions such as:
- What healthcare expenses will Medicare cover?
- How will you pay for Medicare premiums and out-of-pocket costs?
- Do you have supplemental insurance that fits your needs?
- How would a chronic illness or disability affect your retirement income?
- If long-term care becomes necessary, what options would best meet your preferences and budget?
- Have you discussed your wishes with your loved ones?
Answering these questions early may give you more flexibility and more options later on.
>> Related: Pre-Crisis vs. Post-Crisis Planning: Confronting Life’s Unknowns
Senior living choices also influence care costs
Data consistently shows that most people hope to remain in their current home as they age. But older adults and their loved ones should know that whether staying in the home or making a proactive move, senior living choices will affect more than just quality of life. They will likely affect your healthcare experience and your overall financial picture.
For example, independent living retirement communities often provide maintenance-free lifestyles while allowing residents to remain active and socially engaged. However, many do not provide care services to residents, which would potentially necessitate a move and/or added costs.
For those who need care services, assisted living communities provide help with activities of daily living while promoting independence, and memory care communities offer specialized support for those living with dementia. But the cost of such long-term care (which is usually not covered by Medicare) can add up quickly, averaging $6,386 per month. In-home care is an alternative, though it can top $6,873 on average each month for just 44 hours per week of care.
Continuing care retirement communities (CCRCs, also known as life plan communities) allow residents to seamlessly transition from independent living to care as their health needs change, potentially reducing the disruption associated with future moves. On top of a monthly service fee, CCRC residents often pay a substantial one-time entry fee (sometimes reaching six figures). In exchange, residents gain access to that full continuum of care, should they need it.
Also, some portion of that CCRC entry fee may qualify for a tax refund as prepayment of healthcare expenses and/or it may be fully or partially refundable by the CCRC, depending on the resident’s CCRC contract type. Furthermore, depending on the resident’s contract, their monthly service fee may or may not increase should they require care services, so it is always important to read the fine print before signing a contract.
Understanding these various senior living and care options before they’re needed allows older adults and their loved ones to evaluate costs, assess services, and contemplate lifestyle preferences without the pressure of an immediate health emergency.
>> Related: Crunch the Numbers: Aging at Home vs. Moving to a CCRC
Looking beyond the numbers for retirement savings
Retirement planning is about more than building a nest egg; it’s about preparing for the realities of aging. While ongoing healthcare expenses such as Medicare premiums, deductibles, prescription medications, and out-of-pocket medical costs can add up, they represent only one part of the retirement financial picture. The potential need for long-term care creates an additional layer of possible expenses that many older adults underestimate or overlook entirely.
By understanding the difference between healthcare costs and long-term care costs (and planning for both), you can make more informed decisions about your future. While no one can predict exactly what their care needs will be, planning ahead can make it easier to navigate whatever the future may bring.
