While life expectancy has increased, healthy life expectancy has lagged and means retirees might spend more years in poor health. Understanding the costs and factors early are key to staying financially secure throughout retirement.
Retirees face several distinct medical and long-term care risks. These include routine medical care, prescription drugs, unexpected medical emergencies and the need for extended care services such as home care, assisted living or nursing home care.
Financial advisors and employers play a critical role in helping retirees navigate the complexities of healthcare risks and coverage options. Strategies such as early planning, guaranteed retirement income solutions, reviewing long-term care insurance and preventive care help bridge the gap to financial sustainability throughout retirement.
Retirement. It’s a phase of life that brings with it unique challenges, particularly when it comes to healthcare. In the U.S., the average lifespan is 79 years (compared to the global average of 73 years).1 Longer life expectancy means Americans need to plan for a potentially longer retirement period, which can significantly impact financial strategies.
Expected routine healthcare costs for those over age 65 average $2,700 per year and frequently escalate to $6,500 annually for ages 65-74, $11,500 for ages 75-84, and $20,000 for those 85 and older.2 That could add up to more than $400,000 in retirement. Many people over 65 will also want a long-term care (LTC) policy, which can cost as much as $1,500 annually (Medicaid and most health insurers don’t cover long-term care).3
New research from the Center for Retirement Research at Boston College explores the medical and LTC risks retirees face, each with distinct implications for retirement planning. Medical risks include routine medical care, prescription drugs, and unexpected medical emergencies, while LTC risks encompass the need for extended care services such as home care, assisted living, or nursing home care.
One of the primary challenges is the unpredictability of healthcare costs, which can range from a sudden illness to an accident requiring immediate and extensive medical attention. In these cases, large medical bills can follow and significantly impact financial stability. Rising premiums and prescription drug costs, as well as unexpected medical needs can create financial stress and uncertainty for retirees. Additionally, many retirees underestimate their healthcare needs and are often unaware of the potential costs, leading to inadequate planning and preparation.
The retirement window, a critical period we’ve identified for retirement planning and decision-making, is when many people begin to realize the potential financial burden of healthcare. This window, after all, is when someone will likely transition from their employer-sponsored health insurance to Medicare, which may not cover all medical expenses. By considering longevity risk, diversifying income sources, maintaining spending flexibility, and taking advantage of catch-up savings, retirees can help ensure they can cover healthcare expenses throughout their retirement years.
To address the challenge of healthcare risks in retirement, awareness and education is critical. Boston College‘s research suggests that there’s a significant gap when it comes to helping retirees understand healthcare costs and available coverage options. Financial advisors can play a role in addressing this gap through educational initiatives and improved communication.
Financial advisors, employers and retirees alike play a critical role in navigating the complexities of healthcare risks and coverage options. Boston College’s research outlines several strategies:
Acknowledging healthcare costs and planning early - including knowing the risks, coverage areas and best health practices - is paramount for retirees. For financial advisors, implementing the strategies laid out above can help clients be better prepared for their retirement.
The main challenge retirees face is the unpredictability and high cost of healthcare. The average 65-year-old couple may need nearly $400,000 for out-of-pocket medical expenses throughout retirement, excluding long-term care. Rising premiums, prescription drug costs, and unexpected medical needs create financial stress and uncertainty.
A retirement income solution, such as a target date fund that provides the option for guaranteed lifetime income, can help retirees manage healthcare costs with greater confidence. It offers predictability in an uncertain landscape by providing consistent monthly payments, ensuring retirees can cover essential expenses without worrying about market downturns.
Integrating guaranteed income into a retirement strategy offers several benefits:
- It allows retirees to plan for insurance premiums, out-of-pocket expenses, and preventive care without depleting savings prematurely.
- It reduces the risk of medical debt by minimizing reliance on emergency withdrawals from investment accounts, which could be impacted by market volatility.
- It supports long-term care needs by helping cover home care, assisted living, or nursing home expenses, and protecting other assets.
- It provides peace of mind for a healthier retirement by offering greater financial stability, reduced stress, and a stronger sense of security.
The “Retirement Window” is the period between 55-70 when risks are heightened and pivotal decisions shape retirement outcomes.
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1 Social Security Administration, Actuarial Life Table, 2024.
2 RBC Wealth Management & Bureau of Labor Statistics, The real cost of health care in retirement, 2024.
3 National Council on Aging, How Much Does Long-Term Care Insurance Cost and Is It Worth It? 2025 Investing involves risk, including loss of principal.
This material is provided for educational purposes only and should not be construed as recommendations. The information presented is not a complete analysis of the global retirement landscape. The opinions expressed herein are subject to change at any time due to changes in the market, the economic or regulatory environment or for other reasons.
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