The Growing Impact of Retirement Healthcare Costs

Last week we discussed the concept of “risk capacity” and its role in retirement financial security. Aside from retirement asset allocation, another part of income planning is accounting for expenses. Living expenses, long-term care costs, and healthcare expenses remain three primary retirement cost drivers. It’s more important than ever to plan ahead and to have a strategic combination of volatile and conservative financial vehicles to meet these needs.

Just healthcare needs alone can impose a significant cost burden on your retirement lifestyle. In fact, research firm HealthView Services continues to report they’re one of the fastest-growing segments of retirement spending. Ensuring they aren’t neglected is a critical step. Otherwise, they can be financially draining and greatly impact your standard of living in retirement.

What’s Going on with Healthcare in 2025?

In its latest reports, HealthView Services offers updated projections for 2025:

• In 2024-2025, retirement healthcare costs are estimated to have risen around 7.5%.
• Healthcare inflation continues to widen the financial gap—someone retiring today may have to pay $45,000 more than someone who retired just five years ago.
• Healthcare inflation is projected to average around 5.5% annually over the next 20 years.
• Supplemental insurance premiums remain age-based, and some retirees could see increases of 4.5% or more.
• This could translate into some retirees experiencing combined annual inflation near or above 10%.

New policy shifts and ongoing changes to Medicare are also placing more of the cost burden on retirees. In 2025:

• The Medicare Part B premium has increased to $185/month.
• Changes to Medigap Plan F that began in 2020 continue to affect coverage and costs.
• There have been modest cost-of-living adjustments, but many retirees still struggle to keep pace with rising healthcare costs.

Lifetime Healthcare Spending and Social Security Impact

The financial outlook is sobering:

• A healthy couple aged 65 retiring in 2025 is projected to spend approximately $392,000 on healthcare premiums (Medicare Parts B, D, and supplemental insurance).
• Including out-of-pocket costs—like deductibles, hearing, vision, dental, and copays—total expenses could reach $590,000.
• In future dollars, those costs exceed $800,000.
• For a 66-year-old couple, approximately 65% of their combined Social Security benefits may be needed to cover total healthcare expenses.
• For younger generations, the burden is projected to be higher. A 55-year-old couple could need 90% of their benefits, and a 45-year-old couple may need over 115%.

Incorporating Healthcare Costs into Income Planning

With rising healthcare costs, income replacement alone may not suffice. That’s why it’s essential to plan with:

• A realistic time horizon and proper asset allocation.
• A strategic blend of growth-oriented and conservative vehicles.
• Risk management to mitigate losses during market downturns—critical during early retirement years.

For example, heavy reliance on volatile investments like stocks could backfire during market corrections, impacting your ability to fund healthcare expenses or maintain your lifestyle.

Next Steps

For those looking to secure their future:

• Consider annuities or other financial products that offer guaranteed lifetime income and downside protection.
• Evaluate your Medicare and supplemental coverage annually to stay current and minimize out-of-pocket expenses.
• Use tools like HSAs (if eligible) during your working years to build a tax-advantaged reserve for medical costs.

If you’re ready to take action, SafeMoney.com offers personal guidance to help you build a tailored retirement income plan. Find a licensed advisor here or call 877.476.9723 to explore your options.

🧑‍💼Authored by Brent Meyer, founder and president of SafeMoney.com, with over 20 years of experience in retirement planning and annuities.