Health Care

Planning for Unexpected Health Care Costs in Retirement

Key Insights

  • Even though the fear of a health care shock is pervasive, very few retirees experience a catastrophic one.
  • The likelihood of experiencing health care shocks increases with age, particularly after age 80.
  • Very few retirees saw a permanent increase in health care costs after having a large health care expense.
  • Because health care expenses tend to increase with age, we offer guidelines for how much a retiree might need for annual out-of-pocket expenses at different ages.

One of the unpleasant certainties of life is that everyone’s health will decline in old age. Unfortunately, no one knows how that will unfold.

Someone might live a long and healthy life and have a slow and natural decline in health. Others might get diagnosed with a sudden terminal illness or have one or more chronic conditions, like diabetes or dementia, requiring prolonged care. In addition to these possibilities, there are the risks of injuries from accidents and falls.

But no matter what path a retiree’s health takes, one thing is fairly certain—everyone will experience some level of health care costs during retirement. It’s easier to plan for some of these costs, such as health insurance premiums and recurring prescriptions.

But while the routine costs of health care can be burdensome, retirees are more concerned about an unexpected large medical bill.

A number of recent studies (Banerjee, 20181; Poterba, Venti, and Wise, 20132) have shown that retirees are not spending down their assets as one might expect. Retirees may be hesitant to spend their hard-earned money out of fear or in preparation for these health care expenses.

In order to help retirees create a successful retirement income strategy we need to better understand the likelihood and the magnitude of uncertain health care costs.

— Sudipto Banerjee, Ph.D., Director, Retirement Thought Leadership

In order to help retirees create a successful retirement income strategy that balances the need for current spending and future health care expenses, we need to better understand the likelihood and the magnitude of these uncertain health care costs.

This paper will explore the probability that a retiree will experience a health care-related financial shock and the chances of the higher expense becoming a new normal, resulting in higher future expense. We will also look at how gender, age, and income play a role, if any.

Sudipto Banerjee, “Asset Decumulation or Asset Preservation? What Guides Retirement Spending?” EBRI Issue Brief, no. 447 (Employee Benefit Research Institute, April 3, 2018).

Poterba, James, Steven Venti and David A. Wise, “The Drawdown of Personal Retirement Assets: Husbanding or Squandering?”, January 2013,

Important Information

This material is provided for general and educational purposes only, and not intended to provide legal, tax or investment advice. This material does not provide recommendations concerning investments, investment strategies or account types; and not intended to suggest any particular investment action is appropriate for you. Please consider your own circumstances before making an investment decision.

The views contained herein are those of the authors as of September 2022 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

All investments involve risk.

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T. Rowe Price Investment Services, Inc., Distributor.

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