Health Care

Planning for Unexpected Health Care Costs in Retirement

Most retirees won't experience an expense shock, but everyone should plan for it.

Key Insights

  • The fear of a health care shock is pervasive, but data show that very few retirees experience a catastrophic increase in health care expenses.
  • While the likelihood of experiencing health care shocks increases with age, particularly for those 80 years and older, these increases are usually not permanent.
  • Retirees can take proactive steps to prepare for out-of-pocket health care expenses, because planning for the unexpected shouldn’t be left to chance.

One of the unpleasant certainties of life is that everyone’s health will decline in old age. 

While some retirees might enjoy a long and healthy life and have a slow and natural decline in health, others may get diagnosed with a sudden terminal illness or have one or more chronic conditions, like diabetes or dementia, that require prolonged care. In addition to these possibilities, there are the risks of injuries from accidents and falls.

No matter what path a retiree’s health takes, one certainty is that everyone will experience some level of health care costs during retirement. While the routine costs of health care can be burdensome—some costs such as health insurance premiums and recurring prescriptions are easier to plan for—retirees are more concerned about an unexpected large medical bill.

A number of studies (Banerjee, 20181; Poterba, Venti, and Wise, 20182) have shown that retirees are not spending down their assets as one might expect. Retirees may be hesitant to spend their hard-earned money in fear of or in preparation for these unexpected health care expenses. 

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 as he or she ages and the chances of the higher expense becoming a new normal, resulting in higher future expense.

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Planning for Unexpected Health Care Costs in Retirement

Most retirees won't experience an expense shock, but everyone should plan for it.

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, "Longitudinal determinants of end-of-life wealth equality," May 2018,

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 July 2023 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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