The cost of healthcare in retirement keeps getting scarier

By Brett Arends

These estimates don't even include everything you might need

The latest estimates on healthcare for retirees make for alarming reading.

How much do you need to save by the time you retire to be confident you will be able to afford all your healthcare costs in your senior years?

Paul Fronstin, director of healthcare benefits at the leading think tank EBRI, has new numbers - and they're scary.

At the high - but not crazy - level, he estimates a couple with high prescription-drug costs "will need to have saved $469,000 to have a 90% chance of having enough money to cover their healthcare costs in retirement."

Even less heroic - or catastrophic - assumptions lead to alarmingly high numbers. A couple enrolled in traditional Medicare "will need to have saved $267,000 to have a 50% chance of covering their medical expenditures in retirement and $405,000 to have a 90% chance," Fronstin and co-author Jake Spiegel write in a new paper.

Read: The most expensive state for in-home caregiving may surprise you - and it costs almost $9,000 a month there

EBRI's estimates for people enrolled in privatized Medicare Advantage are significantly lower, because it assumes they will be able to take advantage of the program's lower, or even nonexistent, premiums. But even there, couples will need $135,000 saved by the time they turn 65 just to have a 50% chance of covering all their healthcare costs, and $203,000 to have a 90% chance.

This also relies on an assumption: That taxpayers will continue to pay billions of dollars extra to private health insurers so that they can provide lower-premium plans. According to MedPac - the independent body of medical experts that advises Congress on Medicare - the Medicare Advantage program is able to provide beneficiaries with extras like low or no premiums in part because the taxpayers are picking up the tab. Last year, according to MedPac, it cost Medicare 20% more to insure someone through Medicare Advantage than it would have done through traditional Medicare. The extra cost to the taxpayers: $84 billion.

I talked to Fronstin to get a better handle on these numbers. The methodology is pretty straightforward: EBRI estimates that the average person on traditional Medicare will spend about $6,500 a year on Medicare premiums, Medigap supplemental insurance and out-of-pocket expenses. (The average national premium for top-of-the-line Medigap Part G insurance plans, he says, is about $3,100 a year.)

Read: Boomers waste money, too. These are the spending traps tripping up the richest generation.

These figures do not apply to the total cost in retirement of all these healthcare expenses, he noted; they are the amount you'd need to save by age 65. EBRI assumed 7.3% annual investment returns on the money. It used Congressional Budget Office numbers to estimate average healthcare inflation of 4.3%, and it used the various life-expectancy tables. One problem, as Fronstin puts it, is that "average" life expectancy doesn't really help any individual very much - half of people will live longer than the average, and some will live much longer.

One obvious alternative approach would be to try to pay for these costs using a lifetime income annuity, a contract with a life-insurance company that will pay you an income for life. That gets rid of the longevity problem: The payment lasts for life. And you can buy these annuities with annual income escalators, so that the payout rises every year.

Let's say you just turned 65, and you wanted to guarantee yourself an income that starts at $6,500 this year, rises 4% every year and continues until you die. You'd need an annuity costing about $130,000 - slightly less for a man and slightly more for a woman, to account for differing life expectancies.

Read: Medicare Advantage's once-blistering growth dropped in 2026. Here's what that means.

Please note, this doesn't even include the cost of a nursing home. Contrary to popular misconceptions, Medicare does not pay for nursing homes - only Medicaid does, and only once you've basically gone (nearly) bust.

Scary numbers, indeed. Which is why people are advised to save every nickel they can, invest rationally for the long term, keep working as long as they can and hold off on claiming Social Security until they turn 70, or at least as near to that age as possible.

Read: 'It's not a sign that it's going well.' The median amount American workers have saved for retirement is $955.

-Brett Arends

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03-07-26 1440ET