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Americans worry about health care costs in retirement but fail to plan, survey finds

Many retirees underestimate future health care costs

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By:
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Mark Huffman
Reporter

Mark Huffman has covered consumer issues since 2004, with a special focus on protecting and empowering older adults. A former news correspondent for the Associated Press Radio Network, Westwood One, and ConsumerAffairs, Mark brings decades of journalistic experience to RetirementLiving.com. He is passionate about giving consumers a voice and helping them make informed decisions. Mark has also created educational content, including Senior Scam Alert, a video resource designed to help seniors recognize and avoid fraud. He holds a B.A. from the University of Kentucky and lives with his family in Richmond, Virginia.
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Photo by Nathaniel Yeo on Unsplash

Key Insights

  • Nearly eight in 10 Americans (78%) are concerned about rising health care costs in retirement, but only 48% have planned for them.
  • Just 16% feel very knowledgeable about what health care will cost in retirement.
  • Estimated health care expenses for a 65-year-old retiring in 2025 have climbed to $345,000 per couple, up 41% from 2015.

A growing number of Americans are worried about the financial toll health care could take in retirement, yet most remain unprepared for the expense, according to a new survey released by financial services firm D.A. Davidson.

The survey found that 78% of Americans are concerned about rising health care costs impacting their retirement. Despite that widespread anxiety, fewer than half — just 48% — have accounted for those costs in their long-term financial plans. 

Even more significantly, only 16% of respondents said they feel “very knowledgeable” about what health care will actually cost them in retirement.

A reasonable concern

Those concerns are well-founded. Recent estimates from Fidelity Investments show that a couple retiring at age 65 in 2025 can expect to spend an average of $345,000 on health care expenses alone. That figure represents a nearly 41% increase from the $245,000 estimate a decade earlier.

“Health care is one of the most significant, and yet still underestimated, expenses that most retirees will face,” said Andrew Crowell, vice chairman of wealth management at D.A. Davidson. 

He noted that health care inflation often outpaces general inflation by a wide margin, adding that many people underestimate how much it will affect their financial future.

The consequences of underestimating those costs can be significant. More than one-third of Americans (37%) said they would need to cut back on everyday spending if health care expenses exceeded expectations, while 34% would reduce travel or leisure activities. Many have already seen the impact firsthand — 60% said they have witnessed someone struggle with health care costs in retirement.

The role of health savings accounts

While tools exist to help offset those expenses, they are often underutilized. Health Savings Accounts (HSAs), which offer tax advantages and investment growth potential, are one such option. However, only 21% of Americans report having an HSA, and among those, just 40% are using it as a long-term savings vehicle for health care.

Instead, Americans say they plan to rely primarily on Medicare-related coverage (47%), retirement accounts like 401(k)s or IRAs (35%), and personal savings (34%). Smaller shares expect to use long-term care insurance (17%) or HSAs (13%), while 17% say they have no plan at all.

“Being prepared for rising health care costs is important, but being informed is the first, most crucial step,” Crowell said. “Working with a financial advisor can help people better anticipate these expenses and protect their long-term financial security.”