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For many retirees, budgeting becomes an act of precision: cutting back on travel, downsizing homes and seeking out seniors’ discounts.
But there’s one expense that still manages to take a surprising toll, even for those who think they’ve planned their golden years well.
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Financial expert Suze Orman has warned that many Americans underestimate a critical cost in retirement, with one particular health-related expense that is often overlooked. And it’s one that some think will be covered almost free of charge.
Enjoying retirement stress-free can be easier if you identify this expense early. Here’s what to look out for, and what to do to mitigate any potential risks.
The true cost of health care
That crucial retirement expense, according to Orman (1), is health care — more specifically, the often misunderstood and underestimated costs of Medicare.
Many Americans assume that Medicare will cover most, if not all, of their medical needs after retirement. But Orman cautions that this is a dangerous belief.
While Medicare Part A (hospital insurance) is generally premium-free, the 2025 inpatient hospital deductible is only $1,676 per stay (up from $1,632 last year) — and that’s just one example of unexpected out-of-pocket costs (2). To put this in perspective, the average cost of a one-day hospital stay was $3,025 in 2022, according to Debt.org (3). Even worse, based on CDC data (4), the full average adjusted cost was $14,101 per inpatient stay at community hospitals, which refers to any non-federal, short-term general and special hospitals.
For many older Americans, suddenly being out an extra $1,349 per day of a hospital stay could be devastating.
It’s also important to remember that with age, the likelihood of a hospital stay increases. In 2019, individuals between 65 and 74 had a 16.9% chance of one or more hospital stays, while those over the age of 85 had a 26.1% chance, according to a separate CDC report (5).
Plus, Original Medicare (Parts A and B) doesn’t cover essentials such as dental, vision and hearing. Orman’s key advice is to get a solid Medigap policy to fill in these blind spots.
“Anyone with Original Medicare should also have a robust Medigap policy,” Orman wrote in a blog post in December 2024 (6). “It will cover that 20% you are on the hook for.”
While Medigap plans do require paying more in monthly premiums, Orman believes the tradeoff is worth it to protect against large, unpredictable medical bills. These policies can help with costs like coinsurance, copayments, deductibles and additional hospital and health care expenses.
According to Fidelity Investments (7), the average retired couple will need about $330,000 to cover health care costs after age 65, a steep figure underscoring Orman’s warning that Medicare doesn’t mean free.
"I sure hope those of you who are not yet 65 pay close attention, too," Orman wrote in her blog post.
"Understanding all the costs Medicare requires enrollees to cover out-of-pocket can be an eye-opener that can motivate you to save up more in your retirement accounts, calibrate your spending or even consider post-retirement opportunities to earn some income."
Read more: Warren Buffett used 8 simple money rules to turn $9,800 into a stunning $150B — start using them today to get rich (and then stay rich)
Smart strategies to reduce health care costs in retirement
While the numbers may seem daunting, there are steps you can take to reduce health care costs in retirement.
1. Build a health savings account (HSA) before you retire
If you’re still working and enrolled in a high-deductible health plan, an HSA offers three tax advantages: tax-deductible contributions, tax-free growth and tax-free withdrawals for qualified medical expenses. Unused funds roll over and can be a powerful tool to offset medical costs in retirement.
2. Set up a dedicated health emergency fund
Beyond general savings, consider setting aside a separate fund just for health care needs. This keeps you disciplined while helping avoid drawing down your retirement accounts too fast when significant expenses arise.
When building out your emergency fund, make sure to look for a combination of high-yield rates and liquidity, so you can access your cash when you need it. One option is to park your uninvested funds in something like the Wealthfront Cash Account to take advantage of high interest rates.
A Wealthfront Cash Account can provide a base variable APY of 3.75%, but new clients can get a 0.65% boost over their first three months for a total APY of 4.40% provided by program banks. That’s over ten times the national deposit savings rate, according to the FDIC’s October report.
With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, you can ensure your funds remain accessible at all times.
With your emergency fund figured out, you could then look to less-liquid medium-term savings options like certificates of deposit (CDs) to give yourself a post-retirement boost, or to top up your emergency fund.
With MyBankTracker, you can shop around and compare top certificates of deposit from various banks nationwide — with some rates as high as 3.80% APY.
MyBankTracker’s extensive database, updated daily, can highlight the most competitive rates and offer personalized recommendations based on your risk tolerance and time horizon — helping you find the right CD to match your savings goals.
Just remember that CDs are not as liquid as high-yield accounts, so you shouldn’t consider money locked away in a CD as readily available for emergencies. Terms typically vary from three months to 10 years.
3. Consider long-term care insurance
Fidelity’s health care cost estimate excludes long-term care, which can cost upwards of $100,000 annually in some states. Purchasing long-term care insurance early can protect your retirement nest egg from these steep costs.
GoldenCare offers different long-term care options based on your needs. These include hybrid life or annuity insurance with long-term care benefits, short-term care, extended care, home health care, assisted living and traditional long-term care insurance, too.
With GoldenCare, you can even combine life insurance policies with a long-term care insurance policy to give both you and your family peace of mind. Ideally, this can help further reduce risk beyond covering the Medicare gap.
4. Reduce your income to lower Medicare premiums.
Medicare Part B premiums are based on your modified adjusted gross income (MAGI). If you’re nearing retirement, consult a financial planner about reducing MAGI through Roth conversions, charitable giving or other tax strategies to avoid premium surcharges.
With Advisor.com, you can easily find a qualified financial advisor in just minutes.
All you need to do is enter some basic information, such as your ZIP code, and Advisor.com will match you with one to three local fiduciaries that could help you meet your financial needs, like reducing your MAGI. From here, you can then book a free call with no obligation to hire to make sure they’re the right fit.
5. Consider supplemental health insurance.
Since Medicare won’t cover everything, it can be worthwhile to get Medigap insurance — as Orman suggested.
Americans under the age of 65 — even those with pre-existing health conditions — can compare rates and features of health insurance policies from reputable providers through U65 Health Insurance.
The process is simple: Enter your ZIP code, age and household income, then U65 will display quotes from providers near you within five minutes. You can compare policies and coverage by Aetna, Kaiser, Anthem, Oscar Health and more for free, helping you make an informed decision.
As you near retirement, it’s important to start thinking long-term about your health.
After all, Medicare can only do so much, and your retirement savings will almost certainly need to make up some of the difference.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Nasdaq (1); Centers for Medicare & Medicaid Services (2); Debt.org (3); CDC (4), (5); Suze Orman (6); Fidelity (7)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.