Why Many Retirees Deplete Their Savings So Quickly

A market downturn in retirement can be alarming, but it is not the only financial risk older adults face. Another major threat is the rising expense of medical care as people get older.

A 65-year-old who retired in 2025 can expect to spend an average of $172,500 on health care and medical expenses over the course of retirement, according to a Fidelity Investments study.

The reality of rising medical bills

Health care may not seem overwhelmingly expensive in your 50s or early 60s. As time goes on, however, the odds of needing treatment rise, along with the chance of receiving a sizable bill.

Many retirement plans factor in inflation. One common approach, the 4% rule, calls for withdrawing 4% of retirement savings in the first year and then increasing that amount with inflation afterward. That method may work for everyday living costs, but medical expenses often climb faster than general consumer prices. Fidelity’s 2025 estimate was more than 4% higher than the prior year’s figure, and the latest projected total of $172,500 reflects a pattern that has been building for years. In 2002, the estimate was only $80,000.

Medicare does not eliminate health care expenses, and the wrong choices can make them even higher. Missing the initial enrollment window or selecting the wrong supplemental plan can lead to substantial copays and deductibles. Reviewing coverage carefully can help ensure the plan fits your needs.

Long-term care is another major cost

Fidelity’s estimate does not include long-term care, even though nearly 70% of people over 65 are expected to need it at some point, according to the Department of Health & Human Services. The costs can be significant: CareScout reported that the average annual price of a semi-private room in a nursing home was $111,325, while assisted living cost $70,800 a year and a home health aide cost about $77,796.

Medicare does not pay for long-term care, which can surprise many retirees. One way to prepare is to consider long-term care insurance.

Ways to prepare for future medical expenses

Ideally, retirement savings should cover everyday living costs. But because health care can be so expensive, it is also wise to set aside money for future medical needs.

The right savings approach depends on your income, goals, and willingness to take risk. For some people, it may make sense to build a dedicated fund for health care expenses, similar to the emergency fund financial advisers often recommend.

Contributing to a health savings account, or HSA, can also help. These accounts offer a triple tax advantage: contributions are tax-deductible, growth is tax-deferred, and withdrawals are tax-free.