By Kara Fransted (’22SPS), Alumna of the M.P.S. in Wealth Management Program, School of Professional Studies
Over the past several years, our practice has noticed a startling trend: New clients are arriving with little understanding of what health care really looks like in retirement. Views of retirement often cast it as a time of lifestyle upgrades, travel, and legacy-building. Yet one of the largest and most unpredictable expenses is rarely part of that conversation: health care. For advisors, this represents both a financial planning gap as well as an opportunity for deeper client engagement.
Clients range from those who want to avoid the topic entirely to those who have thoroughly considered it. Even those familiar with the issue often greatly underestimate the assumptions that we include in financial plans. Most often we hear that they assume Medicare will “cover everything,” or that premiums and out-of-pocket costs will be like their current costs. Higher-net-worth families assume they can afford to “self-insure.” The reality, unfortunately, is far more complex and far more expensive. Introducing health-care planning early and framing it as risk management rather than decline reduces resistance and reinforces advisor value.
Health-Care Costs: The Numbers Tell the Story
Health-care costs don’t trend like other retirement expenses. They don’t rise evenly each year, nor can they be neatly predicted. Some years are light, with little more than premiums and annual checkups. Others bring major surgeries, prescription needs, or chronic illnesses that can last for years. For clients used to a predictable, comfortable lifestyle, it can be jarring to see how hundreds of thousands of dollars in medical care can chip away at even the healthiest portfolio. This means that simply modeling health-care expenses with a flat, inflation-adjusted assumption doesn’t necessarily capture the reality. It can be more helpful to clients to model scenarios that show the impact of above-average medical expenses and multiyear, long-term-care expenses.
A 2024 Milliman study shows that for a healthy 65-year-old couple on traditional Medicare with Medigap and Part D coverage, total lifetime health-care costs could reach $601,000. Even under a Medicare Advantage plan, which often has lower premiums, costs still total around $275,000 per couple. Being able to show clients how these numbers impact portfolio withdrawal rates, tax strategies, and legacy planning helps shift a client’s mindset from abstract concern to actionable planning.
These costs are still rising. Between inflation in medical services, the rising price of prescription drugs, and longer life expectancies, each generation faces higher projected expenses than the last. According to the Centers for Medicare & Medicaid Services, health spending per person aged 65 and older grew more than 4 percent per year over the past decade—outpacing general inflation.
The Disappearing Safety Net
Compounding the issue is the decline in employer-provided retiree health benefits. In 1988, 66 percent of large companies offered retiree health coverage. By 2022, that number had fallen to 24 percent, according to the Kaiser Family Foundation. That shift represents more than just a financial change; it’s a cultural one. For decades, retirees assumed their employers would provide at least partial coverage. As those benefits disappeared, many failed to realize that the responsibility had shifted entirely to them.
This shift, combined with the complexity of Medicare’s structure, has led to widespread misunderstanding. Many retirees are surprised to learn that Medicare doesn’t cover dental, vision, hearing aids, or long-term care. Others are caught off guard by income-based surcharges, known as IRMAA, which can increase Medicare Part B and Part D premiums for higher earners.
For advisors working with business owners or executives, this trend creates an opportunity to discuss preretirement health-care bridging strategies. Planning for coverage between retirement and Medicare eligibility should be a component of retirement income planning, particularly for clients retiring early.
Why It Matters Regardless of Net Worth
Wealth does not eliminate health-care risk. A client may assume that their level of wealth will insulate them from these concerns. However, a decade of escalating health-care bills, uncovered prescriptions, and long-term-care needs can erode flexibility.
It’s not just about the money. It’s about lifestyle, flexibility, and peace of mind. This can force trade-offs like canceling travel plans, selling real estate, or reducing gifts to family in order to preserve liquidity. Even high-net-worth clients dislike surprises, and large medical costs represent an unpredictable drain on resources.
What Financial Advisors Can Do to Help
The good news is that with thoughtful planning, these risks can be managed. Financial advisors are uniquely positioned to guide clients through this complexity.
Educate early and often. Start young. Advisors can begin by normalizing health-care costs as part of their retirement planning, just as vital as taxes or investments. Many clients need a simple explanation of what Medicare does (and doesn’t) cover, even if it seems far away. Plan for those costs.
Help clients visualize the scenarios. Showing both baseline and “stress test” assumptions helps clients visualize possible outcomes. Seeing the difference between $200,000 and $500,000 in health-care expenses, including long-term care, can spark meaningful planning discussions.
Educate on Health Savings Accounts (HSAs). For those still working, HSAs offer triple tax advantages: Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are untaxed.
Coordinate coverage decisions. Find an expert on plans who can help evaluate Medicare Advantage vs. Medigap as well as prescription drug and dental coverage. It’s a lot to remember, so don’t think you need to do it all yourself.
Plan for long-term care. Long-term care is typically the biggest unexpected expense for older adults, whether paid through insurance, hybrid policies, or self-funding. Many families assume children will provide care, but they are often unprepared for this responsibility.
Maintain a “health-care fund.” Setting aside a portion of assets specifically for medical costs and investing it appropriately can help keep these expenses from derailing the broader portfolio, as well as provide a mental space for clients with the funds dedicated for that specific purpose.
Health care in retirement is not a single event but a long journey. It is an expense that can’t be postponed, negotiated, or outsourced.
By incorporating health-care projections into every financial plan, advisors can help clients preserve not just their assets but their dignity, independence, and quality of life. When health becomes uncertain, financial confidence shouldn’t have to be.
Kara Fransted and KMH Financial Services, LLC, are a separate entity from LPL Financial. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual.
Views and opinions expressed here are those of the authors and do not necessarily reflect the official position of Columbia School of Professional Studies or Columbia University.
About the Program
Columbia University’s Master of Professional Studies in Wealth Management program is a 16-month online program with asynchronous instruction specially designed to accommodate working professionals. It is taught by distinguished faculty with deep applied experience in their respective fields. Additionally, it is a CFP Board Registered Program designed to help students meet the educational requirement for CFP® certification.
The application deadline for the M.P.S. in Wealth Management program is May 1. Learn more about the program here.
