7 Unexpected Medical Expenses That Can Drain Your Retirement Savings, According to Experts

Even if you prepare for the cost of healthcare — including doctor’s visits, treatments, prescription medications, health insurance premiums and other out-of-pocket costs — it’s hard to think of everything that might come up. And unfortunately, unexpected medical expenses are one of the quickest ways to drain your retirement savings.

As you start — or continue — preparing for retirement, here are some lesser-known medical costs to save for in retirement.

You’ve probably already considered the cost of any current prescription medications you’re taking, but have you also prepared for those you might need later?

“One significant expense that can drain retirement savings is prescription drug prices for a serious condition,” said Joel Russo, owner and retirement advisor at NJ Retirement Planning. “This could be a condition that isn’t diagnosed until well into retirement. Prescriptions could run in the thousands of dollars a month.”

The good news is that you can prepare for this. Start with checking your current coverage options.

“Coverage for serious prescriptions should first be addressed in your supplemental and health care policies, Medicare parts C and D, Medigap policies, state pharmaceutical assistance programs, patient assistance programs, charitable programs [and] discount drug plans,” Russo said.

While your health insurance might cover in-network treatments and services, out-of-network costs can come as a surprise. Common out-of-network costs include facility, ambulance and emergency room services.

“One of the most common ways to prepare is by having an HSA,” said Ethan Pickner, insurance broker and owner at AZ Health Insurance Brokers. “The HSA is a popular option for covering medical-related expenses with pre taxed dollars. Also, for retirees under 65, we recommend enough savings to cover your deductible and out of pocket maximum.”

“Another big expenditure that many don’t consider is long-term care [or] home healthcare,” Russo said.

Long-term care varies based on where you live and your needs. According to RetireGuide, nursing home care costs about $108,405 a year. In general, long-term care can cost anywhere from about $35,000 to $108,000 a year nationwide.

You might not need this service, but it’s good to be prepared just in case it comes up.

“If you don’t have coverage, then your plan is likely to pay for it out of savings [or] investments, which could hurt your spouse (if you have one),” Russo said. “Otherwise, you want to consider traditional LTC [or] HH insurance plans, hybrid life and annuity plans and Medicaid programs, if [or] when you qualify. Don’t rely on Medicare.”

Deductibles and other costs — like out-of-pocket maximums — can also come as a surprise, even for those who’ve perused their healthcare plans and coverage options. Some of the most common surprises here include emergency room visits, inpatient and outpatient surgery, imaging, ambulance rides and expensive medications.

“You definitely want to ensure you have adequate health insurance coverage for your household’s needs. Often, this can be obtained through an employer, Medicare [or] Medicare Advantage or the Affordable Care Act marketplace,” said Chris Urban, certified financial planner (CFP), retired income certified professional (RICP) and founder of Discovery Wealth Planning.

“I recommend having a detailed understanding of insurance premiums and deductibles as well as the annual out-of-pocket maximum you may be subject to,” Urban said. “You absolutely want to be comfortable paying this maximum amount if needed.”

Sometimes, it’s the things you think are covered but actually aren’t that come as the biggest surprise — and biggest financial drain on your retirement savings.

“For the under 65 market, before Medicare and still working, I suggest finding out what additional insurance can be purchased through their organization. Many companies have supplement policies for cancer, accident, hospital, etcetera, available at reduced rates,” said Elisa K Ball, an independent Medicare Insurance Advisor and advocate at Advocate Health Advisors.

“Some policies like Aflac are portable,” she said. “That means they can be taken with the employee when they retire or leave the company. These insurance plans are also available privately.”

For those currently on Medicare, there are also supplemental plans. If you aren’t sure what’s available and want to keep your retirement savings intact, consider working with a Medicare advocate or professional since they’ll know what’s available and can help you find the best coverage for you.

Another unexpected medical expense comes in the form of new or surprise health conditions — like cancer. Even though you can’t predict the future, you can still prepare for these types of conditions.

In particular, Ball suggested getting a cancer policy — just in case.

“Everyone should have a Cancer policy,” she said. “One of the insurance companies I work with offers $10,000 to $50,000 policies which pay immediately upon diagnosis. The price never increases. For couples, if one is diagnosed, the plan pays while the other is still covered for the whole amount. Prices are so affordable. It’s a no-brainer.”

It’s all too easy to forget about rising costs. In terms of medical expenses, things like healthcare premiums and long-term care insurance policies can increase and you might not be prepared for it.

“Long-term care insurance products have gotten much more expensive in recent years which has led to many people planning to self-fund if such an event(s) were to occur. If you are going to self-fund, I strongly recommend having a plan in place should you need care,” Urban said.

“For many, this may mean something like selling a primary residence or liquidating one or more Health Savings Account(s) or having a Roth IRA(s) with money to use,” Urban added. “You could also quite literally just keep a separate bucket of cash for this purpose. However, I urge you to think about the opportunity cost of keeping sizable amounts of money in cash for a prolonged period of time.”

Even if you don’t end up needing the cash, it doesn’t hurt to have it. Worst case scenario, you’ll be overly prepared and better off for it.