3 Major Insurance Costs That Greatly Impact Retirement Savings
Let's say you've made every sound financial decision you can think of when it comes to your retirement savings. You've built your accounts, mapped out your future with a financial advisor and accounted for the fact that Social Security benefits may not cover you in full. You're in great shape, right?
Unfortunately, insurance costs have skyrocketed since the pandemic, and they show no sign of slowing down over the next few years. That makes it hard to plan for costs in retirement, as the goalposts keep moving. With that in mind, you must be aware of these insurance costs that can threaten your nest egg.
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Supplemental Medicare Coverage
Retirees become eligible for Medicare coverage at 65 -- not quite full retirement age -- but it doesn't cover everything.
"The average American spends nearly $200,000 on healthcare expenses during their golden years," said Whitney Stidom, vice president of consumer enablement at eHealth Insurance. "Enrolling in Medicare Advantage is often affordable and will limit maximum out-of-pocket costs for the year. Plus, most Advantage plans come with prescription drug coverage. Some Medicare Advantage plans come with special benefits like discounted gym memberships, coverage for over-the-counter drugs and more."
To help prepare in advance for unpredictable healthcare and supplemental Medicare coverage costs, consider opening a health savings account (HSA). They offer the best benefits for pre-retirement income of any tax-advantaged account, as you can deduct the contributions, they compound tax-free, and you pay no taxes on withdrawals.
Long-Term Care Insurance
Medicare doesn't cover long-term care, which gets expensive quickly. The "2025 Trends in Retirement Planning" study by the Journal of Financial Planning found that 40.7% of retirees carry long-term care insurance, and 44.9% pay for a rider on other insurance products.
Unlike working people, retirees can't increase their income to offset rising costs. When insurance rates go up, retirees have to cut spending elsewhere to stay afloat -- which can quickly downgrade their quality of life.
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Homeowners Insurance
Likewise, the last few years have not been kind to homeowners' insurance clients.
"[In 2025], the average homeowner was paying $2,802 for home insurance," explained Susan Meyer, insurance analyst at The Zebra. "In 2024, the average was $1,602 for the same coverage -- a 74% increase in only a year."
Granted, most homeowners aren't actually paying 74% more for their policies after just one year. Many have downgraded coverage or increased their deductible just to afford policies at the new rates.
Homeowners insurance may play a larger role in where Americans choose to retire in the coming years. Already, three of the four states with the oldest populations (Maine, West Virginia, Vermont and Florida) have below-average homeowners insurance premiums. Meyer noted that the exception, Florida, has an average premium of $3,333, given the high frequency of storm damage.
Similarly, climate scientist Max Dugan-Knight at Deep Sky Research pointed to fire-prone areas in California, Oregon and Texas where private insurers have stopped issuing coverage altogether. "State-backed FAIR plans and federal flood insurance program end up billing taxpayers rather than addressing the root problem that some homes are uninsurable," he said. "That forces all taxpayers to subsidize the few who live in the highest risk areas."
Final Take To GO
As you plan for retirement, you should factor in more than your investment portfolio or general account balances and focus on the insurance risks that could bleed your savings dry. Many financial experts are saying some higher-risk areas may become impractical to insure in the years to come, especially in the private sector.
Caitlyn Moorhead contributed to the reporting for this article.
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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