The likelihood of having to pay significant out-of-pocket healthcare costs depends on two factors: your health and whether the costs of care are covered by Medicare or private insurance. If you (and your spouse) are healthy, do not need to take maintenance drugs, and do not experience any major illnesses or accidents for the rest of your life, your healthcare costs will be minimal. If you do need some form of healthcare, Medicare and private insurance may provide enough coverage to reduce your out-of pocket expenses to a manageable level.

However, it is probably unrealistic to assume perfect health for your entire retirement. In all likelihood, you will experience one or more chronic conditions, as shown in the following figure. Women are more likely to have arthritis or hypertension. Men are more likely to have cancer or heart disease. Older people are also more likely to suffer injuries due to falls. More than one third of adults aged 65 or older fall each year, causing serious injuries such as hip fractures. This risk increases sharply with age.

Medicare, which is available to all US citizens aged 65 or older, covers many healthcare costs. These costs can represent a large portion of your healthcare bill, particularly if you have one or more chronic conditions. It does not cover vision, hearing, or dental care. In addition, Medicare may face changes in the future that could negatively affect your benefits. For example, coverage could be reduced in scope, or more of the costs could be passed on to individuals.

If your employer offers healthcare coverage in retirement, recognize that benefits are not "guaranteed" for life. Some people nearing retirement may discover that their company has decided to reduce or eliminate retiree healthcare benefits. If so, your out-of-pocket healthcare costs could increase dramatically.