If the thought of paying for health care in retirement keeps you up at night, you’re not alone.
Allianz Life released its 2026 Annual Retirement Study on Oct. 20, and the headline finding is stark: 61% of Americans worry that health care costs will be so high they won’t be able to afford needed care. Gen X is the most anxious group at 76%, compared with 60% of millennials and 56% of baby boomers. Even more people, 62%, worry about the cost of long-term care, and 60% worry Medicare won’t be there for their whole retirement.
Worry is understandable. The bigger problem the study uncovered is that many people misunderstand the program they’re counting on.
What people get wrong about Medicare
Allianz found several common misconceptions:
- 34% think Medicare covers long-term care. It doesn’t. Medicare may cover short skilled nursing or rehab stays after a hospitalization, but not ongoing custodial care, like help with bathing and dressing, at home or in a nursing home.
- 43% think standard Medicare covers prescription drugs. Original Medicare (Parts A and B) covers hospital and medical care. Outpatient prescriptions need a separate Part D plan or a Medicare Advantage plan that includes drug coverage.
- 37% think Medicare is guaranteed when you retire. Medicare generally starts at 65. If you retire at 62, you need another way to cover those years.
- 23% think Medicare is free. It isn’t. Premiums, deductibles, and out-of-pocket costs apply, and higher-income retirees pay more for Parts B and D.
Keep in mind that the study surveyed 1,000 adults with household incomes of at least $50,000 (single) or $75,000 (married), or $150,000 in investable assets. That’s a relatively comfortable group, and they’re still worried.
How big is the bill?
Estimates vary, but they’re not small. Fidelity’s 2026 Retiree Health Care Cost Estimate says a 65-year-old retiring this year may need about $185,500 in after-tax savings to cover health care in retirement. That figure assumes Original Medicare plus Part D and doesn’t include long-term care. The Centers for Medicare & Medicaid Services says health spending per person 65 and older is more than double that of working-age adults, as Allianz notes.
That number can feel paralyzing. Break it into pieces, and it becomes something you can plan for.
Five ways to turn worry into a plan
1. Learn the basics before 65. Spend an hour on Medicare.gov learning what Parts A, B, C, and D do. Know your enrollment window: missing it can mean penalties that last as long as you have coverage.
2. Plan for the gap years. If you might retire before 65, price out marketplace coverage, COBRA, or a spouse’s plan now, not the month you leave your job.
3. Use a health savings account if you can. If you have a high-deductible health plan, an HSA lets you save pre-tax, grow tax-free, and spend tax-free on qualified medical costs. Unspent money carries over year to year. You can’t contribute once you’re on Medicare, but you can keep spending what you’ve saved, including on certain Medicare premiums.
4. Take long-term care seriously. Since Medicare won’t pay for it, decide how you’d handle it: savings, family help, long-term care insurance, or a hybrid life policy with a long-term care rider. Each has trade-offs, and prices rise as you age.
5. Review your coverage every fall. Medicare’s open enrollment runs from Oct. 15 to Dec. 7 each year, and it’s open right now. Drug plans and Advantage plans change their costs and covered drugs annually. Comparing plans takes an afternoon and can save you money.
A word on the sales pitch you’ll likely hear: Allianz, an annuity company, suggests covering essential expenses like health care with guaranteed income such as Social Security and annuities. Steady income can help. But an annuity comes with costs and trade-offs, and it isn’t the only answer.
The Bottom Line
You’re right to think about health care costs in retirement, and you’re far from alone. But worry without a plan doesn’t help. Learn what Medicare actually covers (not long-term care, not drugs without Part D, not free), estimate what you’ll need, use an HSA if you’re eligible, decide how you’d handle long-term care, and review your coverage every fall. The people most surprised by retirement health costs are usually the ones who assumed Medicare would take care of everything.
Sources and Further Reading
- Allianz Life, “Americans Worry They Can’t Afford Health Care in Retirement, Allianz Life Study Finds” (Oct. 20, 2026)
- Fidelity, “Fidelity Investments Shares 25th Annual Retiree Health Care Cost Estimate” (July 21, 2026)
- Medicare.gov, “Long-term care”
- Medicare.gov, “Joining a plan” (enrollment periods)
- IRS, Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans