How Healthcare Inflation Impacts Retirement Income

When you think about inflation, you probably picture rising grocery bills or higher gas prices. But there’s another category that tends to move at its own pace, and often faster than other industries: healthcare.

If you’re planning for retirement, this is not a detail that should be overlooked. Healthcare costs don’t just increase; they can fundamentally influence how your retirement income must be structured. Without early planning, these costs can quietly place ongoing pressure on your long-term income strategy.

As our CEO and co-founder, Gabriel Lewit, recently stated: 

“Healthcare inflation is one of the most underestimated forces in retirement planning. It doesn’t just increase costs; it can quietly reshape how long your income lasts if it’s not accounted for early and revisited over time.”

In this article, we take a closer look at healthcare inflation and how it may impact your retirement, along with ways our team of Chicagoland financial planners can help you factor these considerations into your overall plan.

Read our latest quick guide: Is Inflation Quietly Disrupting Your Retirement Plan?

Why Does Healthcare Inflation Differ from General Inflation?

Most people hear “inflation” and think of a single number. In reality, inflation is more like a collection of different trends moving at different speeds. Healthcare tends to run on its own track.

While general inflation typically averages around 2–3% over longer time periods, healthcare costs have historically grown faster. Think of it like two escalators in the same building: one moving steadily, and the other with a faster speed.

If your retirement plan assumes both are moving at the same pace, you may underestimate future costs by a substantial amount. There are a few reasons for this:

• Advances in medical technology often come with higher costs
• There is increased demand as the population ages and lives longer
• Ongoing changes in insurance structures and coverage
  

This means your retirement plan isn’t just dealing with “inflation”; it needs to address multiple layers of inflation, with healthcare as one of the more unpredictable, noncontrollable components.

This is where working with a CFP® professional in Buffalo Grove can bring increased clarity. Instead of relying on a single inflation assumption, your plan may benefit from separating general expenses from healthcare-specific projections.

How Should You Think About Inflation Assumptions for Retirement?

One of the more common questions people ask us is: 

“What inflation rate should I use in my retirement plan?”

The honest answer is it depends on what you’re modeling.

Using one flat assumption across all expenses can oversimplify things. A more thoughtful approach may include:

• A general inflation rate for everyday spending
• A higher, separate assumption for healthcare-related costs
  

Think of your retirement plan like a long road trip budget. Fuel, food, and lodging don’t all increase at the same rate. If you assume they do, you risk underestimating the trip’s total cost. The same idea applies here.

This becomes especially relevant as you consider how local healthcare costs, insurance options, assisted living, skilled nursing, memory care, and long-term care availability may affect your projected future costs.

What Role Does Healthcare Play in Your Retirement Income Plan?

Healthcare expenses will shift over time, typically upward. For instance, early in retirement, when you are healthier, your healthcare costs might feel more manageable, especially if you’re transitioning from employer-sponsored coverage to Medicare coverage. 

But as time goes on, those costs can change in both predictable and unpredictable ways. This can create a serious financial challenge as your retirement income plan needs to be flexible enough to absorb a variety of changes.

If your income strategy is too rigid, using fixed withdrawals and fixed assumptions, it may not respond well to rising healthcare costs later in life. On the other hand, a more dynamic approach can allow adjustments based on actual spending patterns and the projections of evolving needs.

The SGL Financial team approaches this by integrating healthcare projections directly into income planning, rather than treating them as a separate category. This allows you to see how healthcare expenses may interact with:

• Portfolio withdrawals
• Tax considerations
• Social Security timing
• Required Minimum Distributions (RMDs)

How Do You Plan for Long-Term Care Costs?

Long-term care is often where healthcare inflation becomes most visible.

It’s also one of the more difficult costs to model. Unlike routine medical expenses, long-term care isn’t something everyone will need, but for those who do, the costs can be exceptionally high. And those costs tend to rise over time, often outpacing overall inflation.

Planning for this is less about predicting the exact number and more about understanding the range of possibilities.

Long-term care modeling may involve:

• Estimating potential costs based on current local data
• Adjusting those estimates for future inflation
• Considering how those costs would be funded
• Understanding their historical rise in your location
  

For some, that might mean setting aside a portion of assets for the unexpected. For others, it may involve exploring insurance options or hybrid strategies. The key is that long-term care should not be ignored; it should be incorporated into the broader retirement income conversation.

Listen to our podcast: “How to Think About Your Money in 2026.”

How Can Healthcare Costs Affect Your Withdrawal Strategy?

Your withdrawal strategy is one of the most important parts of your retirement plan. It determines how you turn your savings into the income stream that you live on. But healthcare costs can complicate that process in ways that aren’t always obvious at first.

If healthcare expenses rise faster than expected, you may need to adjust how much you withdraw from your portfolio. That shift alone can create a ripple effect across other areas of your plan:

• Higher withdrawals may increase tax exposure: For example, if unexpected medical expenses require you to withdraw an additional $20,000 in a given year, that extra income could put you into a higher tax bracket or increase the taxable portion of your Social Security benefits.
• Larger withdrawals during market downturns can impact portfolio longevity: Imagine needing to cover a major healthcare expense during a down market. Selling investments while values are lower means more shares are used to generate the same income, which can affect how long your portfolio lasts.
• Changes in income can affect Medicare premiums or taxation of benefits: A spike in withdrawals to cover healthcare costs could increase your income enough to trigger higher Medicare Part B and Part D premiums (IRMAA), adding another layer of expense that you may not have anticipated.
  

This is why integrating healthcare projections into your income plan matters. Instead of reacting to rising costs later, your plan can account for them from the beginning and adapt as those costs evolve over the long-term.

How Does SGL Financial Approach Retirement Planning?

At SGL Financial, retirement planning is approached as an ongoing process, not a one-time projection of designated expenses. Your plan isn’t built in isolation or based on static assumptions. Instead, it’s designed to reflect how different parts of your financial life interact over time, including investments, taxes, income needs, and rising costs like healthcare.

Rather than focusing solely on whether you can retire, the conversation shifts to how your plan holds up over the years ahead. That includes evaluating how changes in inflation, market conditions, and personal spending may influence your income strategy, and making the appropriate adjustments along the way.

As Gabriel Lewit explains:

“A retirement plan isn’t about getting a single answer; it’s about understanding how different decisions play out over time, especially when variables like healthcare costs and inflation don’t move in a straight line.”

This type of planning often includes revisiting assumptions, stress-testing different scenarios, and helping you think through decisions before they become urgent. The goal is to give you a clearer view of how your plan functions, not just today, but years down the road.

If you already have a retirement plan in place but aren’t sure how healthcare inflation or other variables are factored in, it may be worth taking a second look. SGL Financial in Buffalo Grove offers a complimentary review of your existing retirement plan, where you can walk through your current strategy and identify areas that may need closer attention.

Sometimes, a fresh perspective can help you see how the pieces fit together and where adjustments may be necessary to protect your financial future.

Schedule your second opinion review today.