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How fixed indexed annuities can help take the sting out of health care costs
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According to leading research, U.S. health care spending is projected to have grown at 8.2% in 2024, exceeding $5 trillion and outpacing the projected annual gross domestic product growth rate of 5.3%.1
As the population ages and prices increase, managing health care expenses can be one of the biggest challenges to a financially secure retirement. Fixed indexed annuities (FIAs) can help by providing a predictable source of income. Retirees can use this “retirement paycheck” to help cover health insurance premiums, uninsured expenses and other health-related costs.
Budgeting for the unknown
Any way you look at it, a person’s future health is one of retirement’s biggest unknowns, and that makes it hard to know how much money to budget for health care costs. There’s not a single inflation rate that applies to all expenses because they all rise at different rates. And estimating future health care costs is further complicated by the cost of a retiree’s insurance premiums, deductibles, prescription drug coverage and nursing care. These costs are all affected by other variables, including an individual’s:
- Health coverage
- Age
- Gender
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- Health conditions
- Retirement income
- State where individual retires
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However, one thing is certain. Health care spending is projected to continue growing. With increased use of health care services and higher prices in the health sector, the cost of health care for Americans is expected to continue its historical trend, rising faster than inflation.2 Consider these projected out-of-pocket health care costs healthy 65-year-olds retiring in 2025 could pay during their lifetime.3
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Total projected lifetime out-of -pocket health care costs
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Total spend |
| Original Medicare plus Medigap plus Part D |
Male |
$275,000 |
| Female |
$313,000 |
| Medicare Advantage Plus Part D Plan |
Male |
$128,000 |
| Female |
$148,000 |
Higher female costs generally reflect women’s longer life expectancy compared to men.
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Fixed indexed annuities can help manage the rising cost of care
Managing health care costs without depleting assets could be a challenge for some retirees. A FIA may be a solution for some clients, providing them with reliable benefits provided they meet certain qualifications. These benefits could prepare them to help cover higher health-related expenses in retirement.
A “retirement paycheck” that’s guaranteed for life
Lifetime withdrawals from an income or benefit rider can provide a guaranteed stream of income — a “paycheck” in retirement for predictable expenses like premiums, copays, dental and vision care. Some riders even provide benefits to help pay for more skilled health care if it’s needed.
Keep in mind that rider payout factors increase with age, and the value of the benefit base used to calculate future withdrawals typically increases the longer the annuity contract is held.4 That’s important because these features can ultimately mean higher income payments in retirement, helping retirees manage inflation later in life.
Protection and growth potential
A FIA’s indexed crediting strategies earn interest based in part on the upward movement of a stock market index.5 Since these strategies don’t invest directly in the market, the annuity’s Accumulated Value is protected from loss due to market downturns. This combination of protection and growth potential can be important for clients as they consider ways to budget for costs that will likely increase over time regardless of economic conditions.
Access to money with annual free withdrawals
Most fixed indexed annuities allow annual withdrawals up to a certain amount without charge.6 Required Minimum Distributions are IRS mandatory withdrawals and are generally considered part of this amount. Keep in mind that withdrawals that exceed the annual withdrawal amount will be subject to a Withdrawal Charge and Market Value Adjustment where applicable, both reducing a rider’s Lifetime Income Withdrawal amount. In other words, a lower “paycheck.”
Confinement provisions
Most FIAs offer confinement provisions, either as a waiver of withdrawal charges in the base contract or as a rider benefit. Rider benefits typically provide an increase in the Lifetime Withdrawal amount for a set period if certain conditions are met. While not the same as long-term care insurance, these provisions can help defray the cost of care in a nursing home or other Qualified Care Facility. Annuities that offer long-term care benefits are also available.
It's important to help clients factor all expenses when considering their retirement goals and the income they’ll need to fund them. Fixed indexed annuities could help with growth potential and lifetime income benefits to help clients retire confidently to the dream they’ve nurtured for years.
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1 National Health Expenditure Projections, 2024-33. Health Affairs. June 25, 2025.
2 Health Care Costs and Affordability. KFF. October 8, 2025.
3 2025 Milliman Retiree Health Cost Index. Milliman. September 2, 2025.
Guarantees provided by annuities are subject to the financial strength of the issuing insurance company.
4 Lifetime Income Withdrawals may be reduced or may stop if you take Excess Withdrawals from your contract. If Excess Withdrawals, Withdrawal Charges or MVAs reduce the contract's Accumulated Value to zero, your Lifetime Income Withdrawal Payments will stop and the applicable rider will terminate.
5 Fixed indexed annuities are not stock market investments and do not directly participate in any stock or equity investments. An index may not include dividends paid on the underlying stocks, and therefore may not reflect the total return of the underlying stocks; neither an index nor any market-indexed annuity is comparable to a direct investment in the equity markets.
6 Withdrawals and surrender may be subject to federal and state income tax and, except under certain circumstances, will be subject to an IRS penalty if taken prior to age 59½. Withdrawals are not credited with index interest in the year they are taken. Withdrawals in excess of the free amount are subject to a Withdrawal Charge or MVA which may result in the loss of principal if taken during the first specified years of the contract. Withdrawals are based upon the Accumulated Value of the last Contract Anniversary.
This benefit is NOT long-term care insurance or health insurance nor is it a substitute for such coverage.
