Your Retirement Number Ignores the One Cost Growing Twice as Fast

Run any standard retirement calculator and it will confidently tell you a number: 25-30 times your annual expenses, inflated at 5-6% a year, and you’re set for a comfortable retirement. What almost none of these calculators build in as a first-class assumption: your medical costs are very likely to rise at roughly double that rate, and a single serious health event late in retirement can blow through years of careful planning in one hospital stay.

The inflation number retirement planning quietly gets wrong

General CPI inflation in India runs around 5-6% a year — the number every standard retirement calculator uses to project future expenses. Medical inflation runs at 10-14% annually, and India specifically has one of the highest medical inflation rates in Asia, well above the roughly 9.8% global average. A knee replacement that cost about ₹2.5 lakh in 2020 runs closer to ₹4.2 lakh today; a routine MRI has gone from roughly ₹3,500 to ₹7,200 over the same stretch. If your retirement corpus was built assuming healthcare costs grow at the same 5-6% as everything else, you are underestimating your single largest and least predictable retirement expense category.

The health shock that a “smooth expense” model doesn’t capture

Standard retirement corpus models assume a roughly flat, smooth annual withdrawal that grows with inflation — a reasonable simplification for groceries and utilities, a dangerous one for healthcare. Real retirements don’t spend on healthcare smoothly; they spend modestly for years and then face a lump-sum shock — a cardiac event, a cancer diagnosis, a hip fracture requiring surgery and rehabilitation — that can cost several years’ worth of the “smooth” healthcare budget in a single event. A corpus sized purely on average annual spending, with no separate buffer for a low-probability, high-severity event, can look perfectly adequate right up until the year it isn’t.

The two blind spots compounding each other

Beyond medical inflation itself, most retirement plans use a single life expectancy assumption (often the national average) rather than planning for the real possibility of living meaningfully longer — especially relevant for the healthier or better-off retirees this kind of planning most applies to. Combine an underestimated healthcare cost curve with an underestimated lifespan, and the standard “25-30x expenses” rule can leave a genuine multi-year gap late in retirement, exactly when the ability to earn additional income has disappeared entirely.

What a more honest retirement number looks like

Financial planners increasingly suggest earmarking a dedicated health fund equal to roughly 20-25% of total retirement corpus, sized and inflated separately from routine living expenses, specifically to absorb this lumpier, faster-growing cost category. Separately, adequate health insurance (increasingly recommended in the ₹25-50 lakh range depending on age and city, given how fast treatment costs are rising) reduces — though doesn’t eliminate — the risk of a single event draining the core retirement corpus meant for everyday living.

Does health insurance fully solve this problem on its own?

No — insurance typically has sub-limits, co-pays, waiting periods for pre-existing conditions, and caps that can leave a real gap during a major illness, especially for older policyholders. It meaningfully reduces the risk but shouldn’t be treated as a full substitute for a dedicated health buffer within the retirement corpus itself.

Is 20-25% of the retirement corpus the right number for everyone?

It’s a reasonable starting benchmark, but the right figure depends on your age, existing health conditions, family medical history, and how comprehensive your health insurance already is — treat it as a floor to stress-test against your own situation, not a one-size figure.

Source: WealthEase, on medical inflation trends in India and their retirement planning impact.

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Disclaimer: This article is for general information only and is not financial or medical advice. Inflation rates and healthcare cost estimates vary by region and individual circumstances — consult a qualified planner for your specific situation.