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.

Uday Deshmukh, a retired college principal in Akola, ran exactly this calculation at 60 and came out confident: a corpus of roughly ₹1.6 crore, a modest pension, and a health policy he’d carried for a decade. What his spreadsheet didn’t model was that the same policy he’d bought at 50 would have quoted him a dramatically higher premium, or simply refused him outright, had he tried to buy it fresh a few years later — because for most of his working life, Indian health insurers were allowed to simply stop selling new policies to people past a certain age. Uday is a composite built from a pattern common to that generation of retirees, not a real client file, but the regulatory gap he nearly fell into was real, and it only closed recently.

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.

The regulatory gap that closed after Uday had already retired

For most of India’s insurance history, health insurers were free to set their own maximum entry age for a fresh policy, and most drew the line around 65. That meant anyone who reached retirement without an existing policy — or whose existing policy lapsed — could find themselves simply unable to buy new health cover at exactly the age they needed it most. The IRDAI Master Circular on Health Insurance Business, effective from 1 April 2024, removed that general upper age cap: insurers can no longer refuse to sell a new policy purely because an applicant is “too old,” though they may still underwrite the risk and price the premium accordingly. The same circular capped the maximum waiting period for pre-existing diseases at 36 months (down from periods that had run as long as 48 months in some policies) and reduced the moratorium period — after which a claim generally cannot be rejected for non-disclosure — from 8 years to 5.

This matters for retirement planning specifically because it changes an assumption most people carry unconsciously: that if their existing policy ever lapses, gets too expensive, or stops covering their needs, buying fresh cover late in life used to be a real gamble, not just an inconvenience. The rule change doesn’t make premiums cheap for older applicants — insurers still underwrite and price for age and health status — but it converts what used to be an outright door-closing into a pricing conversation, which is a materially different risk to plan around.

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.

What nobody tells you about “portability” and restoration

Two protections rarely get explained until someone needs them. IRDAI’s portability rules let you switch insurers without losing continuity benefits already earned — including credit for waiting periods already served — so a bad renewal quote from your current insurer doesn’t force you to start the pre-existing-disease clock over from zero elsewhere. Separately, many policies now offer a restoration benefit that refills the sum insured once it’s exhausted in a policy year, and a no-claim bonus that grows the cover for each claim-free year. None of this is automatic protection — restoration terms, portability windows, and bonus structures vary by insurer and product — but a retiree who doesn’t know these levers exist is far more likely to accept a bad renewal or let a lapsed policy go unreplaced simply because they assume there’s no alternative.

What to actually do

Model your retirement number twice: once with a single blended inflation rate the way most calculators default to, and once with healthcare pulled out as its own line growing meaningfully faster. Buy or maintain health cover well before you think you’ll need it, since continuity avoids re-starting waiting periods, and know that the 2024 age-cap removal is a safety net for late starters, not a reason to delay. Check your policy’s specific waiting period and moratorium terms against the current regulatory ceilings — if your policy still specifies something worse than the current caps, ask your insurer directly, since some legacy policies were revised to match the new circular and some require you to request it.

What this does not mean

This does not mean health insurance, however comprehensive, makes a separate health corpus buffer unnecessary — sub-limits, room-rent caps, and co-pays still apply, and the age-cap removal changes whether you can buy a policy, not how completely it will pay out on a large claim. It also does not mean every older applicant will get an affordable premium simply because insurers can no longer refuse them outright on age — underwriting and pricing can still make a fresh policy expensive enough to be a hard budgeting decision, even where it is no longer a legal impossibility. Treat the regulatory change as removing a cliff-edge, not as removing the need to plan and budget for the cost climb that remains.

Frequently asked questions

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.

Can insurers still reject a health insurance application from an older applicant?

They can no longer refuse solely on the basis of age past a fixed cutoff under the 2024 Master Circular, but they can still decline or price cover based on health status and other underwriting factors — age alone is no longer an automatic bar, but it isn’t a guarantee of easy or cheap approval either.

What happens to my waiting period if I switch insurers through portability?

IRDAI’s portability rules require the new insurer to credit time already served under waiting periods and moratorium clauses with your previous insurer for similar cover, so switching to get a better renewal quote or product shouldn’t force you to restart those clocks from scratch — confirm this explicitly with the new insurer before switching.

Regulatory source: IRDAI‘s Master Circular on Health Insurance Business, effective 1 April 2024, removed the general upper age cap for buying new health insurance and revised the pre-existing-disease waiting period and moratorium timelines. The reconstruction of Uday’s retirement arithmetic and the healthcare-inflation stress test are this article’s own.

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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. “Uday Deshmukh” is a composite character built to illustrate the mechanism, not a real individual.