Most Retirees Budget for Groceries and Travel—But Forget This Major Healthcare Cost

Missy E
November 14, 2025

Key Takeaways

You may have planned well for everyday expenses like food and vacations, but failing to account for long-term healthcare costs—particularly long-term care—can upend your retirement budget.
Public sector retirees must understand how gaps in coverage under Medicare and FEHB (or PSHB for postal retirees) can expose them to substantial out-of-pocket healthcare spending.

Why This Healthcare Cost Is Often Ignored

When you imagine retirement, your focus likely shifts to lifestyle goals—relaxation, travel, maybe spending more time with grandchildren. You may have diligently budgeted for groceries, home maintenance, and even inflation. But many public sector retirees overlook a large and often unpredictable expense: long-term healthcare costs.

The most underestimated category? Long-term care services, which include assistance with daily activities such as bathing, dressing, eating, and mobility. These costs are not covered by traditional Medicare, and most health insurance policies don’t cover them either. This gap can create financial strain during a period when you may already be managing fixed income sources like a FERS annuity or TSP withdrawals.

What Long-Term Care Really Means in 2025

In 2025, long-term care includes both in-home services and care provided in facilities such as:

Assisted living communities
Nursing homes
Adult day care centers

These services are generally needed for chronic conditions or during recovery from acute events like strokes or surgeries. While these needs often increase with age, they can also arise unexpectedly at any time. The U.S. Department of Health and Human Services has previously reported that more than 7 in 10 people turning 65 will need some form of long-term care in their lifetime.

And yet, many retirees assume their FEHB or Medicare plan will handle it.

What Medicare Actually Covers—and What It Doesn’t

Medicare in 2025 provides excellent coverage for acute medical conditions and hospital care. Under Part A and Part B, you’re generally covered for:

Inpatient hospital stays
Doctor visits and lab tests
Preventive screenings
Short-term skilled nursing (with strict eligibility requirements)

However, Medicare does not cover custodial care. This includes non-medical assistance like help with bathing, dressing, or using the toilet—exactly the kind of care most people eventually need.

Even if you qualify for skilled nursing care, Medicare only covers it for up to 100 days per benefit period, and even that coverage tapers off after 20 days unless you meet specific criteria.

FEHB and PSHB Plan Limitations in 2025

If you’re a public sector retiree, you might expect your Federal Employees Health Benefits (FEHB) or Postal Service Health Benefits (PSHB) plan to fill in the gaps. While these plans offer broad coverage for hospital and outpatient care, they also do not provide full coverage for long-term custodial care.

Some plans might offer limited home health services or short-term rehabilitation, but that is not a substitute for extended personal care or assisted living facility costs. Moreover:

FEHB and PSHB plans typically have limits on in-home skilled nursing or therapy visits.
These plans do not coordinate directly with Medicaid.
There is no dedicated long-term care benefit included.

That leaves you responsible for a major portion of long-term care costs, unless you have made separate financial or insurance arrangements.

The Role of Medicaid—But Only If You Qualify

Medicaid is the joint federal and state program that does cover long-term care—but qualifying isn’t easy. In 2025, to be eligible for Medicaid long-term care coverage, your income and assets must fall below strict state-level thresholds. For many public sector retirees with pensions and TSP savings, that means:

You must spend down your assets significantly.
You may need to go through a five-year lookback period to verify no assets were transferred to qualify.
Your options for facilities and services could be limited.

Planning to rely on Medicaid as a long-term care solution can jeopardize your financial independence and limit your care options.

What Long-Term Care Services Actually Cost in 2025

While you won’t see exact dollar amounts in this article, it’s important to understand the types of costs you may face:

In-home care costs can mount quickly if you need help with activities of daily living multiple times a day.
Assisted living communities charge monthly fees that vary based on services, room type, and location.
Skilled nursing facilities—especially private-pay ones—often represent the most expensive care.

These are not one-time expenses. Once long-term care begins, the need can stretch over months or years. Budgeting for a single year of care may not be enough.

Why Public Sector Retirees Are Especially Vulnerable

As a government employee, your retirement is likely built around predictable benefits: a defined annuity, Social Security, and TSP withdrawals. This structure gives you stability—but not necessarily flexibility.

Here’s how long-term care can disrupt that structure:

Your annuity may not rise fast enough to keep pace with rising care costs.
TSP withdrawals can create taxable income, which may affect Medicare premiums or even push you into IRMAA brackets.
Diverting funds from TSP or other savings for care could leave your spouse or dependents financially exposed.

Even well-planned retirements can be thrown off course if these potential costs aren’t factored in.

Options for Planning Ahead in 2025

Fortunately, there are planning strategies available today that can help protect your retirement finances and ensure that long-term care doesn’t catch you off guard.

1. Explore Dedicated Long-Term Care Policies

These insurance policies specifically cover custodial care, whether at home or in a facility. While premiums can be high, applying earlier in retirement can lower the cost and increase your chances of approval.

2. Consider Hybrid Financial Products

Some retirees explore financial tools that combine life insurance or annuities with long-term care benefits. These products are complex and should be reviewed with a licensed agent to determine if they’re a good fit for your situation.

3. Use TSP and IRA Withdrawals Strategically

Since TSP distributions are taxable, withdrawing large sums later in retirement to pay for care can create tax spikes. Planning phased withdrawals, or even Roth conversions early in retirement, can provide more control.

4. Understand the Medicaid Spend-Down Rules

If you believe Medicaid may be part of your care plan, it’s wise to learn the rules now. Asset protection strategies (like irrevocable trusts) require planning years in advance.

Don’t Forget Your Spouse or Dependents

Retirement planning often centers on the primary account holder, but long-term care issues affect more than just you. If one spouse needs care, the other may see a rapid depletion of shared resources.

Additionally:

Your survivor benefits could be impacted by premature drawdowns.
Health plan premiums may continue for your spouse even if you pass away.
If your spouse later requires care, they may have even fewer resources available.

It’s critical to plan with the whole household in mind.

Building a Healthcare Safety Net Is Not Optional

You can’t predict when or if long-term care will be necessary—but failing to plan for it is one of the most common financial blind spots in retirement. As a public sector retiree, your benefits form a strong foundation, but that doesn’t mean they can cover every eventuality.

Take action now:

Review your current coverage under Medicare and FEHB or PSHB.
Talk to a licensed agent listed on this website to explore strategies like long-term care insurance or hybrid products.
Build contingencies into your retirement withdrawal plan to account for unexpected care costs.

Preparing now helps ensure that a single healthcare event won’t unravel your entire retirement.