It's not inflation or even market performance that presents the biggest risk to your retirement plan. It's unexpected medical expenses.
Indeed, health-care costs are often overlooked—or underestimated—by pre-retirees who are putting money away.
"As we age and live longer, our health deteriorates pretty heavily in the last five to seven years of life, and that's when we spend a ton of money," said Bob FitzSimmons, certified financial planner and president of Bob FitzSimmons Inc., a wealth management firm.
"I have quite a few clients who have burned through their capital in assisted-living facilities, spending $200,000 to $300,000. Generally, it's the adult children who have to come to the rescue.
According to the Employee Benefit Research Institute (EBRI), a 65-year-old couple with median prescription-drug expenses who retire this year will need $295,000 to enjoy a 75 percent chance of being able to pay all their remaining lifetime medical bills, and $360,000 to have a 90 percent chance.
Those figures factor in the premiums for Medigap and Medicare Part D outpatient drug benefits to supplement basic Medicare, along with out-of-pocket expenses for prescription drugs. They do not include the cost of nursing homes or long-term care insurance.
A 2013 study by Fidelity Investments, however, found that 48 percent of respondents, ages 55 to 65, believe they will need just $50,000 to pay for health-care costs in retirement.
Many assume that Medicare, the federal health-insurance program for those 65 and older, will cover the rest. Not so, financial experts say.
According to EBRI, Medicare currently covers only 62 percent of the expenses associated with health-care services. And seniors can expect to pay a greater share of their costs, as Medicare limits coverage and employment-based retiree health programs disappear.
"There's a huge gap between what people are planning for and what they will actually need to pay out of pocket," said Laura Bos, vice president of financial security, education and outreach at AARP. "It can be quite the sticker shock."
The best way to ensure that future health-care costs don't consume your savings is to determine within a reasonable degree of accuracy how much you may need, financial advisors say.
That figure fluctuates, based on your current health, lifestyle and family history. It also varies depending on who's crunching the numbers.
Fidelity Investments, for example, estimates a 65-year-old couple retiring this year will need roughly $220,000 to cover medical expenses, not including long-term care insurance throughout retirement. This is slightly less than EBRI projects.
"Start with an estimate for the national average and then take a look at your family history," said Donald Roy, a certified financial planner with New England Wealth Advisors. "Maybe your mom ended up being diabetic late in life, or your dad has a history of heart problems. Some people are more exposed to health risks than others."
Financial advisors frequently have access to tools that provide a health-adjusted life expectancy. But you can estimate that number on your own using the age-based life expectancy calculator from the Social Security Administration, adjusting the result to account for personal health history.
Invest for growth:
You should also earmark a separate account for retirement savings and invest those dollars for growth, FitzSimmons said.
"That can be difficult for retirees who worry that they may not have the time horizon to ride out a crisis like we saw in 2008," he said. "They won't let themselves take on risk, but that's your best protection against rising costs."
Unless your savings are sufficient to cover projected health-care costs, FitzSimmons said, the bigger risk is being too conservative with your portfolio.
Indeed, PricewaterhouseCoopers Health Research Institute reports the health-care cost inflation rate is projected to be 6.5 percent in 2014, down from 7.5 percent this year.
Thus, the traditional safe-haven investments favored by retirees, such as money market funds and Treasurys, which currently yield less than 4 percent, would fail to keep up with health-care inflation. That's a guaranteed loss of purchasing power.
For current retirees who are investing for health-care expenses, Roy recommends moderate allocation stock funds, which seek to provide both capital appreciation and income. His picks: First Eagle Global I [SGIIX], T. Rowe Price Capital Appreciation [PRWCX], Vanguard Wellesley Income [VWINX] and Westwood Income Opportunity [WWIAX].
Medigap supplemental insurance, sold by private insurance companies, can also help cover some of the health-care costs not paid by Medicare, such as copayments and deductibles. According to AARP, Medicare beneficiaries spend an average of $4,600 a year out of pocket.
To purchase a Medigap policy, you must have Medicare Part A and Part B. Medigap rates vary widely but can cost up to $175 per month, which you pay in addition to the premium for Medicare Part B. (The average Part B monthly premium is $104.90, according to Medicare.)
Keep in mind, however, that Medigap does not cover everything. It excludes long-term care insurance, vision and dental care, hearing aids, eyeglasses and private duty nursing.
Long-term care insurance:
You can create an additional financial safety net with long-term care insurance. Such policies are designed to cover long-term services and support, including assisted living, home care, adult day care and hospice—things traditional health insurance doesn't cover.
"Long-term care services can cost hundreds of thousands of dollars, so long-term care insurance is certainly something to consider," said AARP's Bos.
Not everyone requires assisted living in their later years, however, and long-term care coverage does not come cheap.
As such, it's important to consider how much money you already have set aside for health-care costs and purchase only the amount of coverage you actually need, according to the Department of Health and Human Services.
You may have enough income, for example, to pay a portion of future costs and purchase only a small policy to cover the balance.
Make sure, too, that you can afford the policy payments over time as your monthly income changes, HHS advises.
If you do plan to buy, don't wait too long.
When you start having health problems, health insurance companies may deny you coverage for long-term care coverage, financial experts say. You also will pay increasingly higher premiums as you grow older.
The LTC insurance calculator provided by Genworth Financial shows that annual premiums for a 50-year-old female are roughly $1,636, but $3,657 for a female age 65.
Health savings accounts:
If you're still earning a paycheck, and your employer offers a high-deductible health plan, you are also eligible to establish a health savings account (HSA).
HSAs are funded with pretax dollars, the earnings grow tax-free and your withdrawals are tax-free, if used for qualifying medical expenses. Any money you accumulate in the HSA can be used as needed, or saved to help offset future medical expenses during retirement.
The account is also portable, meaning it comes with you if you change employers or quit your job.
"I always ask my clients what they have available at work by way of health insurance, and if they have an HSA, we try to utilize it," Roy said. "The tax deductions help and if it does build some value down the road, they can use it to support some of those medical costs in retirement."
There are limits, however, to how much you can contribute each year to an HSA. In 2013, individuals can save up to $3,250 and families can save $6,450. Those 55 and older can save an extra $1,000.
Don't retire too early:
The other big factor that impacts your ability to meet future medical expenses is the age at which you retire.
Those who quit their job before they are eligible for Medicare at age 65 typically have to purchase private health insurance to bridge the gap.
That can amount to $15,000 a year or more, said Roy, which can quickly deplete the savings you reserved for health-care costs.
An early retirement, he noted, also deprives you of those crucial extra years to sock money away.
A 60-year-old with a 401(k) that's worth $500,000 and earns 7.5 percent interest a year, for example, could grow his or her nest egg an additional 66 percent, to $832,392, by continuing to make the maximum monthly contribution for five more years, said Roy.
"People are often shocked when they figure out what private health insurance will cost them," he said. "They don't always have a good understanding of how much their employer is subsidizing."
Unexpected medical costs can derail your retirement plan faster than you can say "hip replacement."
The best way to avoid a savings shortfall is to plan ahead, invest for growth and use supplemental insurance, where appropriate, to pick up where Medicare leaves off, experts say.
"Planning for health-care costs in retirement is critical," Bos said. "Sit down, run the numbers and have a realistic picture of what it's going to cost you."
This piece originally appeared at CNBC.com.