health care costs in retirement

The Best Way to Prepare for Health Care Costs in Retirement


Health care in retirement is a big expense, and it could cost you a large chunk of your retirement money. Smart planning for health care ahead of time will help you better prepare to handle these retirement expenses. Planning a budget for health care costs and enrolling in a health savings account are two ways you can be ready to handle health care costs in retirement.

Plan for health care costs

Planning to save for health care costs should be a big part of your retirement plan. Sadly, health care costs add up for retirees thanks to inflation and will only continue to increase. To get an idea of the health care costs you should plan for, a couple retiring in 2019 at the age of 65 can expect at least $387,000 in health care expenses.

So, as you begin planning for health care costs in retirement, be sure to include all your expenses. These might be premiums, supplemental insurance, long-term care and out-of-pocket costs such as co-pays and deductibles.

  • Insurance premiums. Health care costs include insurance premiums. While you’re employed, insurance premiums are withdrawn from your paycheck, and your employer covers a portion of them. However, in retirement, you will pay the whole insurance premiums.
  • Supplemental insurance. Other insurance coverage, such as for dental and vision, is supplemental. There is also a Medicare Supplemental Insurance plan that covers the portions that Medicare does not cover. Supplemental insurance coverage varies, but generally, you should budget at least $200 in monthly premium costs.
  • Long-term care insurance. Long-term care covers nursing homes, adult daycares, or assisted living expenses. It can be quite expensive, and you can expect to pay at least $2,000 a year for these services. There are several alternative options to help provide the income needed for long-term care expenses. Talk with one of our Financial Advisors to learn more.

Start a health savings account

If you want to set aside money in a separate account solely for medical expenses, a Health Savings Account (HSA) is worth considering. Enroll in a high-deductible health plan to start a health savings account.

A Health Savings Account helps you save money to cover your medical expenses. The money you withdraw from an HSA is tax-free when you use it to pay for qualified medical expenses. Also, you can use the funds to pay for what Medicare does not cover or for long-term insurance (which can be costly).

  • Withdrawals from an HSA are tax-free. When you withdraw funds you’ve added to a Health care Savings Account, that money is tax-free when you pay qualified medical expenses, such as office co-pays, deductibles, and dental or vision visits.
  • HSA covers costs not normally covered by Medicare. Although you might think Medicare will cover your medical expenses, you’ll find that it does not cover as much as you thought. This is because Medicare has several parts or coverages (Part A, Part B, and Part C). Further, certain coverages may not include prescription drugs, dental, or vision. So, you can use money from your HSA to pay for any expenses that your Medicare coverage does not provide.
  • Long-term care insurance premiums can be paid from funds out of an HSA. Long-term insurance includes home health care, nursing home care services, and living assistance or adult daycare. Medicare does not cover long-term care, and the cost can go up with a longer lifespan.

Other ways to manage health care costs

If you’ve maxed out your HSA contributions or are not eligible, you can use other options to manage your costs. For example, you can separate funds for medical expenses, delay receiving Social Security benefits, maintain your health to reduce your medical costs.

  • Devote one source of income to health care expenses. Maintaining a separate account strictly for medical expenses is a way to budget your health care costs. Some retirees decide to return to the workforce (for different reasons). If they do, that extra income can go solely toward health care expenses.
  • Wait to receive Social Security benefits. When you delay receiving Social Security benefits, the percentage you’ll receive increases. For example, the Social Security Administration explains that you’ll receive about 132% of benefits when you retire at 70.
  • Stay healthy and take medications as prescribed. Listen to your doctor and keep taking your medications. Staying healthy is one simple way to reduce your health care expenses.

Are you ready for the health care costs in retirement? Start planning for health care expenses today and include them in your budget and retirement plan. If you want to learn more about creating the income you deserve in retirement and learn how to cover medical expenses like those described, join us at one of our upcoming  Retirement 101 classes.