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How to prepare for healthcare costs in retirement 

Even if you’re in excellent health as you near retirement, it’s likely your healthcare costs will rise as you age. The good news is you can plan your healthcare savings.

Tags: Healthcare, Planning, Retirement
Published: August 04, 2020

A 65-year-old couple retiring now can expect to pay more than $387,000 for healthcare during retirement, while a 50-year-old couple planning to retire at 65 will be looking at a healthcare bill of about $405,000.¹ And while Medicare provides basic healthcare coverage for most retirees, it isn't free and it doesn't cover everything.

Here are six tips for getting an early jump on paying for healthcare in retirement.


1. Don’t just save — save with a plan

A step-by-step action plan can often help people keep working toward their goals. This is especially true when it comes to saving for retirement healthcare.

While life expectancies are increasing, most people underestimate how long they will live and, accordingly, how much they’ll need to budget for healthcare.

Meet with a financial professional to create a comprehensive health profile, factoring in a realistic estimate of your longevity and healthcare costs during that period, including vision exams, dental work, prescription drugs, medical equipment and potential long-term care. You’ll then have the basis for a specific cost estimate — and a concrete dollar goal.


2. Keep your healthcare savings in a separate account

Studies show that saving money in defined categories — for example, one for home improvements, another for healthcare — discourages people from using the money other than for its intended purpose.2

Keeping your healthcare savings in a dedicated account can help you avoid having to choose between paying for a new furnace or paying for your prescriptions.


3. Set up an HSA for your healthcare in retirement

If you’re still employed and too young for Medicare, consider creating a Health Savings Account (HSA), which accompanies high-deductible health insurance plans. HSAs let you set aside pre-tax dollars and withdraw them on a tax-free basis to pay for out-of-pocket medical expenses as needed.

A major advantage of an HSA is that any money you don’t use can remain in the account and continue to grow, giving you a source of healthcare funds in retirement. After age 65, any money you withdraw for nonmedical reasons will be subject to income tax — but withdrawals for healthcare will generally not be taxed at any time.

Once you enroll in Medicare, you can no longer make contributions to an HSA. However, you can use continue to use the funds to cover insurance premiums and other out-of-pocket expenses.


4. Consider purchasing a long-term care insurance policy

Don’t think you’ll need long-term care? You may be underestimating that risk, too.  Almost 70 percent of Americans turning age 65 will require long-term care services and support at some point in their lives.  What’s more, with few exceptions, Medicare doesn’t cover it.3

Long-term care includes services that assist in meeting your basic daily needs over an extended period of time, such as bathing, dressing, eating, housework, administering medications, and more. These services can be received in a variety of ways, such as your home or through an assisted living facility or nursing home.

The good news is that the younger you are when you sign up for long-term care insurance, the less it costs. If you’re in your 50s, start shopping around now with a view to purchasing a policy by your early 60s. By starting early, you may reap significant savings.


While life expectancies are increasing, most people underestimate how long they will live and, accordingly, how much they’ll need to budget for healthcare.


5. Touch your toes

Saving is a big part of retirement planning, but healthcare during retirement is also preventive. Pre-retirement is the ideal time to focus on diet, exercise, sleep and, if necessary, to get serious about priorities like losing weight and quitting tobacco products. 

Consider working with a trainer, nutritionist or healthcare professional to set fitness goals for yourself. Entering your retirement years in good health will allow you to do more of the things you enjoy and keep doing them longer. And, you may end up spending less on medical expenses.


6. Plan to be flexible

Just as we can’t accurately predict our own future, we can’t know what changes are in store for healthcare policy and how those changes will impact our lives.

But while it’s impossible to know exactly what Medicare, Social Security or the Affordable Care Act will look like 10 or 20 years from now, one thing is certain—healthcare costs will likely continue to rise. Don’t put off saving because the future is unclear. Start now to create a savings goal that suits your needs as you currently gauge them but be open to modifying it as circumstances change.



Learn more about retirement income planning.



¹ Health Care Costs in Retirement. Annuity.org.
2  Thaler, Richard. “Anomalies: Saving, Fungibility, and Mental Accounts.” Journal of Economic Perspectives. Winter 1990.
3 How Much Care Will You Need? U.S. Department of Health and Human Services.