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, Insurance, Savings, Be prepared, Retirement
Published: March 18, 2022

While life expectancies are increasing, people may underestimate how long they’ll live and, accordingly, how much they’ll need to budget for healthcare. Additionally, it could be one of your largest expenses as you get older. Are you prepared to deal with these costs in retirement?

Answer these questions to gauge where you’re at, and then get some tips to help you feel more prepared.


Understand your Medicare options

1.   At what age do most people first become eligible to enroll in Medicare?

A.   59-1/2

B.   62

C.   65

D.  70


Answer: C. 65. You’re eligible to enroll in Medicare in a seventh-month window: three months before your 65th birthday, your birthday month, and three months after your 65th birthday. If you’re still working, you have the option to enroll when you turn 65 and another eight-month enrollment window after you stop working.


2.   Which of these statements accurately reflects the costs of Medicare?

A.   There are costs to participate in Part A of Medicare coverage for most people

B.   Most forms of Medicare coverage will require you to pay a premium and face out-of-pocket expenses

C.   You can delay Medicare for as long as you like with no penalty

D.  Medicare is free, and you won’t have any healthcare expenses in retirement


Answer: B. Most forms of Medicare coverage will require you to pay a premium and face out-of-pocket expenses. Medicare helps make health insurance coverage more affordable in retirement. But only the most basic form of Medicare (Part A, referred to as “hospital” insurance) is free for most. Additional forms of Medicare for covering doctor visits, clinic services, prescription drugs and surgical procedures require premiums. And you’ll still face out-of-pocket expenses.

Read more about your Medicare coverage options.


Set up an HSA now for healthcare costs in retirement

3.   If you’ve accumulated money in a Health Savings Account (HSA), in which of the following ways can that money be spent in retirement without incurring taxes on withdrawals?

A.   Purchasing prescription drugs

B.   Paying Medicare premiums

C.   Covering deductibles and co-pays

D.  All of the above


Answer: D. All of the above. Health Savings Accounts (HSAs) offer a way to accumulate targeted savings in a tax-advantaged way while you’re still working. While you can no longer make contributions to an HSA once you enroll in Medicare, you can continue to use the funds to cover insurance premiums and other out-of-pocket expenses.

Read more about how you can use an HSA in retirement.


Consider the possibility of long-term care

4.   Which of the following can help offset the costs of long-term care services, such as in-home or nursing home care?

A.   Medicare

B.   A Medicare Supplement policy

C.   Long-term care insurance

D.  A Medicare Advantage policy


Answer: C. Long-term care insurance. Almost 70% of Americans turning age 65 will require long-term care services and support at some point in their lives.3 If you should need specialized care later in life, either in-home or in an assisted living or nursing facility, Medicare offers limited support. Consider the benefits of having long-term care insurance (LTCI) in place to help you prepare for what could be debilitating costs during your retirement.

LTCI can be purchased as standalone policies or as a component of certain life insurance policies. Consider meeting with a financial professional now to review these LTCI options. The younger you are, the more affordable these policies are to fund long term care. 

Get more details about long-term care insurance.


Incorporate healthcare savings into your financial plan

5. How much can the average 65-year-old couple retiring now expect to pay in healthcare costs during retirement, not including long-term care?

A.   $380,000

B.   $240,000

C.   $150,000

D.  $500,000+


Answer: A. $380,000.Medical costs have been growing at a faster rate than the broader measure of inflation.2 This means costs of health insurance coverage and other medical-related expenses are likely to increase significantly over the course of retirement. Given the reality that you’re likely to face increasing medical issues as you grow older, there’s little doubt that healthcare will be a major expense category in retirement.

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

Read our retirement planning checklist to review other key issues to address on your way to retirement.



1 Why Health Needs to be Part of Retirement Planning. HealthView Services, 2019.
2 Source: Federal Reserve Bank of St. Louis. Consumer Price Index for all Urban Consumers for All Item (U.S. City Average) was. 18.7% from Dec. 2010 through Dec. 2020. Consumer Price Index for All Urban Consumers for Medical Care (U.S. City Average) was 32.3% during the same period.
3 How Much Care Will You Need? U.S. Department of Health and Human Services.