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Guide to Healthcare Costs in Retirement


Retirement is often considered a great time to travel and do things you’ve been planning for years. You save and invest for multiple decades before deciding to stop working and move into the next phase of your life. Unfortunately, not everyone plans out their retirement expenses accurately, which can cause a shift in your budget. One of the costs that many don’t properly plan for is healthcare. More and more people are retiring before they become eligible for Medicare, and even the ones that don’t are surprised at what their healthcare options could cost. You may want to consult with a financial advisor who can help you create a financial plan to prepare for these costs.

How Much Can Healthcare Cost in Retirement?

The cost of healthcare is something that’s pinching the pocketbooks of people that are still working and getting access to an employer-sponsored health plan. These plans typically cost much less than other health insurance options so it’s no wonder that those preparing for retirement are worried about their potential costs of care. This is because it has become apparent that not properly planning for healthcare costs in retirement could negatively impact your future quality of life.

So how much does healthcare cost? According to a study by HealthView Services Financial, those who retired by the end of 2021 could expect to pay more than $660,000 just for healthcare during their retirement years. The study took into account using Medicare as the primary insurance when possible, and it expected individuals to live until their upper 80s.

This is because healthcare costs have been on the rise over the past decade and they don’t show any signs of slowing down, especially with where inflation is currently at. Healthcare that cost just $12,000 per year in 2019 is expected to cost more than $21,000 by 2029 and $34,000 by 2039.

A good estimate for what you’ll spend in retirement on healthcare is to set aside 15% of your income. If the expected costs are more than 15% of your expected income, then you may want to work with a financial advisor to figure out what you can do to better prepare for healthcare costs in retirement so that they don’t spoil your plans for that phase of your life.

Types of Healthcare Coverage in Retirement

You do have several options for the type of healthcare coverage that you’ll receive. The option you’re using could greatly impact what your yearly costs are going to be. If you retire early, you may need to combine a couple of options throughout retirement since you won’t yet qualify for Medicare.

Here are your healthcare coverage options in retirement and how each could impact your costs:

  • Medicare: This is the health insurance that many people rely on when they hit traditional retirement age as it is supplemented by the government. Many people make the mistake of thinking it won’t cost them anything like Medicaid, but it does. Still, this is likely to be the most affordable insurance coverage that you’ll have access to during retirement. Depending on the year, you could pay anywhere between about $150 and $600 per month for your premiums. This will depend on what your yearly income is. Medicare plans also have a deductible, and certain expenses like hospital stays could cost you more.
  • Private Health Insurance: You can buy health insurance coverage directly from a broker but this will likely be your most expensive option when you’re looking at retirement ages between 60 to 90. Many companies have options specific to retirees but these plans are generally focused on pre-Medicare-aged individuals. You will likely pay more for these plans than you’re currently paying for an employer-sponsored plan since you won’t have a company that is subsidizing your insurance.
  • Employer-Sponsored Insurance: Many businesses have a retirement insurance plan for employees that have worked for them for a very long time prior to retirement. You could buy into this plan and receive something similar to what you’ve been receiving when you were working at the company. There may be some changes that include you paying a little bit more of the premiums on a monthly basis or less coverage for things like hospital stays. Another option is that you could work part-time for a business that offers health insurance to part-time employees.
  • COBRA: When you retire you also have the option to continue with your exact same insurance through your employer for up to 18 months through COBRA. Your premiums will increase as you’ll be paying what you were paying previously plus the employer portion of your premium. This could be a good, but expensive option to bridge the gap between retirement and Medicare eligibility.
  • Insurance Marketplace: Similar to the private health insurance option, you can buy a plan on the marketplace on a state or federal exchange since you will no longer be covered or offered insurance by an employer. These plans are typically a bit more affordable than buying private insurance but you have to pay close attention to what each plan covers and doesn’t before agreeing to buy insurance. If you don’t have a large amount of income then you could also qualify for tax credits to help pay for coverage.
  • Insurance From a Spouse’s Workplace: If you’re older than your spouse and they are still working then getting access to their health coverage could be an option. This could be a good opportunity to bridge the gap to Medicare or just be an opportunity to lower your total health costs for a few years before your spouse retires.

No matter what route you choose, there are no easy or ultra-affordable ways to pay for health coverage during retirement. It’s important to prepare prior to retirement by making sure you have the right investments in place that will provide enough income for you to live the lifestyle you crave while being able to stay healthy.

How to Lower Healthcare Costs in Retirement

SmartAsset: Healthcare Costs in Retirement

While healthcare is expensive, especially during retirement, it doesn’t mean that there aren’t things you can do to lower your overall health costs. Preparing your budget and retirement income is something that everyone should do but here are a few more options that might help you lower costs, depending on your situation.

Make Sure You Understand Medicare

It’s important to get a good grasp on the various coverages of Medicare and what it could potentially mean for your situation. You may not get the best help when applying for Medicare so it’s important that you know what type of coverage you need and which will help you cut costs when you can. You should also become familiar with the qualification requirements so that you aren’t planning on one level of costs while the reality is that you’ll pay much more.

Have a Plan to Pay for Long-Term Care

Long-term care can be expensive and the need for it can come along quite suddenly. Getting into a good facility that provides top-notch healthcare while preserving as much independence as possible can be expensive. A lot of health insurance, including many types of Medicare, won’t cover long-term care even though the majority of people over the age of 65 will eventually need it.

You’ll want a plan in place to cover these costs, in the event you need to enter this type of facility. A private room at a facility providing full care can cost more than $7,000 per month, on average, while an assisted care facility can cost $4,000 per month or more.

Open a Health Savings Account (HSA)

Health savings accounts can be an excellent way to accumulate a bunch of funds that can only be used for the specific purpose of healthcare. If you currently have a high-deductible health plan, then you could qualify to contribute up to certain HSA limits annually. For 2022, the limits are $3,650 for yourself or $7,300 if you have a family plan. For 2023, the limits are $3,850 for yourself or $7,750 if you have a family plan.

If you open an HSA now you can use the funds to pay for unexpected health expenses now or keep rolling the funds over until retirement. This can give you quite a nest egg of funds to pull from over 10 or 20 years, which could cut down on how much of your retirement income will go toward your health.

Take Care of Your Health Now

The easiest way to lower your potential healthcare costs in the future is to take care of your health in the present. Eat right and exercise regularly. Those two things alone can make a world of a difference during your retirement years.

On top of that, take advantage of your yearly checkups with physicians that your current health insurance pays for, and take your doctor’s advice on how you can be as healthy as possible now so that you don’t pay for it once your retire.

Bottom Line

SmartAsset: Healthcare Costs in Retirement

One of the largest single expenses you’ll have when you retire is paying for your own healthcare. Estimates suggest that you could end up spending 15%, or more, of your yearly income on your health, so it’s important that you prepare your finances as early as possible so that your budget will work without sacrificing your retirement goals. There are things you can do now and during retirement that could cut your overall costs or provide you with the needed extra cash to cover these costs.

Tips for Retirement

  • Retirement can be a very exciting time, but you’ll want to make sure you’ve planned for all potential costs as you’re saving and investing. A financial advisor is trained to provide you with a proper financial plan that meets your goals. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Not sure how much money you’re going to need in retirement? You can use SmartAsset’s retirement calculator to estimate how much to save so that you aren’t caught off-guard when the healthcare expenses roll in.

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