Healthcare costs are one of the biggest and most commonly underestimated expenses you’ll encounter in retirement.
According to Fidelity, a 65-year-old retiring today should expect to spend about $165,000 on medical expenses in retirement. For couples, that figure rises to $330,000.
The good news is that with early, intentional planning, you can be well-positioned to handle these expenses without putting unnecessary strain on your retirement savings.
In this guide, we explore what contributes to healthcare costs in retirement, how they can impact your financial plan, and the proactive steps you can take now to stay financially and physically healthy in the years ahead.
Medicare premiums are the first thing you might have to budget for. You’ll pay monthly for:
Then there are out-of-pocket expenses like co-pays, deductibles, and the cost of medications that aren’t fully covered. The problem is that these expenses can add up fast, even if you have decent coverage. And because they’re ongoing, they can quietly reduce your retirement budget over time.
It is recommended to review your Medicare coverage annually, during the open enrollment period (Oct. 15 – Dec. 7) to ensure the plan you are enrolled in is still the best fit for your situation.
Below are some approaches you should consider for your healthcare costs.
If you’re still working and have a high-deductible health plan, establishing a health savings account (HSA) might be a smart move. This is because it allows you to:
If you can afford to pay your current medical expenses out of pocket, letting your HSA grow untouched can be a great way to create a strong healthcare fund for retirement.
Once you enroll in any part of Medicare, you can no longer contribute to an HSA. Because Part A coverage can be retroactive for up to 6 months, many people stop HSA contributions about 6 months before enrolling to avoid excess-contribution issues.
Long-term care can wipe out a retirement budget quickly if you’re not prepared.
Total long-term care costs can be significant and vary widely based on the type of care, the setting in which it’s provided, and your location. For instance, the national average for a private room in a nursing home is approximately $131,583 per year.
A few strategies recommended by financial advisors include:
Planning ahead, whether through insurance or savings, is one of the best approaches for shielding your retirement from the high cost of long-term care and medical expenses in retirement.
When evaluating LTC solutions, discuss: benefit amount, inflation riders, elimination period, benefit period, shared‑care riders, underwriting considerations, and liquidity trade‑offs with hybrid policies.
Roth IRAs can be a great way to manage medical expenses in retirement, largely because qualified withdrawals don’t count toward your adjusted gross income (and thus MAGI for IRMAA). This means you can avoid triggering Medicare premium surcharges (IRMAA) and may get the care you need without paying more than you have to.
Qualified charitable distributions (QCDs) let IRA owners age 70½+ send funds directly to qualified charities. QCDs can satisfy all or part of your RMD without increasing AGI, helping manage IRMAA and other AGI-based thresholds.
In your after-tax (taxable) accounts, reduce ongoing tax drag by using tax-efficient asset allocation: prioritize broad-market equity index funds/ETFs with low turnover; consider municipal bonds (when you’re in a higher bracket) rather than taxable bond funds; and avoid holding REITs, high-yield bonds, or high-turnover strategies in taxable accounts when you can place those in tax-deferred accounts instead.
With the rising cost of healthcare, planning ahead for medical expenses in retirement is more important than ever. Without a solid strategy, unexpected bills could quickly erode the savings you’ve worked so hard to build. The earlier you prepare, the more flexibility and ease you can experience.
At Wealth Advocate Group, we focus on helping you create a retirement plan that not only supports your lifestyle but also accounts for future healthcare needs. Let’s work together to preserve your nest egg and shield your legacy for decades to come. Reach out to us at Contact@Wadvocate.com or 440-505-5578 to schedule an introductory consultation.
Lauren Coverdale joined Wealth Advocate Group in 2019 as an intern. Upon completion of her undergraduate degree, she joined the team as a paraplanner. Then, after obtaining her CFP® designation in 2023, Lauren transitioned into the role of Wealth Advisor, offering comprehensive financial planning to our clients. Lauren graduated from John Carroll University in 2020 with a Bachelor of Science in Business Administration with a concentration in Wealth Management and Financial Planning as well as a minor in Entrepreneurship. In 2021, Lauren also obtained a Master in Business Administration from John Carroll University. She also holds her Series 7 license through LPL Financial and 66 securities licenses through LPL Financial and Stratos Wealth Partners. In her spare time, Lauren enjoys being outdoors, traveling, and spending time with her husband and their dog, Indi. To learn more about Lauren, connect with her on LinkedIn.
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