For most retirees, healthcare is one of the biggest wildcards in their financial plan. You can budget for travel, groceries, or even taxes with some degree of certainty—but healthcare? That’s the X-factor. Costs are rising, insurance rules are confusing, and one unexpected diagnosis can throw even the best retirement plan off track.
If you’re concerned about healthcare expenses in retirement, you’re not alone. In fact, studies show that the average 65-year-old couple today may need over $300,000 in today’s dollars to cover medical costs throughout retirement. That’s a daunting number—but the good news is, with some planning and strategy, you can take control of the situation and protect your retirement income from being drained by medical bills.
Let’s walk through the concerns—and more importantly, the solutions.
Why Healthcare Costs Keep Rising
Healthcare costs have outpaced inflation for years. There are a few key drivers:
- Longer life expectancies mean more years of medical care.
- Higher rates of chronic conditions like diabetes and heart disease.
- Prescription drug prices continue to rise.
- Healthcare technology and innovation—while life-saving—often comes with a high price tag.
In short, we’re living longer and needing more care. That’s not a bad thing—but it does mean we need to be financially prepared for it.
Common Health-Related Expenses in Retirement
While Medicare covers a good portion of medical costs for those 65 and older, it doesn’t cover everything. Retirees are often surprised by what’s not included.
You may encounter:
- Premiums for Medicare Parts B and D
- Medigap or Medicare Advantage premiums
- Copays and deductibles
- Dental, vision, and hearing care (not covered by Medicare)
- Long-term care (like assisted living or nursing homes, also not covered)
- Out-of-pocket prescription costs
- Medical equipment or home health services
These can add up quickly—especially in the later years of retirement when healthcare needs often accelerate.
Strategies to Manage Healthcare Costs in Retirement
Fortunately, there are smart ways to plan for and manage these expenses. Here are the top strategies we share with our clients:
1. Choose the Right Medicare Plan
Your Medicare choices can significantly affect your healthcare costs. It’s important to understand the difference between:
- Original Medicare + Medigap + Part D – Greater flexibility and often lower out-of-pocket costs, but higher premiums.
- Medicare Advantage (Part C) – Typically lower premiums, but you’ll be restricted to a network and may pay more out-of-pocket for certain services.
The best option depends on your health, financial situation, and where you live. Review your plan annually during open enrollment to ensure it still fits your needs.
2. Budget for Healthcare in Your Retirement Plan
Many retirees build a budget that includes groceries, travel, and entertainment—but overlook a line item for healthcare. That’s a mistake.
We encourage clients to plan for rising medical expenses each year, just as you would with inflation. Consider using conservative estimates—3% to 6% annual increases—for healthcare-specific inflation.
If you haven’t already factored this into your retirement projections, now is the time to do so.
3. Consider a Health Savings Account (HSA) Before Retirement
If you’re still working and have access to an HSA-eligible high-deductible health plan, this is one of the best retirement planning tools available. Why?
- Contributions are tax-deductible
- Growth is tax-free
- Withdrawals are tax-free when used for qualified medical expenses
Even if you don’t need the funds now, you can let them grow and use them tax-free in retirement. After age 65, you can also use HSA funds for non-medical expenses without penalty (though income tax will apply).
4. Build a Long-Term Care Plan
This is one of the biggest blind spots in most retirement plans. Medicare doesn’t cover long-term care, and costs for assisted living, memory care, or in-home services can exceed $100,000 per year.
Your options include:
- Long-term care insurance (purchased in your 50s or early 60s)
- Hybrid life/long-term care policies
- Self-funding with earmarked investment accounts
It’s not a fun topic to think about—but ignoring it can create a massive financial burden down the road.
5. Maintain a Healthy Lifestyle
This may seem obvious, but it’s often overlooked in financial planning conversations: staying healthy is the best insurance policy.
Regular exercise, a balanced diet, preventive care, and staying socially active can all help reduce healthcare needs and costs in the long run. It’s not a guarantee—but it absolutely stacks the odds in your favor.
What We Tell Our Clients
We often hear retirees say, “I just want to know that I won’t be wiped out by medical bills.” And that’s a valid concern. But with proactive planning, you can create a retirement strategy that’s resilient—even in the face of rising healthcare costs.
Here’s what we recommend:
- Start planning early—preferably before you retire.
- Make healthcare costs a permanent part of your retirement budget.
- Review Medicare plans annually and adjust as needed.
- Consider long-term care solutions before you need them.
- Talk to a financial planner to model different scenarios and build in flexibility.
Final Thoughts
Healthcare will almost certainly be one of your biggest expenses in retirement—but it doesn’t have to be the one that breaks your plan. The key is to prepare thoughtfully, adjust as needed, and keep your plan in sync with your evolving health and lifestyle.
If you’re approaching retirement and wondering how healthcare fits into your financial picture, let’s talk. We’ll help you create a plan that keeps you covered—and confident—no matter what the future holds.
