Personal Healthcare in Retirement – Handling the Costs

How Long Will You Live

When it comes time to plan for how much you will need to save for your retirement, healthcare costs play an instrumental role. Many are unsure exactly how much they will need to pay their healthcare costs during retirement. There are numerous factors that go into this, including how long you will live.

Obviously, we cannot predict longevity, but if a single male reaches age 65, the probability of reaching age 80 is about 71%, according to the Social Security Administration. Additionally, the probability of them seeing age 85 is about 54%. For females, the percentage is statistically higher.

The probability of a 65-year-old female reaching age 80 is 80% and the probability of them reaching 85 is about 64%. Making sure you have enough money is an essential part of planning for not only healthcare in retirement, but retirement in general.

The healthier you are in retirement, the less money you will likely have to spend on a Medicare plan.

Enrolling in Medicare

At age 65, you are eligible to enroll in Medicare. What we are often seeing now, however, is that the average retiree is retiring at age 62. This means that many are experiencing a gap in their insurance coverage.

There are a few ways retirees can plan for this situation to make sure they are still covered by health insurance.

  1. By working part-time upon retirement, you could continue to receive benefits such as health insurance.
  2. Another way you could continue to be insured is by joining a spouse’s insurance plan.
  3. You could also enroll in the Affordable Care Act (ACA) which gives you affordable healthcare options if you are retired but not yet at the age to enroll in Medicare.

How Much Does Healthcare in the U.S. Cost in Retirement?

According to Fidelity, in 2021 the average 65-year-old retired couple in the United States needs approximately $300,000 in order to cover their healthcare costs in retirement. This does not even include Long-Term Care or dental care. Looking at this number as a lump sum can seem terrifying. However, looking at it as a total of annual expenses is easier for retirees to visualize. Of course, the total cost of healthcare varies for each person.

There are many factors that go into this equation, such as age, health, the state you live in and your age of retirement. There is no exact number of how much you will need to save for your healthcare costs in retirement, along with the many unexpected occurrences in life, which makes it more challenging to plan your savings.

Tax-Free Health Savings Account

If your employer allows, contributing to a Health Savings Account (HSA) before you retire could be a game changer. There are many out-of-pocket expenses in healthcare, and this account can help you pay for these costs. Additionally, withdrawals from this account are tax-free if they fit the specific qualifications for a medical expense. Another benefit of an HSA is that some employers will contribute to this account, as they would a 401(k) or other retirement savings account.

Talk with your employer to see if you are eligible to contribute to a Health Savings Account and find out if they will contribute to it. Out-of-pocket expenses can quickly add up but having a savings account for these expenses could help manage them as they come up.

Long-Term Care Insurance

Medicare does not cover the cost of Long-Term Care. This usually means you need separate insurance for Long-Term Care, if that is something you believe you may need at some time in the future.

Long-Term Care is one of the more difficult options to decide on when it comes to healthcare savings. Determining whether you need this specific insurance and if so, how much, can be overwhelming. There really is no right answer as to how much is enough.

According to the U.S. Department of Health and Human Services, at age 65, you have a 70% chance of needing Long-Term Care. Just because this might be the case, if you have someone that could be a caretaker, such as a child or spouse, it is possible that you may not need Long-Term Care insurance. There is no guarantee, however. It will depend on your situation. 

Fully Understanding Medicare Plans and Terms

Before we get into the various parts of Medicare, let us refresh on some key insurance terms. These are important to understand as you figure out which Medicare parts and plans are best for you.

Premiums & Out of Pocket Healthcare Costs

Premiums are what you pay for your insurance, annually or monthly. An out-of-pocket, or OOP, limit is the maximum amount of money you can spend in one year on medical expenses that are covered by your insurance. Both amounts vary by which plan you decide to go with, what state you live in, your income, and other crucial factors.

If you think you could incur substantial healthcare costs, having an OOP limit on your insurance could be beneficial, otherwise you might end up paying a lot of money for these services.


Deductibles are the amount of money you must pay for healthcare services or medications before your insurance will pick up the remainder of the payment. This amount varies amongst plans, so make sure you compare the different deductible amounts on various plans to see what works best for you and your potential health costs.

Copayments and Coinsurance

A copayment or copay is a flat amount that you would pay your healthcare provider after you have paid your deductible. This is a fixed amount you would pay for a service or prescription. The remainder of the cost of the visit, service, or prescription is paid for by your insurance.

Similarly, coinsurance is the same in that it is what you pay after you have met your deductible, but it is a percentage of your bill or service cost. This means the payment is divided between you and your insurance provider, to whatever percentage you are responsible for. 

Services not covered by Insurance

Depending on the plan you select, there can be some exclusions. Things like Long-Term Care, dental, dentures, cosmetic surgery, acupuncture, and others might be exempt from coverage. It is important to choose a plan that includes some of these if they are needed and would be costly for you. If there is a service still not covered by your plan, you could use savings accounts, such as a Health Savings Account, to pay for these items from a tax-exempt savings account. In this way, you would have a plan for how to pay for the services that are not covered.

Another way to pay for those costs that are not covered is by obtaining Medicare Supplement Insurance. This “Medigap” Insurance helps fill the gaps between what Medicare covers and what your costs are. This might be something to consider if you anticipate that your non-covered health care costs will be high in retirement.

Parts of Medicare

Medicare plans consist of four parts: Part A, Part B, Part C, and Part D. Which parts you choose to enroll in and pay for are up to you, and what you think is best for your individual situation.

  1. Part A is hospital insurance and refers to hospital stays and related care. Most people do not pay a premium for Part A but might have a deductible for some services.
  2. Part B is medical insurance. This includes visits to the doctor, medical supplies, and preventative care services. Additionally, Part B covers most things that Part A does not cover. If you choose to enroll in Part B, you pay a premium on this monthly.
  3. Part C is Medicare Advantage. Enrolling in this part gives you additional benefits and can help lower out-of-pocket costs. To enroll in Part C, you must be enrolled in Part A and Part B – this is additional to those parts. Most Medicare Advantage plans also come with Part D.
  4. Part D is prescription drug coverage. Sometimes with these plans, there is a premium as well. There are also different tiers of Part D that vary in deductibles, coinsurance, and gap coverage.

While this was just a basic explanation of the different parts of Medicare, it can be pretty confusing. To determine which part or parts are right for you, make sure you do your research and/or talk to a Medicare specialist. For more information on Medicare and which parts might be best for you, visit AARP’s Medicare Enrollment Guide, Step-by-Step Guide to Medicare Enrollment (

Overall, the cost of each of these depends on which parts of Medicare you choose. Make sure you weigh all your options, understand the terms of each choice, and select based on which you think will best suit you and your individual circumstances.

How Your Income Impacts Medicare Premiums

Your income plays a role in the cost of your Medicare premium. The amount of income listed on your tax return determines what cost threshold you will be in. Additionally, if you are married and file jointly, or married and file separately, those will also affect your Medicare premiums. 

How to Prepare before retirement

A major fear when it comes to preparing finances for retirement is healthcare cost planning. Many who are planning for retirement are unsure where to even start when it comes to saving money for healthcare in retirement. By planning for these costs, you can reduce the stress and anxiety of the high cost of healthcare.

One of the biggest healthcare costs in retirement is Long-Term Care.

If you think this is something you might need, you could then better allocate your money towards these costs. Planning can also reduce some of your costs. By strategically planning when to retire and start taking Social Security benefits, you can save on taxes.

Before taking Social Security, it is important to analyze your present and future tax goals. These questions should help you organize a plan:

  • At your current portfolio growth rate, how much will you be forced to take from your retirement accounts for Required Minimum Distributions?
  • What will your tax rate be after those distributions, and will that cause you to pay more to Medicare?
  • Are you charitably inclined?
  • Where will the income you need for retirement come from? Taxable or non-taxable sources?

Typically, in retirement, the less income you show, the lower your cost of health insurance, so taxes play a significant role in your retirement healthcare picture.

Other Retirement Healthcare Recommendations

There are many distinct factors that impact the amount of savings you will need for healthcare in retirement. Your health plays a significant role in that. The healthier you are, the more likely you are to live longer, meaning you will need to allocate more money towards your healthcare savings. At the same time, doing things like eating healthy, exercising, or staying active as much as you can, and visiting your doctor regularly can help you stay healthy and avoid potential health care costs.

Your age and longevity are also important to this equation. It is also essential to plan for the age you will retire and the age you will elect to begin collecting your Social Security Benefits. If you are retired, you do not necessarily have to take Social Security.

Some might need to collect Social Security Benefits to help in covering monthly expenses. It may make sense to delay your Social Security, not just because you will receive a higher monthly payout, but it can also allow you to manipulate your income and be at a lower tax rate for Roth conversions or to unload significant capital gains at a lower tax (or 0%) tax rate.

Where you live also plays a part in how expensive healthcare can be. Different states have different costs, premiums, coverages, and laws. 

Hiring the Best Financial Planner

To make planning easier and more understandable, consider talking to a financial planner. They can help you consider various plan options, pricing, and overall savings. A financial advisor can also help in planning for retirement in general and choices you have regarding collecting Social Security Benefits. The main fear when it comes to saving for healthcare in retirement, or even retirement in general, is whether you have sufficient knowledge and understanding of everything.

Many people do not even know where to start. Talking to a financial planner is a great place to start, just to get an understanding of what your options are, depending on your situation and your goals.

Here at Fuchs Financial, we look at the bigger picture. We look at estate planning, taxes, Medicare, Social Security, and other financial pieces that can affect your retirement. We make sure they are all working together and fit well, to solve your retirement puzzle. We work with you to create one strategic plan that makes sure all of these pieces come together – which is essential to retirement planning.

Before you decide anything about healthcare planning and saving, have a talk with a financial planner to make sure your various pieces are not only aligning, but are helping you achieve your financial goals.

Before you decide anything about healthcare planning and saving, have a talk with a financial planner to make sure your various pieces are not only aligning, but are helping you achieve your financial goals.

Ben Fuchs

Ben Fuchs, founder of Fuchs Financial, is a CERTIFIED FINANCIAL PLANNER (CFP®) and Certified Private Wealth Advisor (CPWA®) with over 15 years of investment experience.

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