Retirement planning is a complex process that involves a variety of considerations, such as investing, thinking about the type lifestyle you want, and estate planning. While it's never too late to start saving for retirement, it's best to start doing so as soon as possible to take advantage of compound interest on investments. Most experts suggest saving enough to live off about 80 to 90 percent of your pre-retirement income.
While this guideline factors in fixed costs like mortgage payments, transportation, utilities, and groceries, it doesn't necessarily account for health care costs which, depending on your health, can cost hundreds of thousands of dollars over your retirement. The average person, according to Fidelity, will require $165,000 to cover health care costs in retirement—and that doesn't even include dental services, non-prescription medication, or long-term care.
Here's a look at five things to know about healthcare in retirement, including strategies to maximize your savings for health-related expenses.
Average Health Costs
For married couples, the expected health care costs in retirement increase to $315,000, according to the Fidelity Retiree Healthcare Cost Estimate. Depending on your pre-retirement income and savings, this can be difficult to cover, especially if one person doesn't work or has substantially less savings than the other. This estimate also increases significantly if one or both people retire before qualifying for Medicare at age 65.
Average monthly costs for health insurance premiums for a 60-year-old is $1,079. If you retire at 60, that means you would have to spend $64,740 on monthly premiums alone until becoming eligible for Medicare. There are interim coverage options, however, including Consolidated Omnibus Budget Reconciliation Act (COBRA) continuation, health benefits offered by some employers for a period of 18 to 36 months after you retire, but this coverage is also expensive.
Costs can also vary dramatically near the end of life, particularly if you require in-home or assisted living care. The average cost for a home health aide was $33 per hour in 2023, while a room in a private nursing home cost an average of $120,300 per year. These costs are higher on both coasts.
Costs Expected to Increase
Younger Americans can expect to spend significantly more than the estimated $165,000 average for healthcare costs in retirement. According to the Centers for Medicare and Medicaid Services, healthcare costs are likely to increase by 5.6 percent annually until 2032. This accounts for prescription drugs, Medicare premiums, and other expenses, including coinsurance and copays.
Medicare Coverage
Medicare can be confusing, particularly when factoring in deductibles and coinsurance. Part A and Part B are the two core components of Medicare. Part A, which covers inpatient hospital visits and hospice and skilled nursing facility care, is premium-free assuming you have paid at least 10 years of Medicare taxes. Monthly premiums for Part B, which covers outpatient treatments and doctor visits, are determined by income. If you earn less than $103,000, your monthly premium for Part B in 2024 is $174.70. This increases to $594 for people who earned more than $500,000.
None of these plans cover prescription medications, but those who are eligible can enroll in Medicare Part D, which in 2024 had average monthly premiums of $55.50. Another option for prescription drug benefits are Medicare Advantage plans, offered by Medicare-approved private insurers. Some of these plans also include coverage for dental, vision, and hearing costs in addition to Part A and Part B expenses, but have high out of pocket expenses, and a more limited menu of providers to choose from. For many people, it may be cheaper in the long run to buy a Medigap, or Medicare Supplement policy, which covers the out of pocket costs for a small monthly premium.
Experts recommend choosing a plan that covers your current prescription medicines, and think carefully—as best you can—about your possible future needs. Remember that even if a plan does not cover one of your medicines, your doctor may be able to prescribe a generic version or an alternative medicine that is included.
Tax-Free Health Savings Accounts
If you can afford it, consider setting aside money in both a retirement account, such as a ROTH IRA or ROTH 401(k), and a health savings account (HSA). These investment accounts offer tax-free growth and tax-free withdrawals providing the money is being used for qualified medical expenses, including medical procedures, preventative screenings, and long-term care and Medicare premiums. Those 50 and older can maximize their HSA funding via employer and catch-up contributions.
Prioritize Health to Mitigate Costs
While you cannot guarantee good health as you age (or at any age), there are many things you can do to stay active and reduce your likelihood of developing certain diseases and medical conditions. In this way, you may be able to reduce your healthcare costs. Most importantly, you should start getting regular medical checkups and screenings in retirement if you haven't already. By knowing your risks for certain illnesses, you can take steps, such as lifestyle changes or taking medication, to possibly avoid high costs associated with those diagnoses.
It's also important to prioritize both physical and mental health. Low-impact exercises like swimming, walking, and yoga can provide heart-health benefits and build strength. Eating a balanced diet can also lower your risk for certain ailments. Don’t forget your mental health, either—connect with friends and family, socialize, and spend time doing activities you enjoy to reduce your risk for dementia and other conditions.