Healthcare Planning in Retirement - and 3 types of costs to consider

Healthcare Planning in Retirement - and 3 types of costs to consider

November 09, 2021

Investors should consider their ongoing health as an integral part of their wealth when planning for the future. The cost of healthcare has been rising steadily in recent years. A healthy 65-year-old couple who retired in 2020 will now need $295,000 to cover medical expenses during retirement. This doesn't include long-term care, which can easily skyrocket into hundreds of thousands, hitting the savings of those who have not planned.

Many are unprepared for the rising costs of healthcare. It's essential to ready yourself financially for Medicare premiums, deductibles, copays, and out-of-pocket costs. According to the 2021 Retirement Confidence Survey (RCS), nearly 1/3 of workers state they are "not confident" that they can save enough for medical expenses in retirement. They're right to be worried: medical expenses are one of the highest costs in retirement. 

The Rising Costs of Health Care

One reason for the high cost is inflation – health care expenses rise faster than other costs – but it also has to do with people living longer and the need for more advanced treatments. This holds especially true for women, who, as we've written earlier, are more likely to outlive their spouses and need assisted living in their twilight years. A government report from the Physicians Foundation identified seven critical causes behind the ever-increasing costs of healthcare in America

  • A growing population, 
  • An aging demographic, 
  • Chronic conditions (up to 75% of all health care costs)
  • Greater utilization of hospitals and doctors
  • High price physician/clinical services
  • Pharmaceutical costs
  • The intensity of end-of-life care ("We end up spending about a third of our overall health care resources in the last year of life")

Losing Your Employer-Sponsored Health Care Coverage

Unlike previous generations – who could depend on employer or union-sponsored plans – today's retirees likely won't have access to the same healthcare coverage. They will have to navigate federal health insurance (Medicare) and/or the private insurer marketplace. It's up to individuals to familiarize themselves with health costs and to allocate a portion of their retirement budget to life's ongoing expenses. Financial planning is just as important as physical fitness to enjoying your golden years in good health.

3 Types of Health Care Costs You Must Plan For

Planning now and understanding your options will save you the stress of finding quality health care after you leave the workforce. There are three main categories of healthcare costs in retirement:

  1. Medicare Premiums
  2. Healthcare Copayments
  3. Services Not Covered by Medicare


There's a lot to understand about Medicare, especially Parts A and B. Part A covers hospital expenses, while B is covering doctor and outpatient expenditures. If you or your partner paid Medicare taxes while working, Part A (Hospital Insurance) is premium-free. However, Part B has a monthly premium based on your adjusted gross income (AGI).

This is a standard monthly cost of $170.10 in 2022 (or higher depending on your AGI) for most retirees. But it can reach a maximum of $578.30/month if your income is higher. You must also meet a deductible of $233, after which you only must pay 20% of the Medicare-Approved Amount for most doctor services. This includes hospital inpatient services, outpatient therapy, and durable medical equipment (DME), like walkers, wheelchairs, hospital beds, etc.


Other private health insurance plans can help to fill the gap left by Medicare (often called "Medigap"). However, after you've met the deductible costs for Medicare, there are still copayments to consider that are not supplemented.

Copays are flat fees you must pay per visit or service – they're usually cheaper than health insurance premiums. However, don't underestimate them in your retirement budgeting!

Medigap plans with lower premiums have higher copayments (and vice-versa). You may be better off paying a higher premium but not having to pay out-of-pocket expenses for specialist visits, prescription costs, and other healthcare needs, etc. Before selecting what level of supplemental insurance will suit you best, compare the different premiums and copays. Factor in the number of medical appointments you anticipate for the year.

Remember, you can change your Medicare plans as your life changes, but it is wise to enroll on time with Parts A, B, and D to avoid incurring ongoing penalties that may apply for the rest of your lifetime. Another trap to watch out for is that Medigap plans may have two sets of deductibles and copays: in-network and out-of-network providers. This can affect your out-of-pocket. 


Finally, there are healthcare needs that Medicare may not cover. These costs are where you can really feel the pinch, especially because one of the most expensive – Long-Term Care – is not included. The needs and medical costs of the last years of life can be disproportionately weighted. According to a Bipartisan Policy Center report (2017), the average 65 year old will need to allocate $138,000 of their savings to long-term care costs.  There are also some basic healthcare service expenses that retirees may be surprised to discover that Medicare does not cover, including:

  • Most dental care (including dentures)
  • Optical exams for prescribing glasses
  • Hearing exams for fitting aids
  • Cosmetic surgeries
  • Routine foot care

Fortify Your Health Savings Account 

With some preparation and the right financial advice, you can manage your retirement with grace and not let the high price of medical care put a damper on your golden years. If you are nearing retirement or recently retired, discuss with a financial planner the health care costs that may be expected in the future – so they can properly help you plan in the present.   For example, if you're age 50 or above, you may be able to make catch-up contributions to your 401(k) or IRA to compensate for any shortfalls. You can also make additional contributions to your HSA every year if you are over 55.

The amount you'll need to save for health care will vary depending on how healthy you are, and how long you live. But did you know how much you pay for health care can depend on which accounts you use: your 401(k), HSA, or IRA? For instance, withdrawals from an HSA are tax-free for qualified medical expenses (making it in many ways a better option).

Make the most of your pre-and-early retirement to max out your healthcare savings plans and remember: "The Greatest Wealth is Health." Start protecting it today with the best financial advice