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How To Handle Healthcare Costs During Retirement

As we grow older and look towards retirement, it’s often dreaming of the chance to slow down, enjoy more time with our hobbies and loved ones, and even perhaps travel. Our visions don’t often include how we will pay for our healthcare costs in our golden years.

Yet, healthcare costs exist and they need to be planned and budgeted for. Fortunately, with some research and preparation, you can have your health care plans in place so you can enjoy retirement as you should.

Healthcare Budget
Photo: Potapova

How Much Should You Budget?

First, let’s look at how much money you may potentially need for your healthcare costs. According to Fidelity, if a couple retires in 2022 at 65 years old, they could need around $300,000 during their retirement. The Employee Benefit Research Institute puts that number at around $325,000. Either way, it’s a significant amount of money. Looking at it from a “per year” perspective may be easier to swallow.

Per the AARP Public Policy Institute, in 2018, people with traditional Medicare coverage paid an average of $6,168 for medical insurance and services. And one out of ten people spent $11,000.

Of course, these are generalizations, and your age, health, and where you live will also contribute to your overall costs. It is, however, a good place to start.

Insurance Coverage
Photo: Images

What Will Your Insurance Cover?

Now that you have a general idea of how much money you may need over the course of your retirement, you need to make sure you have insurance coverage to make those costs a reality. You have to remember that you will no longer be working so there is a very high likelihood that you will no longer have employer-paid health insurance.

A large percentage of retirees use Medicare as their health insurance. Medicare is the federal insurance program for people 65 and over. There are different parts to Medicare.

  • Part A – This is thought of as hospital insurance. It covers hospital stays, skilled nursing facilities, hospice care, and some home health care. If you or your spouse paid Medicare taxes while working, there is typically no out-of-pocket premium for Part A.
  • Part B – This is the medical insurance. It covers doctors’ visits, medical supplies, outpatient care, and preventative services. In 2022, the standard out-of-pocket premium for Part B was $170.10.
  • Part D – This is the prescription coverage arm of Medicare. It also covers recommended vaccines and shots.
  • Medicare Advantage – Yes, there is a fourth item. This is a privatized version of Medicare. It’s private insurance coverage that has been approved by Medicare as an alternative to Original Medicare. It is usually one policy that covers all three above parts and sometimes even includes some things that Medicare doesn’t, such as dental or vision insurance.

It is important to remember the things that Medicare doesn’t cover so you can plan for them on your own as needed. It doesn’t cover dental, vision, or long-term care.

Long-Term Care Insurance

Is Long-term Care Insurance Worth Getting?

Since long-term care insurance isn’t covered by Medicare, is it worth paying for your own coverage separately? Yes, it is. It’s not enjoyable to think that as you age you may need to spend time in a nursing home, but the potential for it to happen, especially close to end-of-life, is very common.

This care can be incredibly expensive. According to Genworth, in 2021, the median cost for a private room in a nursing home was $108,405 per year. Long-term care insurance can help alleviate this cost.


The premiums for this insurance are not cheap. They are less than the actual care but are still expensive. One option to keep costs down is to instead purchase a life insurance policy with a long-term care rider. If you need long-term care, you can use all or part of your death benefit payout to cover those costs.

Health Savings Account
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Save Money With A Health Savings Account

One option to save up for your health care costs is with a Health Savings Account (HSA). HSAs are offered as part of a high-deductible health insurance plan and offer tax benefits when used. In 2022, you could contribute $3,650 as an individual and $7,300 as a family to an HSA each year. The money you deposit into the account is tax deductible. Prior to age 65, money that is withdrawn for approved medical expenses is tax-free. Money not used is rolled over from year to year.

If you withdraw funds that are not for approved medical expenses you are penalized–unless you are 65 or older. After you turn 65, you can withdraw funds for medical or non-medical purposes. It’s tax-free for medical reasons and taxed normally for non-medical reasons. Because of this, some retirees will use the HSA account as a secondary retirement account.

Retire and Relax

Retire And Relax

No matter how much you want to avoid it, you will have healthcare costs in your retirement. And they will likely be increasing every year. Thinking about and planning for those expenses now will free you up to relax and truly enjoy the retirement you’ve earned when the time comes.