top of page
  • Writer's pictureMark Fonville, CFP®

How Much Will Health Care Cost in Retirement?


How much will health care cost in retirement?

When it comes to retirement planning, one of the biggest unknowns is how much will health care cost in retirement?


Based on the Fidelity Retiree Health Care Cost Estimate, an individual who is 65 years old in 2023 is estimated to require around $157,500 in after-tax savings to adequately fund their healthcare expenses during retirement. Similarly, for a retired couple both aged 65 in 2023, the estimated necessary savings amount is approximately $315,000 to cover their healthcare costs.


We all know that life loves to throw unexpected plot twists at you, and knowing that you will have access to reliable health care in retirement can take an immense burden off your mind.


The rising cost of healthcare and potential medical emergencies pose threats to your retirement savings. However, adding health insurance and long-term care insurance to your planning process can help reduce the impact of medical expenses down the road.


By planning ahead, you can safeguard your retirement savings and maintain a higher quality of life. Be sure to download our free retirement checklists which include many insights around healthcare in retirement beyond the scope of this article.


In the article, we’ll further dissect the question “how much will health care cost in retirement.”


Understanding Healthcare Costs in Retirement


Welcome to the financial rollercoaster of your golden years. Healthcare. Retirees often confront many healthcare expenses. From Medicare premiums and deductibles to the costs of prescriptions, the healthcare journey in retirement can wear you down.


But wait, there's more! 





Dental and vision care, typically not covered by Medicare, introduce more concerns. Long-term care highlights the importance of planning for expenses in retirement. Beyond this, you might find yourself budgeting for medical procedures, specialist visits, or even home modifications. This can ensure your living space evolves with your health needs.


Healthcare cost you might face in retirement

Here are some common healthcare costs that you may face:


  • Medicare Premiums and Deductibles: While Medicare provides health coverage for retirees, it comes with premiums and deductibles. Parts A, B, and D may have associated costs, and retirees might consider supplemental insurance to fill gaps in coverage.


  • Prescription Medications: Many retirees need prescriptions to manage chronic conditions. Medication costs can add up, especially if your insurance does not fully cover the drugs.


  • Dental and Vision Care: Medicare typically doesn't cover dental and vision care. Retirees may need to buy supplemental insurance or budget for out-of-pocket expenses. This can be related to dental check-ups, glasses, or contact lenses.


  • Long-Term Care: The need for long-term care, either in a nursing home or through in-home services, is a big consideration. Long-term care insurance or personal savings can help cover these costs.


  • Medical Procedures and Specialists: Retirees might face costs from procedures, specialists, or outpatient services that are not fully covered by insurance. Copayments, coinsurance, and deductibles can add to out-of-pocket expenses.


  • Emergency Medical Expenses: Unforeseen events can result in big medical bills, even with insurance coverage. Having an emergency fund and insurance can help manage unexpected costs.


  • Health Insurance Premiums in Early Retirement: Before becoming eligible for Medicare at age 65, you may need to secure health insurance through other means. For example, the Affordable Care Act (ACA) marketplace comes with its own set of premiums.


While good health is priceless, financial planning can improve your well-being in retirement. It's essential to plan and budget for potential healthcare expenses to ensure a comfortable retirement.


Medicare and Supplemental Insurance

Medicare, federal health insurance for people aged 65 and older, has various parts offering coverage. Medicare Part A includes hospital stays, nursing facility care, hospice, and some home healthcare. This can come without a premium for those who have paid Medicare taxes.


Part B covers outpatient services, doctor visits, and preventive care, and requires a monthly premium. Medicare Part C, or Medicare Advantage, offered by private insurers, combines coverage from Parts A and B, often with benefits like vision and dental.


Part D provides prescription drug coverage through private plans, and you can opt for Medigap plans or private supplements to fill gaps in original coverage. Enrolling during the Initial Enrollment Period is crucial to avoid penalties. This can ensure you have a healthcare package tailored to your needs.


While Medicare provides essential health coverage for retirees, there are potential out-of-pocket costs and coverage gaps that you should be aware of. Some common examples include:


  • Deductibles and Copayments: Both Medicare Part A (hospital insurance) and Part B (medical insurance) can have deductibles and copayments. These costs can add up, especially if there are multiple hospital visits or outpatient services.


  • Part B Premiums: While most people don't pay a premium for Medicare Part A (if they've worked and paid taxes for a certain period), everyone pays a monthly premium for Part B. The premium amount can change annually and may be higher for people with higher incomes.


  • Part D Premiums and Copayments: Medicare Part D, which covers prescription drugs, comes with its own set of premiums, deductibles, and copayments. The costs depend on the chosen Part D plan, and some medications may only be partially covered.


  • Medicare Advantage Costs: If you opt for a Medicare Advantage (Part C) plan, you may face costs beyond the Part B premium. These plans often come with copayments, deductibles, and out-of-pocket maximums for covered services.


  • Long-Term Care: Medicare provides limited coverage for long-term care, such as nursing home stays or in-home care. Retirees can explore long-term care insurance to address these needs.


Supplemental insurance, often referred to as Medigap plans, is available to fill gaps in coverage. Private insurance companies design plans to help cover out-of-pocket costs such as deductibles, copayments, and coinsurance. Here are the standard Medigap plans available:


  • Medigap Plan A: This plan covers basic benefits. This includes Part A hospital coinsurance and costs up to an additional 365 days after Medicare benefits are exhausted, Part B coinsurance or copayment, and the first three pints of blood.


  • Medigap Plan B: Similar to Plan A, it also covers the Part A deductible.


  • Medigap Plan C: This plan covers almost all out-of-pocket costs, including Part A and Part B deductibles, Part B excess charges, and foreign travel emergency care.


  • Medigap Plan D: It covers all the benefits of Plan C except for the Part B deductible and does not cover excess charges.


  • Medigap Plan F: One of the most comprehensive plans, it covers all out-of-pocket costs, including both Part A and Part B deductibles, excess charges, and foreign travel emergency care. As of 2020, Plan F is not available to new Medicare beneficiaries, but those who enrolled before then can keep it.


  • Medigap Plan G: Similar to Plan F, it covers most out-of-pocket costs except for the Part B deductible.


  • Medigap Plan K: This plan covers some out-of-pocket costs, including Part A and B coinsurance or copayments, hospice care coinsurance, and the first three pints of blood.


  • Medigap Plan L: Similar to Plan K but with a higher percentage of cost-sharing coverage.


  • Medigap Plan M: This plan covers half of the Part A deductible and does not cover the Part B deductible.


  • Medigap Plan N: It covers most out-of-pocket costs, excluding the Part B deductible and excess charges.


Supplemental insurance can play a pivotal role in financial planning. That’s if you plan to rely on Medicare for healthcare. While Medicare provides essential coverage, the copayments, deductibles, and coverage gaps need a closer look. Supplemental insurance might come in handy.


These policies act as a safety net, helping to bridge the financial chasm left by out-of-pocket expenses. By adding supplemental insurance to your financial planning, you can gain peace of mind. Unexpected medical costs shouldn’t jeopardize your financial well-being during retirement. This approach can help you better manage healthcare expenses, maintain a budget, and ensure a more secure retirement.


Long-Term Care Considerations 

Health challenges arise as people age. And this is a crucial aspect of retirement planning. Long-term care can have a range of services, including live-in care, home nursing, and specialized treatments for illnesses, as well as residences for the elderly. Think of long-term care insurance as the superhero cape that protects your financial fortress from unexpected villains of high healthcare costs.


Long-term care considerations

Healthcare can be expensive, and without planning, it poses a huge financial risk for retirees. Exploring options like long-term care insurance becomes essential. Also, planning for living arrangements can help retirees maintain their quality of life while managing the costs of long-term care.



The cost of long-term care can be steep, and understanding options for coverage can improve retirement planning. Long-term care services, such as home health aides, assisted living facilities, or nursing homes, come with costs that can deplete retirement savings. Without adequate coverage, retirees may face financial challenges.


Long-term care insurance is one option to consider. It can provide a dedicated policy to cover expenses related to extended care. However, premiums for such policies can be expensive, and coverage may vary. Another option is hybrid or linked products, which combine long-term care insurance with life insurance or annuities, providing benefits for both scenarios.


Medicaid, a joint federal and state program, is an option for those with limited financial resources, but eligibility requirements must be met. Ultimately, planning for long-term care involves a balance of financial resources and insurance options. It’s also good to consider alternative strategies for a more secure financial future.


7 Steps to Budgeting for Healthcare Costs in Retirement


Budgeting is paramount for a financially secure and stress-free retirement. As you age, healthcare needs often increase, and without proper planning, medical expenses can become a huge burden on retirement savings. 


7 steps to budgeting for healthcare costs in retirement

To estimate and plan for healthcare expenses, consider the following tips:


  1. Understand Medicare Coverage: Familiarize yourself with Medicare coverage, including Parts A, B, and D. Knowing what is covered and any potential out-of-pocket costs will help you make informed estimates.


  1. Factor in Supplemental Insurance: If you plan to buy supplemental insurance, such as Medigap or a Medicare Advantage plan, include the premiums and potential out-of-pocket costs in your budget. These policies can help cover gaps in Medicare coverage.


  1. Estimate Prescription Medication Costs: Research the cost of medications you currently take and potential future prescriptions. Consider enrolling in a Medicare Part D plan or other drug coverage.


  1. Plan for Long-Term Care: Assess the potential need for long-term care, including home healthcare, assisted living, or nursing home stays. Investigate long-term care insurance and include potential premiums in your budget.


  1. Account for Dental and Vision Expenses: Original Medicare does not cover routine dental and vision care. Budget for regular check-ups, glasses, and potential dental work.


  1. Maintain an Emergency Fund: Save for unexpected medical or surprise expenses not covered by insurance. An emergency fund can provide a financial safety net.


  1. Invest in Healthy Living: Live a healthy lifestyle to reduce future healthcare costs. Regular exercise, a balanced diet, and preventive care can lead to overall well-being


By budgeting for healthcare costs and including these tips in your financial planning, you can navigate retirement with greater confidence.


Conclusion: How Much Will Health Care Cost in Retirement?


Imagine your retirement as the blockbuster movie of your life, and planning is your script. With a little financial flair and healthcare heroics, you're not just retiring, you're embarking on the epic sequel of a lifetime.


Navigating retirement planning can address many factors. It can range from Medicare and supplemental insurance to potential long-term care. Recognizing the value of budgeting for healthcare costs in retirement is a step toward securing a comfortable post-career life. Understanding Medicare coverage and the potential for long-term care, retirees can approach these topics with informed enthusiasm.


Ultimately, this approach to planning helps retirees embark on their golden years well-prepared for the adventures that await. Whether crafting a budget or exploring insurance options, the key is to make the retirement planning process not just a necessity, but a joyful and empowering endeavor.


We hope that you’ve found this article valuable when it comes to understanding how much will health care will cost in retirement? If you’re interested in reading more, please subscribe below to get alerted of new articles as we write them.


 

Mark Fonville, CFP

Author: Mark Fonville, CFP®


Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors specializing in helping individuals aged 50 plus plan, invest, and enjoy retirement without the stress of money.


Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine.



 

Disclosure: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place. Hypothetical examples are fictitious and are only used to illustrate a specific point of view. Diversification does not guarantee against risk of loss. While this guide attempts to be as comprehensive as possible but no article can cover all aspects of retirement planning. Be sure to consult an advisor for comprehensive advice.


Registration of an investment advisor does not imply a certain level of skill or training.

Don't Miss Out

Join 8,067+ individuals who receive our retirement insights by email and get a free copy of "Key Issues To Consider Before You Retire."

bottom of page