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Tips for Planning For Healthcare Costs in Retirement

There are things in life that are well worth the anticipation. Like a refreshing pool on a sizzling summer day. .And then there are things in life that just don’t live up to the hype. Like finding out Medicare is not actually free.  

It is a common misconception that once you turn 65, Medicare will cover all your healthcare needs. The truth is there will still be premiums and out-of-pocket costs that—according to the Fidelity Retiree Health Care Cost Estimate—will add up to $295,000 per couple over time. That number includes Medicare premiums, deductibles, and copayments, or coverage to fill in the gaps. Those figures will of course depend on issues like your health, longevity, when and where you retire, and which accounts you use to pay for healthcare.


Medicare Costs

To prepare for retirement healthcare costs, it’s important to understand the breakdown of Medicare expenses.


  • 40%

40% of the expenses cited in the Fidelity study translate into Medicare premiums. Though Medicare Part A, which covers hospitalization is free for most people, Part B which covers physician services and outpatient care costs $144.60 per month.


  • 20%

Medicare does not cover prescription drugs so you will have to buy Part D prescription drug coverage which averages about $32.00 per month but can be more or less depending on which drugs you need and the plan you choose. And there may still be out-of-pocket costs for medicines not completely covered, which according to the Fidelity data will be 20% of your total.


  • 40%

 According to Fidelity, the final 40% of expenses comes in the form of Medicare deductibles and copayments. The 2020 Medicare Part A deductible is $1,408. There may also be a $352 daily copayment for long-term hospital stays of between 61-90 days. Medicare Part B has a $198 deductible which generally means you are responsible for 20% of the cost of doctor services. Most Medicare subscribers buy a Medicare supplement policy to mitigate those costs. Prices for that coverage vary, but according to eHealth Medicare, will average around $152 per month.


Medicare Advantage

There is another Medicare option called Medicare Advantage that is sort of a Medicare one-stop-shop. You would not need a supplementary plan or Part D prescription coverage. There are pros and cons to consider with your medical financial planner. On the plus side, premiums are much lower, and can even be zero. But on the other hand, you may deal with a limited network of providers and hospitals and more out-of-pocket costs per year.  

Stockpile Your HSA

If you currently have a health savings account (HSA) eligible health insurance policy with a $1,400 deductible for self-coverage and $2800 for family coverage, you can make tax-deductible contributions of specified amounts and use it at a later date after Medicare has kicked in. You cannot make any contributions to the HSA account after you enroll in Medicare but whatever money you have leftover in the account can pay Medicare expenses—as well as dental and vision costs that are not covered by Medicare—until it runs out.

Think Long Term

Though long-term care insurance has become more expensive over the past few years, under certain circumstances, it is worth considering to mitigate costs down the road. An unexpected long-term illness can deplete your resources. You and your healthcare expert may decide it is the right path for you.

The best plan for retirement is the one that carefully considers your personal circumstances. Consult an expert who can take the sum of your health and finances to create the perfect equation for your retirement healthcare.