Retiree Healthcare Costs Are Rising: Are You Prepared?

Retiree healthcare costs are likely to be around $315,000 for a couple retiring today, so learn how to plan ahead.

Use These Savvy Tips to Plan Ahead

As you plan for the future, it’s important to consider that retiree healthcare costs will be one of your most significant expenses during your golden years. Unlike previous generations, most retirees today are likely to be without access to employer- or union-sponsored retiree health benefits. This means that, as you’re planning for retirement, you need to be sure that you’re adequately considering the impact that rising retiree healthcare costs could have on your financial security. In this article, you’ll find four tips to help you plan ahead to meet these expenses.

Retiree Healthcare Costs by the Numbers

Recent research by Fidelity shows that an average retired couple (age 65), can expect to spend around $315,000 on health care expenses in retirement. Due to longer lifespans, healthcare inflation, and younger retirement age, the healthcare cost hurdle is becoming more and more challenging. Many retirees assume that Medicare will cover all their healthcare costs in retirement, but that’s not the case. Instead, retirees need to be sure that they’re making considerable efforts to create a specific plan as part of their retirement planning that focuses solely on how they’ll be able to cover the cost of healthcare once they’re no longer working.

Below are four tips on how to plan for rising retiree healthcare costs to help you remain financially secure in retirement:

Retiree Healthcare Costs Tip #1: Include Health Care Costs into Your Retirement Budget

Too often, retirees and those getting ready to leave the workforce forget to budget for their retiree healthcare costs when they’re estimating their expenses in retirement. Failing to adequately account for healthcare can be detrimental since you’ll have to pay for both your healthcare premiums and any out-of-pocket costs in retirement. You’ll want to do research on the various healthcare options available to you, as well as how much they’ll cost so that you can accurately plan out your retirement budget.

SEE ALSO: 5 Ways Your HSA Can Strengthen Your Retirement Plan


Retiree Healthcare Costs Tip #2: Educate Yourself on Various Health Care Premiums

Generally speaking, there are five types of healthcare premiums that you’re likely to pay in retirement:

  1. Medicare Part B: The premiums charged with this package are tightly tied to your income. You can find specifics for 2023 here. Typically, higher earnings equal higher premiums.
  2. Medicare Advantage (Part C): Medicare Advantage policies are useful because they include coverage for prescription drugs as well as options for dental, hearing, and eye care. However, these policies don’t always provide coverage for recurring conditions or extended hospital stays, so if you or your family get a chronic or severe illness, you could still be left with a significant healthcare bill.
  3. Medicare Part D: This coverage pertains primarily to prescription drugs that are self-administered. Typically, drugs that are given by a doctor are covered by Medicare Part B. Just keep in mind that this coverage doesn’t necessarily cover all drugs, so you’ll want to do some research to ensure that your needs be covered.
  4. Medigap: Retirees may look into purchasing a Medigap plan if they’re in need of insurance for costs that aren’t covered by basic Medicare (Part B). However, keep in mind that if you purchase a Medigap policy, it won’t necessarily cover costs for dental, hearing, and eye care so you’ll have to budget out those costs accordingly, as there’s a chance that you’ll be left to pay some hefty expenses – especially for dental needs.
  5. Long-Term Care Insurance: As you’re planning for healthcare needs in retirement, you may find that long-term care insurance is optimal for your needs – especially because Medicare does not cover the majority of long-term care costs.

Retiree Healthcare Costs Tip #3: Stay on Top of Your Health

While some sicknesses and diseases are outside of our control, it’s always smart to stay on top of your health and work to lead a healthy lifestyle. This is one way to help minimize retiree healthcare costs as you age. Try to get at least 30 minutes of exercise each day and be sure that you’re incorporating natural and healthy foods into your diet as much as possible. Additionally, make an effort to visit your doctor regularly – should something come up, the earlier your doctor can identify what’s going on, the sooner you can get treated. This helps to reduce your expenses in the long run and is likely to give you a better quality of life, too. The AARP offers healthy lifestyle tips here.

SEE ALSO: Retirement and Rising Inflation: 7 Tips


Retiree Healthcare Costs Tip #4: Get Tax-Savvy with Your Distributions

If you’re a high-income taxpayer, you can expect to pay more for your Medicare Part B and Part D premiums. However, distributions from Health Savings Accounts, Roth IRAs, or cash value from life insurance policies don’t count in the formula that Medicare uses to determine the final amount of your premiums. So, if retirees are smart with their distributions, they can often offset their high premium costs by managing their distributions in a more tax-efficient way.

It can be complicated to understand exactly how best to go about making the most of your distributions, so it might be a good idea to work with a professional tax advisor or financial advisor who can help you devise the best tax strategy for you.

Don’t Let Retiree Healthcare Costs Catch You Off Guard

Healthcare costs are on the rise, and there’s no sign that they’ll be slowing down. It’s smart to take time while you’re still working to build a plan for how you will be able to cover your retiree healthcare costs and remain financially secure in your golden years. Since healthcare utilization tends to increase as we age, you’ll want to have a solid understanding of how paying for future healthcare expenses will fit into your overall retirement income planning efforts.

At Arbor Capital, our team is committed to taking a comprehensive approach to retirement planning to ensure that all of your financial bases are covered. If you’d like to begin a conversation with one of our professionals about how you can incorporate a plan for healthcare costs into your broader retirement plans, please contact us today. We look forward to hearing from you!

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