Apr 15, 2022 3 min read

Health-care costs in retirement may be greater than what you’re planning for. Let us break down the factors.

How much do you think you’ll spend on health care in retirement? Most adults believe they need less than $100,000, but that’s a vast underestimate of the average medical expenses in retirement. For example, a 65-year-old man retiring now can expect to spend $135,000, and a woman the same age should plan on $150,000. Those are big numbers, but there are steps you can take no matter how old you are to start planning for health-care costs in retirement.

The first step is to develop a savings and budget strategy. Much as there are many ways to save for retirement expenses, there are many ways to budget for health-care expenses. That’s why a well-rounded retirement savings strategy is so important. Money from a 401(k), IRA, HSA, annuities, and traditional savings accounts offer ways to pay for everything from routine health care to more extensive needs. In addition, while Medicare may cover some hospitalizations, you will generally need to account for deductibles, premiums, out-of-pocket expenses, and supplemental insurance. Well before you’re ready to retire, consult a financial adviser to help estimate future health-care costs and savings tools.

Consider long-term care insurance. More than two-thirds of retirees need long-term care at some point, but Medicare doesn’t cover most of these costs. One option is long-term care insurance. Before you purchase a policy, research what it covers and how you can use it. A second option is a life insurance policy with an accelerated death benefit for long-term care rider. Like a long-term care policy this rider can pay monthly benefits if you are certified chronically ill and meet other eligibility requirements. In general, the younger you are when you purchase a policy, the lower the premiums.

Manage distributions to minimize medicare premiums. If you have more retirement income, you’ll probably have more tax liability, and that has the potential to increase your Medicare premiums. While part A (hospitalization) is free for those age 65 part B (doctors) will cost you $170.10 per month or higher, depending on your income. Consult with a tax planner at the beginning of each year. You’ll want to discuss how distributions and withdrawals from income or savings accounts will impact your overall finances, including healthcare costs in retirement.

Part D of medicare (drug coverage) is also a cost you should prepare for. While this coverage varies in cost by the type and number of medications you take it also needs review annually as medications can change.

Remember if you retire before age 65, you’ll have to pay out-of-pocket for an insurance plan until you’re eligible for Medicare. If you’re trying to balance limited retirement savings with health-care costs in retirement, you may consider deferring retirement until age 65. As an added benefit, this also increases the Social Security benefits you can collect each year.

Lastly, stay well as much as you are able. Practice preventive care in retirement. Visit the doctor yearly and as needed. Take any medicine that’s prescribed. Stay active and engaged. All those steps will help you enjoy the retirement that you worked so hard for.

Bob Hollick is a State Farm Insurance agent based in Washington. His column appears every other Friday in the Observer-Reporter.