Understanding Healthcare Costs in Retirement

What to expect to spend on health care in retirement is the big question for future retirees. The reality is there is no simple answer. By understanding estimates of Medicare premiums and other related expenses, as well as some of the ways costs can be reduced, you can start to put some of the pieces of the health care puzzle together.

Unpacking Average Healthcare Cost Estimates

Several different estimates related to what people can expect to spend on healthcare costs in retirement are out there. One of the most commonly quoted figures is $280,000 from a Fidelity study. Equally staggering is the fact that Fidelity found this number represents a 75 percent increase since they first did a study of retirement health care costs in 2002.

The $280,000 figure is based on an average 65-year-old couple. Women can expect to spend $147,000 and men can expect $133,000 on health care expenses in retirement because women outlive men on average. Another important consideration is these figures are paid throughout the course of retirement, not in a single lump sum. Also, these estimates are based solely on premiums and out-of-pocket expenses related to Medicare Parts A, B, and D.

Consider Other Expenses

Individuals may incur costs from dental work, vision exams and eyeglasses, over-the-counter medications, and even long-term care, which can be substantial. Recent estimates for long-term care found assisted living facilities averaged more than $3,600 per month and nursing homes with private rooms were more than $7,600 per month. Additional costs can vary widely depending on these factors and on the availability of employer-provided retiree health care coverage.

Be as Proactive as Possible

Like all things health related, being proactive is better than being reactive. While it’s true you won’t be able to entirely eliminate healthcare costs in retirement, you can take steps to minimize them even before you retire.

  • Maximize your HSA. Health savings accounts (HSAs) are not available to everyone, but if your workplace offers one, you definitely want to take advantage of it. Your contributions are made pre-tax and sometimes there is the option for employer match. Additionally, when you use your HSA to cover medical expenses either now or in the future, all of those withdrawals can be made tax-free.
  • Avoid harmful behaviors. Smoking, consuming excessive amounts of alcohol and eating an unhealthy diet all have ways of catching up to us. The more harmful behaviors you can reduce before retirement or at the start of retirement, the less likely you are to suffer the consequences—financial and otherwise— later.
  • Focus on health. When you’re trying to reduce expenses, it might seem logical to dodge the doctor’s office. That’s the exact opposite of what your strategy should be. Instead, you want to make sure that health is a priority and you are addressing issues along the way before emergencies arise. Schedule routine check-ups and make sure you are tending to self-checks on a regular basis.  
  • Exercise. The amount of health benefits that come from regular exercise cannot be emphasized enough. Regular exercise can improve your brain health and your mood. It can boost your heart health and lower your risk for other diseases. Most importantly, everyone benefits from exercise regardless of age, ethnicity or current health condition. Make sure to check with your doctor before you start any exercise regimen.
  • Practice mindfulness. Individual who engage regularly in a mindfulness practice often see significant health benefits. While some people only appreciate meditation, relaxation, or prayer from an emotional health perspective, mindfulness practices also provide mental and physical health benefits.

Focus on Healthcare Starting Today

There is no doubt about it. Seeing that six-figure estimate stare back at you can be enough to elevate even the healthiest future retiree’s blood pressure. However, it is important to remember paying for healthcare is over the course of retirement, not in one lump sum. By focusing on your health and taking other steps, you may even been able to reduce some of your health care costs in retirement. Planning ahead and understanding the ins and outs of health care costs in retirement can make this expense more manageable.

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