Blog, Retirement Planning

How Will Rising Healthcare Costs Affect Your Retirement?


It’s no secret healthcare costs are rising. Medical expenses have been steadily increasing for years. In 2007, costs were up almost 12 percent. However, the rate of increase slowed to six percent during the past five years, and that trend is expected to continue for the foreseeable future, according to a June 2018 report from PwC. While single-digit increases are an improvement, ever-rising costs are a concern for those who have to foot the bill, today and in the future. (1)

In any retirement plan, medical expenses are often the “elephant in the room.” It’s the expense people prefer not to consider because, if they do, they’ll realize that they need to save significantly more money.

How Much Should You Save for Healthcare in Retirement?

According to the Fidelity Retiree Health Care Cost Estimate, the average 65-year-old couple that retired in 2018 should have had about $280,000 set aside for medical expenses in retirement, excluding long-term care. The estimate assumes the couple does not have employer-provided retiree healthcare coverage and does qualify for Medicare. (2)

You might be wondering how expenses would add up to this amount. Fidelity anticipates retirees’ healthcare savings may be spent like this: (2,3)

• 20 percent for prescription drugs (generic, branded, and specialty)

• 35 percent for Medicare Part B (medical insurance) and Medicare Part D (prescription insurance) premiums

• 45 percent for additional medical expenses such as deductibles, copayments, and supplemental insurance for doctor and hospital visits

Where do you stand? Have you accounted for the rising cost of healthcare in your retirement plan? If not, there’s still time.

Strategies for Managing Retirement Healthcare Costs

Whether you plan to retire in 5, 10, or 20 years, there are many things you can do to better prepare for healthcare in retirement.

1. Do the Math

Fidelity’s estimate—that the average 65-year-old couple that retired in 2018 should have had about $280,000 set aside for medical expenses in retirement—is just an average figure. Your healthcare situation is unique, so it is a good idea to create a more personalized estimate—one that includes the cost of various premiums and insurance costs, as well as prescription medicines. (4)

2. Get the Skinny on Discounts

No matter how old you are, your doctor and your pharmacist can provide valuable suggestions about reducing prescription drug costs. Don’t hesitate to ask about coupons or discounts that could lower your costs. Pharmaceutical companies may have coupons available through their websites. Also, investigate other options such as substituting a generic drug, using a mail-order prescription service, or filling a 90-day supply instead of a 30-day supply. Even small savings can add up over time. (5, 6)

3. Open a Health Savings Account (HSA)

Your employer’s high-deductible health plan (HDHP) comes with a useful option—a health savings account (HSA). You can save for current and future medical expenses in an HSA, and they confer a triple tax advantage:

• HSAs are tax-deductible

• Any interest or earnings grow tax-free

• Distributions are tax-free when taken for qualifying medical costs

If you don’t spend the money in your HSA, you can roll it over to the next year. Also, the account is yours, even if you change employers. As a result, HSAs are a great way to save for healthcare costs in retirement. (7)

4. Strategize Claiming Your Social Security Benefits

According to a Gallup Poll, since 2011, on average, people in the United States retire at age 61. That’s a year before they can start collecting Social Security. If retirees choose to begin receiving Social Security benefits at age 62, they will receive 70 percent of the benefit they would have received at ‘full’ retirement age. On the other hand, if they postpone taking benefits until age 70, they’ll receive a higher monthly payment. The amount of the payment will be determined by an individual’s age and year of birth and the number of months benefits were delayed. (8, 9, 10) While we want you to maximize your opportunities and recognize that for some, waiting to claim until age 70 can help with medical expenses, we understand that every situation is different. We always recommend talking with your financial advisor about what strategy works best for meeting your goals.

5. Make Healthy Choices

This is often the most overlooked and challenging strategy of all. While it’s impossible to predict what the future will hold, forming healthy habits today could support a healthier life ahead. You know the drill: eat well, sleep well, exercise, socialize, and so on. Being more health conscious today could mean fewer doctor visits, hospital stays, health specialists, and prescriptions in the future. (11)

6. Save, Save, Save

The most obvious way to prepare for future healthcare costs is to save as much as you can today. If you are able, maximize contributions to your employer-sponsored retirement plan, HSA, and Traditional and Roth IRA accounts. For many people, saving more is not a hardship; it’s a choice.

Healthcare costs are likely to be a significant part of your retirement budget. If you haven’t already factored these costs into your retirement plan, you may want to consider it. The sooner you prepare and implement strategies for managing retirement healthcare costs, the better off you will be. The decisions you make today will affect how you live in the future.

Please contact us if you want to discuss your options. We’re happy to help.




The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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