Will Healthcare Costs Affect Your Retirement Planning?


Medical expenses have been steadily increasing for years. Over the past 5 years, the rate of increase has been 6%, 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 from the double digit increases, ever-rising costs are a concern.1

Medical expenses are often the “elephant in the room” in a retirement plan. It’s the expense people prefer not to consider because, if they do, they’ll 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

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

Strategies for managing retirement healthcare costs

Whether you plan to retire in five, 10, or 20 years, there are a few things you can do to better prepare for healthcare in retirement:

  • Do the math. Make certain medical costs are addressed in your retirement plan, in particular the costs associated with long term care.
  • Get the skinny on discounts. No matter how old you are, your doctor and your pharmacist can provide valuable suggestions about how to reduce 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 option. Even small savings can add up over time.4,5
  • 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.6

  • Make healthy choices. 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.7
  • Save, save, save. The most obvious way to prepare for future healthcare costs is to save as much as you can today. If you can, 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. The decisions you make today will affect how you live in the future.

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, the better off you will be.

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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