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How Will My Healthcare Costs Change In Retirement? Thumbnail

How Will My Healthcare Costs Change In Retirement?

You may have done an excellent job saving for your retirement, but there are still many items that require your attention. One area where additional planning is needed is healthcare funding. 

Healthcare can often be the most significant expense for retirees. And unlike the past generation that had access to employer/union-sponsored retiree health benefits, you're likely to miss on these benefits. Today, many who retire before 65 must pay for insurance out of pocket at much higher premiums. 

 Keep reading to learn how to plan for your healthcare costs in retirement.



Several factors affect the cost of healthcare in retirement, including your health status, your age, where you retire, and your retirement location. According to Fidelity, a retired couple aged 65 will need approximately $300,000 to pay for healthcare expenses after retiring. This amount excludes any additional funds needed for long-term care. 

The US Department of Health and Human Services estimates that a person turning 65 today has a nearly 70% chance of needing long-term care. The 2021 Genworth Cost of Care Survey found that the median cost of a semi-private room in a nursing home facility is $7,908 per month in the United States. That is $94,896 annually!


Various factors affect your healthcare costs in retirement. These factors are:

  • Retirement age
  • Health 
  • Location
  • Type of Healthcare Plan
  • Income


Government-sponsored subsidized health insurance, Medicare, is not available until you reach 65 years. Therefore, if you wish to retire before this age, you will need to find other arrangements in the meantime. Some of the ways of bridging the gap are:

  • Staying on your former employer's plan- You can use the COBRA coverage to remain in the same plan you had while working for 18 months if you separate employment due to retirement. However, be ready to pay more in premiums as your employer will likely no longer subsidize your payments. 
  • Staying on your spouse's plan- Your cheapest option is staying on your spouse's plan if they work and have employer-sponsored coverage. 
  • Purchase health insurance on the open market- If the other two options don't work for you, you can purchase health coverage on the open market. The Affordable Care Act passed in 2010 made it easier and cheaper for people to obtain health insurance when an employer plan isn't available. To find information about Affordable Care Act marketplace plans, visit www.healthcare.gov


Most people decline in health as they age. As a result, you should expect your healthcare cost to increase throughout retirement. However, some factors contribute to a more rapid deterioration:

  • Cigarette smoking
  • Presence of 2 or more chronic conditions
  • How often you visit the doctor in a year (at least ten times a year)

If two of these cases apply to you, you may consider paying higher healthcare premiums for the highest level of coverage. If you are relatively healthy, you may be able to get by with cheaper coverage. 

saving money for healthcare in retirement


Although Medicare coverage is the same in all states, prescription coverage, private insurance, and supplemental plans differ from one state to another. Therefore, when planning your retirement healthcare budget, you should confirm the costs in your state.


When choosing your healthcare plan, you could have many options. For instance, when enrolling in Medicare, you have to choose between Medicare Traditional and Medicare Advantage. If you opt for Traditional Medicare, consider adding Medigap coverage. In addition, you need to select the most suitable subscription plan.

Depending on which Medicare option you choose, check whether it has dental and vision coverage. If not, you might want to buy extra private coverage to cater to these two services. 


Depending on your retirement income after you begin Medicare, you could be required to pay an additional premium for Medicare Part B and Medicare prescription drug coverage. 

The extra combined premium for parts B and D if required can range from $80.00 per month to $486 per month for the highest earners. 


As you've already learned by now, healthcare costs can be high and unpredictable at retirement. The good thing is, you can avoid all the stress that comes with finding quality healthcare coverage upon retirement by planning ahead and understanding your options

As you near retirement, you'll have several big decisions to make, which include:

  • Ways to generate cash flow for your retirement
  • When to stop working
  • When to take Social Security
  • How to cater for your healthcare costs

These decisions are interconnected, and the choices you make will significantly impact the type of lifestyle you can afford at retirement. For example, if you choose to retire at the age of 62, you can take Social Security at age 62 and use that to help with your healthcare expenses until you are eligible for Medicare. If you retire at 65, you can start on Medicare right away and delay taking Social Security so that you will receive a larger monthly benefit.


If you plan to retire before you reach 65 years old, you'll have to find insurance coverage until you're eligible for Medicare. In this case, you have several options to choose from, including:

  • A plan from the ACA Health Insurance Marketplace
  • Private insurance
  • Employer retiree insurance- most suitable for federal, state, and municipal employees
  • Your spouse's insurance from their employer

Prolonging your work life to keep health benefits. You may choose to get a part-time job or change your employer. If you opt for a part-time job, confirm that the employer offers health benefits to part-time employees. Also, be aware that working and receiving social security at the same time can affect your social security amount.

 According to an August 2021 report by eHealth, the average unsubsidized monthly premium paid by an individual between the ages of 55-64 on the ACA marketplace was $771 in 2021. You could be eligible for a government subsidy that could significantly reduce your monthly premium depending on your income.

health insurance before medicare


If you wait until you reach the age of 65, you will have access to Medicare, Medicare Advantage, and Medigap policies. 

It is possible to start the enrollment process for Medicare 3 months before the month of your 65th birthday. Medicare consists of Part A, which covers hospital visits, and Part B, medical, leaving you the option to add Part D, drug coverage. Part A does not require a premium, while parts B and D require a monthly premium that is income-based. You can opt-out of Parts B and D if you already have coverage.

The other option is Medicare Advantage (Medicare Part C) which covers Medicare Parts A and B and often D and additional services such as dental and vision through a private insurer approved by Medicare. Medicare will pay the company you choose to administer parts A and B. The cost of Medicare advantage plans is your part B premium plus an additional amount each month that varies depending on coverage.

 Medigap is a Medicare supplement insurance that fills the gaps that Medicare part A and B doesn't cover. You purchase this insurance through private health care companies. Things covered by Medicap can include:

  • Coinsurance
  • Copayments
  • Deductibles

The extra services you get depend on the Medigap cover you choose, with some covering medical care outside the country. Medigap doesn't work in conjunction with Medicare Advantage. 

 As a Medicare recipient, the total cost of healthcare can vary greatly depending on health risk, location, supplemental coverage, and income. A report from Vanguard Research and Mercer Health & Benefits, analyzed the healthcare costs for a 65-year-old woman. They found that depending on the factors mentioned above, the total annual health care cost could range from $2,700 up to $20,100 annually. The researchers estimated the median cost to be $5,100 per year for a 65-year-old woman with average health and living in a median-cost area.


A Health Savings Account (HSA) is a dependable way to save for health costs in retirement. The plan allows you to set aside pre-tax dollars to save for medical expenses. An HSA has the advantage that the money you save through the plan grows tax-free. However, you must use the funds for health costs.

 Health Savings Accounts are available to people with high deductible health insurance policies. HSA considers you a high-deductible person if your insurance policy has a deductible of at least $1,400 for single coverage or $2,800 for family coverage. 

Your HSA account covers your healthcare costs not covered by insurance using the pre-tax deposits. If you have any unspent money in your account, it rolls over to the following year. In addition, the account is transferrable and will stay with you even after you change jobs or stop working. 

 You must stop contributing to your HSA account after you are no longer in a high deductible plan. However, your account will remain open, which will allow you to continue using your savings to cover your health costs tax-free. Many people choose not to take distributions out of their HSA during their working years. That way, they can use the account for healthcare costs once they retire.


Rising healthcare costs are a reality that you need to be ready for. However, it's less likely that these costs will catch you off-guard with proper planning. Therefore, talk to a professional financial planner today for the best healthcare cost planning tips. 

👉 If you would like to get a FREE retirement assessment, click the link to schedule your 20-minute call to start the retirement assessment process.


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