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3 Ways to Handle Health Care Costs in Retirement

May 07, 2019

There are many factors to consider when you're saving for retirement, such as whether you'll be paying a mortgage or how much traveling you want to do. But don't overlook health care costs when you're planning, because they could be a substantial piece of your budget once your retirement begins.

Many people nearing retirement don’t have medical expenses on their radars, or they think Medicare will cover all their medical costs. Talk to a financial planner about how to estimate future costs. For example, Fidelity Investments says a 65-year-old couple retiring in 2018 will pay $280,000 on health care bills over the rest of their lives.1 This figure includes monthly payments for Medicare Part B and Part D prescription drug coverage, along with a possible Part C Medicare Advantage plan or Medigap coverage. It also includes out-of-pocket expenses, including deductibles and copays. It does not, however, account for possible long-term care costs, which could raise that total considerably.

How to Pay the Bills

That $280,000 figure can be scary to contemplate, but it's important to remember you won't be paying it all at once. There are ways you can plan to cover your retirement health care costs when they come up, especially if your retirement is still a few years off. Consider discussing the following three options with your financial advisor:

  1. Postpone Social Security. While 63 is the average age of retirement according to the U.S. Census Bureau, you could face financial challenges if you retire that early. If you go on Social Security right away, your benefits will be far lower than if you waited until full retirement age (approximately age 66 for most people today). And waiting until 70 can earn you a significant bonus on your monthly Social Security check. Those higher monthly benefits could ease the impact of medical expenses once you do retire. Additionally, retiring before you qualify for Medicare could force you to pay for expensive private-market insurance or go without coverage at all.
  2. Start a health savings account. When you sign up for certain high-deductible health insurance plans, either through your employer or on the open market, you can be eligible to start a health savings account (HSA). Deposits are made using before-tax dollars, which reduces your current taxable income, and balances roll over year after year. Any interest earned is tax-free, and you pay no tax on any withdrawals made to cover qualified medical expenses. These accounts travel with you, even if you leave your current employer, and you can continue to access the accounts into retirement. Having at least some savings dedicated to your health care costs can give you a head start as you go into retirement.
  3. Stay healthy. This may seem obvious, but better overall health generally leads to lower health care costs. The Kaiser Family Foundation found that a person in poor health spends about $1,700 more per year on out-of-pocket medical expenses than someone in very good health. Eating well and staying active can help your wallet as well as your health. We all tend to spend more on health care as we get older, but if you take care of yourself, there’s a greater chance of curbing some of those costs.
Get Help with Your Plan

Like any issue related to retirement planning, the real answers lie in the details of your personal goals and finances. Consulting with a financial advisor you trust is a great first step toward addressing your future financial needs - including the medical care you'll need to stay healthy throughout your retirement.

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The Medicare Advantage and Medicare Part D plans are health plans with a Medicare contract or a standalone prescription drug plan with a Medicare contract. The Medicare Contract is renewed annually, and the availability of coverage beyond the end of the current year is not guaranteed.

Anthem Blue Cross and Blue Shield is the trade name of: In Colorado Rocky Mountain Hospital and Medical Service, Inc. HMO products underwritten by HMO Colorado, Inc. In Connecticut: Anthem Health Plans, Inc. In Georgia: Blue Cross Blue Shield Healthcare Plan of Georgia, Inc. In Indiana: Anthem Insurance Companies, Inc. In Kentucky: Anthem Health Plans of Kentucky, Inc. In Maine: Anthem Health Plans of Maine, Inc. In Missouri (excluding 30 counties in the Kansas City area): RightCHOICE® Managed Care, Inc. (RIT), Healthy Alliance® Life Insurance Company (HALIC), and HMO Missouri, Inc. RIT and certain affiliates administer non-HMO benefits underwritten by HALIC and HMO benefits underwritten by HMO Missouri, Inc. RIT and certain affiliates only provide administrative services for self-funded plans and do not underwrite benefits. In Nevada: Rocky Mountain Hospital and Medical Service, Inc. HMO products underwritten by HMO Colorado, Inc. dba HMO Nevada. In New Hampshire: Anthem Health Plans of New Hampshire, Inc. HMO plans are administered by Anthem Health Plans of New Hampshire, Inc. and underwritten by Matthew Thornton Health Plan, Inc. In Ohio: Community Insurance Company. In Virginia: Anthem Health Plans of Virginia, Inc. trades as Anthem Blue Cross and Blue Shield in Virginia, and its service area is all of Virginia except for the City of Fairfax, the Town of Vienna, and the area east of State Route 123. In Wisconsin: Blue Cross Blue Shield of Wisconsin (BCBSWI), which underwrites or administers the PPO and indemnity policies and underwrites the out of network benefits in POS policies offered by Compcare or WCIC; Compcare Health Services Insurance Corporation (Compcare) underwrites or administers the HMO policies and Wisconsin Collaborative Insurance Company (WCIC) underwrites or administers Well Priority HMO or POS policies. Independent licensees of the Blue Cross and Blue Shield Association. Anthem is a registered trademark of Anthem Insurance Companies, Inc. The Blue Cross and Blue Shield names and symbols are registered marks of the Blue Cross and Blue Shield Association. Use of the Anthem websites constitutes your agreement with our Terms of Use.

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