Planning for Healthcare in Retirement

Paying and Saving for healthcare in retirement

Healthcare in retirement; it’s not something that first comes to mind when thinking about our post-working days. But it’s an important piece of your retirement budget. Today, guest blogger Nichole Coyle, CFP, tells us what to plan for when considering healthcare in retirement.

In general, people are living longer and health care inflation continues to outpace the rate of general inflation. Additionally, the average retirement age is 62 for most Americans—that’s three years before you are eligible to enroll in Medicare. So, considering your long-term health care costs is a must. According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple age 65 in 2021 may need approximately $300,000 saved to cover healthcare in retirement.

Even if your focus is on the financial aspect of retirement, it’s most common to budget for basic living costs. This includes monthly utilities, cell phone, possibly a mortgage or car payment, and groceries. But it’s easy to forget about the money you need to cover healthcare costs. 

Why We Overlook the Cost of Healthcare in Retirement

It makes sense, though, doesn’t it? You pay your monthly bills throughout your life so it’s easier to imagine those costs when you retire. But if you’re the typical working American, your employer provides your health insurance benefit. And your monthly premiums are automatically deducted from your paycheck. Since you aren’t paying a regular, physical bill, healthcare in retirement is often not top of mind when thinking about income needs.

In addition to the insurance premiums being out of sight, many employers help offset the cost of health insurance plans, reducing the perceived cost. Have you ever wondered why COBRA insurance coverage is so expensive? It’s because you’re now responsible for the full amount of the premiums with COBRA without your employer’s contribution.

Even if you’ve taken these costs into account, you likely still have healthcare expenses above and beyond your monthly premiums. Most health insurance plans have copays, deductibles, and other costs that require the insured to pay a portion of care. Not to mention maintenance medications and other prescriptions when we get sick.

Knowing that we need to consider health insurance premiums and the additional costs, how do we plan for these expenses? 

Choose When to Stop Working

Deciding when to retire will be different for everyone. Healthcare isn’t the only concern making this decision, but it does have an impact.  

You can start collecting social security as early as age 62. If you’re among the (fortunate) few who’s employer offers a pension or similar option, you may be able to retire sooner. However, you can’t qualify for Medicare until age 65. So, you’ll need to consider your options for health insurance during those gap years. They include:

  1. Group health insurance policy through your spouse’s employer
  2. An individual plan purchased through the government healthcare Marketplace
  3.  A cost-sharing option like those found here(Cost-sharing medical plans are a bit different from traditional health insurance plans because the members share each other’s medical bills). Get a more detailed explanationof how these plans work.

Employer (or Union) Sponsored Health Insurance

When people retired 30 years ago, they were more likely to have their company or union continue paying for health insurance. Unfortunately, insurance coverage and employers have changed, and it is rare for a third party to continue footing the bill. If you are one of the lucky few who fall into the first category, count your blessings and enjoy that benefit!  


Your initial enrollment window for Medicare is seven months long, beginning three months before you turn 65. If you do not sign up during this initial enrollment period, you may be subject to penalties. Medicare may seem complex because it has multiple parts. To understand the basics, get familiar with Medicare Parts A, B, and D, Medicare Advantage, and “Medigap” supplemental insurance plans:

  1. Part A is for hospital costs after you meet a deductible.
  2. Medicare Part B is optional coverage for medical expenses and requires an annual premium. 
  3. Part D is for prescription drug coverage.
  4. Medicare Advantage plans are all-in-one managed care plans. They provide the services covered under Medicare Parts A and B. They may also include other services not covered under Parts A and B, including Part D prescription drug coverage.
  5. Medigap policies are supplemental policies offered by private insurance companies. They supplement expenses that Medicare Parts A and B do not typically cover.

You can change your Medicare coverage during open enrollment each year or if certain situations change in your life. There are many options, so it’s prudent to talk with a health insurance professional as your eligibility nears.

Individual Health Insurance

If you plan to retire before being eligible for Medicare, consider the cost of an individual health insurance plan. Many plans are available through the Marketplace.  There are options for individuals, married couples, and families, as well as plans with high or low deductibles. While individual plans are not typically as good as those offered through an employer, there are still plenty of options to meet different needs.


Health Savings Accounts (HSAs) are available for those with a high-deductible health insurance plan. HSAs allow you to save money into them annually. Then you can use the tax-efficient balance to pay for health care costs. You can save pretax dollars, which have the potential to grow and be withdrawn tax-free if used for qualified medical expenses.

HSAs are a tax-efficient way to set money aside specifically for healthcare expenses that you will incur later. Are you currently eligible for an HSA? If so, it is a good idea to consider this account as part of your retirement savings plan, alongside your 401k, IRA, and other retirement savings.

Long Term Care Insurance

Long-term care insurance is one way to prepare for services regular health insurance doesn’t cover. These services may include assistance with routine daily activities, like bathing, dressing, or getting in and out of bed.

A long-term care insurance policy helps cover the costs of that care when you have a chronic medical condition, a disability, or a disorder such as Alzheimer’s disease. Most policies will reimburse you for the care given in various places, such as your home, a nursing home, an assisted living facility, and an adult daycare center.

Considering long-term care costs is an important part of any financial plan, especially if you are in your 50’s or older. It’s crucial to consider this option early because you won’t be eligible to purchase it once you already have a debilitating condition. Most people with long-term care insurance buy it in their mid-50s to mid-60s. Whether this solution is right for you depends on your situation and preferences.

Of course, the amount you’ll need will depend on when and where you retire, how healthy you are, and how long you live. The amount you need will also depend on which accounts you use to pay for health care, such as your 401(k), HSA, IRA, or taxable accounts. Finally, your tax rates in retirement; and potentially even your gross income may affect how much you need to save.

If you would like to discuss your specific situation, how much you need to plan for, and what you can do now to prepare for retirement, I am happy to help.


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