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Key points

  • The average couple may need $315,000 to cover health care costs in retirement.
  • Medicare can help cover health care costs in retirement, but it won’t cover everything. 
  • Keep an eye on your retirement plan and adjust it as needed.

Retirement: a facet of life people dream about. But that vision of never-ending piña coladas on a beach is fading, or at least being delayed, because of the steady increase in the cost of life’s necessities. 

Health care is one such necessity for retirees. According to the Fidelity Retiree Health Care Cost Estimate, the average retired couple age 65 will need around $315,000 to cover health care expenses during retirement. That doesn’t include housing, bills, food or other costs. So you can see why this topic might cause serious sticker shock. 

But there are ways to plan ahead and mitigate these expenses. Whether through careful financial planning, taking advantage of Medicare benefits or exploring other health care options, you can protect your retirement savings and peace of mind. 

Rising health care costs are a big issue

For many Americans, saving hundreds of thousands of dollars for retirement isn’t a luxury. It’s a necessity.

As if saving for retirement wasn’t hard enough, consumer goods and services prices have now surpassed medical care costs. Historically, the opposite was true. But that doesn’t change the fact that “health insurance and various medical-related expenses are expected to increase dramatically after retirement,” says Lyle Solomon, an attorney at Oak View Law Group.

Health care costs are predicted to increase by an average of 5.1% per year, reaching $6.8 trillion by 2030, according to the Centers for Medicare and Medicaid Services. 

Costs for the average American retiree couple break down as follows, according to Fidelity Benefits Consulting:

  • 17%: Generic, branded and specialty drugs.
  • 39%: Medicare Part B and Part D premiums (for doctor appointments and prescription drug coverage).
  • 44%: Other medical expenses (such as copays, coinsurance, and deductibles for doctor and hospital visits).

“These costs are based on the assumption that the couple is eligible for Original Medicare (Medicare Parts A and B) and does not have an employer-sponsored retiree health plan,” Solomon says. “You might invest less than $300,000, but you could also spend a lot more.”

5 steps to mitigate health care costs in retirement

Handling the high costs of health care in retirement takes preparation and discipline. Financial experts versed in health care costs advise taking the following five steps to cover costs.

1. Know your cost targets

Job one for retirees and preretirees is to know what you’re up against costwise.

Basically, there are three areas of health care costs you need to cover: health care premiums, out-of-pocket expenses and long-term care.

  1. Premiums: Your policy’s premium, which is the amount you pay monthly for coverage, will be a major factor in your health care costs in retirement. For context, Medicare Part A may have zero premium, but Part B’s premium depends on your income.
  2. Out-of-pocket expenses: This is the total amount of money a health care consumer pays on their own. Your insurance plan may include an annual out–of-pocket maximum for covered health care services. But you’d be on your own for any uncovered expenses.
  3. Long-term care: Long-term care can account for a huge chunk of overall retirement health care costs (and it’s important to note that the $315,000 figure mentioned above doesn’t account for long-term care). This kind of care includes nursing home stays and in-home nursing with a medical attendant. According to SeniorLiving.org, the annual cost for a private nursing home room in 2023 is $108,405. If you don’t have a plan for these costs, they can easily throw a wrench into your retirement spending plan.

People who retire before they reach Medicare eligibility (65 in most cases) often worry about their health care premiums.

“If you choose a lower-premium plan, you are effectively gambling that you are going to stay healthy,” says Jay Zigmont, a certified financial planner and the founder of Mississippi-based Childfree Wealth, a financial planning firm. “Lower premiums come with higher out-of-pocket costs and maximums.”

The challenge is that a major medical event, such as a stroke or heart attack, can easily trigger a six-figure bill, while cancer costs run even higher.  

Your health insurance will protect you with covered expenses and have a maximum out-of-pocket expenditure. But it becomes a challenge when you need specialized care that is not covered.

“You want to have the flexibility and the ability to afford the best care possible when your health is at risk,” Zigmont says.

And on that note, it seems many retirees’ plans fall short. For example, retirees are often surprised that Medicare and most health insurance plans don’t cover long-term care, such as in a skilled nursing facility. So those costs can be an unexpected hit to a retiree’s savings fund. 

Cost of long-term care

AVERAGES FOR 2023FEMALE PATIENTSMALE PATIENTS
Length of long-term care
3.7 years
2.2 years
Cost of long-term care (assuming a private nursing home room at $108,405 per year)
$401,099
$238,491

Keep in mind these are today’s figures, based on data from SeniorLiving.org and ACL.gov.

With inflation, those numbers will go up.

2. Get acquainted with Medicare

Medicare can play a big role in retirement, and future recipients should get familiar with it.

“The financial role that Medicare plays in retirement depends on what parts of Medicare you enroll in,” says Lindsay Malzone, the Medicare expert at Medigap.com, a plan comparison platform. 

Part A is premium-free if you pay 40 quarters, or 10 years, of Medicare taxes.

But there’s a caveat. Part A covers only inpatient hospital stays, skilled nursing facility care, hospice care and some home health care. For other coverage, you must enroll in Part B. The monthly premium for Part B varies based on income. 

2023 Medicare Part B premiums

INDIVIDUALSCOUPLES2023 MONTHLY PREMIUM
$97,000 or less
$194,000 or less
$164.90
$97,001 to $123,000
$194,001 to $246,000
$230.80
$123,001 to $153,000
$246,001 to $306,000
$329.70
$153,001 to $183,000
$306,001 to $366,000
$428.60
$183,001 to $499,999
$366,001 to $749,999
$527.50
$500,000 and above
$750,000 and above
$560.50

Both Part A and Part B have deductibles and coinsurance. 

Other options, such as Medigap and Medicare Advantage plans, can help fill coverage gaps. Medigap and Medicare Advantage plans are available from private health insurance companies and can help pay for your share of health care costs. You have to buy and pay for Medigap on your own.

Beneficiaries can enroll in Medigap or Medicare Advantage to supplement their Original Medicare (Part A and Part B) coverage.

Medigap gives you more predictable out-of-pocket costs but comes with a monthly premium. Medicare Advantage can have a low or even zero-dollar monthly premium. 

But it’s a pay-as-you-go type of plan. As you use the benefits, you can expect high out-of-pocket costs and limitations on networks and coverage areas, Malzone says. 

Additionally, Medicare Advantage plans often come with prescription drug coverage. 

If you enroll in Medigap, you must register in a stand-alone Part D prescription drug plan.

Medigap costs depend on the policy you choose and the pricing structure in your state.

Overview of Medicare plans

MEDICARE PLANDEFINITIONPREMIUMWHAT YOU SHOULD KNOW
Part A
Covers inpatient hospital stays, skilled nursing facility care, hospice care and some home health care
Can be $0
You have to pay 40 quarters of Medicare taxes to qualify for the $0 premium, and there’s no out-of-pocket maximum unless you have supplemental coverage like Medigap or join a Medicare Advantage plan
Part B
Covers certain doctors’ services, outpatient care, medical supplies and preventive services
Starts at $164.90 per month
The premium is based on your income, so higher-income consumers pay more
Medigap
Supplemental insurance for Medicare sold by private companies that can help with ​​deductibles, coinsurance and copayments
Depends on your plan but averages $155 per month
You must have Medicare Part A and Part B to qualify
Medicare Advantage
A Medicare-approved plan from a private insurer that can include Parts A, B and D
Depends on your plan but averages $17.60 per month
Premiums can change each year, and you must have Medicare Part B to qualify
Part D
Helps cover the cost of prescription drugs, including most vaccines
Varies but averages $32.74 per month
Premiums can change each year, and if you don’t enroll when you’re first eligible, you might have to pay a late enrollment penalty that can last as long as you have Part D

3. Know your best coverage-gap options

In addition to options like Medigap and Medicare Advantage, you may want to consider other private insurance coverage. But private insurance is generally more expensive than Medicare, especially when it comes to out-of-pocket costs. 

Comparison of private insurance and Medicare deductibles

AVERAGE BRONZE-LEVEL PLANMEDICARE PART AMEDICARE PART BMEDICARE PART D
Deductible
$7,481
$1,600
$226
Can be as low as $0 and maxes out at $505 for 2023

If you have a decent amount of annual medical expenses, private insurance plans might have greater out-of-pocket costs than Medicare plans (even combined).

Still, you’ll need to have a plan for both expected health care costs and long-term care, which isn’t covered by most regular health insurance policies. Medicare also doesn’t cover long-term care or custodial care unless medical care is needed.

So you may want to consider long-term care insurance in addition to health insurance. It’s worth noting that some life insurance policies offer living benefits, which may allow you to access money from death benefits to cover long-term care costs while you’re alive.

4. Leverage a tax-free health savings account

If you currently have a high-deductible health plan (HDHP), you may be able to leverage a health savings account (HSA). 

HSAs can help future retirees with health care costs in retirement by saving pretax dollars, which can be fortified by employer contributions. 

HSAs are great because they are triple tax-free.

You don’t pay taxes on what you put in. It grows tax-free and comes out tax-free as long as you spend the money on health care costs.

There are other health savings options for people who don’t have HDHPs, including flexible spending accounts (FSA) and health reimbursement arrangements (HRAs). 

But FSA and HRA funds generally stay with your employer if you leave your job, meaning they won’t help you in retirement. Some employers offer HRAs for retirees, however, allowing you to use the funds in your account to pay for health care expenses in retirement.

5. Get regular checkups to get ahead of health issues

You can’t control everything about your health. But you can see where you stand and make changes based on that information. 

Scheduling annual checkups, participating in illness screenings and maintaining a healthy lifestyle can be great ways to help you understand your health risks, make targeted improvements and potentially fend off illnesses. 

Example: If lifestyle changes can help you avoid developing a chronic illness, you may be able to avoid the costs that come with such a diagnosis, including prescriptions, treatments and doctor visits.

In other words, if you focus on prevention and early detection, you’ll be more likely to stay healthy longer, thereby lowering your long-term health care costs — not to mention the impact on your quality of life. So it’s well worth conversing with your doctor about your health as you age and following their instructions if an issue arises. 

Health care costs for retirees can be daunting. But with a combination of planning savvy and health maintenance, you’ll be better prepared to face your golden years with confidence. That way, you can focus on things like enjoying your retirement.

Frequently asked questions (FAQs)

The average health care costs in retirement can vary depending on several factors, including your overall health, location and insurance coverage. 

According to Fidelity, the average retired couple age 65 will need around $315,000 saved to cover health care expenses during retirement. It’s important to factor these costs into your retirement budget so you’re financially prepared for any medical expenses.

Saving money on health care costs in retirement is a major concern for many people. 

One way is to explore different health care plans to find the most affordable option that meets your needs. This could include looking at Medicare Advantage plans or other supplemental insurance policies. Taking care of your health by exercising and eating a balanced diet can also help reduce your health care costs in the long run. You can also save money by researching prescription drug prices and opting for generic or lower-cost alternatives. 

Finally, working with a financial advisor to develop a comprehensive retirement plan that includes health care expenses can help you feel more prepared for unexpected costs.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Ashlyn Brooks

BLUEPRINT

Ashlyn is a personal finance writer with experience in budgeting, saving, loans, mortgages, credit cards, accounting, and financial services to name a few.

Hannah Alberstadt is the deputy editor of investing and retirement at USA TODAY Blueprint. She was most recently a copy editor at The Hill and previously worked in the online legal and financial content spaces, including at Student Loan Hero and LendingTree. She holds bachelor's and master's degrees in English literature, as well as a J.D. Hannah devotes most of her free time to cat rescue.