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Budgeting for Health Expenses in Retirement

Budgeting for Health Expenses in Retirement

June 30, 2021

While planning for your retirement, you most likely have considered your living expenses and travel expenses, but not necessarily your healthcare costs. As you get older, your healthcare costs may inevitably increase so it needs to be accounted for when you are on a fixed income. Healthcare costs are increasing for many reasons, including higher life expectancies, healthcare inflation, etc. To learn more about budgeting for health expenses in retirement, continue reading! 


How Much Do You Need to Set Aside?

According to Fidelity, the average retired couple aged 65 in 2021 should set aside around $295,000 after tax to cover their retirement healthcare costs. The amount you need to save depends on when you retire, where you retire, your health, and how long you will live. Your healthcare savings also depends on what type of account you use to pay for your healthcare expenses, such as a Health Savings Account, IRA, 401(k), etc. 

Prepare for Your Savings 

Medicare coverage does not begin until the age of 65 so if you begin retirement before turning 65, you need to plan your health insurance and how you will cover medical costs. If you have a gap between ending your employer’s health insurance plan and qualifying for medicare, here are several options for insurance coverage. A few are COBRA continuation, your spouse’s health plan, and private insurance. 

Consider Your Insurance Options

Medicare is the main option for retiree’s healthcare insurance. There are Parts A, B, and D, in addition to Medicare Advantage and “Medigap.” Part A will cover hospital costs after you meet the deductible. Part B is optional for medical expenses coverage and requires a premium. Part D covers prescription drugs. Medicare Advantage are all in one managed care plans with different aspects of coverage from Parts A, B, and D. Medigap is a term for a supplemental policy that is offered by private insurance companies to cover expenses that Part A and B of Medicare do not. Pick what type of insurance plan will work best for you and adjust it over time to fit your needs. 

Medicare generally doesn't cover long-term care stays in a nursing home. Even if Medicare doesn’t cover your long-term care, you’ll still need Medicare for hospital care, doctor services, and medical supplies while you’re in a nursing home or assisted living. Long-term care insurance policies can help pay for many types of long-term care. Some policies may cover only nursing home care, while others may include coverage for a range of services, like adult day care, assisted living, medical equipment, and informal home care. If you don’t have long-term care insurance, you can use your personal money and savings to pay for nursing home care. Some insurance companies let you use your life insurance policy to pay for long-term care by adding living benefits to your policy.  There may be charges for riders that customize a policy to fit your individual needs. 

The cost of long-term care varies by state but the average annual cost can be as high as $105, 850 annually. There are various ways to plan for long term care coverage.  Please contact me if you wish to discuss these options.   

 As you get older in retirement, your healthcare costs may increase if your health declines.  Planning is essential to ensure you have addressed this issue.   With the help of a financial advisor, you can plan for your retirement savings and prioritize healthcare savings. Contact me for more information at (402) 454-7204 or email me at