“Retirement is wonderful if you have two essentials – much to live on and much to live for.”
– Unknown

If you are about to retire or already retired, you are probably thinking about your potential health care costs. You’re also probably wondering if you will have enough to pay the bills as you age.

The numbers are staggering. According to a study done in 2014 by the U.S. Department of Health & Human Services, a 65 year old is estimated to have spent about $341,000 on health care up to that point in their lives.

But in the 20 years after age 65, that same individual is expected to another $336,000 on health care. That’s nearly the same amount spent in less than one-third of the time!

It’s easy to see how health care costs can break you in retirement.

However, with some careful planning, you can do things to increase the likelihood that you will have enough wealth to pay for things like doctor’s visits, hospital stays, and even long-term care facilities, all while maintaining the lifestyle you want in retirement.

So, what can you do to be prepared?


1. Account for Rising Costs


When you create your financial plan, break out your health care expenses and separate them from your other needs. Doing so will enable you, or your adviser, to apply a different set of rules to these expenses.

I’ll give you an example. Fidelity did a study in 2002 that showed a retired couple, both age 65, spends about $160,000 on medical expenses in retirement. Note that this does not include long-term care expenses!

Fidelity repeated the study in 2019, and that number has increased by over 55% to $285,000. That could add up to $19,000 per year if you live to 80 years old.

To make matters worse, according to the Retirement Policy Program at the Urban Institute, by the year 2040, half of adults age 65 and older will spend at least 19% of their incomes on health care, up from 10% in 2010.

Most of the other expenses we have in retirement don’t increase at the breakneck speed that health care costs do. So when doing your retirement planning, be sure to break out your health care related items as much as possible so you can account for the difference between normal expenses and health care expenses.

The more detailed you get, the better prepared you might be.


2. Build a Health Care Bank Account


Rising health care costs are concerning, and if you’re already prone to worry, it can be especially nerve-wracking. Luckily, one of the retirement factors that is totally within our control is how much we save.

If you are a ways from retirement, consider signing up for a high deductible medical plan and couple that with a Health Care Savings Account (HSA).

An HSA may allow you to contribute tax-deductible dollars to the plan that can be withdrawn tax-free for uninsured medical expenses down the road.

Think of it kind of like a 401(k) designed specifically for health care expenses. Like a 401(k) there are annual contribution limits ($3,500 for a single person and $7,000 for families in 2019), and you are allowed an annual catch-up contribution of $1,000 if you are over age 55. Also like a 401(k), sometimes employers will chip in on your behalf, so be sure to take advantage if yours does!

Most people add dollars to their plan and pull them out again in the same year. But another benefit of the HSA is that whatever you don’t spend rolls over to the next year.

I suggest keeping some of your HSA contributions in the account every year. That way you build up a savings cushion earmarked just for health care, which you can draw from in retirement.


3. Get the Most from Your Insurance


Whenever I talk with my clients about health care costs in retirement, the conversation usually turns to Medicare. And why shouldn’t it?

For many retirees Medicare is a major component of their retirement plan. But Medicare is multi-dimensional, four-tiered program that is hardly simple, and getting the most out of your plan can be tricky.

Parts A and B are the most commonly used plans applicable to everything from hospital stays to outpatient procedures. Parts C and D, which are only available through government approved private insurers, provide more specialized coverage, especially for prescription drugs.

The cost of Medicare and the coverage you receive will vary greatly depending on the combination of Parts A, B, C & D that you choose, so I highly recommend working with a Medicare expert or your financial advisor before signing up for benefits.

One more thing. Most of the numbers I have quoted thus far do not even include paying for a nursing home stay. That’s where something like a Long Term Care Policy comes into play.

While I don’t think everyone needs such a policy for financial reasons, I do think that having a policy in place can make long term care decisions easier when that time comes.

After all, having a policy in place can be like having a bucket of money set aside specifically to cover the need, right at a time that can be difficult and emotionally draining.


“Often when you think you’re at the end of something, you’re at the beginning of something else.”
– Fred Rogers


As retirement becomes a reality, so does the reality of health care costs.

Don’t let the potential expense ruin a great part of life. A little planning can make sure that health care costs don’t derail you, or your retirement.



CLICK HERE to become an Insider! Join my Email Insider Group to receive weekly tips and tricks on finance, education, home buying, insurance, Social Security and everything in between. Byron W. Ellis, CFP®, CLU®, ChFC®, CRPC®, is a CERTIFIED FINANCIAL PLANNER™ professional and Managing Director United Capital Financial Advisers, LLC, a Financial Life Management firm. The information contained in this article is intended for information only is not a recommendation, and should not be considered investment advice. Please contact your financial advisor with questions about your specific needs and circumstances.

© Byron Ellis