Planning for Healthcare Costs in Retirement

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Healthcare costs continue to increase and can be a major expense, especially for those who are retired. Because Medicare will only cover a portion of expenses, it’s important to start planning and budgeting now for healthcare costs as part of your retirement plan.

The high cost of healthcare can delay retirement for many until they turn 65, which is when Medicare is typically available. Women and men who reach 65 can expect to live another 19 and 16 years, respectively, so it's important to budget for healthcare costs as part of your retirement plan. Fortunately, there are other options to help cover some costs that also have tax advantages.

Cost of healthcare in retirement

There are many healthcare decisions to make for your retirement. When do you take Social Security? Is long-term care insurance a wise choice for you? Can you save more?

Fortunately, Medicare typically covers the majority (66%) of healthcare services costs, with supplemental coverage (22%) and out-of-pocket spending (12%) generally making up the rest . Like many financial forecasts, though, future healthcare costs are dependent upon a slew of variables, such as when and where you retire, your health, and how long you live.

That two-thirds referenced above covers 'medically necessary' services such as lab tests, surgeries, doctor visits, wheelchairs, and walkers§. That's a significant amount, but as more Americans reach 65–20% of the nation's population by 2030–total healthcare costs will very likely continue to increase. Some estimates suggest that the average couple will need $315,000 to cover medical expenses in retirement, excluding long-term care#.

And consider that with consumer inflation impacting most costs, even a 55-year-old couple in good health could face an additional $267,000 in medical costs when they retire at age 65Ұ.

Medical expenses likely not covered

Medicare is a very valuable support system, but even that won't cover some common services which retirees will have to prepare for, such as:

Assisted living
Long-Term Care¥
Most dental care
Eye exams (for prescription glasses)
Cosmetic surgery
Massage therapy
Routine physical exams
Hearing aids and exams for fitting them
Concierge care (24/7 physician access, highly personalized)
Services from another provider

The good news: Budgeting for healthcare in retirement

With so much uncertainty, saving and investing for post-retirement healthcare costs should start as soon as possible. And just as you may have started saving for a new car or home when in your 20s or 30s, setting aside funds for your later years should be similarly structured.

Health savings accounts

A good first start to consider is a health savings account (HSA), an investment account for pre-tax dollars sometimes matched to certain amounts by employers. Though integrated with high-deductible health plans, unused funds roll over from year to year and accumulate earnings on a tax-free basis when used for qualified medical expenses. One drawback is that after anyone starts receiving Social Security or Medicare, they're prohibited from contributing to their HSA account, although the funds are still accessible for use. When looking at HSA accounts, keep in mind they are available if you have a high-deductible health plan, and there are often contribution limits.

Traditional and Roth IRAs/401ks

Individual retirement accounts (IRAs) might already be a foundation for your retirement savings, and can be used for healthcare costs in retirement, too. You can continue to increase your retirement savings contributions until you max out. Also, traditional and Roth IRAs offer different tax advantages.

Emergency funds

It doesn't matter where you are on your journey to retirement; everyone should have an emergency fund. The amount in an emergency fund may cover a few months' expenses, and that money could be tapped for nominal medical bills. And it'd be wise to ‘repay' the emergency fund after taking any funds out, even if held in a low-interest-rate money market account.

Other options

Long-term care coverage insurance can help cover the cost of care not covered by traditional healthcare insurance or Medicare, such as nursing home care, in-home care, assisted living, etc. It also allows you to determine the amount of coverage you want by paying premiums, or in some cases, one lump sum. Disability insurance can provide income if you become disabled, but is not eligible for reimbursement with a HSA.

It is also possible to get medical bills reduced. If you find yourself with a big medical bill, don't give up. There may be ways to negotiate. With out-of-network bills, you can appeal directly to your insurance company or the healthcare provider and ask them to waive or reduce charges.

Many healthcare providers, including physicians, dentists and hospitals, offer no- or low-interest payment plans. Typically, your credit rating will not be impacted as long as a bill is settled within 365 days.

Your savings and investments for retirement may or may not cover the bulk of healthcare costs, which is where a Huntington Financial Advisor can help.

For 35 years, Huntington Financial Advisors have been providing prompt, personal service to clients like you for moments that matter. We offer meaningful advice and can create a plan that is designed to focus on your key priorities to help achieve your goals. Call Huntington's Advisory Resource Group at 800-530-1690 to learn more or use Advisor Connect to find an advisor who's a good match for your unique position.

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Related Content

U.S. Social Security Administration. 2023. Actuarial Life Table.

Fronstin, Paul Ph.D., and VanDerhei, Jack Ph.D. Jan. 20, 2022. Projected Savings Medicare Beneficiaries Need for Health Expenses Spike in 2021. Accessed May 10, 2023. Loads as PDF.

§ U.S. Centers for Medicare and Medicaid Services. 2023. Is your test, item, or service covered? Accessed May 10, 2023.

Peter G. Peterson Foundation. Jan. 30, 2023. Why are Americans paying more for healthcare? Accessed May 11, 2023.

# Dhue, Stephanie and Epperson, Sharon. May 16, 2022. Americans can expect to pay a lot more for medical care in retirement. CNBC. Accessed May 10, 2023.

Ұ Dhue, Stephanie and Epperson, Sharon. April 21, 2022. Inflation is impacting health-care costs in retirement. CNBC. Accessed May 10, 2023.

¥ Feb. 18, 2020. How Much Care Will You Need? Accessed May 10, 2023. 2023. Health Savings Account. Accessed May 11, 2023.

Pyles, Sean. May 22, 2023. “How to Pay Off Your Medical Bills: 6 Options.” NerdWallet. Accessed July 27, 2023.

Axelton, Karen. March 31, 2023. “Can Medical Bills Hurt Your Credit?” Experian. Accessed July 27, 2023.

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