Please ensure Javascript is enabled for purposes of website accessibility

Here's What the Average Retiree Spends on Healthcare Each Year

By Maurie Backman - Jul 22, 2018 at 6:04AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Hint: It's not a small number.

It's natural to assume that our living costs will mostly go down in retirement, but if there's one expense that's likely to rise during your golden years, it's healthcare. From deductibles to copays to Medicare premiums, healthcare can easily grow to become your single greatest monthly expense -- but planning for it can help alleviate some of the stress it causes so many seniors.

So how much money should you expect to allocate to medical costs? The average retiree spends $4,300 on out-of-pocket healthcare expenses each year, according to the Center for Retirement Research at Boston College. Given that the average Social Security recipient collects just under $17,000 a year in benefits, that's a large chunk of that income to be spending.

Doctor talking to older female patient

IMAGE SOURCE: GETTY IMAGES.

Now the good news is that you can take steps to save money on healthcare in retirement. But while you're optimizing those strategies, be sure to work on boosting your income as well so that you have the means of paying for whatever costs do inevitably come your way.

Make sure you're financially prepared for retirement

It stands to reason that the more money you have available in retirement, the less worrisome the notion of covering your medical costs will be. And in that regard, padding your nest egg during your working years is really your best bet.

Currently, workers under 50 can save up to $18,500 per year in a 401(k) and $5,500 in an IRA. For workers 50 and over, these limits increase to $24,500 and $6,500, respectively. If you're 55 years old and are able to max out a 401(k) for the next decade, you'll add $338,000 to your nest egg, assuming your investments grow at an average rate of 7% a year during that time.

While you're working on boosting your retirement savings, start thinking about other income streams you might set yourself up to optimize during your golden years. Maybe you have a home you're willing to rent out or a hobby you can monetize to drum up extra cash. The key is to get a little creative, especially if you're nearing retirement and don't have a lot of time to pad your savings the way you'd like.

But don't forget about Social Security, either. There are ways you can grow your benefits and get more money out of the program to cover your various living expenses, healthcare included. If you delay filing for benefits past what's considered full retirement age, those benefits will go up by 8% a year until you reach age 70. This means that if your full retirement age is 67 and you wait a full three years, you'll boost your benefits by 24%, and that increase will remain in effect for the rest of your life. Fighting for more money at work will also help your benefits go up, since they're calculated based on your earnings record.

Take good care of your health

While going into retirement with the highest level of savings possible will help make your medical costs more manageable, another important step to take is keeping tabs on your health as you age. All too often, we neglect medical issues because we don't want to be bothered with waiting at the doctor's office or don't want to dish out a pesky copay. But when you let medical problems linger, they tend to escalate, and once that happens, they can become costlier to treat.

Case in point: A nasty cut on your leg might cost you a $25 doctor visit and a $10 bottle of antibiotics. But if you ignore that cut and it gets infected, you could wind up with a $1,200 ER bill. Of course, this applies whether you're mid-career or on the verge of retirement, but since our health tends to decline as we age, it pays to be even more vigilant when you're older.

There's no question about it: Healthcare is a whopping expense that's pretty much unavoidable for retirees. But there's no need to let it ruin your golden years. Read up on how Medicare works so you know what to expect from it, save aggressively, and be vigilant about health problems that inevitably arise. With any luck, you'll be well prepared to tackle those medical bills once your career comes to a close.

The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.