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31% of Older Americans Expect This to Be Their Largest Expense in Retirement. And They're Probably Right

By Maurie Backman - Dec 2, 2019 at 8:18AM

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It's an unavoidable one at that.

Though retirement is an exciting milestone to look forward to, it's also a scary one, at least from a financial perspective. Not having an incoming paycheck means having to rely on a combination of savings and Social Security to cover the bills, some of which have the potential to drop in retirement, and some of which have the potential to rise.

The latter tendency applies to healthcare in particular. In fact, in a recent Nationwide survey, 31% of Americans ages 50 and over anticipate healthcare being their single greatest expense in retirement. And data from HealthView Services, a cost-projection software provider, supports this sentiment, as it estimates that the average healthy 65-year-old couple retiring this year will spend an astounding $387,644 on healthcare during their golden years.

Doctor sitting next to older man on exam table, talking


The even scarier part? That estimate doesn't include the cost of long-term care.

If you're worried about affording healthcare in retirement, there are a few key steps you can take to ease that concern.

1. Understand your costs and coverage options under Medicare

You have choices when it comes to enrolling in Medicare. You can opt for original Medicare, which consists of Part A for hospital care, Part B for outpatient and preventive care, and Part D for prescription drug coverage, and pay a monthly premium for the latter two (Part A is generally free for enrollees). Or, you can choose Medicare Advantage as an alternative and pay the premium associated with the plan you select (plus your Part B premium -- that still applies if you opt for an Advantage plan).

Medicare Advantage offers coverage for a number of key services that original Medicare won't pay for, like dental care, vision screenings, and hearing aids. On the other hand, Medicare Advantage limits you to a specific network of doctors, whereas with original Medicare, you usually have more provider choices.

There are pros and cons to choosing original Medicare over Advantage, and vice versa, but before you make that decision, understand exactly what expenses you're signing up for and what sort of coverage you get. Keep in mind that in addition to premiums, you'll be liable for out-of-pocket expenses like deductibles, copays, and coinsurance under your plan, so crunch those numbers carefully when weighing your options.

2. Contribute to a health savings account

With a health savings account, or HSA, you get the option to contribute money on a pre-tax basis that never expires. As such, you can carry your HSA funds into retirement and use that account as a dedicated means of paying for healthcare when it becomes most expensive.

Beginning in 2020, you'll get the option to contribute up to $3,550 a year to an HSA as an individual, or up to $7,100 at the family level. And if you're 55 or older, you get an additional $1,000 catch up contribution on top of the limit that applies to you.

HSA eligibility hinges on being enrolled in a high-deductible health insurance plan. If you have an individual deductible of $1,400 or more next year, or a family deductible of $2,800 or more, it pays to see if your employer offers an HSA and contribute as much as you can, up to the annual limits. Even if your employer doesn't offer an HSA, you can still open one independently and sock away funds for future healthcare costs.

3. Invest in long-term care insurance

The cost of long-term care today is staggering, and without insurance, you risk upending your finances in an effort to keep up with it. As per Genworth's 2018 Cost of Care Survey, the average annual cost to reside in an assisted living facility is $48,000 on a countrywide level. The average annual price tag for nursing home care, meanwhile, is $89,297 a year for a shared room and $100,375 a year for a private room.

That's why buying long-term care insurance is crucial. Without it, you risk footing comparable bills on your own. The best time to apply for a long-term care policy is in your mid-50s. At that point, you're more likely to secure a reasonable premium rate, assuming you're relatively healthy. But that doesn't mean you can't apply during your 60s, either.

If you're worried about the colossal cost of healthcare in retirement, you're not alone. But rather than stress about how you'll pay for it, do your research on Medicare, fund an HSA, and secure long-term care insurance at a relatively young age. With any luck, those steps combined will make medical care more affordable for you in the future.

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