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Healthcare is one of the largest costs you'll have in retirement. The average 65-year-old retiring in 2025 will need approximately $172,500 to cover all their medical costs, according to Fidelity, and that doesn't include things such as dental or long-term care. Unfortunately, there's no way to entirely avoid retirement healthcare expenses, but you can reduce them by following these tips.
It's obvious advice, but it bears repeating. If you make an effort to stay active and eat healthy, you'll likely spend less on healthcare than someone who ignores diet and exercise and has other unhealthy habits such as smoking.
This is a great tip for reducing your healthcare expenses at any age, and, if you start now, you'll form good habits that will carry you through retirement. If you're not sure how to start improving your health, consider talking to your doctor about the best first steps.
Most retirees rely on Medicare to cover their healthcare expenses in retirement. However, it's not free, and it doesn't cover everything.
Original Medicare consists of Part A and Part B.
Medicare supplement plans are additional insurance plans you purchase to fill in some of the gaps in original Medicare coverage. These plans are offered by private insurers, so there are many different options, and they all have different features and prices.
Medicare Advantage plans, also known as Medicare Part C, are plans that cover everything original Medicare does, as well as some of the things it doesn't. What's covered varies by plan, but most include prescription drug coverage (Medicare Part D).
If you sign up for one of these, you'll have a single premium, deductible, and copay rather than separate costs for original Medicare and a Medicare supplement plan. You typically can't have a Medicare Advantage and a Medicare supplement plan, so you must choose one over the other.
You don't have to buy any extra healthcare insurance in retirement if you don't want to, but doing so will give you a predictable monthly payment. That's easier to plan for than paying for your medical expenses out of pocket.
Health savings accounts (HSAs) allow you to set aside money for healthcare expenses at any age as long as you have a qualifying insurance plan. Money you put into an HSA reduces your taxable income in that year, and, if you use its funds for medical expenses, you won't pay taxes on it at all. You can use your HSA for non-medical expenses, too, but you'll pay taxes on those withdrawals, plus a 20% early withdrawal penalty if you're younger than 65.
You can only contribute to an HSA if you have a high-deductible health insurance plan. A high-deductible health plan is defined as:
Adults age 55 and older can make a $1,000 catch-up contribution to their HSAs.
Some HSA providers let you invest your funds, which makes your HSA a great place to stash extra retirement money even if you don't think you'll use it all for healthcare. And, unlike most retirement accounts, the government doesn't force you to take money out of your HSA once you turn 73, so you can leave your savings in there to continue growing until you need it.
Medicare offers all enrollees free annual wellness visits, along with free screenings for diseases such as diabetes, cancer, depression, and more. These free services can help you catch health issues before they become too serious.
Recognizing your health issues early is key, not only to recovering quicker but to keeping your costs down. If you can make health changes before you develop diabetes, for example, you can avoid paying for monthly medications to treat it.
Long-term care insurance covers costs related to living in a nursing home or hiring a home health aide. It could be a financial lifesaver if you develop a chronic health condition that leaves you unable to care for yourself.
Traditional long-term care insurance is becoming rare, though. These policies have been increasingly replaced by hybrid policies that combine life insurance with long-term care benefits, or permanent life insurance with a long-term care rider.
Buying standalone long-term care insurance is also pretty expensive, and determining when to buy coverage can get tricky. Your premiums will be lower if you buy a policy while you're young and still relatively healthy. However, if you buy a policy too early, you'll pay more in premiums overall. Financial planners usually recommend buying coverage when you're in your late 40s to early 60s, depending on your health and family history.
If you're still worried about not having enough money to cover your healthcare costs in retirement, you can always save some extra in your retirement account. You can use the $172,500 estimate for a retiring individual as your starting point, but you may have to save a little more if you're a long way off from retirement to account for inflation.
It's up to you to decide how much to save. Once you've landed on that number, use a retirement calculator to figure out how much you must save per month to hit your goal.
If your health situation changes as you age, you should revisit your healthcare plan for retirement. You may not think you need a long-term care insurance policy right now, for example, but if your health changes, you may want to buy coverage while you still qualify medically. Like the rest of your retirement plan, your retirement healthcare plan should be adaptable because you never know exactly what the future holds.
