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The Cost of Healthcare in Retirement: How You can Plan Ahead

The Cost of Healthcare in Retirement: How You can Plan Ahead

May 10, 2023

There are many things to look forward to when we hit retirement age: spending more time with family, travel, more time to relax, and countless other things that might be on your to-do list when you have more free time.

But living a (hopefully) carefree retirement means planning ahead – even for the not-so-fun stuff.

Nothing can derail a good retirement like not being prepared for the medical expenses that come as we age – and those costs are only going to increase.

According to Investopedia, “Healthcare costs have risen dramatically in the United States over the past several decades. According to a study by the Peterson Center on Healthcare and the Kaiser Family Foundation (KFF), U.S. healthcare spending rose nearly a trillion dollars from 2009 to 2019, when adjusted for inflation.

The study reported that U.S. healthcare spending during 2019 was nearly $3.8 trillion, or $11,582 per person. By 2028, these costs are expected to climb to $6.2 trillion—roughly $18,000 per person.”

One of the biggest things we have to adjust to when we retire is dealing with expenses when we’re no longer getting a regular paycheck. That’s why it’s important to keep these increases in mind so we can plan accordingly.

What should we do?

First, start with realistic expectations. When you look at the cost of Medicare Part B, a Medi-gap policy, Medicare Part D, and co-pays/deductibles, I’ve often seen clients budget between $7,000 and $10,000 per person per year from age 65 on for health care. If you retire prior to age 65, the costs will be higher. This does not include the cost of long-term care insurance and/or other types of care. That is a completely different issue.

An HSA could be your best friend.

If you’re still in your working years, now is the time to plan ahead. While not everyone has it available, if you do have a Health Care Savings Account (HSA) in conjunction with your current health insurance, you should consider contributing the maximum amount each year.

Here is the kicker – do not use the account to pay your current deductibles unless you absolutely need the money. Once you are 65, you can use the account to pay for qualified medical expenses – which as long as you are alive, we can pretty much guarantee you will have.

These dollars are unique: They go in pre-tax (immediate tax savings), they grow tax-deferred, and as long as they are used for qualifying medical expenses, they come out tax-free. These are the only accounts that I am aware of that have all three tax advantages. The other good news is if you are paying less to the IRS, then you have more money working towards your future. 

The good news and the bad news

With all the advances in medicine, there’s a good chance that you will live a long and happy life. And that’s good. The healthier you are going into retirement likely means you’ll spend less on healthcare.

However, keep in mind that living healthier also means living longer – and that needs to be planned for as well.