Don’t Get Eaten Alive: 8 Ways to Plan for Healthcare Costs in Retirement

Let’s go ahead and state the obvious: healthcare is a huge expense in retirement.  HUGE.

And, not only huge, but also unpredictable and potentially debilitating.

Like sharks, retirement healthcare costs can be huge, ferocious and unpredictable…

According to Fidelity, a couple who is 65 years old today can expect to spend $245,000 on Medicare premiums alone.  Out of pocket expenses and long term care costs can be hundreds of thousands of dollars more!

Worse yet, you simply never know when your monthly costs will spike.  A hearing aid might mean an additional $6,000 one month.  A fall might mean long term care costs for the next year which might translate to $100,000.

So, what are you supposed to do.  How do you minimize costs and plan for the unexpected?

While not as good as a crystal ball or a money tree, here are 8 ways you can plan for or improve your health coverage for retirement:

1. Understand that Medicare is Not Free

It does not register for a lot of people, but Medicare is not free.  Part A that covers hospital stays is pretty much free.  But, you are also required to be enrolled in Part B.  You pay premiums, co pays and have other out of pocket expenses for Part B.

Most people also have supplemental insurance to reduce these costs and provide additional coverage.

2. Know What Medicare Covers and Plan Accordingly

Medicare does not cover all medical expenses.  Most people over 65 years old are enrolled in Medicare Part A (which covers hospital visits and is mostly free) and Medicare Part B (covers doctor visits and outpatient care and has costs for deductibles, co-pays and medications).

These plans do not cover long term care, dental or vision.

3. Estimate Annual Healthcare Costs by Using Averages and Plan to Spend More Each Year

It is hard to know how much you are going to spend on healthcare.  However, it can be useful to know what other people have spent.

Merril Lynch published a useful Healthcare Costs in Retirement Guide, that estimated average  healthcare costs by age.  People who had supplemental coverage with Medigap Plan C spent the following:

Average Yearly Medical Spending at Age 65 by health status:

  • Excellent health: $4,450
  • Moderate Health: $4,660
  • Poor Health: $4,760

Average Yearly Medical Spending at Age 70 by health status:

  • Excellent health: $4,869
  • Moderate Health: $5,100
  • Poor Health: $5,200

Average Yearly Medical Spending at Age 75 by health status:

  • Excellent health: $5,220
  • Moderate Health: $5,535
  • Poor Health: $5,635

4. Stay Healthy

It seems that costs go up for everyone and costs rise faster if you are in worse health.

One way to hold off rising expenditures is to proactively take care of your health.  Eat right, exercise, take prescribed medications carefully and you may be able to spend less in medical costs overall than your sicker peers.

5. Review Your Supplemental Medicare Plan Every Year

Supplemental Medicare plans change — what they cover and what they cost — every year.  Your health changes every year as well.

These are two reasons why it is important to assess your supplemental coverage every year.  Different policies cover different things at different rates.

You need to compare policies and make sure you  have the best fit for your needs year after year.

6. Brace Yourself for Medical Cost Inflation

As you saw above, average health spending goes up every year —  on average.  We typically need more healthcare every year as we grow older.

However, the costs of those services also get  more expensive every year.

Healthcare costs have risen at a much higher pace than inflation.  And, they are expected to continue to go up at a faster rate.

While the premiums for Medicare Part B are tied to actual inflation, the premiums for supplemental plans like Medicare Park D rise quickly.  According to Healthview, premiums for Part D went up 12 percent last year.

Not all financial advisors and online retirement calculators account for the predicted cost acceleration.  However, some do.  Ask to be sure and make sure that you agree with the assumptions they are making.

Better yet, use a tool that let’s you set or change the rates. The NewRetirement Retirement Calculator let’s you set your own predictions for both general inflation and medical cost inflation.

7. Prepare for Spending More if You Are a Woman (or Married to One)

Healthcare costs for women are not necessarily higher than those for men in an average year.

However, women live longer than men.  This translates to needing healthcare for a longer period of time.  Some studies estimate that a 65 year old woman will need $22,000 more in total health care costs than a man of the same age.  This is due to the woman’s longer life.

8. Plan for a Long Term Care Need

Not everyone will need long term care, but all of us should think about how we are going to pay for it IF we do need it.

In 2010, the average rate for a private room in a nursing home was $229 a day, or about $83,000 a year, according to a survey.  These costs are expected to rise to $480 a day or $175,200 annually by 2021.

That is a lot of money that most of us don’t  have.  Long term care insurance is one way to reduce these potential costs, but you might also need to explore more creative solutions to paying for this care.

Making an actionable retirement plan that adequately addresses healthcare can be challenging.  The good news is that tools like the NewRetirement Retirement Calculator make it easier predict these costs.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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