Healthcare Expenses Can Destroy Your retirement

How Much Will Healthcare Cost In Retirement?

Retirement healthcare expenses are at (or near) the top of every retiree’s mind. You’re not alone if you’re worried about paying for healthcare over a long retirement.

According to Fidelity, the average couple that retired in 2019 at age 65 will need approximately $285,000 in order to pay for healthcare expenses in retirement. This figure doesn’t even include the cost of long-term care!

To make things worse, health care costs have soared in recent years. From 2015-2017 alone, healthcare costs increased by over 12%! That’s a far cry from the 1% to 2% average annual inflation we’ve seen throughout the rest of the economy.

This begs the question “How on earth can the average retiree plan for healthcare-related expenses?

The Health Savings Account

Health Savings Accounts (HSA) are the only retirement account that has a triple tax advantage. Contributions are tax-deductible, they grow tax-deferred, and distributions are tax-free for qualified medical expenses.

Sadly there are a few requirements to use the HSA:

  • You must be in a high-deductible health plan in order to qualify
  • The annual contribution limit is only $3,600 for individuals and $7,100 for a family plan (plus an additional $1,000 if over 55 for both singles and family plan)
  • You cannot already be enrolled in Medicare

Unfortunately, most people use their HSA plan for immediate medical expenses. The best way to use your HSA is to max it out every year then save your HSA qualified receipts. You can request reimbursement at a later date when you’re retired (or when you need the money.)

Don’t worry if you don’t have the medical expenses later. You can withdraw the funds after age 65 like an IRA paying taxes as ordinary income with no penalty.

Another way to help fund your HSA is the “One-Time IRA to HSA Conversion.” This strategy allows a one time only conversion from your IRA into your HSA, up to the contribution limit for that year.


You’re eligible for Medicare when you turn 65. Medicare is broken down into four basic parts:

  • Part A: Covers inpatient hospital care, skilled nursing facilities, hospice care, and some health care. There is no deductible or monthly premium once you’ve reached age 65 and are enrolled in Medicare.
  • Part B: Covers doctors’ services, outpatient hospital care, physical and occupational therapy, and some home health care. Coverage under this segment is optional, and the monthly premium starts off at $144.60 and increases depending on your income.
  • Part C: Covers medically-necessary services. It’s a combination of parts A and B and is managed by private insurance companies approved by Medicare. Different co-payments, coinsurance, and deductibles may be charged for this service.
  • Part D: Covers prescription drug benefits. Monthly premiums, co-insurance, or co-payments may be required for each individual prescription.

Beware The IRMAA Medicare Penalty!

Another aspect you need to be aware of when it comes to Medicare planning is the effect your income has on Medicare premiums. The higher your modified adjusted gross income (MAGI), the higher your premiums will be. See this chart for what you’ll pay in premiums.

This is known as the Income Related Monthly Adjustment Amounts (IRMAA). For example, if you’re married and your MAGI is $174,000 per year or less, you’ll pay a monthly premium of $144.60 for Part B.

If your MAGI increases by a single dollar to 174,001, your monthly cost is $202.40 per month. That’s nearly $700 more you’re paying per year because you made $1 over the limit.

This is why paying attention to your income is so critical for Medicare Part B premiums. The income number is based on your Form 1040 from 2 years prior to paying Medicare premiums.

3. Long-Term Care (LTC) Insurance To Manage Late In Life Healthcare Costs

Long-term care is another concern for retirees. The cost of nursing homes is astronomical with annual stays commonly in the six-figure range. You can spend your entire life saving and investing diligently and one unexpected, prolonged medical event can dash your hopes of having a successful retirement.

Worse yet, you can bankrupt your spouse!

Kiplinger reports that 27% of retirees turning 65 this year will incur at least $100,000 in long-term care costs! This is where long-term care insurance comes into play.

Long-term care insurance is meant to cover long-term personal and custodial services. Policies help by reimbursing a daily amount for services to assist with activities of daily living. These include eating, dressing, bathing, transferring, toileting, and continence.

According to Morningstar, the average annual premium for a long-term care policy purchased by someone 55 or younger costs $1,831. The annual premium for someone purchasing the same plan age 70 and over is $3,421.

If you’re Worried About Healthcare Costs

Healthcare expenses are increasing at an accelerated rate. Thankfully, we have many tools which make it easier to plan, protect, and save tax dollars in the process.

We believe reviewing your retirement healthcare expenses in conjunction with your retirement plan is critical to a successful retirement.


How much will healthcare cost in retirement?

The average couple that retired in 2019 at age 65 will need approximately $285,000 in order to pay for healthcare expenses in retirement, not including long-term care expenses.

How can I save for healthcare expenses in retirement?

Health Savings Accounts (HSAs) are a great way to save for healthcare expenses. HSAs are the only retirement account to have a triple tax advantage. Meaning, contributions are tax-deductible, they grow tax-deferred and distributions are tax-free for qualified medical expenses.

How much will Medicare cost?

This depends entirely on your situation. Although, Part B premiums are known based upon your MAGI and increase depending on where you are in the bracket.

Are Long-Term Care Expenses tax deductible?

It depends, but odds are you probably won’t be able to deduct LTC costs or premiums, but even if you can, there are limitations.

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