$130,000 is Your Cost for Healthcare in Retirement

Written by Hersh Stern Updated Sunday, February 11, 2024


According to a recent study by Fidelity, today's 65-year-olds can expect to spend approximately $130,000 on out-of-pocket healthcare costs during retirement. This is to cover Medicare premiums, copayments, and deductibles, as well as other ancillary expenses such as eyeglasses and prescription drugs, etc.

This is the cost for one retired person, so if you're married, you can plan on doubling that amount to $260,000 - a figure that has been steadily rising at the rate of 5% a year.

Fuel for the Healthcare Expense Fire

As if the $130,000/$260,000 figures weren't enough, they don't even take into account the cost of long-term nursing care - which has also risen substantially over the years. According to Genworth's 2016 Cost of Care Survey, a semi-private room in a skilled nursing home can average $225 per day. That equates to over $82,000 per year.

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Home health care costs are expensive, too. Averaging $20 per hour nationwide, even if you only need these services on a part-time basis, the expense could really add up - and, each year, this cost per hour has been rising, too. Many people mistakenly believe that Medicare will cover the cost of long-term nursing care. Unfortunately, that isn't necessarily the case. Medicare pays very little for long-term care expenses - and what it does pay for, you will still typically be responsible for copayments and deductibles.

You could purchase a long-term care insurance policy to help you pay for some or all of these expenses. However, LTC insurance is expensive - and many companies that were once big sellers of this coverage have exited the market due to the high expense of paying out claims.

How to Protect Yourself from Healthcare Costs in Retirement

So, how can you protect yourself, and your savings, from exorbitant healthcare costs in retirement? While saving an additional $130,000 or $260,000 may seem like an impossible task, there are some viable strategies that can help.

Medicare Supplement Insurance

First, if you have Original Medicare coverage (that's Medicare Parts A and B), then you should look into purchasing a Medicare Supplement policy as well. Many people don't realize just how many copayments and deductibles they'll be responsible for when covered by Medicare.

But Medicare Supplement insurance can help with filling in some of these "gaps." This is why it is often referred to as Medigap insurance. There are many different plans available - from the most basic to the comprehensive - so be sure to choose the one that best fits your needs.

Health Savings Account (HSA)

If you are still in the working world and your employer offers a high-deductible health insurance plan, then you may also want to consider setting up a Health Savings Account, or HSA. Doing so will provide you with several nice advantages.

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First, you can contribute on a pre-tax basis. And, the money inside of the account can essentially compound over many years. Plus, any money that you withdraw from the HSA account that is used for healthcare needs will not be taxed.

But even if you don't have a Health Savings Account, you may still be able to deduct medical expenses on your taxes, provided that the costs add up to more than 10% of your annual adjusted gross income. (If you are age 65 or over, in 2016, the figure is 7.5% of you AGI).

Social Security Income Benefit Maximization

You can also be more strategic about when to start taking your Social Security retirement benefits, because doing so can provide you with a much higher amount of monthly income.

For instance, for every year that you wait to begin receiving these benefits past your full retirement age, Social Security will increase the amount by 8%. This is referred to as a "delayed retirement credit", and you can receive this credit each year until you reach age 70.5.

So, if your full retirement age is 66, and you wait until age 70 to start receiving your benefits, you can technically give yourself a 32% "raise". On the other hand, be careful if you take these benefits prior to your full retirement age, as they will be decreased - and will remain decreased throughout your lifetime.

Assuming a Full Retirement Age of 66
and an Initial Monthly Benefit of $2,000
Age % of Full Retirement Benefit Monthly Benefit Annual Benefit
66 100% $2,000 $24,000
67 108% $2,160 $25,920
68 116% $2,320 $27,840
69 124% $2,480 $29,760
70 132% $2,640 $31,680
Note: Cost-of-living adjustments were not factored into this example.

Longevity Annuity

As healthcare costs tend to be even higher the older we become, you could also consider purchasing a longevity annuity. These are not the same as regular annuities that you purchase for income earlier in your retirement years.

Rather, with a longevity annuity, the income stream begins at a distant time in the future, such as when you reach age 80 or 85, and because of that, the premium is cheaper and the income payments can be higher than that of a regular annuity.

Because people are living so much longer than ever before, owning a longevity annuity can be a good option for ensuring that you have guaranteed income in the future. This is especially the case if Social Security will be your only other sure source of income at that time, due to the possibility of depleting assets.

The Bottom Line

While $130,000 - or more - in additional healthcare costs in retirement can sound like an astronomical figure, the good news is that there are ways to plan for these expenses. But the key is actually having a plan. Going head first into retirement without knowing how you will handle these high, and growing, costs can end up quickly depleting even a large investment portfolio within a relatively short period of time. Speaking with an expert who can help you with that plan is a good first step in the right direction. If you’d like some help, call us at 800-872-6684.

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