Posted on Jan 4, 2019

Unless you are one of the lucky few with a lifetime medical plan paid for by your employer, health care costs are one of the largest expenses in retirement and can take a significant bite out of your savings. According to Fidelity’s retiree health care cost estimate, the average couple age 65, retiring in 2018, will need $280,000 in today’s dollars to cover medical care during their retirement years.[1] This figure includes Medicare co-pays, premiums and other out-of-pocket expenses. It does not include long-term care, which can easily run into thousands of dollars a month for assisted living or nursing home placement.

Unfortunately, there is no indication that spiraling health care costs will stabilize anytime soon. And while medical costs will vary depending on your health, where you live, and how long you live, no retirement plan is complete without factoring the impact of healthcare expenses and a strategy to address them. Here are tips to stretch your retirement dollars as far as possible:

  • If you are still working, are enrolled in a high-deductible medical plan, and have a Health Savings Account (HSA), increase your contributions if you can. HSA contributions are either tax-deductible or pre-tax (if made by payroll deduction), the funds can grow on a tax-deferred basis, and withdrawals used for qualified medical expenses are always tax-free

    Unlike Flexible Spending Accounts (FSAs), HSAs are portable and funds roll over from year to year. You own the account, and you can keep your HSA upon termination of employment. An HSA can be an excellent vehicle for covering qualified medical expenses later in life, and a key tool in retirement planning for employees of all ages.

  • If you are age 50 or older and are concerned your retirement savings are not on track, make catch-up contributions to your 401(k) or IRA. In 2019, the amount you can contribute to your 401(k) or similar workplace retirement plan annually is increased to $19,000, with an additional $6,000 catch-up contribution if you are age 50 or older. The amount you can contribute to an IRA if you do not have an employer-sponsored retirement plan is $6,000 in 2019, although if you are age 55 and over, you can make an additional $1,000 catch-up contribution. The catch-up contribution for an HSA is an additional $1,000 if you are 55 or older.

  • Be an informed consumer and comparison-shop for out-of-pocket medical products and services. The cost for procedures such as MRIs, CAT scans, blood tests, and other items can vary widely among healthcare providers, even within the same region, with big cost differences for the exact same service. Online resources such as Healthcare Bluebook can help consumers save hundreds of dollars by showing the “fair price” of medical services in their area. Good RX collects pricing and discounts on prescription medications from over 60,000 U.S. pharmacies.

  • Always review your medical bills and insurance claim statements. Medical billing errors are common and can result in unnecessary charges. Make sure that your out-of-pocket charges are correct and contact your insurance carrier if you find any mistakes.

While health care costs in retirement may seem daunting, planning ahead and being informed about Medicare options, as well as options for long-term care insurance, can help you make good decisions and be prepared.

This material is provided for informational purposes only, and is not intended as authoritative guidance, legal advice, or assurance of compliance with state and federal regulations.


[1] https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

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