Here’s What You May Pay for Healthcare Costs in Retirement

Here's What You May Pay for Healthcare Costs in Retirement

How should you include the price tag of healthcare costs in your retirement plan? Many people underestimate what their healthcare expenses may be. At times, it’s even to a great extent.

In a March 2017 survey by Voya Financial, 69% of baby boomers said they expected to pay “$100,000 or less” for healthcare expenses in retirement. Among retirees, 66% also expected their healthcare costs to be $100,000 or below.

Retirement Healthcare Comes with a Hefty Price Tag

Those cost expectations are insightful, especially considering that even for affluent households, a 3-day stay in an out-of-network hospital can quickly exceed $50,000, as Ryan Costlin writes in a BenefitsPro article for financial advisors.

Even so, their estimates are far below what organizations like Fidelity and the Employee Benefit Research Institute project. According to Fidelity Benefits Consulting, a 65-year-old couple retiring in 2017 would need an average of $275,000 for their medical expenses.

Their $275k price tag is based on a couple with traditional Medicare insurance coverage. And it doesn’t even include the costs of dental care, nursing home care, or even other potential long-term care services.

In its research, the Employee Benefit Research Institute ran simulations that produced 100,000 observations. They accounted for the uncertainty of how long individuals might live and the unknowns of what their rates of return on investments might be.

The institute found that, assuming they had median prescription drug costs, an average couple would need $273,000 in savings to be 90% confident that they could cover healthcare expenses in retirement. This study assumed the healthcare expenses to be covered would be premiums for Medicare Parts B and D, premiums for Medigap Plan F, and out-of-pocket costs for outpatient prescription drugs.

Lifetime Healthcare Costs in Future Dollars Value

Other researchers have also run projections that account for future dollars. Research firm HealthView Services estimates that total projected lifetime healthcare premiums for a healthy 65-year-old couple retiring in 2017 would have been $321,994 in present dollars – or $485,246 in future dollars.

Adding in deductibles, copays, hearing, vision, and dental cost-sharing, total lifetime healthcare costs would go up to $404,253 in present dollars for a couple retiring in 2017. That figure would be $607,662 in future dollars.

What Would Medicare Cover?

On the face of it, the numbers might appear quite high. But while people become eligible for Medicare at age 65, the benefits don’t cover everything.

According to Fidelity, Medicare premiums for Parts B and D made up only 35% of its $275,000 estimate. The other 65% – or $206,250 in dollars and cents – would be made up of cost-sharing, internally and externally of Medicare, along with the out-of-pocket expenses for prescription drugs. gives a list of items that Parts A and B wouldn’t cover, including:

  • Long-term care
  • Most dental care
  • Eye examinations relating to glasses prescriptions
  • Dentures
  • Cosmetic surgeries 
  • Acupuncture  
  • Hearing aids and examinations to determine fittings
  • Routine foot care

You can get ideas of what may or may not be specifically covered on the website.

Many Investors Underprepared for Healthcare Costs in Retirement

Despite the prospects of such high healthcare costs in retirement, many Americans don’t have a plan for how they will manage these expenses.

The NHP Foundation found that among Americans aged 50 and beyond who have tried retirement budgeting, 65% hadn’t taken account of unforeseen health-related expenses.

In its most recent healthcare research, Voya Financial reports that only 14% of Americans have run healthcare cost calculations as part of their retirement planning strategy. Previous Voya research shows over 4 in 10 Americans list healthcare as the top retirement expense over which they worry most.

Recall that Voya Financial reported that 66% of individuals estimated their health costs would be $100,000 or less – far below what projections from different research organizations have found.

All of this reinforces the prudence of having money allocated for healthcare expenses as part of an overall retirement planning strategy.  

Taking Steps to Enjoy a Financially Confident Future

While nothing is foolproof, there are steps you can take toward building a rock-solid financial plan that helps you manage potentially costly healthcare expenses. What’s more, your plan should account for other potential risks – not to mention generate the income you need to enjoy a retirement that is meaningful for you.

Some of the decisions surrounding healthcare expenses and other care-related costs in retirement include:

  • Lifestyle desires and choices based on your health status and family medical history
  • Your future plans with your partner and other loved ones – and how your partner’s medical history might factor into an overall retirement plan
  • The timing of when you elect for Social Security benefits and sign up for Medicare
  • What accounts, assets, insurance coverage, and other vehicles are at your disposal to help cover health-related expenses
  • The tax consequences of taking distributions from retirement accounts, not to mention the tax implications of tapping other health cost-paying sources
  • Your household income earnings and how they might affect premiums for Medicare Parts B and D
  • Your retirement longevity – how long you might live and how much health-related expenses might go up over time
  • The influences of other financial commitments, such as caretaking of parents, helping aging loved ones with their own health service needs, and so on

Because employers often cover up to 75% of their employees’ healthcare expenses, it’s especially important to figure out how healthcare costs will be paid for. It’s a critical question to answer considering how your household income situation will likely change in retirement.

You can Request Personal Retirement Planning Guidance

When looking over strategies such as tax-free distributions from Roth IRAs, payments from cash value life insurance, or withdrawals for qualified health expenses from an HSA, there is a lot to consider. Many retired and working-age investors have gained more confidence from guidance given by a knowledgeable financial professional.

As you explore different options, you may consider working with a financial professional for your own healthcare and retirement planning needs. Do you have the right insurance coverage to help with cost relief? Does your existing plan have the right financial resources and strategies in place for potential medical catastrophes?

Could your plan perhaps be improved? Will you have sufficient money and income-generating assets to pay for all the years you may live? Like many others, you may have a partner or spouse. Have you formulated an income and survivorship plan for when someone may outlive the other?

When you believe you could benefit from personal retirement guidance, financial professionals at can help you.

Use our “Find a Financial Professional” section to connect with someone directly. You can request a personal, no-cost initial consultation. And if you need a personal referral, call us at 877.476.9723.

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