As a medical professional, you likely have a good understanding of what it costs when you need to see a doctor, have tests, or undergo a procedure. Even if you’re healthy today, there’s a good chance that you will experience increasing healthcare costs in retirement. Those costs come from insurance premiums, deductibles, copays, coinsurance, and any other payment to a doctor, hospital, pharmacy, or health insurance provider.
The average retiree may see healthcare costs reach six figures during their golden years. And costs will likely be higher if you retire early. Here’s a closer look at healthcare costs in retirement so you can build a resilient financial plan before you get there.
Average Cost of Health Insurance for Retirees
If you’re self-employed, you already know how much health insurance costs. If you’ve worked for an employer, which might pay for most (or all) of your health insurance, you may have a little sticker shock the first time you pay an entire month’s premium on your own.
Before retirement, you can go through a health insurance marketplace or a private insurer for an average cost of around $500 per month just for you and $1,200 per month for a family (however, that can vary widely based on location and coverage). Once you retire, your costs will change for the better, thanks to Medicare. If you or a spouse paid Medicare taxes over your career, Medicare Part A is available for free. Part B coverage is required and currently costs $170.10 per month or more , depending on your income (it will drop to $164.90 in 2023]. You will also probably want a Medicare Advantage Plan, which costs an average of $25 per month for supplemental coverage.
That total ranges from around $500 per month on the higher end when you get insurance on your own to about $200 per month with Medicare.
How Much Should I Budget for Healthcare in Retirement?
According to HealthView Services—a healthcare costs management company—the average cost of healthcare for a 65-year-old couple is $12,286 per year, a little more than $1,000 per month. That’s projected to triple by the time current retirees turn 85. They can expect to pay nearly $3,000 per month for full coverage, including Medicare Part B, Part D, Medigap, and typical medical care needs.
While Medicare can help lower costs once you reach 65, plenty of costs remain. The study suggests a total cost of $387,644 in today's dollars or $572,960, factoring in future expected inflation.
How to Lower Retirement Health Care Costs?
Keeping your healthcare costs low in retirement takes a combination of luck, good health, smart insurance, and good healthcare purchasing decisions. While we can’t change your luck from the genetic lottery and while you’re on your own to eat healthily and exercise, we can offer common strategies to keep retirement healthcare costs in check.
- Pick the best insurance plan for your needs: To start, you should spend time thinking about your care needs and costs. If you need a high level of care, it could be worth paying more every month in premiums for more extensive coverage.
- Shop around for insurance: You probably shop around when buying new, expensive items or services. That should go for health insurance, too. Medicare, HMOs, PPOs, and other plans have different costs and benefits.
- Shop around for healthcare: While many patients don’t think about it, shopping around for lower-cost healthcare is becoming more popular and more accessible thanks to the internet. If you can find two doctors that offer the same service but one charges more, there should be a very compelling reason to go with the higher-cost option.
- Stay healthy: As a doctor, you know that diet, exercise, and lifestyle choices have a significant influence on health and healthcare needs. If you are healthy and need less care, you can save money.
- Use a Flexible Spending Account (FSA) or Health Savings Account (HSA) when available: If you have access to an HSA or an FSA, you can use this account to save on taxes related to healthcare spending.
How Do I Prepare for Healthcare Expenses in Retirement?
If you will have $300,000-$600,000 in healthcare costs in retirement, it’s imperative that you start saving and investing as early as possible. Take full advantage of retirement plans, save and invest heavily, and do what it takes to get your finances lined up for the future.
How to Pay for Healthcare in Retirement?
In most cases, you will use a mix of tax-advantaged accounts and taxable investments to pay for healthcare in retirement. A 401(k), HSA, and IRA are likely to play the most important roles in paying for retirement healthcare needs.
Make sure to consider healthcare when deciding how much is enough for retirement.
How Does Medicare Fit into Healthcare Costs?
If you’ve been legally working in the United States, you’ve probably spent years paying Medicare taxes. Medicare taxes are 1.45% of your paycheck, which your employer also matches.
This tax unlocks access to Medicare for health insurance when you retire or meet other, less common criteria. Medicare insurance is provided in four parts, which you may have to buy separately.
- Part A: Medicare Part A covers hospital visits after reaching an annual deductible.
- Part B: Part B is optional (and probably an excellent idea for you) and covers medical expenses. This requires an additional premium payment.
- Part D: Part D is for prescription drug coverage. In your old age, you may take several prescription medications. This is unnecessary for some people, especially if you get prescription coverage through a supplement. Check with your plan administrator or a trusted insurance professional to determine if you still need this coverage when you buy a supplement.
- Supplemental: Sometimes called Medigap, supplemental Medicare insurance is a private insurance company that covers additional medical expenses not included in Medicare Part A or B. These are Part C plans, but most people don’t use the term Medicare Part C when discussing supplemental Medicare health coverage.
Keep in mind, though, that you can only unlock Medicare when you reach the age of 65. If you retire before then, Medicare probably won't be accessible to you. (Exceptions include being disabled or on dialysis).
According to a study by Fidelity Benefits Consulting, 39% of your healthcare spending in retirement will go to healthcare premiums, 17% for prescription medications, and the remaining 44% for doctor and hospital visits and related payments.
What Does Medicare Cover (and Not Cover)?
Between Medicare Part A, Part B, and Part D, you should be reasonably well covered for most hospital visits, nursing facility stays, hospice care, lab tests, surgeries, home healthcare, doctor visits, medical equipment, outpatient care, preventative screenings, and medications. But there are some gaps in coverage, which is why Medigap supplements exist.
Medicare specifically does not cover:
- Long-term care
- Most dental care
- Prescription eye exams and glasses
- Cosmetic surgery
- Hearing aid exams and hearing aids
- Foot or podiatry care
Supplemental plans can also be called Medicare health plans. A common type of plan is called Medicare Advantage, which most retired doctors should consider. Medicare Advantage plans often follow standard HMO or PPO formats.
The largest Medicare Advantage plan is the AARP Medicare Advantage plan from United Healthcare. High-quality Medicare Advantage plans cover most prescription drugs; dental care; eye care, including glasses or contact lenses; hearing aids and related tests; and other benefits.
Should I Buy Long-Term Care Insurance?
Long-term care insurance covers the costs of staying in a nursing home, moving to an assisted-living facility, or having a home healthcare provider come to your home. That may be a real need when you’re in your old age, and this type of care can be costly. Experts are divided on whether purchasing long-term care insurance makes sense.
A survey from Genworth found that the median cost for a semi-private room in a nursing home costs about $8,000 per month, while a private room costs $9,000. But that’s the median, so half of nursing home stays cost more. Home healthcare costs about $5,000 per month.
Because these costs can be so high, the ROI could be terrific if you wind up needing long-term care. However, the high premiums could make it a poor investment.
Ultimately, it’s up to you to decide if the risks and benefits make paying for long-term care a good idea. Also, if can save and invest enough that you can cover these costs on your own, you could self-insure and go without long-term care insurance. Most white coat investors choose to simply self-insure as they retire as multimillionaires.
As always, becoming financially independent makes all of these healthcare-in-retirement questions just a little easier to answer.
If you need extra help with planning for retirement or have
questions about the best way to save your money, hire a WCI-vetted professional today.
What are your plans to pay for healthcare costs after you retire? Will you buy long-term care insurance? Comment below!