Are Healthcare Costs Really That Much in Retirement?

Are Healthcare Costs Really That Much in Retirement?
(Shutterstock)
Mike Valles
11/28/2023
Updated:
11/28/2023
0:00

Growing older in retirement often means there will be some health problems along the way. These tend to worsen as you age, leading to more doctor visits. While the tendency is to plan for fun and travel during your retirement years, likely, you may not have calculated how much your health care costs could be.

The average 65-year-old couple, Fidelity says, will spend an average of $315,000 in medical care costs before they die. A healthier person will spend more because of a longer life, and a sickly person will need less.

The above figure is not all-inclusive of costs. It does not add the cost of dental care, over-the-counter medications and supplements, or long-term care.

Most of that money will go toward the co-payments, co-insurance, and deductibles needed for hospital and doctor visits. Another large portion of it pays for Medicare health insurance and supplemental Parts—or Medicare Advantage plans, and then the balance is for medications.

When seniors do not have enough money for medical costs—and many of them do not—the result is that they will have to go without needed medications or healthcare treatments. Both situations could reduce their quality of life and may shorten their lives.

High-Income Earners Pay More for Medicare Health Insurance

If you are an individual who earns more than $103,000 or more than $206,000 and file a joint tax return, you will pay much more than those who make less money for your Medicare plan. People who earn up to these amounts will pay $174.70 in 2024.
Medicare reveals that there are a total of six income categories that range up to individuals making $500,000 or more and couples filing a joint return making more than $750,000. They will pay a maximum of $594.00 for their Medicare coverage.

Calculating Social Security Into Your Retirement Plan

Many people not yet retired are counting on their Social Security benefits to cover their medical costs during their retirement years. It may sound good, but it probably is not enough. Social Security does pay an additional cost-of-living amount each year, but sudden cost increases such as rent and housing costs are probably not part of the equation.
Although Social Security may be stable now, the Congressional Budget Office has announced that by 2033, it may have to reduce payments by as much as 23 percent. Congress will have to act to make some changes to ensure its sustainability, but it has about ten years to do so. If it does not act soon, you will need to add even more to your retirement plan to cover the possible loss of income.

Put More Into Savings

Preparing for those days when you either can no longer work or choose to stop working requires having a good amount in some form of savings. If you put your money into tax-free retirement accounts such as an IRA or 401(k), remember that it will reduce the size of your retirement funds because of taxes later on.

Roll Money Into Roth Accounts

You can get bigger checks each month in retirement by contributing to a Roth IRA or a Roth 401(k). Contributions are pre-tax, which means the money grows, and all withdrawals are tax-free. Another benefit is that Roth accounts do not have required minimum distributions, which lets them continue to grow until the money is needed.
The money you already have in retirement accounts can be rolled over into a Roth account. Taxes must be paid on the money rolled over, so you may want to spread them over several years. Avoid waiting to do this because money must be in the account for five years before you can withdraw it without any penalties.

Get a Health Savings Account

A health savings account (HSA) can be an excellent way to help cover future medical costs. You will need a high-deductible health insurance policy to start one.

You make pretax contributions to it like some other retirement plans—which are tax-deductible—and you make tax-free withdrawals when used for medical care. An HSA is an additional place to put retirement funds if you have maxed out an IRA and a 401(k).

After you have enrolled in Medicare, CNBC says, you can no longer make contributions to the account. You can use it to pay for Medicare costs and anything else you want the money for after you turn 65.

Buy Long-Term Care Coverage

Long-term health insurance is not always needed, but if it is, it will be worth having. Genworth reports that the annual cost for a private room in a nursing home is $108,405, and an assisted living situation costs an average of $54,000 annually. They also say that seven out of ten people can expect to require this kind of care.

Medicare does not provide coverage for long-term care. If needed, you are on your own unless you have long-term care insurance.

The average person, ACL.gov says, will need about three years’ worth of services. It could include at-home care—paid or unpaid for up to two years and one year of in-facility care. Women need care for about 3.7 years because they live longer, and men need about 2.2 years of care. Some people, about 20 percent, need care for more than five years.

Start Saving Now for Retirement Years

No matter how young you are, even if you are in your 20s or 30s, you need to save money for retirement and medical care now. RegisteredNursing says that the rate of seniors declaring bankruptcy because of medical costs has more than doubled since 1999. The average American at 65 is currently paying $11,300 yearly, and inflation is raising the costs more than 3 percent annually.

Seniors need to look at the numbers in this article carefully and then see how their retirement plan will prepare them for it. Talk to a financial counselor or estate planner to learn how to be better prepared for retirement and future health care costs.

The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
Mike Valles has been a freelance writer for many years and focuses on personal finance articles. He writes articles and blog posts for companies and lenders of all sizes and seeks to provide quality information that is up-to-date and easy to understand.