Tips for Managing Health Care Costs in Retirement

As you plan your retirement finances, be sure to take health care costs into account. Even though Medicare will cover a large chunk of your expenses, it’s likely you’ll still need to pay premiums and deductibles, vision and dental, long-term care, and more. In fact, according to Fidelity’s 2023 Retiree Health Care Cost Estimate, the average couple may need to save about $315,000 for all their retirement health needs. Here are four key steps you can take to plan for these costs and manage them:
 
Find the right Medicare coverage
 
As part of your cost management, it’s important to know what Medicare covers, what it doesn’t, and what expenses you can expect from it. Medicare Part A and Part B are also known as Original Medicare. Part A takes care of most hospital costs, for which you’ll pay a deductible but usually not a premium. Part B charges a monthly premium for doctor visits, outpatient services, medical supplies, and the like, along with a small deductible. You can also opt for Part D, which charges a monthly premium for prescription drug coverage. It’s important to note Medicare doesn’t cover vision, dental, or long-term care.
 
To manage Medicare costs and pay for services that aren’t included, you may wish to buy supplemental Medigap insurance. Or you could get a Medicare Advantage plan from a private insurer. Medicare Advantage includes Part A, B, and D coverage and may also pay for vision, dental, and other non-Medicare costs.
 
Consider long-term care insurance
 
Long-term care is a significant expense you’ll need to plan for — annual costs for a nursing home average well over $100,000, according to a survey by Genworth. Assisted living, home health care, and adult day care are costly as well. Since Medicare doesn’t offer coverage, long-term care insurance is the most obvious solution, but pay attention to how much the monthly premiums will cost. As an alternative, you may also be able to add a long-term care insurance rider to your life insurance plan.
 
Fund a health savings account
 
Contributing to a health savings account, or HSA, can be a good way to cover retirement health costs. Many companies offer HSA access in tandem with high-deductible health insurance. You can contribute tax-deductible or pre-tax money to an HSA, make tax-free withdrawals for qualified expenses, and take advantage of tax-deferred growth by investing HSA funds. Although you can’t make further HSA contributions once you’ve retired, you can use what you’ve saved to pay for Medicare premiums and deductibles, services that aren’t covered by Medicare, long-term care insurance deductibles, and more.
 
Invest in prevention
 
Investing in prevention can help you manage health care costs in retirement. U.S. News & World Report writer Rachel Hartman recommends exercise, sleep, an appropriate diet, and regular preventive care to preserve your health. Hartman notes proactively managing chronic illness, reducing fall risks in your home, and maintaining social connections can also serve as ways to reduce your health spending.
 
Your health care expenses — both expected and unexpected — are likely to increase as you get older. With the proper planning, you can factor these costs into your retirement budget and enjoy greater peace of mind in your old age.