Managing Healthcare Costs in Retirement

Are you in or nearing retirement and worried about healthcare costs? You’re far from alone. A 2022 Gallup report found that nearly one out of every three Americans age 65 or older was concerned about covering medical expenses in the near future. And the Kaiser Family Foundation reports that half of US adults would characterize covering healthcare costs as “difficult”; about a quarter of them mention actual problems encountered by themselves or a family member with healthcare costs within the past 12 months.

The most recent annual forecast of expected retirement healthcare costs prepared by the Milliman insurance consulting group (2023) indicates that a male aged 65 would require savings of $185,000 to cover anticipated medical and healthcare costs during his remaining lifespan. (for males who are healthy and enrolled in Medicare, including Part D and a Medigap plan). A woman of the same age and health and with the same coverage is projected to need $203,000 in savings since women typically live longer than their male counterparts. Remember: these figures are average costs for healthy people; persons with known health challenges are likely to encounter even higher costs. Also, keep in mind that these figures are for someone who is presently 65; younger persons should take into account the overwhelming likelihood of price inflation driving costs higher in future years.

As if all this weren’t sobering enough, we all know that as we age, we inevitably face higher healthcare costs. Even those who are taking good care of themselves concerning diet, exercise, timely screenings, medications, and other preventative measures will face the pressure that comes with rising costs as time goes by.

But the good news is, you’re not helpless. There are some things you can do, whether you’re already retired or retirement is in your near future, to manage the expense of healthcare during your retirement. Some are rather simple and common sense, and others may require the advice and counsel of a qualified medical or financial advisor.

Thoroughly understand your employer’s benefits.

If you’re still working, make sure you understand and utilize all the healthcare and medical benefits offered by your employer. Some employers even offer retiree healthcare benefits after you’ve stopped working. Be sure to check whether this is available in your case since such benefits can save you significantly in areas like insurance premiums, access to dental or vision plans, or prescription drug plans. These benefits may also include wellness incentive programs that reduce insurance premiums, free or low-cost screenings, “health coaching,” and other benefits that can help you stay healthier and better informed.

Learn all you can about Medicare and Medicare supplement options.

While Medicare is the hands-down leading healthcare option for most retirees, the coverages can be complicated, so understanding all your options is vital. Furthermore, the wide variety of Medicare supplement plans means that making the right choice for you can be even more difficult. You may even want to utilize the assistance of a trusted, professional advisor. Because no two persons have exactly the same needs or resources, making the best choice in coverage takes time and careful attention to all the options.

Take care of yourself.

This probably seems like a no-brainer, but never underestimate the value of good self-care. None of us get to pick our parents, but understanding your family’s health history and genetics is a valuable first step toward becoming a good steward of what you have been given. Appropriate, regular exercise, watching what you eat, and following the advice of your physicians—including taking medications as prescribed—will help you feel better and also preserve the health you have.

Consider a health savings plan.

If you are eligible, establishing and funding a health savings plan (HSA) can help you reduce your tax bill and provide for healthcare costs at the same time. You make pre-tax contributions to the plan, which reduces your taxable income, and disbursements from the plan to cover qualified medical expenses are not counted as taxable income. Keep in mind that if you sign up for Medicare, you can no longer contribute to an HSA. However, the funds in the HSA can still be distributed for qualified expenses including Medicare premiums. By the way, don’t confuse HSAs with the flexible spending accounts (FSAs) offered by many employers. Unlike FSAs, funds in an HSA need not be used in a single year; they may instead be rolled over and saved to cover future costs. Growth of the funds within the plan is not taxed.

Becoming well-informed about future costs and coverage options is perhaps your most important first step toward successfully managing healthcare costs in retirement. Costs are unlikely to decrease, so the more you know now, the better decisions you’ll be able to make when the time comes.

At JFS Wealth Advisors, we want you to be as well-informed as possible about all the matters affecting your financial future. To learn more about preparing for retirement, visit our website to read our article, “Social Security Maximization: Top 5 Tips.”

Chuck Zuzak, CFP®, CFA

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