How to plan for rising healthcare costs in retirement

Written by Chris Draughon

I want to see you achieve your financial goals so I spend my time making the complicated things simple. As the Director of Financial Planning I help our clients identify their most important financial goals and develop paths to get them there on time with room to spare.

August 18, 2014

If an apple a day keeps the doctor away, we may want to stock up on apples in retirement. Even with Medicare, healthcare will cost more than $400,000 in retirement.

A recent report from the Employee Benefits Research Institute[1] indicates the out-of-pocket costs for healthcare for the average 65 year old will be $4,002 per year and increase to $10,586 20 years later. That equates to $132,329 in an average retirement span. Add another $100,000 if you need more prescriptions than the average person. And that’s just for one individual. You can expect to double these costs for a couple.

Many people are surprised by these numbers. Not only do they think Medicare and supplemental insurance will cover all of their healthcare expenses, they have a hard time envisioning a retirement lasting 20 to 30 years. According to the Social Security Administration, one in four 65 year olds today will live beyond age 90[2]. The truth is, Medicare only covers about 60 percent of your healthcare expenses in retirement[3]. Things like dental care, vision care and many other services are simply not covered by Medicare, and that includes paying for a long-term chronic illness (another story all together).

You must factor healthcare into your retirement plan

There are two ways to account for healthcare expenses in retirement. First, you can set aside a separate pool of funds to cover the expenses when they occur. Yet, most people prefer not to do this and instead choose to pay these expenses from retirement income as they occur. That’s fine, however, we advise against lumping these costs under “living expenses” because healthcare has a tendency to grow at a faster rate than general expenses. We prefer to keep healthcare expenses as a separate item in your financial plan so we can account for the higher anticipated inflation.

However you choose to budget for the expenses is up to you. The important point is to incorporate them into your plan.

Ways to control healthcare costs in retirement

1. Understand your options for health insurance, including Medicare.

2. Be a smart consumer of healthcare services.

3. Incorporate healthcare into your income plan.


Are you concerned about paying for healthcare in retirement? If you are uncertain about where the funds will come from or how to budget for them, we can help you create a plan that meets your needs.


[1], January 17, 2014