Think people are living longer these days? You’re not wrong! According to recent Congressional Budget Office data, life expectancy is projected to rise in the U.S. from 78.7 to 82.2 years by 2054. While this is indeed good news, sustaining a comfortable retirement—without drastically altering one’s lifestyle—is a very real concern for many retirees given the need for their money to last that much longer. As disheartening as it is to plan for potential medical expenses, it’s in fact possible to ensure a comfortable retirement thanks to a well-executed financial game plan. This article discusses the very same.

How much you may spend on healthcare in retirement

According to a recent Fidelity report, a 65-year-old retiring this year would need to spend an average of $165,000 in after-tax savings to cover medical expenses during retirement: a number that’s doubled since 2002 and is expected to continue rising.

Most of these healthcare expenses consist of co-payments, coinsurance, deductibles, and Medicare premiums. Fidelity’s estimate mirrors Bureau of Labor Statistics (BLS) data that claims retiree households (led by individuals aged 65+) spend an average of $8,027 annually on healthcare expenses). Even more daunting? This estimate doesn’t account for long-term care, with some studies reporting median nursing home costs to ring in at well over $111,000 a year!

How to plan for rising healthcare costs

Thankfully, you can lean on a variety of options to help pay for healthcare expenses in retirement. These include…

Avoiding common Medicare mistakes

Providing coverage for over 68 million Americans, Medicare is the most common insurance option for retirees and thus an essential retirement-planning component. That said, one might assume a large proportion of people have at least a broad understanding of Medicare and how it works. A recent Harris Poll survey, however, claims more than 7 out of every 10 participants over age 50 wish they had a better understanding of Medicare coverage! In fairness, there’s no disputing that Medicare particulars are sometimes very complicated and—quite frankly—overwhelming to digest. Here are just a few key elements of Medicare you should familiarize yourself with to help save money:

Enrollment periods

Medicare consists of four parts, each covering specific services. Known as “Original Medicare,” Medicare Part A and Part B task the government with paying providers directly for services received. Medicare Parts A, B, and D (covers the cost of prescription drugs) assess enrollment penalties if you don’t sign up when you’re supposed to.

Medicare Supplement plans (Medigap)

Offered through various insurance companies and covering many out-of-pocket costs Original Medicare does not (e.g., copayments and deductibles), these policies sometimes also include medical care when you travel beyond U.S. borders (a service not offered by Original Medicare). If Medigap is right for you, know that insurers offering Medigap policies cannot deny you coverage or charge you more for preexisting conditions when you first enroll within the six-month window. While specifics vary by state, enrolling after this time period often sees insurance companies requiring you endure medical underwriting that can lead to higher costs or—even worse—denied coverage.

IRMAA (income-related monthly adjustment amount)

IRMAA is the additional amount you may need to pay along with your Medicare premiums as Medicare imposes surcharges on higher-income beneficiaries. IRMAA surcharges are based on tax returns from two years prior, meaning 2026 surcharges are based on 2024 income (for example). Those who’ve experienced a life-changing event can avoid these under various circumstances such as the death of a spouse, marriage, divorce or annulment, work reduction or stoppage, reduction or loss in pension income, or a loss of income-producing property.

Considering a health savings account

You can use a health savings account (HSA) to pay for qualified out-of-pocket healthcare expenses (including deductibles and copays) that include anything from Medicare premiums and long-term care costs to dental and vision expenses for yourself, your spouse, and/or eligible dependents.

Not everyone can open an HSA given specific qualification requirements. For example, you must be at least 18 years of age and maintain a high-deductible health plan as your only insurance—meaning one with a minimum annual deductible threshold of $1,600 for individuals ($3,200 for families). Additional prerequisites dictate you cannot be enrolled in Medicare Parts A or B or Medicaid nor be claimed as a dependent on anyone else’s tax return.

HSAs are indeed an attractive investment vehicle for future medical expenses and sometimes used as a de facto retirement account as you can roll contributions over from year to year and use them later in life when facing higher medical costs as a retiree.

Planning for long-term care

According to the U.S. Department of Health and Human Services, someone celebrating a 65th birthday today has an almost 70% chance of needing some form of long-term care (LTC) services in his or her remaining years. What’s more, women are expected to need 3.7 years of care compared to 2.2 years for men, and an estimated 20% of today’s 65-year-olds will require care for longer than 5 years. Based on this data, long-term care expenses will likely impact your retirement plan—so you’ll need to plan accordingly.

Long-term care (LTC) is defined as help you may need with “activities of daily living” (or ADLs) for longer than three months due to injury, health, or cognitive impairment such as dementia, memory loss, or Alzheimer’s disease. Such activities include bathing, dressing, eating, toileting, continence, and transferring (walking or moving oneself from a bed). Long-term care can take place in various settings including home-based care, residential care facilities, adult day care, and support services in a nursing facility. You have several options to fund long-term are expenses including taking out a LTC policy, buying a hybrid insurance policy, or self-funding.

Reviewing your life insurance policy

Although not inexpensive, permanent life insurance is a valuable strategy used to supplement retirement savings as these policies typically allow you to build or “accrue” cash value (funded by a portion of your premiums) in addition to your death benefit. Think of a cash value insurance policy as an investment-like savings account that includes a death benefit. One specific advantage? You’ll enjoy the ability to withdraw from the cash value/savings you’ve built and use the money as you wish. Most permanent life insurance policies (recently offered via many term policies) also offer an accelerated death benefit rider (also referred to as “living benefits”), policy provisions allowing you to receive benefits that can help offset financial stressors for you and your family while you’re alive but deemed terminally, critically, or chronically ill.

Delaying Social Security benefits

For many, this option is easier said than done—especially if you’ll depend on Social Security as your primary source of income. If you can delay your claim, however, you should for the following reasons.

While you can collect benefits as early as age 62, you’ll receive a more robust amount (about 7% higher) each year you wait until reaching your full retirement age (the age at which you first become entitled to your full Social Security benefits). If you wait even longer, this number climbs to approximately 8% each year between your full retirement age and age 70. To illustrate, let’s assume your full monthly Social Security benefit is $2,000: the amount you’d receive if you wait until your full retirement age. If you claim benefits beginning at age 62, your benefit will fall approximately 30% to $1,400. As you can see, collecting too early means potentially missing out on thousands of dollars a year that can help cover retirement-related expenses such as housing and healthcare.

If you’ve already started claiming benefits, reached full retirement age, and are under 70 years old, you can suspend your retirement benefits to earn a higher amount. In this scenario, you aren’t forced to repay any of your benefits, and your benefit will earn credits of approximately 8% per year: resulting in a higher monthly payment. You can reinstate benefit payments at any point until the month you turn 70, which is when they’ll automatically kick in again if you take no action. Keep in mind, however, that suspending your benefit also suspends benefits for anyone else receiving checks based on your work history.

The bottom line: planning for healthcare expenses in retirement

When you retire, you’ll want to ensure you can live comfortably without any need to worry about how to pay your medical bills. This guide offers a good place to start as you prepare and consider your options.

Still have questions about planning for future healthcare expenses or anything else related to retirement? Schedule a FREE discovery call with one of our CFP® professionals to get them answered.

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