How to Plan for Rising Healthcare Costs in Retirement

When most people imagine retirement, they envision relaxing days, travel, hobbies, and quality time with family. What often gets overlooked in those dreams is one critical—and increasingly expensive—reality: healthcare. Rising healthcare costs in retirement can quickly eat into savings if you're not adequately prepared. For retirees, or those planning for retirement, understanding and planning for these costs is essential to long-term financial security and peace of mind.

In this blog, we’ll explore why healthcare costs are such a significant factor in retirement planning, the potential risks and benefits involved, and practical strategies to help you stay ahead of the curve. Whether you're a few years away from retirement or already enjoying your golden years, it's never too early—or too late—to prepare.

Why Are Healthcare Costs a Big Deal in Retirement?

According to Fidelity’s annual Retiree Health Care Cost Estimate, an average retired couple age 65 in 2024 may need approximately $315,000 saved (after tax) to cover healthcare expenses in retirement. That figure doesn’t even include potential long-term care costs, which can easily add hundreds of thousands more.

There are a few reasons why healthcare costs are rising and will likely continue to do so:

• Increased life expectancy: People are living longer, which means they need medical care for more years.

• Healthcare inflation: Medical costs consistently outpace general inflation.

• Chronic conditions: As we age, we’re more likely to develop chronic conditions that require ongoing treatment and medication.

• Medicare doesn’t cover everything: Many retirees are surprised to learn that Medicare has gaps, including dental, vision, hearing, and long-term care.

  
  

If not properly planned for, healthcare can become one of the largest and most unpredictable expenses in retirement.

The Financial Impact: Short-Term and Long-Term

Short-Term Impact

In the short term, failing to plan for healthcare costs can disrupt your budget. Copayments, deductibles, prescriptions, and supplemental insurance premiums can quickly add up. Unanticipated out-of-pocket expenses can force retirees to dip into savings or change their lifestyle to stay afloat.

Long-Term Impact

Over time, healthcare costs can significantly erode your retirement savings. This is particularly true if you or your spouse require long-term care services, such as in-home care or a nursing facility. Without a strategy in place, you could outlive your assets or be forced to make difficult financial decisions—like selling your home or relying on family members for support.

Key Strategies to Manage Healthcare Costs in Retirement

1. Understand Medicare and Supplement Options

Medicare is a valuable resource, but it’s not comprehensive. Parts A and B cover hospital and medical insurance, respectively, but you’ll likely need Part D for prescriptions and a Medigap or Medicare Advantage plan to fill in the gaps. Work with a licensed Medicare advisor or financial professional to evaluate your options annually. The right supplemental policy can greatly reduce out-of-pocket expenses.

2. Open and Fund a Health Savings Account (HSA)

If you're still working and have access to a high-deductible health plan (HDHP), take advantage of an HSA. Contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for qualified medical expenses.

After age 65, you can even use HSA funds for non-medical expenses without penalties (though you’ll pay income tax). It’s a powerful tool for building a tax-efficient healthcare nest egg.

3. Estimate and Budget for Healthcare Costs

Include projected healthcare costs in your retirement budget. Use tools or consult an advisor to get realistic estimates based on your health, location, and coverage. Don't forget to factor in inflation—medical costs typically rise faster than other expenses.

4. Consider Long-Term Care Insurance or Alternatives

Nearly 70% of people aged 65 and older will need some type of long-term care during their lifetime. Long-term care insurance can help cover the cost of services not covered by Medicare, such as assisted living or home care.

However, these policies can be expensive and may have limitations, so it’s essential to compare different types of policies—or alternative strategies like hybrid life insurance with long-term care riders or self-insurance through dedicated savings.

5. Optimize Retirement Income Sources

Structuring your income in retirement (from Social Security, pensions, IRAs, etc.) can have a big impact on your tax bill—and your ability to pay for healthcare. For example, how you draw down assets can affect your Medicare premiums and taxability of Social Security benefits.

A thoughtful withdrawal strategy coordinated with healthcare planning can save thousands over time.

Why a Financial Advisor Can Make All the Difference

Healthcare planning in retirement is complicated. It involves understanding insurance, estimating future costs, managing investments, navigating taxes, and sometimes even coordinating with estate planning or elder care decisions.

A knowledgeable financial advisor can:

• Provide personalized projections for your healthcare needs.

• Help you select the most cost-effective insurance options.

• Design a tax-efficient withdrawal strategy to fund medical expenses.

• Integrate healthcare costs into your comprehensive retirement plan.

• Monitor and adjust the plan as your health, goals, or the market changes.

  
  

Having a professional by your side ensures that your strategy not only addresses healthcare expenses but also aligns with your broader financial goals—like preserving wealth, leaving a legacy, or maintaining your lifestyle.

If you have questions or would like expert guidance tailored to your unique situation, you can schedule a complimentary phone call with one of our advisors here: https://www.openairadvisers.com/requestameeting

Final Tips: How You Can Start Preparing Today

Even small steps can make a big difference in your long-term retirement security. Here are some actionable takeaways to help you get started:

1. Know what Medicare does and doesn’t cover. Don’t assume it will take care of all your needs.

2. Open and regularly fund an HSA if eligible.

3. Get a long-term care plan in place—whether through insurance or other means.

4. Work with a financial advisor who understands healthcare planning.

5. Revisit your plan annually. Your health, the market, and insurance options will evolve over time.

   
   

Healthcare is one of the few retirement expenses that is both inevitable and unpredictable. But with the right planning, you can protect your finances, preserve your peace of mind, and enjoy retirement the way you’ve always imagined.

Ready to talk about your retirement strategy? We’re here to help. Book your complimentary call today and start planning for a more confident future: https://www.openairadvisers.com/requestameeting