How to Start Planning for Healthcare Costs in Retirement

As we age, healthcare becomes increasingly important. Getting older means that some of our “original parts” start to wear out and need servicing or replacement. For many people, healthcare expenses represent a significant portion of their budget, especially in the later years of retirement.

To avoid being caught off-guard by unexpected medical costs, it's essential to budget for healthcare expenses in retirement. Careful planning is especially important because it’s extremely difficult to earn extra income when you’re older and may not be in ideal health for employment.

Budgeting for healthcare costs before you retire is often one of the best ways to ensure your long-term comfort and independence.  

(Over) Estimate Your Future Healthcare Costs

The first step in budgeting for healthcare costs in retirement is to estimate how much you'll need. Healthcare expenses vary depending on factors such as your age, health status, hereditary risk factors and estimated cost of care where you’ll be living. According to a 2022 Fidelity study, the average 65-year-old couple that retired in 2022 could expect to spend approximately $315,000 on healthcare costs throughout retirement.

To estimate your healthcare expenses, consider your current health status and any conditions you may have. Factor in the cost of insurance premiums, deductibles, copays and prescription drugs. Don't forget to include the cost of dental, vision and hearing care as well.

Also, consider that medical inflation may increase faster than general cost-of-living, or that unexpected expenses may arise suddenly, like at-home care or memory care.

Consider Medicare Coverage

Most people become eligible for Medicare at age 65. Medicare provides coverage for many healthcare expenses, including hospital stays, doctor visits and prescription drugs. However, Medicare does not cover all healthcare costs, and you'll still be responsible for paying premiums, deductibles and copays.

To budget for healthcare costs in retirement, it's important to understand what Medicare does and doesn't cover. Consider purchasing a supplemental insurance plan, such as a Medigap policy, to help cover the costs that Medicare doesn't.

Explore Long-Term Care Insurance

Long-term care, such as nursing home care or home health care, can be a significant expense in retirement. According to the Department of Health and Human Services, the average cost of a semi-private room in a nursing home today is approximately $7,756 per month.

Long-term care insurance can help cover the cost of a nursing home or at-home care. Consider purchasing long-term care insurance to help protect your retirement savings from being depleted by long-term care expenses.

Build an Emergency Fund

Unexpected healthcare expenses can quickly derail your retirement budget. Building an emergency fund can help you handle unexpected healthcare costs without sacrificing your retirement savings. Setting aside at least six months' worth of living expenses in an emergency fund can give you peace of mind that you have options to cover unexpected healthcare costs.

Invest in a Healthy Lifestyle

One of the best ways to reduce healthcare costs in retirement is to take care of your health. Maintaining a healthy lifestyle can help prevent chronic diseases and reduce your risk of needing expensive medical treatment. Exercise regularly, eat a healthy diet, get enough sleep and stay up to date on preventive care, such as immunizations and cancer screenings.

Adjust Your Budget as Needed

As you age, your healthcare needs and expenses may change. It's important to adjust your retirement budget to reflect any changes in your healthcare expenses. Review your budget regularly to ensure that you're on track to meet your healthcare costs in retirement.

Plan for an Independent Retirement in Phoenix, AZ

Budgeting for healthcare costs in retirement is essential for a secure financial future. The good news is that by asking questions now about how to prepare for healthcare expenses in retirement, you’ve taken the first important step. Fullerton Financial Planning has the Medicare expertise to help you feel confident about the benefits you’ve already earned and the expenses you’re likely to face in the future.

We can also help you explore options for long-term care insurance to maximize your opportunity for an independent retirement. To find out more, give us a call at (623) 974-0300.