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Managing the Costs of Healthcare in Retirement

A man receiving long term care in his home

Healthcare costs are likely the biggest expenditure in retirement and can fluctuate wildly based on several factors, including age, location, services, insurance plans, and of course, your overall health. 

According to the Fidelity Retiree Health Care Cost Estimate, an average retired couple aged 65 will need about $315,000 saved today after taxes to cover health care expenses in retirement. 

“Planning for retirement should be looking in the future and anticipating the costs you’ll have down the road,” said Joel Ohman, certified financial planner and CEO of ExpertInsuranceReviews.com. “You might need to consider how your health insurance will cover cancer treatments, therapy for a broken hip, and long-term care.” 

With so many options, contingencies, and healthcare plans available, navigating the landscape is daunting, even for the savviest retirees. So we’ve turned to the experts to help sort it out, fill in the gaps, and provide some estimates on specific medical costs and long-term care in retirement

Before diving into more detailed policies and associated healthcare costs, let’s start with the basics. 

Medicare and its Limitations 

Through October, nearly 64 million U.S. residents were enrolled in Medicare, the premier government program that provides health insurance coverage for people 65 and over

Coverage varies by healthcare option: 

  • Medicare Part A. Basic hospitalization coverage. 
  • Medicare Part B. Outpatient care like doctor’s visits and diagnostic tests. 
  • Medicare Part C. A private option combining Part A and Part B coverage with additional benefits. This part is also known as Medicare Advantage. 
  • Medicare Part D. Prescription drug coverage. 

Medicare will help cover some of these healthcare costs in retirement, but won’t cover them all, cautions Linda Chavez, founder and CEO of Seniors Life Insurance Finder in Los Angeles. 

“You may still need to purchase supplemental insurance to cover gaps in coverage,” she said. 

Medicare also doesn’t cover several long-term health services, according to Stephanie Wilson, licensed life and health insurance broker. 

“Many people think they can pay for long-term care with Medicare or Medicaid, but the majority of the expenditures associated with long-term care are not covered by Medicare,” she said. “It excludes assisted living and the ongoing use of a home health assistant, as well as lengthy stays in skilled nursing communities and nursing homes.” 

Medicaid may be an option for some long-term care expenses, but enrollees must fall below certain income barriers and meet health criteria. 

Long-term Care Insurance 

The price of long-term care can tax even solid retirement plans, which makes planning for its eventuality essential. As the name suggests, long-term care insurance is designed to provide financial support to pay for long-term care services, which can include medical and non-medical care, as well as personal assistance.  

These services, typically designed for those with a chronic illness or disability, can be provided in your home, a community program like an adult day care center, an assisted living facility, or a nursing home.  

And the costs go up accordingly. 

Home health aids charge about $27 per hour and adult day services cost about $78 per day, according to Genworth Financial.  

The median monthly rent for a semi-private room at a nursing home costs $7,800, or $93,600 per year—well out of reach for the vast majority of retirees. 

“Long-term care is often quite expensive, and it may swiftly deplete many people’s retirement funds,” Wilson said. 

This insurance option can cover these costs while providing family caregivers peace of mind, but there are some big caveats. 

“Some pre-existing conditions may prevent you from being able to obtain a policy, “Wilson added. “You will be required to pay annual premiums for the next decade or two,” Wilson asserted. “Furthermore, rates may rise over time.”

Cost of Assisted Living 

According to Genworth data, the median cost of U.S. assisted living facilities in 2021 was $4,500 per month or $54,000 annually.  

However, assisted living costs vary dramatically, depending on the type of facility, location, amenities, and services provided.  

“Assisted living facilities that provide more comprehensive care and services, such as memory care or skilled nursing care, will typically cost more than those that provide basic assistance with activities of daily living,” explains finance coach and retired financial planner Michael Ryan. “Assisted living facilities that offer private rooms, on-site amenities, and a wide range of social and recreational activities will typically be more expensive.”

Health Savings Accounts 

A Health Savings Account (HSA) is a type of personal savings account set up to pay certain health care costs, including premiums for long-term care insurance. 

For eligibility, consumers must meet several criteria, including:  

  • No claims over someone’s taxes. 
  • Unable to qualify for Medicare. 
  • Carrying a high-deductible health insurance plan, typically around $1,350 for an individual or $2,700 for family coverage. 

HSAs, however, carry some big tax advantages. 

“If you use the funds for qualified healthcare bills presently or in the coming years, both the sum and profits are tax-free,” explains Elena Jones, a personal finance expert and founder of Los Angeles-based Finance Jar.  

HSAs can also provide a sense of security, particularly if enrollees start contributing years before retirement. 

“If you’re looking at retirement in the distant future, contributing to your HSA every month will likely enable you to build a cushion to help cover health costs through retirement,” Ohman said. 

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