Paying for Health Care in Retirement

By Ryan Yamada, Senior Wealth Planner 


When putting away for retirement, we often dream about all the things we’ll be able to do with that money – traveling, going out to eat, maybe trying new hobbies. 

 Of course, there are always the everyday household expenses to account for in your post-retirement budget. But one budget line that doesn’t always get enough attention? Health care.  

If you think your health care costs will be similar to what you paid in your pre-retirement years, think again. Fidelity’s annual study found that the average 65-year-old couple retiring in 2022 will need $315,000 saved to cover their health care expenses throughout retirement.1 It’s a number that just keeps rising, too. This estimate is up $15,000 from last year’s study. Oh, and it doesn’t account for things like over-the-counter medications, dental care or long-term care costs. 

 In other words, health care may be the single biggest purchase you make in retirement. 

Whether your retirement is still years away or you’re already retired, there are things you can do now that may help you pay for this major expense. Let’s dig into some ideas. 

Ways to Start Planning Early for Retirement Health Care Costs

Let’s start with the obvious: savings plans. Purpose-specific accounts, such as health savings accounts (HSAs), often have built-in tax incentives that can make them a worthwhile option. In some cases, HSAs can offer a triple tax-advantage –  tax deductions for contributions, tax deferral during the accumulation period and tax-free distributions for qualified health-related expenses. Be sure to check what HSA deductions are available in your state before you jump in.2 

Another option is adding insurance coverage that can help pay for some of the more significant health events. Before going down this path, it’s important to ask yourself what you’re trying to protect against. Here are two of the more standard coverage options that people can choose from. 

  • Critical illness coverage. Standalone critical illness policies can provide lump-sum or itemized benefits for things like cancer, heart attacks or strokes. Additionally, some life insurance policies have optional riders that can be added to help cover for these conditions or events. 
  • Extended care or long-term care coverage. Insuring for an extended care event or for long-term care can be done in a number of ways, including standalone policies and policy riders on life insurance or annuity contracts. With insurance companies making regular changes to these policies and how benefits are paid out, it’s important to work with a local, independent insurance advisor who can help you find the best options for your situation.

Finally, certain retirement accounts like Roth IRAs and 401(k)s may also have features that allow penalty-free withdrawals for medical expenses. However, depending on how contributions were treated, distributions may still be taxed on the way out.  

What to Do When You’re Nearing Retirement

As you prepare to leave the workforce, it’s important to get a handle on all of your expenses – that includes what health insurance options are available to you. Are you eligible for Medicare or do you need to buy coverage in the marketplace? (Hint: Take a look at your most recent paystub and consider your employer’s health care subsidy. It might surprise you!) When do you need to sign up for Medicare so you won’t miss out on your open enrollment window and incur penalties?

Additionally, have you thought about any procedures you might want to have done while employed? Planning out these expenses could be a great way to reduce costs post-retirement.  

If you’re retiring before 65, you probably won’t be eligible for Medicare yet, so you’ll want to figure out how to get coverage in the meantime. Some early retirees are lucky enough to be covered under their previous employer. Others may find part-time employers who will help to subsidize the cost. Other options may include health sharing or co-op plans, self-insuring or even moving abroad. 

 As you approach Medicare open enrollment, you can start working with a trusted and independent Medicare expert. Be sure to choose someone who’s familiar with the plans in your state. If you’re a “snow bird,” be sure to ask them about each of the states you plan to reside in, as coverage needs can change from state to state. 

Once you’re enrolled in Medicare, you should decide whether to sign up for a Supplement or Medicare Advantage plan or purchase dental, vision or long-term care coverage. Be sure to look at how all these plans work together to determine your maximum out-of-pocket costs. Then, you can build those costs into your retirement income plan.  

Preparing for the Unknown

Now that you’ve retired, you can only hope that all your careful preparations will meet your needs. But the one constant in life is unpredictability. If a time comes when you need more money than you’ve put away or something arises that you’re not covered for, there are additional strategies to consider. 

First, don’t panic. Then, call your financial advisor. They’ll be able to provide professional guidance based on your own specific situation. If you don’t already have an advisor, we can help you find one in your area. 


1 “How to plan for rising health care costs,” Fidelity. May 25, 2002.

2 The Finance Buff, “California and New Jersey HSA Tax Return Special Considerations.” December 4, 2018.,gross%20pay%20for%20calculating%20the%20federal%20tax%20withholdings.


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