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  • Writer's pictureHarry N. Stout

254- The Elephant in the Retirement Room: Healthcare Costs

If you look around the room, as you are planning for your retirement, you will likely notice the large elephant sitting dead center taking up a lot of space and consuming a lot of money. That elephant is amount of potential cash you will have to payout for medical services as you age. According a recent study by Fidelity Investments, a couple aged 65 retiring this year are looking at needing about $300,000 in after-tax savings to cover the medical expenses of their projected 20 year retirement or about $15,000 per year. This amount can be even greater if you live in a high cost of living area. The amount also does not include any costs of long-term care. Wow! This always shocks me and drives home the reality of the practical costs of aging.

Now for the real surprise. Despite this large projected outlay, about 70% of people don’t save money for future healthcare costs. What have you saved for this exposure? It will likely be one of the most expensive line items in your retirement budget, and yet, not all Americans entering retirement are prepared for these expenses.

Nearly three in 10 adults 50 to 80 years old say they earmark savings specifically for future health costs, and 40% said they’d have enough money to pay for these expenses without setting any money aside for it, according to a recent report from the University of Michigan’s Institute for Healthcare Policy and Innovation, which included the responses of more than 2,000 adults between 50 and 80 years old. Unfortunately, another 27% of participants said they can’t afford future healthcare costs at all.

The solution to funding this need is to increase your personal savings for these expenses and to put insurance coverages in place. Here are some thoughts.

  • Establish a health savings account (HSA) if you quality. These accounts are a viable way to save and invest for current and future healthcare expenses. HSAs provide triple the tax benefits, as they can be funded, grown and withdrawn tax-free if used for qualified health expenses. Some workers use them for annual health costs, while others contribute to the plan each year with the intent to spend down the account assets for future health expenses. To qualify to set up an HSA your primary health coverage needs to be a high deductible health insurance plans, which may be too expensive for some individuals and families to own. Please investigate whether you can qualify for one of these plans.

  • Fully fund a flexible spending account (FSA). FSAs are helpful for paying for healthcare costs in a specific year, but the funds in the account must be used by a certain time after year end or else they could be lost permanently. They should be considered for the time period just before you retire.

  • Put insurance coverages in place through proper use of basic Medicare, Medicare Parts B and D or electing to join a Medicare Advantage program if it bests fits your needs. Also, if you don’t elect an Advantage program you should likely obtain a Medicare Supplement insurance policy to fill in the coverage gaps that come with the Medicare program.

Possible Medicare Program Expansion

Congress is looking into expanding the Medicare program by lowering the age to qualify for coverage, and adding dental, vision and hearing benefits. At the time of writing this post, no expansion of coverage had been signed into law. Please pay close attention for program changes as they could save you money. One caution, even if these new coverages are passed it will likely take two to four years to implement them. You may need to fund the service and wait for the government to reimburse you until they have put systems, regulations and procedures in place for these coverage expansions.


Incurring larger amounts of medical costs each year is a normal result of aging. Unfortunately we cannot live forever as healthy as we were in our 20s. Healthcare costs need to be planned for as part of your comprehensive financial plan. You can use insurance, a health savings account and other assets to pay for these costs. The key is to carefully consider your household’s personal health profile and put away money accordingly.


The FinancialVerse Guide to Savings – 600 Practical Cash Saving Ideas was written to make your financial life easier by showing you where to look for savings and discounts — helping to keep more cash in your pocket. Get your copy today!

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Frye Jacob
Frye Jacob
Oct 29, 2021

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