• 2-Minute Article
  • |
  • Jun 01, 2017

How to Plan Now for Healthcare Costs in Retirement

Use these six questions to help estimate how much you may need to save to cover medical costs in retirement.

Many people underestimate the potential cost of healthcare in retirement. During a 20-year retirement, a retiring 65-year-old couple will need approximately $260,000 to cover medical costs.1 That includes money spent on insurance premiums, supplemental coverage and prescription drug plans, deductibles, co-pays, and expenses not covered by Medicare such as eyeglasses and hearing aids.

The good news is there are steps you can take now to help make your retirement healthcare more affordable. Get started with these six questions:

At what age do you plan to retire?

If you retire early, you’ll have fewer years of income to put toward healthcare expenses not covered by Medicare, like long-term care at home or in a facility. People turning age 65 today have a nearly 70% chance of needing some sort of long-term care support in their later years.2

What will your income be when you enroll in Medicare (by age 65)?

As a general rule of thumb, Medicare will cover the services and supplies that are necessary to treat a disease or condition and preventive care. However, with Medicare Part B (which covers things like doctors’ fees, outpatient services, lab tests, etc.), your monthly premiums can be greater if your income is above a certain level when you enroll. Talk to your doctor or healthcare provider to find out whether Medicare covers certain services you might require.

If your yearly income in 2016 (for what you pay in 2017) was:

File individual
tax return
File Joint
tax return
File married & separate
tax return
You pay each month (in 2017)
$85,000 0r less $170,000 or less $85,000 or less $134.00
above $85,000 up to $107,000 above $170,000 up to $214,000 Not applicable $187.50
above $107,000 up to $160,000 above $214,000 up to $320,000 Not applicable $267.90
above $160,000 up to $214,000 above $320,000 up to $428,000 above $85,000 up to $129,000 $348.30
above $214,000 above $428,000 above $129,000 $428.60

Source: Medicare

Are you taking steps now to stay healthy and fit?

When you’re healthy, you can usually expect lower healthcare costs. So what can you do to improve your chances of remaining healthy? Keeping weight off through exercise and diet can help reduce blood pressure, get diabetes under control, and alleviate arthritis. In addition, stopping smoking (if you still do) is a no-brainer.

Do you have any chronic health conditions that are likely to continue?

Doctor visits and medications to manage ongoing health challenges such as diabetes, heart disease, or high blood pressure can dramatically increase your overall healthcare costs.

The American Diabetes Association says people with diabetes could spend more than twice the amount on healthcare each year than people who don’t have the condition.3

To estimate what you might pay for future doctor visits, refer back to the total cost from last year and multiply it by 2.8% to account for the cost of inflation. This number will need to be adjusted annually, compounding what you’ll pay year over year.

What prescription medications will you need?

In addition to doctor visits, you should consider the rising cost of medications you take now and may need down the line.

Americans under the age of 65 saw the price of prescription drugs increase by 11.6% in 2017. Drug costs for Americans over the age of 65 are projected to increase by 9.9%. Both figures represent a rate that is rising faster than wages and the cost of living.4 Saving a little more today can help you prepare for cost increases in the future.

Where do you plan to live?

What retirees today pay for their Medicare prescription drug coverage can vary from state to state. If you’re planning on relocating when you retire, check to see how that might affect your healthcare costs. For instance, states like Hawaii with low medical costs may be more expensive when it comes to other basics like food and housing.

For a more in-depth look at what you might need to cover your expenses in retirement, talk with your financial professional and fill out the Future Income Planning Worksheet. He or she also can help you identify financial tools that can be used to help offset medical costs.

Related Partner Education:

Learn how some financial advisors approach planning for health expenses in retirement with clients. Read Expecting the Unexpected, developed in partnership with Dow Jones Solutions for Barron’s.

Next Article In Healthcare Planning for Retirement
5 Steps to Save for Medical Expenses

Learn how to build an emergency fund so you can stay ahead of the curve for potential healthcare costs. We share this and why you need one in this infographic.