The one staggering expense people forget to include in retirement planning

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By: Danielle Roberts

Many Americans feel the burden of expensive healthcare in the United States. As many people work to gain employer medical coverage, it can be easy to be unaware of what health truly costs. This leaves them unprepared for how much they need to save for healthcare costs in retirement.

According to the Employee Benefit Research Institute in 2018, six out of 10 retirees say they did not properly estimate what they needed to cover medical bills.

Understanding the true costs of healthcare in retirement can be difficult. Knowing the facts based on historical data and having a plan to begin saving today will prepare you for an enjoyable entrance into your Golden Years.

I am going to explore the research of health care costs in retirement, a few misconceptions and some tips for saving – so let’s get to it.

The Staggering Expense

A recent study on the costs of healthcare in retirement from Fidelity has garnered national attention. If you haven’t seen it, it reads as such, “A 65-year old couple retiring this year (2018) will need $280,000 to cover health care and medical expenses throughout retirement.”

Yes, you read that right – $280,000!

That is up 75% from the same study conducted in 2002. Health care costs are on the rise, but our financial readiness is not keeping up. From miscalculations to omissions, a large percentage of Americans do not have enough in their retirement nest-egg for health care.

Breaking Down the $280,000

In Fidelity’s calculation of the cost of health care, they include Medicare premiums, your own cost-sharing, and other out-of-pocket expenses that come with Medicare Parts A, B, and also D.

However, their estimates do not factor in some important expenses that also need to be considered. That unbelievable number does not include many of the over-the-counter medications you use regularly, dental care costs or long-term care expenses.

In all fairness, Fidelity states, “Actual assets needed may be more or less depending on actual health status, the area of residence, and longevity.” This is true and for me, I would rather overestimate than reach retirement and realize I was way off.

If you are thinking, “I thought Medicare covered all of this?” you’re not alone. So first, let’s set the record straight on some common misconceptions below.

3 Common Misconceptions About Healthcare in Retirement

1. Medicare will cover all medical expenses

One of the greatest misconceptions is that Medicare will cover all medical costs and services. Worse, most people don’t fully understand this until they reach Medicare age and get a bill.

When you enroll in Medicare, you’ll have cost-sharing in the form of deductibles, coinsurance, and copays, just as you do now with your under-65 health insurance.

Medicare also does not offer coverage for dental, vision, or hearing needs. Also, if you are traveling outside of the U.S., you are entering a Medicare-free zone. You are not covered by Medicare outside of the United States.

Additionally, prescription drug coverage is not rolled into Original Medicare. You’ll need to add that on at your own expense.

The best way to think of Medicare is that it is a basic plan that will cover a portion of your routine doctor visits, hospitalizations, and medically necessary services.

2. Taking Social Security early will help cover health care costs

Some reach age 62 or even 65 and feel that their best option is to start receiving Social Security checks to cover medical expenses.

However, if you begin taking your benefits early you are receiving a smaller amount of money for a longer period of time. By delaying your benefits, you will have a larger amount of money to help you through those later years.

If you are in good health and can wait to start taking Social Security, your future self will thank you and your money will work harder for you in the long run.

3. I waited too long to save for health care costs

Money saved today is better than wishing tomorrow that you had saved more. If you are one of the many who is nearing retirement and you are feeling the pressure of a small health care nest egg (or no nest egg at all), you can take steps today toward a better-planned retirement.

From lifestyle changes to tax-deferred contributions, there are small steps that can make a big difference as you age.

If you have reached retirement, there is still hope for you too. From Medicare supplement plans to a variety of affordable Medicare Advantage plans, there are ways to relieve the burden.

Start Preparing Today

The retirement crisis is real and there is no arguing that there are millions entering retirement each year without enough money. You don’t have to be one of them.

Pay Yourself First

You love your kids, right? Don’t put the burden of your health care expenses on them when you retire.

Too often, people put the needs of family ahead of saving. Don’t get me wrong, you need to take care of your family, but that does not mean neglecting your savings.

Find a way to contribute to your kids’ college savings fund while also adding money to your retirement fund. If you always wait to pay yourself last, you will find yourself with no savings at all.

Pay yourself first, this will create a better ending for you and your family.

Pay Down Debt

This one sounds so simple but is one of the biggest hindrances to a healthy retirement. High-interest payments can suck the life out of a retirement fund. Whether you must make lifestyle changes or find ways to earn extra income, do what you can to pay down debt now.

Start by paying off your smallest debt first, and as you pay off each one, then move to the next largest one. Without debts straining your monthly budget, you will have more money to set aside for both health care expenses and the rest of your retirement nest egg.

Take Care of Your Health Now

Prevention wins when it comes to your health. If you neglect small health problems now, they can easily become major ones later in life.

One of the best ways to reduce future healthcare costs is to take care of yourself in the present.

If you think medical services are too expensive while you are working, I can tell you from managing over 20,000 Medicare insurance policyholders that they won’t become cheaper when you stop working. Take advantage of employer-sponsored insurance plans and make it a point to always schedule your preventive services, which cost nothing these days thanks to the Affordable Care Act.

Good health equals instant savings in retirement.


Here’s the big one that not nearly enough people take advantage of: Health Savings Accounts. If you are eligible to contribute to an HSA, this is an excellent way to let your money grow.

Many people don’t realize that HSA accounts offer a triple tax advantage. The first tax advantage of an HSA is that the initial contributions are tax-deductible (or pre-tax if made through payroll). Secondly, as your HSA earns interest, it is all tax-free. Last, when you withdraw the money for qualified medical expenses, you will again pay no taxes.

These funds are an excellent way to plan for health care in retirement. Not only will you get excellent tax breaks on the money you contribute, but you will be able to use your HSA for a variety of expenses later on, including:

  • Medicare premiums
  • Deductibles
  • Co-pays
  • Dental expenses
  • Vision care
  • Prescriptions
  • Diabetes supplies
  • Hearing aids
  • Hospital bills
  • Durable medical equipment

All these services and more can be paid with money you set aside in your HSA. Are you convinced yet? If you opt for an HSA now, when you reach retirement, you will be glad you did! Check with your employer to see if they offer a qualified high-deductible health plan that will allow you to open a health savings account, or find on the Healthcare Exchange if you don’t have employer coverage.

The Takeaways

The moral of the story is that health care in retirement is expensive and it’s not free. As you fine-tune your savings plan for retirement, don’t be one that forgets the staggering expense ahead.

As you take good care of your health, it is equally important to take good care of your savings. Too many people forget to go over health care with their financial advisors. Talk to them, ask their opinion on the best way for you to invest money into your health care savings.

At the end of the day, ask yourself how important your health is to you. I could tell you many stories of people who learned too late that they weren’t prepared to pay for their own medical expenses. Be the outlier in the all too common statistic of the ones who “weren’t ready” for retirement.

Danielle Roberts is co-founder at Boomer Benefits, where she and her team help baby boomers set up Medicare supplemental insurance to help cover the costs of healthcare in retirement.