Key Points
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Many people forget to take healthcare costs into account when planning for retirement.
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Medicare doesn’t cover everything, and seniors could face big out-of-pocket expenses.
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You should invest in an HSA or earmark money for medical care as a retiree.
When you plan for retirement, you’re probably going to think about all the great things that you hope to do after you don’t have to go to your job all day. You may have a budget for gardening, traveling, buying treats for the grandkids, fishing, or enjoying whatever other hobbies you’ve always loved but never had enough time for.
Unfortunately, as you are thinking ahead about how great retirement will be, there’s a very good chance you are forgetting to plan for a huge expense you are likely to incur as a senior.
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Not planning for this expense could be a disaster, though, so you must make sure you take the cost into account and are well prepared for it. Here’s what it is.
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You can’t forget to prepare for this retirement expense
So, what is the retirement expense that so many people forget, to their detriment, when they are in the retirement planning process? It’s healthcare. One study by Jackson Financial found that nearly two-thirds of pre-retired investors surveyed vastly underestimated their prospective healthcare expenses.
And according to troubling research from Fidelity, a shocking 1 in 5 Americans said they have never considered healthcare costs during retirement. That’s a huge problem, given the fact that Fidelity also reports the typical 65-year-old retiring in 2025 may face out-of-pocket healthcare costs of $172,500. That’s above and beyond anything Medicare covers.
If you do not prepare to cover these huge costs, you’ll have to drain the money in your retirement plans much more quickly than you anticipated.
As your nest egg declines, you may be left relying on Social Security alone, which is really not enough to support you without supplementary savings — especially amid growing concerns that benefits aren’t keeping pace with inflation and also could be cut in the future because the program’s trust fund is running short.
Why is healthcare so expensive?
Healthcare is expensive for retirees for some fairly obvious reasons. By definition, seniors are older. Many are also sicker, with chronic health conditions or even simple issues like age-related hearing loss.
While Medicare pays for some of the costs of care once you are 65, there are still premiums to pay, including for your Medigap or Advantage plan, as well as coinsurance costs and copays.
Medicare also excludes coverage for some common things retirees need, including hearing aids, dental care, and vision care. All these things have to be paid for, and as Fidelity explains, that really adds up.
Preparing for healthcare as a retiree
With bills totaling in the hundreds of thousands, healthcare spending could become a serious issue when you are a senior. You need to make sure you aren’t left broke because of the care you need, so it’s best to have dedicated funds set aside to cover doctor bills.
A health savings account (HSA) can be the best account to save for medical care as a retiree because you get a triple tax break. You can deduct contributions when you make them, let the money grow tax-free, and make tax-free withdrawals for eligible medical care expenses.
Of course, you must meet eligibility requirements to contribute to an HSA. However, if you have a qualifying high-deductible health plan and are allowed to contribute, you should absolutely take advantage of this great account.
If you aren’t eligible, you’ll want to bump up the amount you’re putting into your retirement plans to ensure the funds are there for your care when you need them. Otherwise, you could be left with serious regrets about this huge oversight.
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