Post-Retirement Healthcare Budgeting

A question I firmly believe is not asked and answered enough these days is – “how much should I budget for healthcare post-retirement (age 65), assuming I leave my employer (or other) plan and elect Medicare”?  This includes expenses related to medical/dental/vision, care and insurance premiums, and assumes Medicare (and its various parts/pieces) is in place to protect against catastrophic type loss.  Well, the answer might surprise a few folks, and is definitely something to consider if retirement is on the horizon!

According to the “Fidelity Retiree Health Care Cost Estimate”, a retired couple age 65 in 2020 may need approximately $295,000, on average, saved (after tax) to cover health care expenses in retirement.  This same source estimates that fully 15% of the average retiree’s annual expense budget will be consumed by healthcare related expenses, including Medicare premiums and out of pocket costs associated with medical, dental, and vision care.  (Source: Fidelity Viewpoints, Aug. 3, 2020)  There is, I believe, a prevailing misunderstanding that Medicare will cover most, or all, of a retiree’s healthcare related expenses.  But this is simply not the case, which is why it is so important for affected individuals to be aware of this necessary and important budget item.

There are a number of reasons why these figures are so high, including:

  • – We’re living longer (current life expectancy in U.S. is 78.6 years, per the CDC).
  • – The healthcare inflation rate (5.08% for June, 2020/ per consistently outpaces the general rate of inflation (Note: for a historical view of the changing rate of healthcare inflation,  click –
  • – People are retiring younger (for most Americans, its age 62).
  • – Fewer employers (are able to) offer retiree health insurance benefits.
  • – Healthcare utilization tends to increase as we age.

Here are 5 strategies to consider when thinking about and planning for retirement, as it relates to healthcare/health insurance:

  1. Consider making eligible “catch up” contributions to tax-preferred spending accounts such as 401(k), 403(b), IRA – age 50; and HSA – age 55, during working years.
  2. If you are eligible to establish, fund, and accept employer contributions to a Health Savings Account (HSA), take full advantage of the annual maximum contribution and catch up amounts.  These dollars are triple tax advantaged!
  3. Evaluate all available health insurance options at retirement to keep premium costs as low as possible (see previous blog post – )
  4. Take advantage of as many “non-health insurance” healthcare options as possible during working years, freeing up money to stash away for retiree healthcare costs.  See previous blog post – )
  5. If Medicare is found to be the best, post-retirement health insurance Postoption, keep the following in mind – a. Evaluate the cost/benefit of “traditional” Medicare (parts A,B, D, and a supplement) versus Medicare Advantage (also known as Part C); b. Pay attention to the income means adjusted Medicare Part B premium amounts.  Depending on your income, you could be required to pay as much as 3 times the regular monthly premium amount, which for 2020 is $144.60 (but could be as much as $491.60); and c. If choosing “traditional” Medicare, carefully evaluate the various Medicare Supplement/Medigap plan options.  Generally speaking, the higher the plan letter, the better the coverage.  

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