Skip to main content

«  View All Posts


Major Misconceptions about Health Care Costs in Retirement

May 9th, 2019 | 4 min. read

By Jacob Schroeder

Major Misconceptions about Health Care Costs in Retirement - image

Health is wealth. At no other time may this be truer than in retirement. Whereas many of your expenses decline once you retire (hopefully you don’t have to commute, the mortgage is paid off and the kids are financially independent), health care costs will generally rise as you age.

A couple age 65 and retiring in 2019 can expect to spend $285,000 on health care expenses in retirement, according to Fidelity’s Retiree Health Care Cost Estimate. The figure increases every year as health care costs rise faster than inflation and people live longer. Millennials may need around a half a million dollars to cover health care when they retire.

The report further suggests 15% of the average retiree’s annual expenses will be allocated to health care. That includes Medicare premiums and out-of-pocket expenses.

Anyone preparing for retirement then will know paying for health care is one of your primary planning decisions. You don’t want to make choices with bad information. So, in this blog we address a few common misconceptions about health care costs during our later years, including the idea you can just rely on Medicare for all your needs.

Medicare covers everything

In fact, Medicare – which starts at age 65 – does not cover everything. For example, it does not pay for long-term care or dental and vision coverage. According to the Employee Benefits Research Institute (EBRI), Medicare only covers around 62% of a person’s health care costs.

You can avoid surprise out-of-pocket costs from these gaps in coverage with a supplemental insurance policy, but there are many plans to consider. Private insurers offering Part D (prescription drugs), Medigap and Medicare Advantage plans can change their premiums and coverage terms. Begin this process well before your effective Medicare start date to ensure that your supplemental insurance kicks in at the same time.

What you can do: If you retire before at age 65, you’ll need to find coverage for the years before you’re eligible for Medicare. Options that may be available to you include: retiree health benefits from your former employer, your working spouse’s plan, the public insurance marketplace and COBRA.

Once you’re enrolled in the Medicare program, you should annually compare plans and shop around to get the same, or better, policy for a lower price. Remember, the annual coordinated election period is from October 15 to December 7 each year. For most, the best place to start shopping for supplemental plans is on Medicare’s own website, You can search for plans by using the Medicare Plan Finder.

Only the most disadvantaged will ever need Medicaid

An estimated 70% of people reaching age 65 today will need some form of long-term care in their lifetime, according to the U.S. Department of Health and Human Services. If, when and for how long are all hard to predict. What is known is that an extended period of care can be very expensive. The national median cost of a semi-private room in a nursing home is around $90,000 annually, according to Genworth.

However, there aren’t many options available to pay for long-term care. You can use your personal savings and assets or buy an insurance policy that covers it. If you’ve exhausted those options, you may have to turn to Medicaid.

The high costs and limited funding options helps explain why Medicaid is the primary payer for formal long-term care, covering about 43 percent ($146 billion) of all long-term care spending. Unlike Medicare, Medicaid does provide for custodial care, including long-term care services in nursing homes and services provided at home. Medicaid programs and the services provided vary state by state.

Many people start paying for care out-of-pocket and “spend down” their income and assets until they are eligible for Medicaid. But, in doing so you may have to use up most of your assets. Therefore, it’s worth considering other options first.

What you can do: Check your family history, look at your relative’s health and your own health. That can help determine the probability you’ll need long-term care. Then explore your options. Do you have enough assets to cover the cost of care without jeopardizing your retirement? Are you able to pay for the pricey premiums that often come with long-term care insurance?  

You have no control over your costs

You can’t change your family history or your DNA (at least, not yet). Therefore, there may be certain hereditary or genetic diseases you’ll have no choice but to manage the best you can.

Regardless, there are several things within your control that will result in a healthier you, and in turn, lower health care costs.

A balanced diet and regular exercise can lower your blood pressure and cholesterol, all while reducing your risk of cancer, heart attack, diabetes, osteoarthritis, obesity and mental health problems. Therefore, with a healthy lifestyle you will likely avoid spending money on the doctor visits, medications, surgeries and therapies associated with these maladies.

If that doesn’t convince you, perhaps some cold, hard numbers will do the trick. A survey published in the Journal of the American Heart Association found people who exercise regularly – at least for 30 minutes five times a week – can expect to spend $2,500 less each year on medical costs than those who don’t exercise.

What you can do: You can keep your health from derailing your retirement right now. Go for a walk. Eat healthy. Even small steps can make a big difference over time. The earlier you adopt a healthy lifestyle, the longer you can enjoy its benefits by living a longer, healthier life.

Remember, small financial steps can have a lasting impact on your future, too. If you’re worried about the cost of care in retirement, start by saving more. Those age 50 or older can take advantage of additional savings in the form of catch-up contributions in a 401(k) and/or IRA. This will improve your chances of covering your medical costs without having to sacrifice your retirement lifestyle.

Overcome Health Care Fears with a Retirement Plan

It’s scary to think of getting sick and running out of money or not having access to quality care. The uncertainty and potential burden of health care is another reason why it’s important to have a retirement plan. Of people with a written retirement plan, 86% know how they will pay for medical expenses in retirement, according to a Franklin Templeton survey.

A retirement plan isn’t only about dollars and cents. It can help you determine where to live in retirement, using access to high-quality but affordable health care as a primary factor. Sure, it doesn’t feel good thinking about the “what ifs” regarding your health in the future. But, building a plan around them will certainly make you feel better today.

Start Your Free Investment Plan