How Will Healthcare Affect you in Retirement?


Healthcare is a growing concern for nearly every segment of the population, and that includes retirees. When making retirement plans, it is now more important than ever to consider health care costs-here’s why.

Health Care Costs Rising

Fidelity Investments recently reported that the average 65-year-old couple will need $275,000 to cover their health care costs. Last year, that figure was only $260,000. This amounted to a six percent increase year-over-year.

In calculating the results, Fidelity looked at things such as insurance premiums, over-the-counter medications, and long-term medical care. In a press release, they stated that the $275,000 estimate was for “average retirees”. In other words, it is based on an assumption of average health. As such, those with significant health problems could pay more, as could retirees in areas where the cost of living is especially high.

Factoring in Health Care

Financial experts are now stressing the importance of calculating health care costs more than ever before. Some things they would like people to know are:

  • After leaving a job, there is a limited window for enrollment in health care through the insurance marketplace.
  • At age 65, individuals automatically transition from Obamacare or an employer-based plan to Medicare. This is true even if they are still working.
  • There are a limited number of options in many states. As such, many retirees are often restricted to more expensive PPO plans, or must enroll in HMOs or EPOs that offer fewer providers.
  • Many people who are close to retirement age do not qualify for subsidies to reduce their health insurance premiums.

Making Healthy Choices

Carolyn McClanahan, a certified financial planner in Florida, advises her clients who are near retirement age to make healthy lifestyle changes. Preserving good health now can help people offset the higher cost of health care once they retire.

There may also be an added benefit, which is more money to save towards retirement. For example, the average pack-a-day smoker spends up to $2,000 per year on cigarettes. This is money that could easily be invested or placed in a savings account.

Many could even increase their 401(k) contributions, something that has taken a hit due to rising health care costs. A survey conducted by Bank of America and Merrill Lynch showed that two-thirds of all workers have decreased 401(k) contributions because they are now paying more for their health care.

Health savings accounts can also be a valuable asset. They may be used along with high-deductible plans to help lower premiums. Contributions are also tax deductible, and there are no tax penalties for withdrawal. They can also keep people from dipping into their savings accounts in the event a serious health issue arises.

These days, retirees must consider the cost of health care more carefully than ever before. This is true whether a person is leaving the workforce early or plans to continue working after retirement. Since health care costs will likely keep rising, factoring them into a retirement plan will become especially crucial in the years to come.