Medically Approved

Are you saving enough for health care costs in retirement?

Man and woman going over healthcare spending

Probably not. Use these tips to make sure you’re prepared so that you can live your golden years on your own terms.

Hallie Levine

By Hallie Levine

When you think ahead to retirement, you may worry that you won’t have enough money to pay off your mortgage or your kids’ student loans. Or that you won’t have enough of a nest egg to jet around the world. But there’s another expense you should be saving for: health care.

A 65-year-old couple retiring this year can expect to spend an average of $315,000 in health care and medical expenses during their retirement, according to a 2022 estimate by Fidelity Investments. And that number will only grow with time. In fact, if health care costs grow with inflation, a healthy 55-year-old couple may face up to an extra $267,000 in medical costs after they retire. That is according to an analysis by HealthView Services, a health care cost-projection software company.

That’s why it’s so important to begin planning today, says Jan Stone, owner of Stoneworks Healthcare Advocates in Austin, Texas. Because there’s no crystal ball that can tell you exactly how much money you’ll need for retirement, she does advise that you start saving as soon as possible. Here’s her advice to make sure you stay ahead of the game:

Open up a health savings account (HSA)

An HSA is a type of personal savings account that’s used to pay certain out-of-pocket health care costs. Those may include acupuncture, medical visits, mental health counseling and hearing aids. You can put money away and withdraw it, tax-free. “Health savings accounts are brilliant because they force you to put away money,” says Stone.

HSAs are not the same as flexible spending accounts (FSAs). An FSA requires you to use the money in it — or lose it — during the calendar year. But HSAs can be rolled over from year to year and eventually into retirement. “HSAs are useful when you’re looking to save,” adds Stone.

The major caveat: You must be on a high-deductible health plan to open or contribute to an HSA account. But the money is always yours to spend, no matter what health plan you may switch to in the future.

Then use your HSA as an investment tool

Okay, so you opened an HSA — now what? Well, just like other retirement accounts, you want to make the most of it.

For example, in 2022, you can contribute up to $3,650 for self-only coverage and up to $7,300 for family coverage. If you didn’t spend as much as you anticipated, no worries. It’s your money that you can use for other qualified medical expenses in the future.

The Optum Perks App displayed on a mobile phone
Get access to thousands of prescription coupons instantly.

Even better, some HSA plans also allow you to invest unused money. That means it will earn tax-free interest. You can even make catchup contributions of an additional $1,000 per year between the ages of 55 and 65 to help pay for medical expenses later in life.

Once you turn 65, you’ll have a tax-free nest egg that you can use for qualified medical expenses and insurance costs such as premiums and deductibles. It can even be used for things such as medically necessary home renovations — for example, installing a first floor shower stall due to difficulty moving up and down stairs.

Just remember that you need to stop contributing to it 6 months before you opt into Medicare, says Stone. Otherwise, you’ll have to pay a tax penalty on the money you put into it during those months.


Buy into long-term care insurance — now

Whether we want to admit it or not, some of us will need help with everyday tasks someday. Maybe you’ll need a home health aide to help you with bathing and eating. Or you’ll need to lean on community services for transportation. You may even need ongoing care in a nursing home or similar facility.

The trouble is that these services aren’t covered by private health insurance or Medicare. And they can be very expensive. Depending on the type of care provided, a home health aide can cost anywhere from $51,000 to $210,000 a year. And the national average for a room in a private nursing home is more than $108,000 a year.

That’s why Stone recommends that you purchase long-term care insurance. It can buffer some of those high costs.

But don’t wait. It’s important that you buy long-term care insurance sooner rather than later, stresses Stone. You may not have the same protections for preexisting conditions in long-term care insurance that are in place for regular health insurance. A company can reject you due to your health history — for example, if you’ve had cancer or a stroke. That’s why it’s a good idea to buy this insurance while you’re still young and healthy.

Load up on health insurance during your retirement

When you retire, Stone recommends that you purchase a medigap policy along with original Medicare. Medigap is a type of Medicare supplement policy that will help fill in the gaps in your health care plan.

“If you only have Medicare Part A and Part B, you will always pay 20% of the total cost of the bill,” she says. “So if you have a hospital stay, that means you could be looking at a bill of $20,000 or $30,000.”

A medigap policy will help you fill in some of those holes. And unlike original Medicare, some medigap policies also cover health care costs when you travel abroad. Just keep in mind that medigap won’t cover long-term care, vision or dental services, hearing aids, eyeglasses or private-duty nursing. You’ll have to rely on other means, such as your HSA or long-term insurance, to help cover those costs.

And of course, don’t forget to shop around to find the best price on your prescription medications. Use the Optum Perks app to search for the lowest prices at pharmacies in your area. And use our free prescription discount card to see how much you could save.


Additional sources
Retiree health care cost estimate: Fidelity Investments
Effect of inflation on health care costs in retirement: HealthView Services