By Daniel Korleski, MBA
Medical expenses in retirement can take a bigger bite out of your savings than many people anticipate. Healthcare costs don’t stop when you leave the workforce; they often rise, and they can catch even careful planners off guard.
Research from Fidelity shows that someone retiring at 65 could spend roughly $165,000 on healthcare over their lifetime. For couples, that total can reach $330,000, making it one of the largest expenses of retirement.
The key to avoiding financial strain is to start preparing now. Thoughtful planning gives you the tools to cover healthcare costs while keeping your retirement savings intact.
This article discusses what drives medical expenses in retirement, highlights areas that can be especially costly, and outlines practical strategies to help shield your health and your wealth for the long term.
Understanding Medical Expenses in Retirement
Medicare premiums are the first thing you might have to budget for. You’ll pay monthly for:
- Part A: Covers hospital stays, skilled nursing care, and some home health services
- Part B: Covers doctor visits, outpatient care, preventive services, and lab work
- Part D: Helps with prescription drugs, but you’ll need to enroll through a private plan
Then there are out-of-pocket expenses, such as co-pays, deductibles, and the cost of medications that aren’t fully covered. The problem is that these expenses can add up quickly, even with decent coverage. And because they’re ongoing, they can quietly reduce your retirement budget over time.
Funding Strategies for Medical Expenses in Retirement
Below are some approaches to consider for managing your healthcare costs.
Health Savings Accounts
If you’re still working and have a high-deductible health plan, getting a health savings account (HSA) might be a smart move. This is because it allows you to:
- Save tax-free: Contributions can lower your taxable income, growth typically isn’t taxed, and withdrawals for medical costs are penalty-free.
- Invest for growth: Unlike FSAs (Flexible Spending Accounts), unused HSA funds typically roll over from year to year. You can let them grow for decades.
- Cover gaps: After age 65, you can use HSA money tax-free for Medicare premiums (except Part A), dental work, or even long-term care.
If you can afford to pay your current medical expenses out of pocket, letting your HSA grow untouched can be a great way to create a strong healthcare fund for retirement.
Planning for Long-Term Care
Long-term care can wipe out a retirement budget quickly if you’re not prepared.
Total long-term care costs can be significant and vary widely based on the type of care, the setting in which it's provided, and your location. For instance, the national average for a private room in a nursing home is approximately $131,583 per year.
A few strategies recommended by financial advisors include:
- Long-term care insurance: Buying before age 60 lowers premiums, and policies often cover home aides, assisted living, or nursing homes.
- Hybrid life insurance: This combines a death benefit with long-term care coverage, meaning there’s no “use it or lose it” risk.
- Self-fund: Save aggressively or use home equity via a reverse mortgage.
Planning ahead, whether through insurance or savings, is one of the most effective approaches for shielding your retirement from the high costs of long-term care and medical expenses.
Roth IRAs and Tax-Savvy Withdrawals
Roth IRAs can be a great way to manage medical expenses in retirement, largely because qualified withdrawals don’t count toward your adjusted gross income. This means you can avoid triggering Medicare premium surcharges and may receive the care you need without paying more than necessary.
Your Trusted Partner for Managing Medical Expenses in Retirement
Proactive planning is key to managing medical expenses in retirement without depleting the savings you’ve worked so hard to build. With long-term care and healthcare costs continuing to rise, preparation today can make all the difference tomorrow. The earlier you start, the more flexibility you’ll have to shield your nest egg and your peace.
At Cobalt Private Wealth, we help you design a retirement plan that accounts for future health needs while safeguarding your wealth and legacy. Let’s create a strategy that supports both your financial stability and your quality of life. Reach out to me at danielkorleski@cobaltprivatewealth.com or 719-332-3863 to schedule a meeting.
About Dan
Daniel Korleski is the President & CEO for Cobalt Private Wealth, where he helps his clients grow, manage, and protect their wealth so they can work toward a stronger financial future. With over 30 years of experience in the financial services industry, Dan has served as the managing director for Investment Trust Company, chief investment officer for the Wealth Management Group at American National Bank in Denver, and regional investment manager for the Greater Colorado Region of the Private Bank at Wells Fargo, where he oversaw the management of over $2 billion. In 2008, he was appointed by the mayor of Colorado Springs to the City’s Investment Advisory Committee. Dan holds an MBA in investment management from Midwestern State University in Wichita Falls, Texas, a Bachelor of Science in Finance from Florida State University, and is a member of both the CFA Society Colorado and The Financial Planning Association.
Dan loves to give of his time to his community and is currently serving as the Board Chair of Catholic Charities of Central Colorado and oversees the Homebound Ministry at St. Paul Catholic Church. He has also served as Chair of the Board of Trustees of Pikes Peak Hospice Foundation, President of the Broadmoor Rotary Club, and Vice President of the Board for the Pikes Peak Chapter of Trout Unlimited. Dan was born and raised in Spain and is fluent in Spanish. To learn more about Dan, connect with him on LinkedIn.
