How to Plan for Medical Expenses During Retirement

Jenny Handwerk |

How to Plan for Medical Expenses During Retirement


If you're like most Americans, health care is likely to be one of your most significant retirement expenses, right after housing and transportation. However, unlike past generations, you will most likely not be eligible for company or union-sponsored retiree health benefits. As a result, healthcare costs will likely absorb more of your retirement budget—something you should plan for.


Americans currently lack retirement savings. A New York Life-study of 2,202 adults this month found that only four out of ten have a nest egg, even though 74% intend to retire at 64. Because of this shortfall, many retirees may face financial difficulties throughout their golden years. 


Whether you're just starting in your career, approaching retirement, or already leaving employment, it's critical to understand and plan for rising medical expenditures. Individuals should budget for over-the-counter drugs, long-term care, and dental care costs. Medicare may cover part of your healthcare costs in retirement, but not all of them. HSA funds and long-term care insurance can be helpful users budget for healthcare expenses. 


Some tips to have a Successful Retirement Plan for Medical Expenses 


Make the most of your time to prepare


About one-third of retirees who claim Social Security at age 62 do so to assist fund healthcare costs until they reach Medicare eligibility at age 65. However, if you postpone retirement or save enough to cover healthcare expenditures until age 65, you may be able to defer your Social Security payments. The longer you wait until age 70 to claim Social Security benefits, the more you can get, providing you with a long life.


Make the most of an HSA


If your high-deductible health care plan (HDHP) includes a health savings account (HSA), think about using it to save money for future medical expenses. In 2024, you can make tax-deductible contributions of up to $4,150 for individual coverage and $8,300 for a family, with an additional $1,000 for individuals 55 and over, which can be invested for future growth.


Furthermore, donations and earnings can be withdrawn tax-free and penalty-free for qualified healthcare expenses including Medicare and long-term care insurance premiums. Earnings also increase tax-free. You are not penalized when you take money out of an HSA for any reason once you turn 65. However, regular income taxes will apply to non-medical spending.


Learn about Long-term care insurance and Medigap


If your out-of-pocket healthcare costs in retirement remain excessive even after Medicare coverage, you may want to consider Medigap. Private insurance companies offer Medigap and can be used to cover Medicare co-pays, deductibles, and coinsurance. Individuals must be 65 or older and enrolled in Medicare Parts A and B. Individuals who purchase Medigap pay a premium in addition to any premiums required for Medicare Parts A and B.



Plan for long-term care


Long-term care covers the expenditures of daily living activities and, if not carefully planned for, can pose a considerable danger to your retirement finances. Long-term care insurance can appear pricey—annual premiums with 3% growth for a healthy 60-year-old average $3,525 for men and $4,300 for women—but with the average yearly cost of a private room in a nursing home at roughly $108,405, it may be more expensive not to have it. 

In general, the most cost-effective period to buy is between your 50s and early 60s, and premiums may be tax-deductible if your total medical expenses surpass 7.5% of your annual income.


How much should you save for healthcare in retirement?


A retirement budget is based on monthly income and total expenses. Only 41% of persons aged 60 and older are convinced that their retirement savings are on track. In 2023, people over the age of 65 spent an average of $4,818 each month. In 2024, Social Security is only scheduled to pay a maximum monthly payout of $3,822 to individuals who reach the full retirement age.

Assuming retirees have Medicare Parts A (hospital), B (medical), D (drugs), and G (expenses not covered by Parts A and B, such as coinsurance and copays), the report says the amounts below are what people need for a 90% chance of meeting their health care expenses, including premiums and out-of-pocket costs. 


  • A 65-year-old man with average premiums will require $184,000 in savings, while a woman will need $217,000. 
  • Couples will need $351,000. 
  • In an extreme example, a couple with especially expensive prescription drugs will require $413,000. 





When investing for retirement, you should expect a large portion of your income to be devoted to medical bills—12% of the median retiree's retirement income was spent on medical expenses.

You can include in your retirement plan a range of tax-advantaged investment accounts, including 401(k)s, regular and Roth IRAs, and Health Savings Accounts. If you expect to spend a lot of money on retirement healthcare, you might consider getting Medigap or long-term care insurance.