Healthcare Cost In Retirement

For many of us, health care is expected to be one of our largest expenses in retirement, after housing and transportation costs. There are several factors that contribute to the increasing cost of healthcare in retirement. Primarily, people are living longer, and the rate of healthcare inflation is higher than the overall inflation rate. The average retirement age is 61 for most Americans which is four years before you are eligible to enroll in Medicare.²

Health-Care Breakdown

A retired household faces three types of healthcare expenses.

1. The premiums for Medicare Part B (which covers physician and outpatient services) and Part D (which covers drug-related expenses). Typically, Part B and Part D are taken out of a person’s Social Security check , so the premium cost is often overlooked by retirement-minded individuals.
2. Copayments related to Medicare-covered services that are not paid by Medicare Supplement Insurance plans (also known as “Medigap”) or other health insurance.
3. Costs associated with dental care, eyeglasses, and hearing aids – which are typically not covered by Medicare or other insurance programs.

How Much is needed for Healthcare Cost in Retirement? According to the Fidelity Retiree Health Care Cost Estimate, a single person age 65 in 2023 may need approximately $157,500 saved (after tax) to cover health care expenses in retirement. An average retired couple age 65 in 2023 may need approximately $315,000 saved.¹ 

This does not include any long term care expenses which can be quite staggering by themselves.

Around a third of people who retire early claim Social Security benefits at age 62 to help pay for healthcare expenses until Medicare coverage becomes available at age 65.¹ However, if you decide to delay your retirement to save enough to cover healthcare costs util 65, you may have the option to postpone claiming Social Security benefits. As a general guideline, the longer you can wait until age 70 for claiming Social Security benefits, the higher your potential collection, assuming you live a long life.

The amount you will need to retire will vary based on your unique circumstances. Factors such as the age at which you plan to retire, your location, the projected expenses you anticipate during your retirement years, your current state of health, potential lifespan, and the array of income sources.  There is no one size fits all answer so you should meet with a financial advisor who can help you plan for your future specific to your needs!

1. How to Plan for Rising Health Care Cost, Fidelity, 2023.
2. What is the Average Retirement Age in the U.S.?, NerdWallet, 2023.

ABOUT SGROI FINANCIAL

Sgroi Financial is a full service, independent financial planning firm proudly serving the Western New York area since 1971. We offer services that will help you achieve your financial goals including retirement planning, investment management, estate planning, college planning and insurance. We help individuals, families, retirees, working adults, young adults and business owners.