How to plan for healthcare costs in retirement

Healthcare costs in retirement may be greater than what you're planning for. We break down the factors.

Man in retirement receiving healthcare.

How much do you think you'll spend on healthcare in retirement? Most adults believe they need less than $100,000, but that's a vast underestimate of the average medical expenses in retirement. For example, a 65-year-old man retiring now can expect to spend $135,000, and a woman the same age should plan on $150,000. Those are big numbers, but there are steps you can take no matter how old you are to start planning for healthcare costs in retirement. Here's what to do.

Develop a savings and budget strategy

Much as there are many ways to save for retirement expenses, there are many ways to budget for healthcare expenses. That's why a well-rounded retirement savings strategy is so important. Money from a 401(k), IRA, HSA, annuities, and traditional savings accounts offer ways to pay for everything from routine healthcare to more extensive needs. In addition, while Medicare may cover some hospitalizations, you will generally need to account for deductibles, premiums, out-of-pocket expenses, and supplemental insurance. Well before you're ready to retire, consult a financial advisor to help estimate future healthcare costs and savings tools.

Consider long-term care insurance

More than two-thirds of retirees need long-term care at some point, but Medicare doesn't cover most of these costs. One option is long-term care insurance. Before you purchase a policy, research what it covers and how you can use it. In general, the younger you are when you purchase a policy, the lower the premiums.

Manage distributions to maximize Medicare premiums

If you have more retirement income, you'll probably have more tax liability, and that has the potential to increase your Medicare premiums. Consult with a tax planner at the beginning of each year. You'll want to discuss how distributions and withdrawals from income or savings accounts will impact your overall finances, including healthcare costs in retirement.

Delay retirement if you are able

If you retire before 65, you'll have to pay out-of-pocket for an insurance plan until you're eligible for Medicare. If you're trying to balance limited retirement savings with healthcare costs in retirement, you may consider deferring retirement until age 65. As an added benefit, this also increases the Social Security benefits you can collect each year.

Stay well, as much as you are able

Practice preventive care in retirement. Visit the doctor yearly and as needed. Take any medicine that's prescribed. Stay active and engaged. All those steps will help you enjoy the retirement that you worked so hard for.

The information in this article was obtained from various sources not associated with State Farm® (including State Farm Mutual Automobile Insurance Company and its subsidiaries and affiliates). While we believe it to be reliable and accurate, we do not warrant the accuracy or reliability of the information. State Farm is not responsible for, and does not endorse or approve, either implicitly or explicitly, the content of any third party sites that might be hyperlinked from this page. The information is not intended to replace manuals, instructions or information provided by a manufacturer or the advice of a qualified professional, or to affect coverage under any applicable insurance policy. These suggestions are not a complete list of every loss control measure. State Farm makes no guarantees of results from use of this information.

Neither State Farm nor its agents provide tax or legal advice.

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