Retirement should be a time to enjoy life—here are five tips to ease the stress of planning for healthcare.
Healthcare is one of the biggest and most unpredictable costs retirees face. While Medicare provides a foundation, it doesn't cover everything. Planning ahead can help you stay financially prepared and reduce stress later.
Here are five key tips to help you plan for healthcare expenses in retirement.
Many people assume Medicare covers all health expenses in retirement—but that’s not the case. There are different parts to Medicare, and understanding them can help you avoid unwanted expenses.
You must enroll during your initial enrollment period (3 months before and after your 65th birthday month) to avoid late penalties.
You can avoid penalties by enrolling in Original Medicare (Parts A and B) during your Initial or special enrollment period (if you qualify due to certain life events)—and potentially reduce out-of-pocket costs by adding Medicare Advantage (Part C) or pairing a Medigap plan with Part D drug coverage.
Also, keep in mind that Medicare premiums are based on your Modified Adjusted Gross Income (MAGI) from two years prior. Higher earners may pay significantly more.
Tip 2: Estimate how much you’ll need for medical expenses
Healthcare costs in retirement are much broader than just your monthly Medicare premiums—they include a wide range of expenses that can add up significantly over time.
The Milliman Retiree Health Cost Index estimated that a hypothetical couple retiring in 2024 will need $395,000 to cover healthcare if they have Original Medicare plus Medigap and Part D coverage.
Where does all that money go?
Many of these costs are easy to overlook, especially if you're healthy now. But planning for them early can help you avoid financial surprises later. A realistic healthcare budget in retirement should factor in both predictable expenses (like premiums) and variable or unexpected ones (like dental work or mobility aids).
Tip 3: Plan for long-term care expenses
One of the most commonly underestimated healthcare costs in retirement is long-term care. Medicare does not cover extended stays in nursing homes or full-time, in-home care if it's custodial (help with bathing, dressing, etc.).
According to the Genworth 2024 Cost of Care Survey, the median cost of a private room in a nursing home is nearly $10,646 per month, and the costs of an assisted living community is $5,900 per month.
To prepare, consider:
Tip 4: Leverage a health saving account (HSA)
If you contributed to a Health Savings Account (HSA) while working, you have a valuable tool for retirement. And under certain conditions, you can still contribute in retirement (more on that below).
HSAs offer a triple tax benefit:
Even though you can’t contribute to an HSA once you enroll in Medicare, you can use the funds tax-free to pay for a wide range of costs in retirement—like Medicare premiums, long-term care, and dental or vision expenses.
Tip 5: Plan for inflation in your healthcare budget
Planning for inflation is easy to forget but it can pay off, especially if costs rise even more than expected. Historically, medical care prices have generally grown faster than overall consumer prices.
According to the Peterson-KKF Health System tracker:
As you make your healthcare budget, planning for inflation can help ensure you’re not caught off guard by rising premiums, medical bills, or care costs down the road.
Plan for a brighter retirement
At Betterment, we’re here to help you build the future you want. We provide financial resources to help every step of the way. Take advantage of our free educational resources to help you prepare for and navigate retirement.