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How Much Money Should You Save for Medical Costs in Retirement?

How Much Money Should You Save for Medical Costs in Retirement?

Medical costs are one of the most common reasons people cite for not having saved enough for retirement. It’s also one of the most expensive bills you’ll ever have to cover. If you’re planning on retiring at age 65, you need to know how much money you’ll need to save for medical costs.

But how much should you save for health insurance? Read on to learn more about estimating medical expenses during retirement and how to save for them.

Estimate Medical Costs in Retirement

Medical costs are often the largest component of retiree expenses. When you’re retired, it’s important to realize that medical costs will rise. Age-related illnesses, vision and dental issues, assisted living, nursing homes, and prescriptions can all add up and consume increasing quantities of your budget.

Of course, the best way to reduce your medical costs is by taking good care of yourself now, but regardless, you will want to calculate how much money you’ll spend on health care later in life. The best way to estimate how much you’ll need to save for medical costs in retirement is to do a little math.

First, you need to estimate how many years of retirement you are planning on. Then, estimate your annual health care expenses during those years. Finally, calculate how much money it will take out of your nest egg every year.

However, many factors go into calculating how much you should save, including:

Your Health

How healthy are you? What are your age and health status? If you’re currently in good health, making ends meet on less income might be easier. But if you have a chronic illness or other serious health issues, that could change things dramatically.

The Cost of Insurance Premiums

You might be able to extend your employer-provided health insurance for a brief period after you retire, but that is for a limited time and usually very expensive. Although Medicare Part A typically has no premium, you will still need to pay for other premiums, deductibles, and expenses not covered by the plan.

The Cost of Prescription Drugs as a Percentage of Income

Prescription drugs are increasingly available to help keep people healthy, functioning, and at their best, as they age. However, this can mean increased costs in retirement as Medicare Part A does not cover prescription medications and Medicare Part D premiums vary by your needs.

Retirement Age

Planning for the Rising Health Costs in Retirement

The age at which you retire and how long you expect to live factor enormously into your overall retirement costs. Personal circumstances such as general health, weight, race, smoking status, gender, and family history can all have an impact.

With all factors considered, here’s how much you can expect to spend on Medicare Parts B and D and an estimate of prescription expenses:

Planning for the Rising Health Costs in Retirement

Medical Costs in Retirement

The healthcare costs of retirement are rising faster than inflation. This means that you need to plan if you want to keep a healthy budget and avoid running into debt during your golden years. Thankfully, there are plenty of ways to protect yourself from medical bills when you retire – here are five effective ways to prepare for the rising health costs in retirement:

Delay Social Security Benefits

67 is now the full-retirement age for anyone born after 1960. You can apply for Social Security benefits at age 62 but will only receive 70% of the full benefit amount. Delaying your Social Security benefits will gain you a higher monthly benefit.

Examine Long-Term Care Insurance Policies

Long-term care insurance helps pay the expenses of an extended illness or disability. Most are comprehensive policies and cover costs associated with assisted living, nursing homes, adult day care, physical therapy, and anything else needed to ensure that the activities of daily living (ADLs) are still able to be performed.

This type of policy may no longer be an option after a certain age or if you already have a chronic illness or disability.

Invest in a Health Savings Account (HSA)

An HSA is a tax-advantaged savings account that allows you to set aside tax-free dollars for medical expenses, including premiums for Medicare supplemental coverage and long-term care expenses, such as nursing home costs. That way, when you need these services, your HSA dollars will help cover them instead of borrowing from other sources or selling assets to make ends meet if something happens unexpectedly.

Consider a Health Insurance Plan

If an employer health insurance plan does not cover you at 65, you should consider enrolling in additional portions of Medicare or getting a supplemental plan. These plans are available directly from an insurer or agent and you can work with The Medicare Family to find the right carrier and coverage for your circumstances.

Enroll in Medicare at Age 65

If you don’t already have Medicare coverage, enrolling when you turn 65 can maximize your benefits. There are also affordable prescription drug and supplemental insurance plans available if you need additional coverage.


When it comes to retirement, it’s important to ensure that you’re adequately covered by insurance. But with the rising cost of health care and increasing life expectancies, the financial impact of health care costs is even more significant. Fortunately, Medicare plans can help you reduce medical costs in retirement, and they don’t have to be expensive. If you wish to learn more about Medicare, you can rely on our over 40 years of experience helping thousands of people navigate this information. Don’t hesitate to contact us.

Sylvia Gordon, aka Medicare Mama®, is an expert on all things Medicare and Social Security. She is the 2nd Generation here at The Medicare Family and has served on the advisory boards of major insurance companies like UnitedHealthcare®, Cigna, and Anthem. In her free time, she can be found taking care of her animals (dogs, goats, peacocks, chickens), and reading a good book. Learn More.
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