How to navigate health care costs in retirement

Retirement is the start of a new journey filled with possibilities—the chance to spend quality time with loved ones, travel, and pursue new hobbies. However, health care needs can become more complex and costly as we age, casting uncertainty over even the most thoughtful retirement plan.

In this article, we'll cover:

• What does health care cost in retirement?
• What does Medicare cover & what does it cost?
• Strategies for managing retirement health care costs
• Take charge of your retirement planning

You can't control every twist and turn of life, but you can control how prepared you are for them. Understanding the potential financial impact of health care costs in retirement can help you take steps to protect your savings and ensure your retirement goals remain within reach.

Medicare provides a safety net for many retirees, but it doesn't cover everything. Health care expenses can be one of the most significant costs you'll encounter in retirement.

Understanding some of the average costs can help you prepare for the future.

• Monthly: A 65-year-old couple retiring today can expect to spend an average of $584 monthly on health care premiums, deductibles and out-of-pocket expenses.¹ However, this is just average; your costs could be different.
• Annually: Health care costs in retirement reach an average of $7,000 per year.¹ For the typical Medicare household, that means 13.6% of their annual spending is devoted to medical expenses.
• Lifetime: Health care costs can add up significantly over a 20-year retirement. The projected lifetime expenses for a 65-year-old woman on Original Medicare (with a Medigap plan) are $300,000.² For a woman on a Medicare Advantage plan, it's $158,000.

More than half of retirees say their spending is higher than expected, with health care or dental expenses leading the way. Yet only 40% of workers have calculated how much money they'll need to cover health care costs in retirement.³

When planning for health care expenses, consider the potential costs of long-term care. A person turning 65 today has almost a 70% chance of needing some form of long-term care and support.⁴ This includes services such as assisted living, nursing home care or home care, which can be necessary for anyone facing chronic illness, disability or other challenges of aging.

These expenses often are not covered by traditional Medicare, and the costs can be substantial:

• Assisted living: The median cost of assisted living is $4,500 per month, although the numbers can vary by location.⁵
• Nursing home care: The median cost of a semi-private room is nearly $9,000 a month while a private room can cost more than $10,000. Again, prices depend on location.⁶

These costs quickly can deplete savings, so it's vital to consider long-term care coverage as you shape your retirement plan.

Understanding factors that can raise or lower your health care costs helps you create a realistic budget as you near retirement.

• Your health: Chronic conditions or unexpected medical issues can lead to higher expenses for medications, special visits and hospital stays.
• Your location: Health care costs can vary depending on where you live, with some states having significantly higher average expenses than others.
• Your lifestyle: Maintaining a healthy lifestyle through regular exercise, a balanced diet and preventive care can help reduce the risk of chronic conditions and lower health care costs.
• Your insurance: The type of Medicare plan you choose and any supplemental insurance can impact your costs.
  

Curious about the potential long-term care costs in your state?

Our interactive tool can help you get a clearer picture of the expenses you might face based on your location and individual needs.

Explore long-term care costs

Medicare becomes available when you turn 65. It covers about 80% of approved health care expenses after an annual deductible is met, and the patient pays the remaining 20%.⁷ However, patients still may have out-of-pocket costs such as premiums, deductibles and non-covered care or services.

Medicare has four parts, each offering distinct coverage:

• Part A (hospital coverage): This covers inpatient hospital stays, skilled nursing facility care, hospice care and some home health services.
• Part B (medical insurance): This covers doctor visits, outpatient care, preventive services and some medical equipment.
• Part C (Medicare Advantage): Private insurance companies offer these plans as an alternative to Original Medicare (Parts A and B). They may include Part D drug coverage and provide additional benefits such as dental and vision coverage.
• Part D (prescription drug coverage): This helps cover the cost of prescription drugs, with various plans offering different levels of coverage.

Medicare offers essential coverage, but it's not free. Here's a breakdown of average Medicare costs:

• Part A: You may not need to pay a premium for Part A if you or your spouse has paid Medicare taxes for at least 10 years. If you don't qualify for premium-free Part A, the premium is $278 or $505 monthly, depending on how long you or your spouse worked and paid Medicare taxes.⁸
• Part B: The standard monthly premium is $174.70 or higher, depending on your income.⁸
• Part C: The average monthly cost for a Medicare Advantage is $18.50. However, this can vary depending on your location.⁹ Most Medicare Advantage plans don't include Part B, so those costs must be added.
• Part D: The average monthly premium is $55.50. However, you may pay more or less based on where you live.¹⁰

In addition to premiums, Medicare also has deductibles and coinsurance for many services. Factor these into your budget to avoid unexpected financial burdens.

Planning for health care expenses doesn't have to be daunting. With the right approach, you can navigate this part of your retirement journey and help protect the financial future you've worked so hard to build.

• Health care emergency fund: Consider creating a dedicated savings account for unexpected medical expenses. Use this fund to help cover deductibles, co-pays or other out-of-pocket costs without dipping into your retirement savings.
• Health savings accounts: If you're eligible, HSAs offer triple tax advantages—tax-deductible contributions, tax-deferred growth and tax-free withdrawals for qualified medical expenses.
• Medicare supplement insurance (Medigap): This coverage can fill the gaps in Original Medicare, reducing some out-of-pocket expenses.
• Long-term care insurance: LTC insurance (for more information on LTC insurance) can help cover the costs of assisted living, nursing home care or home care if you need long-term care. LTC premiums can increase as you age, so it may be something to consider earlier in your retirement planning.

Thoughtful planning before retirement can help you feel more comfortable and secure for a long life ahead. Understanding retirement health insurance costs and other potential health expenses is important, so unexpected bills don't derail your retirement goals.

A Thrivent financial advisor can provide personalized guidance and support, helping you navigate some of the complexities of Medicare, supplemental insurance and long-term care options. Together, you can develop a plan that helps to protect your financial well-being.