Settling into retirement is meant to be a happy time, particularly when you have saved, planned and can live comfortably. Unexpected health-related expenses, however, can get in the way of your bliss.
“When people think about saving for retirement, they rarely think about saving for medical costs,” notes Whitney Stidom, vice president of Medicare operations with eHealth Inc., a health insurance broker and online resource provider headquartered in Santa Clara, California.
Health needs can vary from person to person and change over time, but here are common medical expenses in retirement that you should anticipate:
— Health care insurance premiums.
— Home health care costs.
— Assisted living costs.
— Nursing home costs.
— Dental expenses.
— Vision costs.
— Prescription drug costs.
1. Health Care Insurance Premiums
For most people, eligibility for Medicare starts at age 65. If you retire before then, your biggest expense will be health insurance premiums for private coverage.
If your employer provided health insurance coverage during your working years, you might be able to keep your coverage through the company’s plan. The Consolidated Omnibus Budget Reconciliation Act, or COBRA for short, is a law that allows workers and their families to continue their health benefits through a former employer’s group health insurance plan for a limited time after their employment ends. Typically, COBRA continuation coverage lasts 18 to 36 months after leaving the workplace. However, COBRA coverage is often expensive, and companies with 20 or fewer employees legally may not need to follow COBRA guidelines.
Short-term insurance is another health coverage option. This is a bridge, or temporary, plan that has a maximum policy period of 364 days. At the end of that time, you may apply for a new term of insurance. You can use this until you are eligible for Medicare, or you can take a job that includes health insurance benefits.
Once you qualify for Medicare, you will still need to pay for premiums, deductibles and expenses that are not covered by your plan.
[SEE: Things You Should Know About Medicare.]
2. Home Health Care Costs
As you age, your health care needs — and associated costs — may change.
“Home health care, long-term care and related expenses are typically the largest costs people experience, especially toward the end of their life,” says Tyler End, CEO and cofounder of Retirable, a retirement advisory company based in New York City.
For example, if you have a health situation that requires a higher level of monitoring — such asstroke rehabilitation or a recent joint replacement — you might have to pay for home health care. This option usually involves a professional caregiver who provides health services — such as injections, therapy and wound care — in the comfort and convenience of a patient’s own home.
Using HSAs for medical expenses, including home health care
If you opened and contributed to a health savings accountduring your working years, you may be able to use those funds in retirement to cover home health care expenses and Medicare Part A (inpatient care), Part B (outpatient care) and Part D (prescription drug) premiums.
If you’re pre-retirement age, enrolling in a health insurance plan eligible for use with an HSA can be a smart move to make, Stidom notes.
“Many employers offer them, and some will contribute money into your HSA on a pre-tax basis each month, which you can use to pay for a whole host of qualifying medical expenses now or save for later life, like during retirement,” she explains.
In 2024, for example, you can save up to $4,150 for an individual or $8,300 for a family tax-free in your HSA.
“People ages 55 and older can contribute an additional $1,000 on top of that,” Stidom adds. “These dollars can really add up over several years, and they’re yours to keep forever.”
Once you’ve enrolled in Medicare, though, you can no longer contribute toward an HSA. However, you can still use the money for medical expenses, such as drug and office visit copays, deductibles, and even contracting for services related to housekeeping, cleaning, running errands and other activities of daily living.
To help you budget, the average annual salary for home health aides is $75,504, or $33 per hour, according to Genworth Financial’s 2023 Cost of Care Survey. However, costs may vary depending on where you live and what services you need.
[READ: Assisted Living vs. Home Care: What’s the Difference?]
3. Assisted Living Costs
If you decide to move into an assisted living facility, the related expenses will typically be paid out of your own savings, including your retirement and investment accounts.
According to Genworth Financial’s Cost of Care Survey, the national median cost of an assisted living community in 2023 was $5,350 per month, or $64,200 annually.
Before you make a commitment to an assisted living facility, find out what specific services and care it provides, as this can vary greatly from state to state and facility to facility. While these communities have evolved to include more medical services over the years, most still have limited clinical care, physician presence and registered nurses on-site.
[Read: How to Finance Assisted Living]
4. Nursing Home Costs
A nursing home tends to provide higher levels of care than assisted living, which boosts the price.
For instance, a private room in a nursing home costs an average of $9,733 per month, according to Genworth Financial. Semiprivate rooms, which go for an average of $8,669 per month, are slightly more affordable. You might pay for these stays with your own funds or through long-term care insurance.
There are many different long-term care plans to cover expenses. For instance, some life insurance and annuity policies have riders where you can apply the death benefit toward long-term care expenses.
5. Dental Expenses
Regular dental visits fall outside the scope of basic Medicare plans.
“(Dental costs) can add up as one ages, particularly spending on crowns, root canals, dentures and tooth replacements,” says Michael Botta, cofounder of Sesame, a health care marketplace based in New York City.
Medicare Advantage plans, which are offered through Medicare-approved private insurance companies, may include coverage for dental procedures.
6. Vision Costs
Medicare doesn’t cover routine eye exams, eyewear or contact lenses. However, it will cover expenses related to some eye diseases and procedures. For example, Medicare Part B covers an annual eye exam for diabetic retinopathy and will cover the diagnosis and treatment of cataracts when deemed medically necessary.
Some Medicare Advantage plans may help with routine vision care.
7. Prescription Drug Costs
Prescription drugs can come with high sticker prices, Botta says. However, you have some options that can help you save on these costs, including certain discount and coupon tools, such as GoodRx and SingleCare. Discount cards for prescriptions — America’s Pharmacy, Choice Drug Card, GoodRx Gold and ValpakRx — might provide additional ways to save.
It’s also best to think ahead when selecting a prescription drug insurance plan, such as Medicare Part D or Medicare Advantage plans.
“Choose a plan that covers the medicines you take currently, and consider what your future needs might be. If the plan you have doesn’t cover a particular medication, talk to your physician about a generic or alternative drug that might be available and covered,” advises Dr. Charles Crecelius, a long-term care physician and post-acute care medical director at BJC Medical Group in St. Louis.
Stidom recommends working with a licensed agent online or in your area to find the best Medicare plan match for your specific needs and budget.
Bottom Line
Planning ahead is the best way to prepare for the sometimes high costs associated with aging.
“In general, you’re never healthier than you are right now, so it’s a great time to figure this out,” End points out.
He recommends creating a retirement income plan “that balances your lifestyle spending in the short-term and includes increasing costs for health care (which are growing faster than inflation) and accounts for long-term care costs later in life.”
In addition to working with an expert to help you select the right Medicare plan for your situation, you should protect yourself from long-term care or home health care expenses with insurance and proper estate planning. You can also protect your assets in a trust.
“(This) is an important move if you do not have the means to self-insure your long-term care costs or have other goals in mind, such as leaving an inheritance,” End says.
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The Highest Medical Costs to Expect in Retirement originally appeared on usnews.com
Update 03/13/24: This story was previously published at an earlier date and has been updated with new information.
