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How to Keep Health Care Affordable in Retirement

Mar 01, 2020 4 min read Jennie L. Phipps

Key Takeaways

  • Staying healthy and saving money are the best defenses against skyrocketing health care costs.
  • Understanding Medicare is critical because it will pay many of your bills.
  • Good insurance is still essential for covering both routine and long-term care.


As actress Bette Davis once famously said, “Old age ain't no place for sissies." For most of us, it will take years of financial preparation to ensure that we are able to enjoy retirement. Planning to pay for health care is an important part of that.



For those of us paying attention, every year brings a host of horrifying estimates about the cost of health care in retirement.

For instance, a healthy 65-year-old couple that retired in 2019, would need close to $390,000 Opens in new window to pay for health care costs for the rest of their lives.

The costs are staggering,so even if you've been a dedicated saver your whole life, it pays to have a separate plan for covering the costs of health care in retirement.

Here are some things to think about, including specific ways to reduce health care costs and keep your budget under control.

Stay healthy

If the goal of "staying healthy" seems overly simplistic, here are the three conclusions that have come out of the National Institute of Health's (NIH) 60-year study of healthy aging. Gerontologist and epidemiologist Luigi Ferrucci, M.D., Ph.D., who directs NIH's Baltimore Longitudinal Study on Aging, offers three simple pieces of advice Opens in new window to anyone who wants to live a long — and healthy — life:

  • Starting in midlife, maintain a strong positive attitude toward the fact that you are growing older.
  • Remain physically active. This doesn't mean you have to run marathons; walking will do it.
  • Maintain a healthy weight consistently over time.

Understand what Medicare does and doesn't cover

Once we reach age 65, most of us will rely on Medicare to pay the bulk of our health care expenses, but remember that Medicare isn't free and it doesn't cover everything. There are also a lot of tricky fees, co-pays, and deductibles that Medicare participants are expected to pay for out-of-pocket. Here's what Medicare.gov Opens in new window says it doesn't cover:

  • Long-term care
  • Most dental care, including dentures
  • Eye exams and glasses
  • Hearing aids and exams for fitting them
  • Routine foot care
  • Acupuncture
  • Cosmetic surgery

There is a seven-month window of opportunity to sign up for Medicare Opens in new window. If you miss that window, you'll not only pay more, but you'll also have higher expenses for the program for the rest of your life. So, it is imperative to meet the deadline.

Study your Medicare options

There are two basic flavors of Medicare – traditional Medicare and Medicare Advantage. Each handles payment for expenses like deductibles and co-pays differently. If you select traditional Medicare, you'll probably want to choose a private Medicare supplemental insurance policy to help you pay expenses, because there is no cap on costs. Medicare Advantage plans can be more comprehensive, but they usually limit participants to certain health care networks — just like traditional health insurance does. If you are really sick, you may not be happy with those limits, and you may end up spending more money than you might with what initially appeared to be a low-cost Medicare Advantage plan.

It isn't always easy to switch from Medicare Advantage to traditional Medicare, especially if you have serious health issues, so choose wisely based on your current health and financial situations. The nonprofit Medicare Rights Center offers a basic explanation of differences   PDF Opens in a new window on its website. If you decide to go with traditional Medicare, explore supplemental plans from various insurers with an insurance broker Opens in new window before you lock in. Doing so can save you money in the long-term.

Save early and often

The more money you put aside, the easier it will be to pay health care costs in retirement.

While putting aside money in an IRA or a 401(k) is good, having a health savings account, or HSA, is an extra advantage. HSAs are paired with high-deductible health insurance plans and offer triple savings. The money goes in tax-free, grows tax-free and there are no taxes when you take it out and spend it on health care costs. That isn't true of other tax-advantaged savings plans.

Permanent life insurance also can be a smart addition to your savings strategy. The accumulated cash value of the policy can generally be used for tax-free withdrawals or loans to pay for unexpected health care costs. In general, if you don't pay back the loan, you reduce the death benefit that goes to your heirs.  However if you let your policy lapse with an outstanding loan it becomes immediately taxable.  Different tax rules apply if your policy is a Modified Endowment Contact (MEC).

Have a plan for long-term care

The biggest surprise for many retirees is the onset of debilitating illness. The most economical approach is to plan for how you'd pay for it long before the need arises. If you are a military veteran, you might qualify for Aid and Attendance Opens in new window or other care for disabled and/or low-income vets and their spouses.

Medicaid pays for 60% Opens in new window of the people who are in nursing homes. If you think that might be in your future, an elder care attorney can help you structure your finances in advance to protect you and your spouse from having to impoverish yourself to qualify.

A better solution for anyone with significant assets is insurance such as a traditional long-term care policy. The American Association for Long-Term Care Insurance Opens in new window can help you sort through your options. Possibilities include life insurance that has an associated long-term care policy and annuities with long-term care benefits. The younger you are when you buy any of these, the lower the cost and the more likely it is that you won't have health problems that cause you to be turned down.


What you can do next

The best time to start planning is now. Review your retirement plan to ensure you've accounted for health care expenses now and in the future.




Please consult your tax and legal advisors regarding your particular circumstances.




Jennie L Phipps writes about money and retirement. She lives in a gated Florida condo community with lots of other Boomers, loves power and sailboats but can't get too excited about golf.


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