Planning for Health Care Costs During Retirement

Ahhh, sitting on the beach and enjoying a relaxing retirement…but wait, before you enjoy that tropical drink – have you properly prepared for the cost of health care?

In my 14 years of helping clients plan for retirement, one of the most challenging aspects I’ve encountered is how to estimate the cost of future health care expenses.



The Health Care Challenge

An annual report from Fidelity Investments estimates that for a 65 year-old couple retiring in 2012, the cost of health care in retirement will be $240,000. That’s a 4% increase from 2011, when the estimate was $230,000.1 Add on the potential need for assisted living or nursing home care and costs can quickly escalate by tens of thousands per year.

Another study, this one from Nationwide Financial, found that people who were near retirement grossly overestimated the percentage of health care costs covered by Medicare.2 According to the Employee Benefit Research Institute, Medicare covers only 51% of health care services.3 Common necessities such as vision exams and hearing aids are likely not covered.

On top of the high and unpredictable costs of care, the actual inflation rate for health care tends to be significantly higher than predicted, which makes anticipating the cost of health care all the more challenging. For instance, many refer to the figures published by the Bureau of Labor Statistics (see below).4

US Inflation Rate Medical Care


So, how does one prepare?

Research Your Options

Research your options well in advance of your last day of work.  The number of employers offering health insurance to retirees is shrinking rapidly. According to the Society for Human Resource Management survey of 600 human resources professionals, only 25% of companies offered health insurance to retirees in 2011.5


The Consolidated Omnibus Budget Reconciliation Act, more commonly known as COBRA, requires some employers to offer terminated employees the right to purchase medical expense insurance coverage at group rates. Coverage due to termination, including due to retirement, can last up to 18 months and covers not only the employee but their eligible spouse and/or dependents if elected. COBRA can be quite costly, but is an option to consider for those retiring before age 65, especially those with health problems that might make obtaining independent health insurance coverage costly to obtain.

Individual Health Insurance

As an alternative to COBRA, if you retire before age 65, research the cost of an individual policy by contacting a trusted health insurance agent or shopping online at sites like

Consider Long-term Care Insurance

Opinions vary, but many say the best age to buy long-term care insurance is in your mid-50s. We all know our health tends to deteriorate as we age, so consider locking in the price at a younger age with possible discounts for good health, for those who qualify.

Almost 40% of those who are over age 65 will be confined to a nursing home for some period of time.6 According to the Genworth 2012 Cost of Care Survey, Americans can expect to pay a median annual rate of $81,030 in 2012, up $15,330 per year, or 4.28% compound annual growth rate, since 2007.7 Medicare pays for only a short stay in a nursing home under very strict conditions and many health insurance policies don’t cover nursing home services at all.

So what does Medicare cover?8

  • Medicare Part A (Hospitalization): Anyone over 65 who is eligible for Social Security benefits will be covered by Part A at no charge. Spouses over 65 who are eligible for Social Security benefits based on their spouse’s earnings are also covered.
  • Medicare Part B (Doctors’ Services): Everyone eligible for the no-cost Part A coverage is also able to purchase Part B coverage by paying a monthly premium.
  • Medicare Part C (Medicare Advantage): A private plan run through Medicare that provides an alternative to Parts A and B. Individuals pay for their own coverage.
  • Medicare Part D (Prescription Drug Plan): Any person who is enrolled in Medicare Parts A or B is eligible for Medicare Part D.
  • Medigap Coverage: For those Medicare beneficiaries who want additional coverage, so-called Medigap insurance is available from many carriers at an additional cost. Medigap plans can offer many benefits not covered by Medicare such as a partial coverage of emergency care charges accrued in a foreign country, at-home assistance with daily living, preventive care, etc.

Health Savings Accounts (HSAs)9

An individual covered under a high deductible health plan can make tax-deductible contributions to health savings accounts. From a tax perspective, the HSA can be a great savings vehicle. In 2013, a high deductible health plan for a family is any plan with an annual deductible of at least $2,500 and a limit on annual expenses of up to $12,500 (annual deductible and expense limits for individual plans are 50% of the family plan amounts). In 2013, one can make a deductible HSA contribution of up to $6,450/year for family coverage ($3,250/year for individuals).


Start Planning Today

With proper planning, you can be ready to face the challenge of keeping up with the cost of health care when you retire so you can relax and enjoy yourself. Just don’t forget the Medigap coverage if that beach you plan to visit is outside of the US!



Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at Wipfli Financial does not provide tax, accounting or legal services. The views expressed by the author are the author’s alone and do not necessarily represent the views of Wipfli Financial or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Wipfli Financial, and Wipfli Financial does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Wipfli Financial of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional.
Jordan Lochner Mills

CFP® | Senior Financial Advisor

Jordan Lochner Mills, CFP®, is a Senior Financial Advisor for Wipfli Financial Advisors in Minneapolis, MN. Jordan focuses on personal financial planning and investment management for individuals and families, and also specializes in planning matters related to women investors and retirees.

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Planning for Health Care Costs During Retirement

time to read: 4 min