The answers to a few key questions about your plans and your health can help you understand health care costs in retirement.
A budget is just as important in your retirement years as it is when you鈥檙e working. One key category that鈥檚 necessary but hard to estimate: health care costs in retirement.
While some expenses such as transportation or clothing may shrink in retirement, health care expenses often do the opposite. 鈥淗ealth care becomes a higher proportion of your budget at the same time you have less income you鈥檙e living on,鈥 says Sri Reddy, senior vice president of 海角社区 and Income Solutions at Principal庐.
These questions can help you find a retirement health care budget solution that works for you.
What current health care coverage do you rely on, and how do you budget for it?
Health care insurance plans don鈥檛 cover the same things at the same level. Your current health status鈥攖he cost of eyeglasses and prescriptions, for example鈥攈as helped drive your current budget. It can be a guide as you create a retirement budget that includes health care costs.
What supplemental Medicare coverage meets your current health care needs?
Medicare is just like health care plans: Some expenses are covered; some aren鈥檛. For example, in most states Medicare Part A covers inpatient care in a hospital
As you review supplemental Medicare coverage, look closely at the fine print. In Part D, for example, drugs are tiered into categories of more or less expensive.
| Some things Medicare Part A covers | Some things Medicare Part A doesn鈥檛 cover |
|---|---|
| Inpatient hospital care | Long-term care |
| Skilled nursing facility care | Most dental care |
| Nursing home care (with exceptions) | Eye exams |
| Hospice care | Dentures |
| Home health care | Hearing aids |
Of note: Planning to travel outside the United States during retirement? Medicare doesn鈥檛 provide coverage outside the U.S., so you鈥檒l need other care in case of an unexpected illness or accident.
What is your modified gross income in retirement?
Medicare costs鈥痜or coverage vary based on your modified gross income and typically jump from year-to-year. For example, in 2023 the lowest Part B premium was $164.90; in 2024 it jumped to $174.70 a month.
Your financial planner and tax advisor can work through different scenarios and strategies, such as bunching income in a single year, that may help you save on your health care costs in retirement.
How will you plan for inflation?
Inflation is simply how expensive goods and services are over time. Health care costs, unfortunately, typically outpace the rate of inflation.
Here鈥檚 an example: The long-term rate of health care inflation has averaged just over 5%. That means the same $100 you budget today for health care costs may only be worth $95 in a year. Your financial professional can help you assess your budget and planning to account for health care inflation.
Who else in your family will be retired?
Deductibles in supplemental plans for Medicare are per person, not per family. That means you鈥檒l have to also budget for your spouse鈥檚 or partner鈥檚 needs and care, too.
How will age affect your health and your health care retirement costs?
As we get older, our vision and hearing declines. Our bones often become more brittle, leading to mobility issues. Disease frequency tends to increase too.
Your age and those health care needs may have a different kind of retirement budget impact, too. For example, mobility and driving issues often make it difficult for older people to get behind the wheel. How will you get to and from appointments? Medicare generally doesn鈥檛 cover long-term care facility stays, says Reddy, 鈥渟o how you budget for it matters. The type of care and the state you鈥檙e in, and what they provide, matters. The expensive things are all the things you need but don鈥檛 think about.鈥
What鈥檚 next?
Trying to save more now鈥攅ven if retirement and retirement health care costs are decades away?鈥痶o check (and increase) your savings rate. Don鈥檛 have an employer-sponsored retirement account or want to save even more? We can help you鈥set up your retirement savings with an individual retirement account (IRA). Ready to learn more ways you can build your financial foundation?鈥Our learning library can help.
