Health Care in Retirement Estimated to Cost $315,000

By Mitchell J. Smilowitz, CPA

Fidelity Investments recently released its annual estimate on what retirees can expect to pay for health care in retirement. According to Fidelity’s 2022 Retiree Health Care Cost Estimate, a couple turning 65 in 2022 can expect to pay $315,000 out-of-pocket on health care during retirement. For single retirees, the estimate is $150,000 for men and $165,000 for women.

Fidelity’s estimate assumes that both spouses are enrolled in Medicare Part A, Part B and Part D. Medicare Part A covers hospital costs; Part B covers doctor visits and services such as physical therapy and lab tests; and Part D covers prescription drugs.

The assessment also finds that the potential cost of health care in retirement is often underestimated. One reason that medical expenses are higher than many people expect is that Medicare does not cover dental care, vision care, hearing aids and long-term care. (Medicare Advantage plans, also known as Medicare Part C, may cover some of these expenses.)

Health care costs are only expected to increase due to new treatments, the use of expensive technologies, other improvements in health care, and the effects of inflation over a long retirement.

There are four primary ways to prepare for health care expenses in retirement.

1. Increase the Contribution to Your JRB Retirement Account

Contributing more to your JRB retirement account allows you to reduce your taxes today while giving you the flexibility of using your savings to pay health care expenses if and when they occur. For 2022, the salary contribution limit for your JRB account is $20,500. Those age 50+ can contribute an additional $6,500 for a total of $27,000. Maximizing your retirement savings offers the greatest flexibility for meeting your retirement needs.

A good time to consider increasing your contribution is when you receive a salary increase. If your salary goes up by 3%, consider increasing the contribution to your JRB account by 1%-2% of your salary. Over the course of the year, you probably won’t even notice the difference.

2. Build an Emergency Fund

Emergency funds are generally established to pay for 3-6 months of expenses. Because they are designed for payment of unexpected costs, emergency funds are generally kept in a savings or money market account that you can access quickly.

3. Contribute to a Health Savings Account

If your employer offers one, consider contributing to a Health Savings Account (HSA). An HSA allows you to set aside funds on a pre-tax basis to pay for qualified medical expenses such as deductibles, copayments and coinsurance. An HSA cannot be used to pay premiums.

You must have a High Deductible Health Plan (HDHP) in order to contribute to an HSA. For 2022, the minimum deductible for an HDHP is $1,400 for an individual and $2,800 for a family. The 2022 contribution limits for an HSA are $3,650 for an individual and $7,300 for a family. Depending on your use of health services, Medicare beneficiaries may meet these deductibles; check with your tax advisor to see if an HSA makes sense for you.

4. Consider Purchasing Long-Term Care Insurance

Medicare does not cover long-term care so it may make sense to purchase insurance to cover a stay in a facility. Please note that long-term care insurance premiums increase rapidly the later in life you purchase a policy.

Retirees can expect health care costs to make up a large and unpredictable component of their expenses – even with Medicare coverage. Preparing for these expenses is an important part of your retirement planning. Are you on track? Send us an email or call us at 888-JRB-FREE (572-3733) for a complimentary consultation.

July 2022