By Michael Nedreski

Medical expenses in retirement are often one of the largest—and most overlooked—costs you’ll encounter once you retire.

Fidelity estimates that a 65-year-old retiring today will face approximately $165,000 in healthcare costs, and that number doubles for couples, reaching around $330,000.

However, the sooner you begin planning, the more effectively you can manage these costs without depleting your retirement savings.

This guide explores what to expect in terms of medical expenses in retirement, the factors driving those costs, and steps you can take now to create a plan that supports your health and well-being in the years ahead.

Understanding Medical Expenses in Retirement

Medicare premiums are the first thing you might have to budget for. You’ll pay monthly for: 

• Part A: Covers hospital stays, skilled nursing care, and some home health services
• Part B: Covers doctor visits, outpatient care, preventive services, and lab work
• Part D: Helps with prescription drugs, but you’ll need to enroll through a private plan

Then there are out-of-pocket expenses like co-pays, deductibles, and the cost of medications that aren’t fully covered. The problem is that these expenses can add up fast, even if you have decent coverage. And because they’re ongoing, they can quietly reduce your retirement budget over time.

Funding Strategies for Medical Expenses in Retirement

Below are some approaches you need to consider for your healthcare costs. 

Health Savings Accounts

If you’re still working and have a high-deductible health plan, getting a health savings account (HSA) might be a smart move. This is because it allows you to: 

• Save tax-free: Contributions can lower your taxable income, growth typically isn’t taxed, and withdrawals for medical costs are penalty-free.
• Invest for growth: Unlike FSAs (flexible spending accounts), unused HSA funds often roll over yearly. You can let them grow for decades. 
• Cover gaps: After age 65, you can use HSA money tax-free for Medicare premiums (except Part A), dental work, or even long-term care.

If you can afford to pay your current medical expenses out of pocket, letting your HSA grow untouched can be a great way to create a strong healthcare fund for retirement.

Planning for Long-Term Care

Long-term care can wipe out a retirement budget quickly if you’re not prepared.

Total long-term care costs can be significant and vary widely based on the type of care, the setting in which it’s provided, and your location. For instance, the national average for a semi-private room in a nursing home is approximately $100,740 per year.

A few strategies recommended by financial advisors include: 

• Long-term care insurance: Buying before age 60 lowers premiums, and policies often cover home aides, assisted living, or nursing homes.
• Hybrid life insurance: This combines a death benefit with long-term care coverage, meaning there’s no “use it or lose it” risk.
• Self-fund: Save aggressively or use home equity via a reverse mortgage.

Planning ahead, whether through insurance or savings, is one of the best approaches for shielding your retirement from the high cost of long-term care and medical expenses in retirement.

Roth IRAs and Tax-Savvy Withdrawals

Roth IRAs* can be a great way to manage medical expenses in retirement, largely because qualified withdrawals don’t count toward your adjusted gross income. This means you can avoid triggering Medicare premium surcharges and may get the care you need without paying more than you have to.

*A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply. 

Start Today to Plan for Medical Expenses in Retirement

With thoughtful planning, you can manage significant medical expenses in retirement without depleting your savings. With long-term care costs projected to continue rising, delaying preparation is not an option. The earlier you start, the more strategies you’ll have to safeguard your nest egg.

At White Oak Wealth Partners, we design customized, fulfilling retirement plans for your future. Let us guide you in creating a strategy that accounts for healthcare costs while shielding your legacy. To get started, contact us by calling 814-835-4551, emailing MICHAEL.NEDRESKI@LPL.COM, or scheduling an appointment here.

About Michael

Michael Nedreski is managing partner at White Oak Wealth Partners, a specialized financial lifestyle and wealth management firm serving entrepreneurs, business owners, executives, and their families. Mike has 30-plus years of experience in the financial services industry and is committed to serving his clients through holistic financial planning, disciplined investment strategies, and proactive personal service. 

A native of Erie, Pennsylvania, Mike began his career in the financial services industry in 1988. He has earned the Chartered Retirement Planning CounselorSM (CRPC®) designation conferred by College for Financial Planning (188-LPL). Mike is also an active member of the Financial Services Institute (FSI) and Financial Planning Association (FPA).

When not working, Mike enjoys spending time with his wife, Amy, and their children. He volunteers in his community and at his church and his children’s schools. An outdoors enthusiast, Mike loves hunting, fishing, golfing, and spending time near or on the water. He also enjoys working out and watching some of his favorite sports teams, the Pittsburgh Pirates and the Cleveland Browns. To learn more about Michael, connect with him on LinkedIn.