Look ahead to the cost of health care in retirement

Planning for retirement is often bittersweet. Dreaming about this new stage of life may be exciting, but anxiety can set in when you consider your health care price tag.

For many, that worry comes from not knowing how much their medical care might cost. According to the 2019 Fidelity Retiree Health Care Cost Estimate, an average couple retiring at 65 may need to save approximately $285,000 (after tax) to cover the cost of health care in retirement. With that number in mind, look at your assets and savings to see if you can cover these upcoming expenses.

If you aren’t quite there, don’t let these numbers paralyze you. Small steps can produce big results and offer financial security in retirement. Here are six ways you can prepare for the cost of health care in retirement and put your mind at rest.

1. Boost your retirement savings

With retirement right around the corner, now is the time to amp up your savings. If possible, increase or max out contributions to your employee savings plan. The IRS also allows adults over the age of 50 to make annual catch-up contributions to certain accounts:

  • 401(k) – You can contribute an extra $6,000 each year.
  • 403(b) – Employees with at least 15 years of service can contribute up to $6,000 annually.
  • IRA – For either a traditional or Roth IRA, you can contribute up to $1,000 more each year.

2. Open a health savings account (HSA)

If your employer offers a health plan that is HSA-eligible, consider enrolling. As part of the plan, you can contribute to a health savings account (HSA) without a tax penalty. Your contributions are made pretax. As a bonus, your savings grow tax-free – and you can withdraw money tax-free as long as it is used for qualified medical expenses.

3. Prepare for Medicare enrollment

The more you understand about Medicare, the more prepared you will be for the cost of health care. Take time to consider all your Medicare options. To protect your hard-earned savings, consider a Medicare Advantage or Medigap plan, which require less out-of-pocket spending than Original Medicare. Consult with a licensed Medicare insurance advisor to review specific plans and their price.

No matter what Medicare plan you choose, be sure to sign up during the initial enrollment period as soon as you are eligible at age 65. The seven-month enrollment period begins three months before your birthday month. Joining during this period will help you avoid financial penalties.

4. Consider your retirement age

The average age of retirement is 62 for most Americans. While three extra years of retirement may sound good, there are some serious drawbacks. During those three years, you won’t be able to contribute to employee-sponsored savings plans. You won’t have steady income. You also won’t be eligible to enroll in Medicare until you are 65. That means you’ll be paying out of pocket for health insurance for three years.

5. Put off Social Security benefits as long as possible

Another reason to put off your retirement is Social Security. The later you claim Social Security, the more you will receive in benefits. For each year you delay filing after the age of 62, your yearly Social Security payment increases by 6 to 8%. Delaying Social Security benefits even for a year or two could pay off over the course of your retirement.

6. Live like you are already retired

An easy way to boost your savings is to cut back on your spending. Start by envisioning your retirement and look for costs to cut. If that vision involves downsizing your home or cooking healthy meals at home, begin making those changes now. Limit the career clothing you buy. Consider purchasing a more economical car. These changes will save you money right away. They will also make the transition into retirement easier.

Let Highmark help with finding your Medicare plan

Schedule a personal consultation with a Highmark Medicare advisor or call 866-320-8359 , 7 days a week, 8 a.m. - 8 p.m. (ET), (TTY users call 711)

This site works best with the latest version of Edge, Firefox, Chrome or Safari.

Highmark Choice Company, Highmark Senior Health Company, and Highmark Senior Solutions Company are Medicare Advantage plans with a Medicare contract. HM Health Insurance Company is a PDP plan with a Medicare contract. Enrollment in Highmark Choice Company, Highmark Senior Health Company, Highmark Senior Solutions Company, and HM Health Insurance Company depends on contract renewal.

Health benefits or health benefit administration may be provided by or through Highmark Blue Cross Blue Shield, Highmark Choice Company, Highmark Senior Health  Company, Highmark Senior Solutions Company, or Highmark Health Insurance Company, all of which are independent licensees of the Blue Cross Blue Shield Association.  All references to “Highmark” in this document are references to the Highmark company that is providing the member’s health benefits or health benefit administration.