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How Will I Pay for Health Care in Retirement?

Updated: Feb 17, 2023

carefree retiree woman  drinking morning coffee on backyard patio in garden with dog
Will you be carefree during your retirement knowing you planned ahead for everything, including health care?

Health care expenses are a major concern for today’s retirees, and those who aren’t planning ahead may find themselves in trouble down the road. With life expectancies rising, today’s retirees can expect to live well into their 80s. Combine longer life spans with rising medical costs — and the fact that health care expenses can skyrocket during a serious illness — and retirees have pressing needs to prepare for. These needs may be for healthcare or help around the house with activities of daily living such as getting dressed, showering, and preparing meals.


According to a recent survey, a couple retiring may need to spend up to 92% of their lifetime Social Security benefits on out-of-pocket health care costs. And for people 65 and older, the average health savings account balance is only $4,911.

Not being adequately prepared for health care expenses could greatly jeopardize your ability to retire comfortably. And those who retire earlier may need even more assets to cover their health care costs before they are eligible for Medicare at age 65. Fortunately, with adequate preparation and personalized strategies, you can help tame health care costs in retirement.

Everyone’s health care needs are different, which is why it’s important to consider factors like your age, health, and family medical history when estimating your potential expenses.

You also should determine whether you are eligible for any employer-sponsored health care once you retire. Any benefits you receive could reduce your out-of-pocket costs and, thus, the amount you need to save for medical expenses. The University of Illinois System, Illinois State University, and other Illinois public universities, offer fully paid health insurance for those who have more than 20 years of service credit and draw a pension or annuitize at least 50% of their retirement saving plan (RSP) account.

In addition, retirement health care plan accounts like a Health Savings Account may be available through your employer and can help provide a tax-advantaged way to save for future health care expenses. A financial advisor can help you determine whether this option is available to you and how it may fit your overall retirement objectives.

For most retirees, Medicare will form the backbone of their health care plan. Medicare has gone through some significant changes due to the Affordable Care Act (ACA), and with a new presidential administration, there’s no way to predict how it may change in the future. A financial advisor can help you stay abreast of details like eligibility, coverage, deductibles, and benefits.

Long-Term Care

It is also important to think about how you will pay for services to help you remain independent if you need help with daily living. Help can be provided for dressing, bathing, preparing meals, using the bathroom, and moving around your home safely. Help with daily living is called long-term care (LTC) and can be provided in your home or an assisted living facility.

According to a 2018 Genworth study, having an in-home health aide for 44 hours each week costs an average of $50,000 per year, and the national average annual cost of a private room in a nursing home topped $100,000.

Generally, Medicare and employer-sponsored insurance do not cover long-term care. An investment advisor or insurance broker can help you consider your current health, family medical history, and other factors, and help you evaluate your options for funding your long-term-care (LTC) needs. Having a plan to fund your long-term care needs can reduce the burden placed on your children and relatives as you age.

If you are thinking about retirement, make sure that you have a plan to fund your long-term care needs as well as your healthcare expenses. These can add up to more than $300,000 for the average couple. You may need a combination of savings and investments, health insurance, and long-term care (LTC) insurance to cover these costs. In the absence of a plan, you may need to spend down your assets to an almost impoverished level to qualify for state programs such as medicaid to fund these costs.

Final thought.

Are you comfortable with your progress towards retirement? Do you have a plan to pay for long term care and health care? If you have a net worth over $2 million and need help from a wealth manager, the Peak Wealth Planning team can assist you.

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About the Author

Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.

Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.


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