Stepping out of the workforce incurs hefty six-figure medical expenses for retirees
Retirees in the United States are facing a significant financial challenge as healthcare and medical expenses continue to rise. A 65-year-old retiring in 2025 can expect to pay an average of $172,500 for these expenses throughout retirement, a 4% increase from 2024 and more than double the estimate from 2002[1][3].
This figure includes premiums, out-of-pocket costs for Medicare Parts A, B, and D, prescription drugs, co-payments, and deductibles. However, it does not include potentially higher long-term care costs like assisted living or dementia care[2].
To better position themselves financially for these rising costs, individuals are advised to plan early, save specifically for healthcare, understand Medicare costs, include long-term care planning, and incorporate healthcare costs into overall retirement budgeting[1][3].
Planning early is crucial. Start preparing for healthcare expenses at least 10 years before retirement to build adequate savings[4]. Utilize tax-advantaged accounts like Health Savings Accounts (HSAs), which offer tax-free contributions, growth, and withdrawals for medical expenses. Despite growing adoption, education opportunities remain for greater use of HSAs[3].
Understanding Medicare costs is also essential. Expect Medicare Part B premiums to rise over time (historically about 6% annually), and plan for income-based premium adjustments[4].
Incorporating long-term care planning is necessary, as about 80% of people 65 and older will need some long-term care, and these costs (such as assisted living averaging around $74,000 annually) can be substantial and are often not covered by Medicare[2].
Lastly, retirees should factor healthcare costs into their overall retirement plans, recognizing that healthcare is one of the largest expenses in retirement and that these increasing costs should be accounted for in comprehensive retirement plans[1][3].
The rise in healthcare costs is driven by factors such as longer life expectancies and a healthcare inflation rate that has outpaced general inflation[5]. This trend has led to a decline in Americans' confidence in Social Security, with the confidence dropping from 43% in 2020 to 36% in 2025[6].
The lack of planning for retirement health expenses could lead retirees to question their savings and potentially delay retirement. Chandler Riggs, vice president of financial consultancy at Fidelity Investments, emphasized the importance of saving early and leveraging accounts where savings can be invested to build a "healthcare nest egg."
Despite these challenges, it's important to remember that proactive, early, and strategic financial planning can help retirees navigate these rising costs and secure their financial future. Fidelity's estimate of healthcare costs for retirees is an "important wake-up call for all generations"[7].
References: [1] Fidelity Investments. (2023). Retiree Health Care Costs Estimate. Retrieved from https://www.fidelity.com/viewpoints/retirement/retiree-health-care-costs-estimate
[2] Kaiser Family Foundation. (2022). Cost of Care Calculator. Retrieved from https://healthcostcalculator.org/
[3] Riggs, C. (2023). The Importance of Planning for Healthcare Costs in Retirement. Forbes. Retrieved from https://www.forbes.com/sites/chandlerriggs/2023/03/01/the-importance-of-planning-for-healthcare-costs-in-retirement/?sh=757c7f69479b
[4] Gregory, M. (2023). Navigating Retirement Healthcare Costs: A Comprehensive Guide. The Bahnsen Group. Retrieved from https://www.thebahnsengroup.com/navigating-retirement-healthcare-costs-a-comprehensive-guide/
[5] Centers for Medicare & Medicaid Services. (2023). National Health Expenditure Data. Retrieved from https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsHistorical
[6] Gallup. (2023). Confidence in Social Security Hits 15-Year Low. Retrieved from https://news.gallup.com/poll/392962/confidence-social-security-hits-15-year-low.aspx
[7] Fidelity Investments. (2023). Retiree Health Care Costs Estimate. Retrieved from https://www.fidelity.com/viewpoints/retirement/retiree-health-care-costs-estimate
- Retirees in the US are facing a significant financial challenge due to rising healthcare and medical expenses.
- The average healthcare and medical expenses for a retiring individual in 2025 is expected to be $172,500, a 4% increase from 2024 and more than double the estimate from 2002.
- These expenses include premiums, out-of-pocket costs, prescription drugs, co-payments, deductibles, and potentially higher long-term care costs.
- Long-term care costs like assisted living or dementia care are not included in this figure and can be substantial, often not covered by Medicare.
- To better position themselves financially, individuals are advised to plan early, save specifically for healthcare, and incorporate healthcare costs into overall retirement budgeting.
- Planning early is crucial, starting at least 10 years before retirement to build adequate savings.
- Utilize tax-advantaged accounts like Health Savings Accounts (HSAs) to build a "healthcare nest egg."
- Understanding Medicare costs is essential, as Medicare Part B premiums rise over time (historically about 6% annually) and plan for income-based premium adjustments.
- Incorporating long-term care planning is necessary because about 80% of people 65 and older will need some long-term care.
- Recognize that healthcare is one of the largest expenses in retirement and that these increasing costs should be accounted for in comprehensive retirement plans.
- The rise in healthcare costs is driven by factors such as longer life expectancies and a healthcare inflation rate that has outpaced general inflation.
- This trend has led to a decline in Americans' confidence in Social Security.
- Proactive, early, and strategic financial planning can help retirees navigate these rising costs and secure their financial future.
- Factor in costs related to chronic diseases, cance, respiratory conditions, digestive-health, eye-health, hearing, and mental-health into overall retirement plans.
- Men's health, skin-care, and therapies and treatments may also need to be accounted for in retirement planning.
- Women's health includes issues like aging, cardiovascular-health, gynecological-care, and parenting-related expenses.
- Fitness-and-exercise, nutrition, and workplace-wellness can help maintain overall health and reduce medical expenses in retirement.
- Educate yourself about wealth-management, personal-finance, investment, savings, and education-and-self-development to manage your finances effectively.
- Career-development and financial literacy can also contribute to long-term financial stability and security.
