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Navigating Health Expense Risks in Retirement: A Comprehensive Guide Thumbnail

Navigating Health Expense Risks in Retirement: A Comprehensive Guide

Navigating Health Expense Risks in Retirement: A Comprehensive Guide


A survey of over 2000 current and prospective retirees,  indicated that their major concern in retirement is dealing with health care expenses. In fact, according to a recent report from RBC Wealth Management, the projected lifetime cost of care for a healthy 65-year-old is $404,253—and that doesn’t factor in long-term care costs, which could be $100,000 a year or more for each person.  The same report points out that overall health care expenses are climbing.   Even when Medicare coverage is factored in, by age 75 health care expenditures will account for 15 percent of overall retirement spending, which is double what one would have spent during their working life. 

Understanding the Landscape 

Retirement brings about a significant shift in how individuals manage their finances. With the cessation of regular income streams from employment, retirees must rely on savings, pensions, and investments to sustain their lifestyle. However, amidst the idyllic visions of retirement lie the harsh realities of aging and its associated health concerns. 

Health expense risks encompass a wide array of potential costs, including medical treatment, long-term care, prescription drugs, and health insurance premiums. As individuals age, the likelihood of encountering health issues increases, leading to a surge in healthcare expenditures. Moreover, the unpredictability of health-related emergencies further exacerbates the financial uncertainty faced by retirees. 

Identifying Key Challenges 

One of the primary challenges retirees encounter is the escalating cost of healthcare services. Medical inflation consistently outpaces general inflation, placing additional strain on retirement budgets. Moreover, the complexity of healthcare systems and insurance policies often leaves retirees grappling with coverage gaps and out-of-pocket expenses. 

Long-term care presents another formidable challenge, particularly for retirees requiring assistance with daily activities due to age-related ailments or disabilities. The exorbitant costs associated with nursing homes, assisted living facilities, or in-home care services can quickly deplete savings and erode financial security. 

Furthermore, retirees must contend with the intricate interplay between healthcare and taxation. Medicare premiums, out-of-pocket medical expenses, and withdrawals from retirement accounts can have significant tax implications, necessitating careful planning to minimize tax burdens. 

Navigating Strategies 

Despite the daunting nature of health expense risks, retirees can employ various strategies to mitigate their impact and safeguard their financial well-being. 

1. Health Savings Accounts (HSAs):  HSAs offer a tax-advantaged way to save for future healthcare expenses. Contributions to HSAs are tax-deductible, and withdrawals for qualified medical expenses are tax-free. Retirees can leverage HSAs to cover healthcare costs in retirement while enjoying potential investment growth.  It is the only account available that offers a tax deduction for contributions AND allows for tax-free withdrawals for qualified expenses.  It is truly the most tax-favored account that one can contribute to in the United States. 

2. Long-Term Care Insurance: Long-term care insurance provides coverage for expenses associated with nursing home care, assisted living, and in-home care services. By purchasing long-term care insurance early in retirement, individuals can protect their assets from the potentially devastating financial consequences of long-term care needs. Several Long-Term Care insurers have recently gone to current policy holders and raised their premiums, reduced their benefits, or both.  It is important to consult with a qualified professional to help you select the right type of plan and the right insurer to make sure the benefits are available when you need them.  

3. Medicare Supplement Insurance (Medigap): Medigap policies supplement Medicare coverage by filling in the gaps and covering out-of-pocket expenses such as deductibles, copayments, and coinsurance. Retirees can explore different Medigap plans to find comprehensive coverage that aligns with their healthcare needs and budget. 

4. Healthcare Cost Estimation: Proactively estimating healthcare costs and incorporating them into retirement financial plans can help retirees avoid unpleasant surprises. By understanding potential expenses, retirees can allocate resources more effectively and make informed decisions regarding healthcare and insurance coverage. 

5. Tax-Efficient Withdrawal Strategies: Implementing tax-efficient withdrawal strategies can minimize the tax impact of healthcare expenses in retirement. Retirees can strategically withdraw funds from various retirement accounts, such as traditional IRAs, Roth IRAs, and taxable brokerage accounts, taking into account the tax treatment of different types of income. 

Conclusion: Preparation is the key to tranquility in retirement

 Navigating health expense risks in retirement requires foresight, planning, and a comprehensive understanding of the challenges ahead. By identifying key challenges, implementing effective strategies, and staying proactive, retirees can mitigate the financial impact of healthcare expenses and enjoy a more secure and fulfilling retirement journey. Remember, preparation is the key to tranquility in retirement, and addressing health expense risks is an integral part of that preparation.


Antwone Harris, MBA, CFP®, is Chief  Planning Strategist at Platinum Bridge Wealth Strategies in Washington, D.C. His firm focuses on retirement income planning for professionals in or near retirement. Prior to launching Platinum Bridge Wealth Strategies in 2017, he spent 12 years as a VP - Senior Financial Consultant with Charles Schwab Inc. Investment advisory services offered through Osaic Advisory Services, LLC (Osaic Advisory), a registered investment advisor. Osaic Advisory is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Advisory.