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Helping Clients Manage Health Care Costs in Retirement

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What You Need to Know

  • A 65-year old couple can expect to spend $300,000 on health care costs in retirement, not including long-term care.
  • HSAs can provide an excellent way to save for these costs.
  • Clients need your help in planning for this significant expense before reaching retirement age.

In its latest survey, Fidelity Investments pegged the cost of health care in retirement at $300,000 for a hypothetical couple aged 65. It estimates the cost for a single woman at $157,000 and for a man at $143,000. The $300,000 represents an 88% increase from Fidelity’s first survey in 2002 and an increase of 30% over the past 10 years. 

Health care costs include things like medical care and prescription drugs. They can also include long-term care needs, which are not part of the Fidelity number. 

Health care costs are one of the largest expenses your clients will face in retirement. Helping your clients manage these costs is an important part of the retirement planning that you do for them. 

Before Retirement: Use HSAs 

If your clients have access to a health savings account (HSA) while working, this can be an excellent way to build tax-free savings for retirement health care costs. HSAs are available with high-deductible health insurance plans. The beauty of HSAs as a retirement savings vehicle is that the money contributed can be carried over from year to year if not used to reimburse current medical expenses. Contributions are made pre-tax, providing a current-year tax benefit as well. 

This money can then be used in retirement to cover Medicare premiums, deductibles and a whole range of qualified medical expenses, including items that may not be covered by Medicare. Withdrawals for qualified expenses remain tax-free. Any money not used for medical expenses can be withdrawn just like an IRA in retirement, though taxes will be due. 

Many HSAs offer investment options that can help grow these additional retirement savings. Once your clients are on Medicare, no further HSA contributions are allowed. 

Early Retirement: Fill the Medicare Gap 

For clients retiring prior to Medicare eligibility at age 65, they will need to plan for how they will cover their health care costs in this “gap” period. In today’s world, all too often clients are forced into early retirement through downsizing at their company. 

In the case of a client being downsized, some options for coverage may include: 

  • COBRA coverage through their former employer. While this is an expensive option, it can help ensure continued coverage either until they are Medicare eligible or until they find a better coverage option.
  • Some employers might offer continued medical coverage to employees as an incentive to take a buyout offer. 
  • If their spouse is employed, the client can obtain coverage through their spouse’s employer.
  • Coverage through their state’s health insurance marketplace.

For clients who are planning an early exit from the corporate world, be sure to include health care coverage in the planning work you do for them surrounding this life change. 


Medicare is the core of most retirees’ health care coverage. If they are receiving Social Security at 65, they will automatically be enrolled. Otherwise there is an initial enrollment period around their 65th birthday in which they must initially enroll to avoid penalties. 

If they are still employed and covered by a health insurance plan through their employer, they can delay enrolling if the company has 20 or more employees. Smaller employers may require employees to enroll in Medicare at age 65, with this coverage being primary. 

It’s important to ensure that your clients understand what Medicare covers and doesn’t cover, and that they plan accordingly. This might entail finding a Medicare Advantage or supplement plan or other options. If this is not an area of expertise for you, it’s important that you have a trusted professional to refer them to for help in this area. 

Long-Term Care 

In its 2020 survey, Genworth cited an average monthly cost of $8,821 of a private room in a nursing home, with homemaker services in-home at $4,481 at the low end of a range of services. This is a substantial cost for clients who may need this type of care at some point. 

Clients need your help planning not only for the cost of care for themselves, but also in planning for the financial needs of a caregiver spouse if they are married. 

Planning might include the purchase of long-term care insurance or planning for the use of a portion of their retirement savings to fund the cost of any long-term care needs. Shopping for long-term care insurance may get a bit more complex due to the impact on the industry and some carriers of COVID-19

Helping clients plan for health care costs in retirement is a critical part of their retirement planning and an area where they will need your expertise and guidance. Be sure you are prepared to provide this guidance either through your firm or through a trusted partner.

Roger Wohlner is a financial writer with over 20 years of industry experience as a financial advisor.


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