8 Misconceptions About Health Care Costs in Retirement

Identify the triggers that could impact what you'll pay for medical treatment in retirement.

While many Americans are aware that health care expenses will be significant during retirement, it can be tough to decipher exact amounts to set aside for medical treatment. Four out of five workers have not calculated how much they will need for health costs in retirement, according to a 2018 Employee Benefit Research Institute and Greenwald & Associates survey. Among retirees, six out of 10 have not estimated what they will need for medical bills, the survey found.

Understanding the realities of health care costs can make the budgeting process easier. Here are common myths about medical expenses in retirement, as well as the truth behind them.

Medicare will cover drug prescriptions. It may seem at first glance that Medicare will take care of most of your health expenses, but you should know what is not covered to avoid surprises. “The basic plans of a government-run insurance program only cover routine doctor visits and hospitalizations, and prescription drug coverage is an extra fee,” says Joseph Sanginiti, CEO of FamilyWize, which provides pharmacy discount cards. Medicare also generally does not include coverage for eye, dental or hearing care.

Supplements are not worth the money. Since Medicare only provides basic insurance coverage to those who are 65 and older, you'll need to find ways to cover other health-related costs. Adding on other policies to help pay for expenses Medicare doesn’t typically cover could be helpful for your budget. “An outside supplement insurance will pick up the cost of Medicare deductibles and also include more benefits and perks, like discounts on gym memberships,” says Robert Baltzell, president of RLB Financial in Los Angeles.

It’s impossible to save for health care costs. While you can factor in health care costs when you set aside funds for retirement, another strategy with tax benefits involves a health savings account. “The money you put into a HSA account is tax-deferred, and when you withdraw the money for medical expenses, it is tax-free,” Baltzell says. You can also take out funds before retirement if you need them.

Current good health will reduce future expenses. With longer life expectancies, it can be difficult to anticipate what will happen in the coming years or even decades. Even if you’re in great health now, conditions can change – often unexpectedly. “A question that must be answered when planning for retirement is who will care for me when I can no longer care for myself,” says James Colozzo, founder of TakingCareofaParent.com. You may have to suddenly pay for a home health aide to help with a medical condition or contract a landscaping service to tend to your yard.

It will be cheaper to age at home. Avoiding the high costs of assisted living or nursing home care may appear to be a budget saver, but you could end up spending more than planned. "If you decide to stay in your own home, it might have to be retrofitted to help with your long- term care,” Colozzo says. These changes could include a ramp to accommodate a wheelchair at all entrances, wider hallways, special tubs or grab bars. “A lot of small expenses are incurred as we age and over time as we live longer," Colozzo says. "These expenses can add up and take a sizable amount of the retirement budget.”

Taking Social Security at age 65 will help cover medical expenses. While you may want to use your Social Security checks to help pay for treatment, it’s important to look at the big health picture when calculating the time to begin withdrawing benefits. “The bottom line is taking Social Security benefits later means a larger amount of money for a shorter amount of time,” Baltzell says. “Taking the benefits earlier means a small amount for a longer amount of time.”

If you’re in poor health, it may be wise to start taking Social Security right away at age 65. But if you have a spouse in good health, you might opt for a different plan. “Oftentimes, one spouse takes time off work to raise a family, and that leads to a significantly lower Social Security benefit than the other spouse,” Baltzell says. “Delaying Social Security could help the surviving spouse receive a larger benefit.”

There's no need to talk to a financial advisor about health care. If you’re not sure how you will cover medical costs in retirement, sitting down with a financial planner can help you look at long-term financial forecasts and goals. “While the costs can be staggering, some planning can help increase the likelihood that you will in fact have enough wealth to pay for things like doctor’s visits, hospital stays and even long-term care facilities,” says Byron Ellis, a financial planner with United Capital and founder of Doing Money Right in The Woodlands, Texas.

As you lay out a financial plan, consider keeping health care expenses separate from your other financial needs. Then think about specific health-related costs. "Break out your Medicare premiums and office visits," Ellis says. "The more detailed you get, the better prepared you might be.”

Long-term care policies are too expensive. While each person’s situation is unique, having a long-term care policy in place may save you money in the future, when health conditions change. This type of insurance is designed to help pay for costs associated with long-term care. It can also simplify the decision-making process if help is needed. "Having a policy in place can be like having a bucket of money set aside specifically to cover the need at a time that can be difficult and emotionally draining,” Ellis says.

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