how much is healthcare in retirement

How Much Is Healthcare In Retirement?

An often overlooked expense when saving for retirement is the cost of healthcare. In deciding when to retire, many people average out their yearly salaries and decide how much they will need to sustain their current lifestyle throughout retirement. Unfortunately, health care is usually much more expensive after you leave an employer-sponsored plan.

According to a recent article by CNBC, a married couple can expect to spend around $285,000 in retirement on healthcare-related costs.¹ This is a significant amount considering the average retirement savings for Americans age 55-64 is only $374,000.²

At What Age Do You Plan To Retire?

at what age do you plan to retire

Fidelity Investments came up with this average after deciding upon a retirement age of 65. Many of us in the personal finance community are aiming to retire at an age much younger than that. With that perspective, most of us will spend even more on healthcare in the future.

The suggested retirement age of 65 assumes you will be able to move right into a Medicare plan. However, you may be surprised to learn that Medicare doesn’t cover much of what your employer-sponsored health plan may have covered.

Medicare Does Not Cover Everything

For instance, a basic Medicare plan does not cover³:

  • Hearing Aids
  • Routine/Preventative Foot Care
  • Most Dental Care
  • Eye Exams
  • Dentures
  • Long-Term Care

Do you see how many items most of us will need but are not covered? This is where the costs start to rack up. The silver lining to this dismal news is the average monthly premiums are relatively inexpensive for the things Medicare actually does cover. The average monthly premium in 2019 is $135.50.

Will COBRA Be Enough?

will cobra be enough

For those of us who would like to retire before the age of 65, COBRA may be an option. However, COBRA only allows you to stay on your employers sponsored healthcare plan for a year and a half. In addition to the time constraint, you are required to pay the entire premium which can be expensive. If I were to pay the full premium on my healthcare plan, I would be paying about six (6) times the monthly amount I currently pay.

COBRA may offer better coverage for you when you leave retirement, but the monthly premiums alone may be out of reach for most people.

The Affordable Care Act

I logged onto the Healthcare Exchange and ran a retirement scenario at age 55. If I made the average American income of $56,000 a year after retirement, I would have a minimum monthly payment of $132.79 a month with a deductible of $15,800.

affordable healthcare, obama care

The Second Scenario, A $10,000 Raise

Let’s assume you saved more than most people and in retirement, you are able to draw an extra $10,000 from your investments. A quick check of the Healthcare Exchange for insurance coverage at 55 years old and married making $66,000 a year yielded the following results:

affordable health care, obama care

You read that right. If you make $66,000 a year at age 55, you can expect to pay a minimum of $1,160.38 a month with a $15,800 deductible. With either plan, do you have an extra $15,000 laying around in the event you need medical care?

Failing To Plan Means You’re Planning To Fail

The above scenarios are not meant to take the wind out of your sails. If you plan on working until you are 65, you may have an easier time in retirement covering your health care costs than if you retire early. However, even with a retirement directly into Medicare, you may still spend $285,000 over your lifetime in healthcare related costs.

In order to live a happy and healthy retirement, we need to start saving and investing as soon as we can. One great strategy is to invest in a Health Savings Account (HSA). I wrote an article about the tax benefits of Health Savings Accounts in my related post: Health Savings Account – The Truth About HSAs.

Health Savings Accounts have the ability to grow interest-free in your working years and allow for pre-tax dollars to be invested. Who would have though Health Savings Accounts were better than ROTH IRAS!

Plan For Retirement Today – Even If You Don’t Want To

The fact that you are reading this article shows you are at least “thinking” about retirement. I encourage you to continue learning and transition from thinking to actually planning for retirement.

If you are living paycheck to paycheck now, retirement may seem impossible. In your current situation, retirement may actually be impossible. Your paycheck to paycheck lifestyle doesn’t need to be the status quo. We all need a plan to be successful in life and your current plan may need some tweaking.

If you have yet to start a budget, please head over to my related article: It’s Time To Budget Like A Boss! In that article, I have free budget resources for you to get you on track and headed in the right direction. If you start to take control of your money at this point in your life, you will be better off tomorrow than you were today. Tell your money where to go and make it behave.

Debt Does Not Define You

debt does not define you

If you have mounting debt and you seem stuck, I assure you there is a way out of this mess. I hope with everything in me that you can see there is a light above you if you stop digging this hole you are in. Climbing out of debt can be difficult but it certainly is possible. It requires you to put the shovel down and reach out for help.

I wrote an article on how to take control of your money and start paying down debt. You can find it here.

Use Your Time Wisely

Time has an amazing way of taking forever while flying by at the same time. Think back to high school. For me, it feels like not too long ago I was playing sports and cheering our fight song. As I sit here today, it’s hard to believe I graduated 18 years ago. (No old comments!)

That is the thing with time, if you start something today and keep with it, you will reach your goals much faster than you actually thought possible. You will look back on today and think it was just yesterday you made the decision to get out of debt and plan for retirement. In reality, it may be years down the road and you will stand there, debt free, looking back on your hopeless past.

Give yourself credit – you are here learning. Make the most of your time and do something great!


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-Ryan

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9 thoughts on “How Much Is Healthcare In Retirement?”

  1. Abigail @ipickuppennies.net

    I was on the healthcare exchange and even at 40, I was paying $600. Granted it was for a higher-end, low-deductible plan. (I have a lot of health expenses, so it makes sense for me to get something other than bronze.) So I can’t imagine how bad it’ll be if I have to go back on it before 65. I’m praying I don’t have to.

    By the way, for dental care, there are some Medicare plans that have dental add-ons. Other times, you just want to look into a dental discount program, especially if you need dentures since those can get pricey.

    1. Thank you for your personal insight Abigail! It’s ridiculous how expensive it is if you dont have an employer sponsored plan. Thank you for that info on the dental coverage!

  2. This is an excellent post. I couldn’t summon the energy to write one this awesome but this would be useful to my audience. Any chance I can syndicate this? Also do you have a pinterest pin for this. Stay awesome my friend.

  3. I can give you the real numbers. My wife and I pay over $1300 per month for a catastrophic only coverage plan. That’s over $16,000 per year for a plan that covers absolutely zero of my medical expenses until I hit a combined deductible of $13,000 in one year! Zero coverage of prescriptions, zero coverage of doctor appointments, period. Luckily $16k is affordable for us, but it isn’t for most people.

    1. Steveark, thank you so much for your personal insight! People just don’t seem to realize how expensive health insurance is until they are faced with the bill. I’m glad you are able to afford your coverage, but WOW! Thank you for reading my friend!

  4. I believe healthcare will be one of the biggest hurdles I need to jump over when retiring early. Thank you for sharing the struggles involved and options available. Definitely helps me in my pursuit of solutions!

    1. You are very welcome and I agree. Other FIRE authors say they don’t need health care because they work out and bike to work.
      Unfortunately, you never know if/when you will get cancer or need some other significant treatment. Healthcare is absolutely necessary and extremely expensive now…

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