Post-65 Budgeting: Managing Healthcare Costs in Retirement

Whether you’re still in the workforce or close to retirement, understanding and planning for healthcare costs is essential. According to a recent study, the average 65-year-old retiree can expect to spend more than $300,000 on health care costs over their lifetime, with 60 percent of those expenses occurring after age 65.

This is a significant sum, and one that many people are not prepared for. In fact, a recent RBC Wealth Management survey found that 67 percent of its clients listed funding their own healthcare in retirement as a primary concern.

A key to managing these unforeseen costs is having a plan Check the details in place, which begins with setting up a budget. A comprehensive budget identifies both predictable, fixed expenses, like insurance premiums, and unknown medical costs that may be needed down the road. It also helps ensure that individuals can preserve their savings and investments for other uses during retirement.

While no two retirees’ budgets will look exactly alike, most can expect to have a large component of recurring expenses, like housing, transportation, and food that can be accurately estimated and budgeted for. They can also expect to have a small component of unpredictable, variable expenses that may require substantial amounts of money in the short term, such as out-of-pocket medical costs or prescription drug purchases.

The type of coverage that you have will make a huge difference in the total cost of your health care. For example, a high-deductible health insurance plan will likely have lower premiums, but it could increase your out-of-pocket costs. The geographic location where you live will have a significant impact as well, with urban areas typically having higher healthcare costs than rural ones. Your personal medical history will have an impact as well, with the presence of pre-existing conditions likely to increase your overall costs.

Another factor is that healthcare costs are rising at a much faster rate than general inflation, and that trend is expected to continue. The good news is that there are a variety of strategies to help manage these increased costs in retirement, including focusing on preventive care and identifying the best medication options for chronic health conditions.

It’s also important to remember that while Medicare will cover a substantial portion of your health care costs in retirement, it will not cover everything. It’s important to understand the ins and outs of Medicare before you reach age 65, and to enroll during your seven-month initial enrollment period, which begins three months before, the month of, and the three months following your birthday. If you miss this window, your monthly Part B premiums will be permanently increased by 10% for every 12 months that you go without coverage. Likewise, missing the window for enrolling in Medicare Part D will result in a permanent 1% per-month penalty for each month you wait to sign up.