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How to Prepare for Medical Expenses in Retirement

You’ve been planning and saving for retirement, prepping to enjoy slower days when rush hour is no longer part of your life. You’re looking forward to enjoying the fruit of your labor . . . and a grandkid or six.

But as you map out your long-term retirement savings goals, don’t forget one crucial element: medical expenses. A couple retiring at age 65 could need up to $325,000 in savings for health care costs during their retirement.1

You don’t want to dip into your hard-earned nest egg to pay for medical expenses, so how can you cover these costs? Examining all your choices is a long and detailed process, but here are some options to get you started.

What Medicare Covers (and What It Doesn’t)

Medicare is the government-provided health insurance program for people age 65 and older. If you’re eligible to receive Social Security retirement benefits, you’re also eligible for Medicare coverage beginning in the month you turn age 65.

Most people believe Medicare will cover all their medical expenses in retirement. While Medicare can give you affordable health insurance coverage for doctor visits, medication and hospitalization once you blow the candles out on your 65th birthday cake, it doesn’t cover the cost of deductibles, copays or long-term care.

What does that look like in dollars and cents? A couple retiring in 2020 has a 50% chance that their medical expenses will exceed $168,000 for premiums, deductibles, copayments and prescription drugs—even with Medicare.2

Health Savings Accounts Can Fill the Gaps

If you have a high-deductible health plan before you enroll in Medicare, you can make tax-free contributions to a Health Savings Account (HSA). HSAs allow you to save and even invest money to use to pay for medical expenses. In 2021, you can contribute up to $3,600 for an individual or $7,200 for a family.3 After age 55, you can make an additional contribution of $1,000 each year.4 In 2022, limits move up to $3,650 and $7,300.5 The money in your HSA grows tax-free and you can spend it tax-free on qualified medical expenses. Pretty good deal, right?

Once you have Medicare, you can no longer contribute to your HSA, but you can use the money in your existing HSA to pay for qualified medical expenses not covered by Medicare like:

  • Dental treatment
  • Doctor’s office visits and copays
  • Surgery (except cosmetic surgery)
  • Eye exams and eyeglasses
  • Flu shots
  • Physical therapy
  • Drug prescriptions and over-the-counter medicines6

To see if you’re eligible for an HSA, take this free two-minute self-assessment.

Long-Term Care Insurance Is a Must

Another shock for some retirees is the fact that Medicare generally does not cover long-term medical care expenses. The numbers show that someone who retires at 65 has a 70% chance of needing long-term care during retirement and an estimated 20% of Americans will need it for longer than five years.7 The average cost in the United States of one month in a nursing home is $7,698.8 (Yes, you read that right.) That’s some math you don’t want to roll the dice on.

This is why long-term care insurance is so important! Long-term care insurance covers most of the expenses that aren’t covered by Medicare. (Surprise! The government isn’t going to take care of all your needs). Those costs include:

  • Nursing home care
  • Assisted living facilities
  • Adult day care services
  • In-home care
  • Home modifications
  • Medical equipment
  • Care coordination

Long-term care typically refers to care you receive for more than 100 days. One of the great things about long-term care insurance is that it covers in-home care costs, making it possible for you to live in your home longer.

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The cost of long-term care insurance can vary pretty widely. Yearly premiums can run as low as $1,000 to around $10,000 based on age, gender, location, current health and family health history.

Long-term care insurance will protect your retirement savings from the costs of long-term care. And get this: You can even pay premiums from your HSA.

Get Good Advice for a Strong Plan

If you’re 60 or older and don’t have long-term care insurance, start exploring your options today!

Don’t know where to look? Our Endorsed Local Providers (ELPs) are RamseyTrusted insurance experts who can answer all your questions. Your ELP will listen to your needs and help you make the right decision for you and your family—and your budget.

Find your insurance ELP today!


This article provides general guidelines about investing topics. Your situation may be unique. If you have questions, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

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