Health care in retirement

How much is health care going to cost?

Maybe not as much as you think! Today's almost-retirees are confident about what the future holds, but if there's one thing that worries them, it's the cost of health care.

And no wonder! There are a lot of big, scary numbers being thrown around out there. But let's be honest, if you add up your spending for anything over the course of 30 years—food, gas, vacations—it's going to seem like a lot.

Health care is important to plan for, though. If you're like most people, an employer has been subsidizing your insurance costs all your life, so your costs may go up once you retire. But never fear. Most years, your health costs will be a relatively stable piece of your retirement-spending pie, making them easy to plan for.
 

Get personalized estimated health care costs

As part of our advice service, you'll receive a retirement plan that includes a personalized health care estimate for your retirement years, taking into account your health status, coverage choices, retirement location, income, and more.

Get more with advice from Vanguard

How your health care spending will change over time

You may have heard that the cost of health care is rising faster than the overall inflation rate, and that's true, for a variety of reasons. Better technology and newer treatments hit the market every day, and that's a good thing.

Our research shows you can expect health care spending to double over the first 20 years of retirement. This increase takes into account that most people simply spend more money on health care the older they get. (On the other hand, other expenses like entertainment and travel tend to drop over time. In fact, most people spend less overall the further they get into retirement.)

Factor 4: The plans you choose

You'll need to make a number of decisions about your coverage.

• When it's time to enroll in Medicare, you'll decide between Traditional Medicare or Medicare Advantage. If you choose Traditional Medicare, you might want to add Medigap coverage—and there are many plans to select from. Either way, you'll also need to decide if you want prescription coverage as well.
  

• If your Medicare option doesn't cover dental and vision costs, you'll need to decide whether you want to buy separate coverage.
• You may also consider how to cover long-term care since Medicare doesn't cover those costs. We'll talk more about that later.

When considering your options, think about whether you'd prefer to pay higher premiums (and/or additional premiums for extra policies) to increase the predictability of your out-of-pocket costs.

Factor 6: Amount employer subsidizes

If an employer has been carrying part of the weight of your health care costs, the loss of those subsidies can make your retiree health insurance costs feel much higher.

On average, our research shows that a 65-year-old woman will lose more than $5,000 a year in employer subsidies at retirement.
 

How do employer coverage and Medicare work together?

You'll qualify for Medicare at age 65 even if you're still working or have retiree health benefits through your employer or other coverage through a spouse who's still working.

Whether you decide to enroll as soon as you become eligible depends on your specific situation. For more information, see medicare.gov.

Putting it all together

Once you've taken all 6 factors into account, how does it shake out? Our advice service can give you a personalized estimate.

Where to save for health care expenses

A health savings account (HSA) is a flexible and tax-efficient way to save for current and future health care expenses.

Contributions are pre-tax (both federal and state) and withdrawals for qualified medical expenses (including Medicare deductibles and premiums) are tax-free.

Don't forget about long-term care

You should plan for the possibility you'll need long-term care separately from your ongoing health care expenses. Unlike the costs we've discussed above, there's an enormous variance in potential long-term care costs, from nothing to hundreds of thousands of dollars. We can help.

Learn more about planning for long-term care