Saving for Healthcare in Retirement

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Healthcare in retirement can cost thousands of dollars each month, and a lack of planning can quickly dry up your retirement savings. Local financial professional Barry Bigelow shares some commonly overlooked healthcare expenses and tips to plan ahead.

Healthcare costs cover the care you need if you can’t complete the activities of daily living, called ADLs: eating, bathing, dressing, transferring, toileting and continence. 2 in 5 adults over the age of 65 have some kind of disability that requires healthcare. When people save for retirement, it’s fairly easy to figure out your necessary expenses based on your lifestyle, and it’s fun to plan for dream purchases like cruises. However, it can be frustrating and difficult to estimate what you’ll need for healthcare costs. 64% of workers feel insecure about their retirement savings because of potential healthcare costs. Their concerns make sense, as a healthy couple retiring at age 65 can expect to spend over $380,000 for retirement healthcare costs plus long-term care costs.

There are some hidden expenses that people should plan for when it comes to long-term care in retirement. The first is pre-Medicare costs. People often forget to plan for the gap between retirement and Medicare. Many people want to retire at age 62 when Social Security benefits kick in, but retirees aren’t eligible for Medicare until age 65. To bridge the gap, retirees might be eligible for retiree health care coverage through their former employer as a continuation of their coverage. Otherwise, you can use your spouse’s insurance if they aren’t retired yet, or you can purchase a plan through the Affordable Care Act. The key is to have a plan in place until Medicare begins in order to avoid having a healthcare emergency without coverage.

The second hidden expense on the list is home care. When retirees plan for healthcare, they think of nursing home care, but it’s often a progression that begins with home care, then assisted living before a nursing home comes into play. Unless your children have extreme flexibility with their jobs or experience with medical care, you’ll probably have to hire a home aid if you become disabled. Plus, at-home care allows you to stay in familiar surroundings while receiving the care you need. The average cost of a home aid in Minnesota is about $7,000 per month.

The next hidden expense is renovations. A laundry room in the basement might not be a big deal when you’re young and healthy, but it could be a trap for injuries down the road. Your home will most likely need renovations to make it a safe environment for retirement. Moving necessary rooms onto one level, making wider doors, installing a custom shower or bath surroundings and adding a ramp to your door are a few examples of necessary changes. After breaking down your potential renovation costs, it might be more cost-effective to look into buying a new property to fit your needs.

Make sure you account for inflation as well. At some point, you may need to move into a long-term care facility such as an assisted living facility, nursing home, or memory care facility. In 2021, the average cost of a private nursing home room in Minnesota was about $13,000 per month. While many people remember to save for the possibility of a long-term care facility, it’s easy to forget about how inflation will change the amount you need to save. A $13,000 room could likely cost over $17,000 in ten years.

There are some steps you can take now to boost your healthcare savings. Medicaid only covers about 62% of nursing home residents’ care, so it’s important to have other savings accounts for healthcare costs. At Great Waters Financial, we highly recommend using a Health Savings Account (HSA), and we have some helpful resources about HSAs on our website, This type of savings account is a triple threat: it goes in tax-free, grows tax-free, and comes out tax-free in retirement. You can keep your HSA even if you separate from your employer. But once you start taking Medicare, you aren’t allowed to contribute more money. In retirement, you can use your HSA for other expenses, but that money will be taxed for non-medical purposes. You must have a high deductible plan to qualify for an HSA, and the contribution limit for single contributors is $3,650. Families can contribute up to $7,300 each year.