by Gary Foreman

Could you run up a big enough medical bill in retirement that could wipe out your savings? Take these steps to control medical costs and minimize such a risk.

What will you do about medical costs in retirement? They could cost you $250,000! Or you could do some planning to control those costs.

We think controlling them is the better option. So to help us understand what can be done to control medical costs in retirement, we contacted Tom Roberts, a Certified Financial Planner® and owner of A New Approach Financial Planning. Tom is a fee-only planner who brings an MBA, engineering training, and financial planning experience to solve client problems.

Q: It’s estimated (Fidelity) that the average 65-year-old couple could spend as much as a quarter million dollars on medical expenses! What types of expenses are included in that estimate?

Mr. Robert: Fidelity includes Medicare Part A, B & D insurance, out-of-pocket deductibles, and copays. Not included are long-term care (LTC) expenses, over-the-counter medications, optical, and dental costs. The expenses are based on average life expectancies of 85 (male) and 87 (female). Fidelity has estimated retirees’ healthcare costs since 2005 and expenses have increased over 3% per year since then.

Healthview Services (HVSFinancial.com) estimates the overall average costs to be about $395,000 when all expenses, except LTC, are included.

Q: Clearly Medicare doesn’t cover everything. Is there an easy way to know what’s covered and what’s not covered?

Mr. Robert: Medicare.gov is a good source for what is covered. You can search by the test or service to see if you are covered. It is best to check coverage before agreeing to the service since what you perceive as medically necessary may not be what Medicare covers. LTC expenses are not covered by Medicare.

Part A generally covers facilities and home health services. (Think hospitals, nursing home rehabilitative care, hospice, and home care) If you contributed to Medicare and Social Security while working, Part A coverage is probably free.

Part B covers services provided by doctors, ambulances, mental health providers, testing facilities, and medical equipment. It does not cover elective services, dental, eye exams, hearing aids, and foot care. You must pay for Part B coverage based on your income.

Part C is Medicare Advantage. This takes the place of A & B coverage and is provided by insurance companies. The cost and coverage depends on the plan purchased.

Part D is prescription coverage. Coverage and cost varies based on the prescriptions you want covered and your income. You can search Medicare.gov for plans based on your specific prescriptions.

Q: Retirees will make some benefit choices. Are some more important than others?

Mr. Robert: Everyone needs to get basic hospital, doctor, and testing coverage. For most people this means Medicare Part A & B unless you have more complete coverage as a company retirement benefit. Because Medicare doesn’t cover everything, many people buy a supplemental or Medigap policy to cover deductibles and services not covered by Part A & B. Medicare has defined ten policies you can purchase from insurance companies.

Investing in a personal wellness program will pay you back in better health and a more enjoyable retirement. Your program could include health club membership, gyms, a hobby, or other ways to stay physically and mentally active. You can look around your community at activity centers, YMCAs, clubs, and volunteer activities for low-cost ways to stay active.

Covering potential LTC expenses is typically a higher cost item. If LTC insurance is offered as a company benefit, it is often more economical and easier to qualify than finding an individual policy.

Q: Long term care expenses frighten many boomers. What advice can you give to reduce that concern?

Mr. Robert: Long term care can rapidly drain your retirement savings. There are several ways to reduce some of the risk without tying up all your financial assets. First, start planning early while you are still healthy. Having insurance to cover a portion of the expenses is often the lowest cost option in the long term. You must be mentally and physically healthy to qualify, so age 50 is not too early.

Second, educate yourself on the potential expenses and solutions for a person of your age, income, health, and wealth. Search out an agent or experienced financial planner who will educate you on all the options without trying to sell you a policy. Check out Genworth Financial for costs by state. In addition to traditional insurance, there are products that cover multiple needs (LTC expenses, income, or death benefit). These can reduce the anxiety of losing the premiums if you don’t have LTC expenses.

Lastly, construct a plan that fits you. Many people use a mix of partial insurance coverage, some dedicated financial assets, and home equity to cover expenses. Remember that if you have a LTC need, your retirement activities and plans will change. You may need to redirect resources to deal with this new situation.

LTC planning is a complex subject. Find an experienced agent or planner to help you get educated and identify your options. If you know someone who has LTC insurance, ask them how they learned about it. You can also ask your estate attorney or check out CFP.net, NAPFA.org and GarrettPlanningNetwork.com.

Q: Life expectancy is increasing. How does that play out in planning for medical expenses?

Mr. Robert: Longer life spans are good news since we are not only living longer but healthier, and better able to enjoy life. The older we get, the more we spend on healthcare and costs continue to increase at a faster rate than the Consumer Price Index (CPI). It makes sense to account for them as a line item, and at a higher rate of inflation, in our retirement plans. Thinking about the different phases of your retirement can help you plan for changes in lifestyle, living arrangements, and health. Having a game plan can help you avoid crises and lower the cost of dealing with getting older. For example, moving to where help is readily available before you absolutely need it may help you avoid a fall and hospital visit.

• What You Need to Know About Long Term Care Insurance Before You Retire
• How Will You Pay for Dental Care after Age 65?
• What You Should Know about Medicare Before Age 65
• Determine Your Long Term Care Needs
• 5 Options for Medications Not Covered by Medicare
• How to Avoid Medicare Mistakes

Take the Next Step:

• Decide which Medigap policy and Part D policy can best help you manage your healthcare.
• Become educated on LTC costs at Genworth Financial. Learn about the options to pay for them and protect your nest egg. Find an experienced financial planner or insurance agent to help you with this complex topic.

Reviewed July 2022

About the Expert

Tom Roberts, CFP® is a financial planner and owner of A New Approach Financial Planning. He writes articles on retirement planning and creating income from your investments. Tom is a Certified Financial Planner, fiduciary, and provides advice on an hourly fee basis only. He provides advice drawing on his life experiences, MBA, and engineering training.

About the Author

Gary Foreman is the former owner and editor of the After50Finances.com website and newsletter. He's been featured in MSN Money, Yahoo Finance, Fox Business, The Nightly Business Report, US News Money, Credit.com and CreditCards.com.