Broker Check

The Costs of Retirement and Ways to Minimize Them

July 14, 2021

The 2019 Employee Wellness survey by PwC found that 73% of Millennials, 70% of Generation X, and 61% of Baby Boomers think health care costs will adversely affect their retirement. If a healthy 65-year-old couple retiring in 2019 expected to spend more than $387,000 for retirement health care costs, not including long-term care, what do you anticipate it'll cost when you retire?

As daunting as these expenses seem, there are some things you can do to mitigate their effect and lessen the risk that they'll derail your retirement. Start by following your doctor's orders. Taking medications as prescribed and creating a healthy lifestyle can increase your longevity and minimize your health care expenses.

Beyond your lifestyle, consider your financial health and take precautions now that'll add up in your later years.  Retirement planning is crucial when it comes to health care costs. Make sure you include these costs in your budget and consider how you'll cover them. One option might be to dedicate the income from an annuity strictly to out-of-pocket health care expenses.

If there's an option to use a health savings account (HSA), consider maximizing your contributions for use in retirement. HSA accounts aren't available to people who qualify for Medicare or are claimed as dependents on someone else's taxes. 

HSA withdrawals are tax-free when covering qualified medical expenses. Qualified health expenses include things not covered by Original Medicare, such as dental care and hearing aids. Tax-free withdrawal gives HSA's a significant advantage over IRAs or 401(k)s, which require paying taxes on withdrawals.

To get the most out of your HSA for retirement savings, you should contribute the maximum possible. If you can avoid it, don't use your HSA funds for medical expenses before retirement. Consider this money earmarked for your retirement health care costs. 

Although you can retire at age 62 and still receive social security benefits, if you retire before the age of 65, you'll need to find health insurance to cover your medical costs until you're eligible for Medicare. The price of health insurance can come as a shock if you're used to having employers contribute to your plan premium.

One of the most daunting expenses and experiences in retirement is long-term care. According to the U.S. Department of Health and Human Services, most Americans who reach age 65 will need long-term care at some point in their future.

Married couples who anticipate a spouse needing long-term care should investigate the benefits of a Medicaid-compliant annuity, which can preserve an income for the healthy spouse. Alternatively, you may purchase a long-term care rider, which would increase the annuity payout for a specified time period.

Planning today for your retirement costs is the best way to ensure you have what you need when you need it. As your financial professional, we have the resources to help you research and plan, so connect with our office today.


This document is for educational purposes only and should not be construed as legal or tax advice. One should consult a legal or tax professional regarding their own personal situation. Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products offered by an insurance company. They do not refer in any way to securities or investment advisory products Insurance policy applications are vetted through an underwriting process set forth by the issuing insurance company. Some applications may not be accepted based upon adverse underwriting results.  Death benefit payouts are based upon the claims paying ability of the issuing insurance company. The firm providing this document is not affiliated with the Social Security Administration or any other government entity.

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