Fifth Third Securities
How to Plan for Long Term Health Care

A yoga instructor in her late 20s helps a woman in her 50s with a yoga pose inside of a studio on a bright afternoon.

If you haven’t already made health care costs a priority item while preparing your retirement budget, the time to do so is now: According to a recently released 2017 Fidelity Investments study, a hypothetical couple both aged 65 can expect to pay an average of $275,000 in today’s dollars “to cover medical expenses throughout retirement”—a $15,000 increase over the same study’s 2016 estimate.1 Unfortunately, this number does not include the potential costs of long-term care, which Fidelity Investments pegged at an additional $130,000 back in 2016.2

The bottom line? Retiree health care costs continue to rise faster than the general rate of inflation. And those approaching retirement may find themselves at an increased risk of outliving their savings if they don’t plan for this reality.

Plan During Your Working Years

If you have access to a health savings account (HSA), consider funding it. Contributions are pre-tax and withdrawals to pay for qualified expenses—which encompass doctor visits, Medicare premiums, and premiums for long-term care insurance, among many other costs—are tax-free*.3

If possible, pay for out-of-pocket medical expenses from other sources while working and allow your HSA grow to cover medical costs in retirement. HSA balances can be carried over from year-to-year if not used and many accounts allow for investment options much like an IRA.

In order to fund an HSA, you must be covered by a high-deductible health insurance policy. (For 2017, this means a policy with a minimum deductible of $1,300 for an individual and $2,600 for a family.)

The 2017 HSA contribution limits for an HSA are $3,400 for an individual and $6,750 for a family. Those who are 55 or older by the end of the year can contribute an extra $1,000.4

Even if you do not have access to an HSA, be sure to factor health care costs into your retirement spending projections and to factor this need into your overall retirement savings and investing strategy.

Know Your Options

As you approach retirement it is critical that you understand the health insurance options available to you. For most of us this will be Medicare in some form. For others, however, there might be other options.

Employer-provided benefits Some companies and organizations offer a form of retiree medical coverage—a favorable rate on the plan you had while employed by them, for example, or a distinct insurance benefit. Often these are integrated with—and a supplement to—Medicare. Be sure to check in with your employer’s benefits department prior to retirement to learn what is available to you, what it will cover, and the associated costs.

For those employed by a private-sector employer, it is important to be aware that a number of large companies have canceled or reduced their retiree medical benefits in recent years. Keep up with the details of any coverage provided even after retirement to avoid any unpleasant surprises or gaps in coverage.

Spousal coverage If you are retiring but your spouse still works and is covered by their employer’s health insurance, he or she adding you as a dependent might allow you to save a bit of money for a few years while potentially providing better coverage than Medicare or other options. The key, as with employer-provided benefits, is to do your due diligence and research the details of the plans available to you beforehand.

Medicare requires that you enroll within a set time frame once you are eligible or face penalties that can permanently increase the cost of your coverage. Take note of these deadlines and make every effort to adhere to them. Beyond basic Medicare (Parts A and B), there is a requirement that you obtain drug coverage as well.

If you are covered under a spouse’s plan or are still working at age 65 you can delay signing up for Medicare in most cases—though it still might be advantageous to enroll.

Long-Term Care

Long-term care needs—nursing home care or home health care—can be a huge financial burden in retirement. A sobering 2016 study by Genworth Financial notes the rising price tag of these services, including5:

  • Private nursing home care $7,698 per month
  • Semi-private room in a nursing home $6,844 per month
  • In-home care service at $3,861 per week (assumes 44 hours per week)

While these figures are medians and can range widely across the country, it is clear the cost of this care has the potential to rapidly eat away at your retirement nest egg.

Whether you seek out long-term care insurance or choose to self-insure against these costs, pre-planning in this area is key.

Medicaid Options

Medicaid is a state-run program with an element of federal funding. Though typically regarded as a safety net for those in poverty, it can nonetheless impact those in the middle class as well—most notably when it comes to long-term care costs not typically covered by Medicare. In fact, current Medicaid formulas coverage for long-term care expenses can extend to those well above the poverty level. Some 60% of all nursing home residents are covered by Medicaid, which also covers about 40% of all costs for long-term care services.6 Because of this, it is worth keeping track of the ongoing health care and Medicaid funding debates, as well as any subsequent coverage policy changes legislated in its wake.


Health care is one of the most significant expenses retirees will face, and factoring these rising costs into your retirement planning could very well prove vital to both your health and your finances. A knowledgeable financial professional well-versed on this topic can be an asset to you as you attempt to navigate these complex issues en route the comfortable retirement you have worked so hard and saved so diligently to enjoy.

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