3 tips to help you plan for your healthcare needs in retirement

Healthcare may be one of your top expenses in retirement.

The average total cost of healthcare in retirement for individuals age 70 and over is about $122,000 per person.1 As healthcare costs continue to rise, those in or nearing retirement are increasingly concerned about how they will manage healthcare expenses over a period of 20 or more years in retirement. This can be particularly concerning for women who, on average, live longer than men and may need to fund their healthcare needs for a longer period of time.

A comprehensive approach to planning is critical for evaluating how key retirement risk factors, such as longevity, rising healthcare costs, or the need for long-term care, may impact your income and lifestyle in retirement. Below, we look at three ways to help you plan for your healthcare needs in retirement.

1. Start saving with a Health Savings Account

A Health Savings Account (HSA) allows you to set aside money on a pretax basis every year (similar to an IRA, 401(k), or 403(b) retirement savings plan), and that money can then be used for qualified healthcare expenses. You must be enrolled in a high-deductible health plan to participate. Your available balance rolls over year after year, and you can use it at any time, provided it’s to cover an eligible healthcare expense. Depending on which institution manages your HSA, you may also be able to invest a portion of your HSA balance, giving it the potential for growth. There is a limit on the amount of money you can put into an HSA each year—for 2021, that’s $3,600 for individuals and $7,200 for families. Similar to retirement accounts, there is a catch-up contribution allowed for those age 55 and over of an additional $1,000 annually.

To learn more about Health Savings Accounts, please visit the TIAA Health Savings Account Resource CenterOpens in a new window

Health Savings Account contribution limits

Individual and family

Source: Internal Revenue Service

2. Review your insurance options

Retirees age 65+ are eligible for Medicare, which offers a range of options. You may also want to consider supplemental insurance, known as Medigap, to help cover costs not covered by Medicare, although you’ll need to consider how any premiums and deductibles would impact your out-of-pocket spending. Since Medicare generally doesn’t cover long-term care, you may also want to consider long-term care insurance. Some companies offer what are known as “hybrid” policies that may cover long-term care if you need it or convert that benefit into traditional life insurance if you don’t.

3. Think about other sources of retirement income

Because healthcare expenses are hard to anticipate, you may feel more confident if you have a reliable source of guaranteed retirement income, such as regular payments generated by annuitizing some funds to create lifetime income.  The annuity income may be able to cover your regular monthly expenses, and you can tap into other retirement or investment accounts if you have an unexpected and costly healthcare expense.

No matter what strategy you choose, it’s important to keep your healthcare preferences in mind, because that can significantly impact the cost. Home health options are increasingly available as technology makes it easier to connect with doctors from home or have them monitor your conditions remotely. If you explore home care as an option, consider how any family members may be impacted financially if you ask them to be your caregiver. Keep in mind that other services, such as home custodial care, might be needed to assist with cooking, cleaning, and other chores. If your care needs are limited, another option may be a continuing care retirement community (CCRC). These flexible-lifestyle communities, which have recently grown in number, support older adults who may only need limited care to start but may need more care in the future. Residents in CCRCs can adapt their living arrangements to their evolving healthcare needs without having to move from one place to another.

To learn more about planning for healthcare expenses in retirement, schedule time to meet with your TIAA advisor. Your advisor can help your plan for future healthcare expenses and structure a lifetime income, based on your individual needs, preferences and goals.

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National Bureau of Economic Research report: The Lifetime Medical Spending of Retirees, May 2018.

Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.