Healthcare Costs in Retirement: The Hardest Expenses to Predict 

You can budget for travel, property taxes, and everyday expenses in retirement. But how much should you set aside for healthcare costs in retirement at 85? 

What if you or your spouse need ongoing care, or living independently becomes more difficult? 

Healthcare costs in retirement can be hard to predict, especially over 20 or 30 years. Medicare may not cover as much as you expect, particularly when it comes to long-term care. These expenses could also affect your spouse’s financial future and the wealth you’ve worked hard to build. 

While you can’t predict every expense, you can prepare for the possibilities. A good place to start is understanding what Medicare covers and what you may need to pay for yourself. 

Is your retirement plan prepared for changing healthcare needs? Download our complimentary guide, What If You Live to 100?, to explore the financial considerations of a longer retirement. 

What Medicare Covers and What It Doesn’t 

One of the biggest misconceptions about healthcare in retirement is that Medicare will cover most expenses, including long-term care. While Medicare provides important medical coverage, there are gaps that could leave you responsible for significant costs. 

Medicare Doesn’t Cover Every Type of Care 

Medicare generally covers hospital stays, doctor visits, and certain short-term skilled nursing or home health services when eligibility requirements are met. However, it doesn’t typically cover ongoing personal care, such as help with bathing, dressing, or other daily activities. 

For example, Medicare may cover qualifying rehabilitation services following surgery. But if you later need someone to help you with everyday tasks at home, those expenses may be your responsibility. 

The Out-of-Pocket Costs That Can Add Up 

Even with Medicare, retirees may face expenses such as: 

• Premiums and deductibles: Regular Medicare costs, which may be higher for individuals with higher incomes. 

• Copayments and coinsurance: Your share of covered medical expenses. 

• Prescription drugs: Costs that vary depending on your coverage and medications. 

• Long-term care: Ongoing personal assistance or extended custodial care that Medicare generally doesn’t cover. 

Original Medicare also has no annual out-of-pocket spending limit unless you have other coverage that helps pay those costs. 

What can you do now? Review your Medicare coverage and identify which expenses you may need to pay yourself, particularly if you or your spouse eventually require long-term care. 

Long-Term Care Doesn’t Always Mean a Nursing Home 

When you think about long-term care, you might picture a nursing home. But many people receive care in their own homes, and their needs often change gradually over time. 

Long-term care planning can take several forms, depending on the level of assistance needed and personal preferences. 

Where Might You Receive Care? 

• At Home: Help with daily activities, household tasks, or personal care. 

• Assisted Living: Housing with assistance and varying levels of daily support. 

• Memory Care: Specialized care for individuals experiencing memory or cognitive challenges. 

• Nursing Home: More extensive care, including around-the-clock supervision and nursing services. 

For many retirees, staying at home is the preferred option. However, receiving care at home isn’t necessarily less expensive, especially when daily or around-the-clock assistance becomes necessary. 

The type of care you need, where you receive it, and how long you need it can all affect the financial picture. 

The question isn’t just whether you can afford long-term care. It’s whether you’ll have the financial flexibility to choose the type of care you’d prefer. 

What can you do now? Consider where you’d want to receive care if you needed additional support and whether your current home and financial plan could accommodate those needs. 

Where would you want to receive care later in life, and how might you pay for it? Download our complimentary guide, What If You Live to 100?, to explore the financial decisions that may come with a longer retirement. 

When One Spouse Needs Care, Two Retirement Plans Can Be Affected 

This example reflects a client experience. The client was not compensated for sharing it. The experience is not representative of all clients, and results are not guaranteed and will vary based on individual circumstances. 

Consider Mark and Linda, a retired couple in their late 70s. They’ve built a comfortable retirement portfolio and have been enjoying life without major financial concerns. 

Then Mark develops a condition that requires daily assistance. Linda wants to keep him at home, but caring for him on her own becomes increasingly difficult. They hire in-home help, adding a significant monthly expense they hadn’t anticipated. 

The Financial Impact Goes Beyond the Cost of Care 

Paying for Mark’s care could affect several areas of their financial lives: 

• Retirement withdrawals: Additional expenses may require larger withdrawals, potentially reducing the savings available later. 

• Taxes: Selling investments or withdrawing more from tax-deferred accounts could increase their tax liability. 

• Linda’s financial future: She may need their remaining savings to support another 15 or 20 years of retirement. 

• Family responsibilities: Their adult children may need to contribute time or financial support as Mark’s needs change. 

The challenge isn’t simply figuring out how to pay for Mark’s care. It’s considering how those expenses could affect Linda’s financial future and the plans they’ve made for their family. 

What can you do now? If you’re married, consider how several years of long-term care expenses for one spouse might affect the other’s retirement income, remaining savings, and financial independence. 

How Can You Prepare for Healthcare Costs You Can’t Predict? 

You can’t predict every healthcare expense, but you can prepare for different possibilities. Here are three areas to consider. 

1. Evaluate Your Retirement Income 

Could your retirement savings accommodate several years of additional care expenses? 

For example, an extra $5,000 per month for three years adds up to $180,000, before inflation or potential tax consequences. 

Consider how an expense like this might affect your retirement withdrawals and remaining savings. 

2. Explore Your Long-Term Care Funding Options 

There are several ways to potentially cover care expenses: 

• Personal Savings: Use retirement accounts, investments, or other available assets. 

• Long-Term Care Insurance: Explore traditional or hybrid policies, including their costs and coverage limitations. 

• Existing Resources: Review current insurance coverage and other potential sources of financial support. 

Each option has different trade-offs, so it’s worth evaluating them before care becomes necessary. 

3. Have the Conversation With Your Family 

If you needed additional care, who would help make decisions or manage your finances? 

Discuss your preferences with loved ones and review important estate planning documents, particularly powers of attorney. 

Your next step: Consider how you would pay for long-term care, where you’d prefer to receive it, and who you’d want involved in your care decisions. 

Five Questions to Ask Before Your Healthcare Needs Change 

How prepared is your retirement plan for changing healthcare needs? These five questions can help you identify areas worth reviewing. 

1. Medicare Coverage: Do I understand which healthcare and long-term care expenses Medicare may not cover? 

2. Care Preferences: Would I prefer to receive care at home or in a community that provides additional support? 

3. Financial Impact: Could my retirement savings accommodate several years of unexpected care expenses? 

4. Spousal Needs: If one of us needed long-term care, how would that affect the other’s financial future? 

5. Family Involvement: Have I discussed my care preferences with the people who may help make future decisions? 

You don’t need to have every answer today. But understanding where your retirement healthcare plan may have gaps can help you make more informed decisions before your needs change. 

Want to take a closer look at your retirement readiness? Download our complimentary guide, What If You Live to 100?, and use the 100-Year Life Checkup to identify areas of your financial plan that may deserve additional attention. 

Plan for the Possibilities, Not Just the Price Tag 

No one knows what their healthcare needs will look like at 75, 85, or 95. Planning ahead can help you consider how changing needs might affect your finances and your family. 

At Liberty Group, we help individuals and families evaluate how healthcare expenses fit into their broader retirement, tax, and estate planning strategies. 

Is your retirement plan prepared for changing healthcare needs? 

Download our complimentary guide, What If You Live to 100?, to explore the financial considerations of a longer retirement. 

Want to discuss your retirement strategy? Schedule a complimentary meeting with the Liberty Group team. 

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