Retirement Survival Strategies for Rising Healthcare Costs

With rising costs, how can you afford healthcare in retirement? These strategies can help.
Shot of a senior couple going through their paperwork together at home.
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Shot of a senior couple going through their paperwork together at home

Identify and Anticipate Healthcare Costs
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Identify and Anticipate Healthcare Costs

Gaining access to the Medicare system in retirement can help lower your overall healthcare costs, but you might still find some surprising expenses. Get acquainted with those expenses now, so you can budget them into your retirement plan and avoid surprises later.

"Seniors need to budget for the obvious: Medicare Part B premiums and any Medicare supplement plans or Medicare Advantage plans," said John Barnes, a certified financial planner at My Family Life Insurance. "Depending on their health, they should also budget for prescription drugs. Depending on the plan they select and their specific situation, seniors could end up paying $300 or more per month for their healthcare and Medicare plan premiums."

You could also face some less obvious expenses, such as dental care and hospital stays, said Barnes.

"Unless seniors have an inclusive Medicare supplement plan, which will pay for nearly all healthcare costs, they will have out-of-pocket exposure," he said. "I recommend a hospital indemnity plan for these situations, as these plans will pay for unexpected hospital stays and hospital care. These plans are rather inexpensive and will help pay for most, if not all, out-of-pocket costs."

Related: Saving for Retirement Is Not a Priority for 40% of Americans

Save as Early as You Can
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Save as Early as You Can

When it comes to retirement saving, the earlier you start, the better. If you haven't been able to make retirement saving a priority, the best time to start is now.

If you're working as you prepare for retirement, take advantage of employer matching for your 401k to start accumulating funds, recommended Abby Eisenkraft, a chartered retirement planning counselor and owner of Real Life Tax Advice. "Every dollar you put into a 401k plan lowers your taxes. And when your employer matches your contributions, it's free money."

If you have a high-deductible health insurance plan, you and your employer may also contribute to a health savings account (HSA) to help cover your out-of-pocket medical costs. The funds deposited into your HSA carry over year after year, so an HSA might offer a savings option if you plan to retire in the next 10 years or so.

"During retirement, money withdrawn from these accounts is tax free when used for qualified healthcare costs," said Barnes. "This is a great way to build a healthcare savings strategy now."

Consider Working Longer
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Consider Working Longer

If you're among the one in three Americans who don't have anything saved for retirement, your survival strategy is simple: Delay your retirement and continue working.

"If you have expenses and you don't have the money to pay for them, you either have to make more or spend less," Eisenkraft said. Although putting off your retirement might not sound ideal, it can help make your healthcare more affordable in retirement.

For one thing, it gives you a few extra years of planning time during which you'll have the opportunity to take home a salary and contribute to your 401k, as well as your HSA if that option is available to you. You'll also likely get healthcare coverage via your employer, which means you might not need to pay for healthcare out of pocket for a few more years, she said.

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Become Self-Employed
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Become Self-Employed

If staying at work isn't an option — or you've already retired and find you need more money to cover your healthcare costs — consider starting your own business. Becoming self-employed can be an ideal way to ease into retirement, since you get to set your own hours and scale your business up and down as needed.

It also comes with some serious tax benefits that could help you cover healthcare costs, Eisenkraft said. As a small business owner, you can deduct the full cost of your insurance premiums — an option not available to employees. If you work from home, you can also get a tax break on a portion of your housing costs, freeing up more funds to cover healthcare.

Launching a business doesn't have to be daunting, either. Consider consulting for your old employer, or offer to continue at your former job on a freelance basis.

Downsize and Trim Costs
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Downsize and Trim Costs

Dealing with rising healthcare costs on a fixed income requires a mindset shift, Eisenkraft said. If you want to make your retirement savings last, find ways to lower your basic living expenses and free up more funds for your healthcare. If you're a homeowner, consider downsizing to a smaller home or a less expensive condo, and use the influx of cash for retirement savings.

You can also reduce your shelter costs by getting roommates, "Golden Girls"-style. Retirement benefits like Supplemental Security Income are determined by your income, not your living expenses. So reducing your shelter costs by living with others can help you pay for healthcare.

If you decide to go the roommate route and you're on SSI, though, make sure you have an independent lease with your landlord, and pay for your rent and food separately from your roommates. Getting outside help on paying these expenses — for example, by having a roommate help you pay for rent, as opposed to honoring her own lease with your landlord — might have an impact on your benefits.

Adopt Healthy Habits Now
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Adopt Healthy Habits Now

Ultimately, managing the cost of healthcare in retirement is about prevention. Adjusting your lifestyle to include healthy habits can help reduce your need for pricey healthcare later in life.

"It is a simple equation: exercise + healthy eating + healthy living = lower healthcare costs compared to someone who doesn't [follow the equation], all things being equal," Barnes said. "It behooves a person to start their annual checkups, exercise and eat right if he or she wants to potentially keep healthcare costs down in retirement."

In addition to eating right and getting fit on a budget, practice stress management and ensure you're getting enough sleep. Although healthy living isn't a miracle cure for illness, odds are it will help keep your healthcare costs in check in retirement.

Up Next: How You Can Save Over $1,000 by Not Getting Sick

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About the Author

Sylvie Tremblay

Sylvie Tremblay is an Ontario, Canada-based writer specializing in medical, health pet care and lifestyle topics. Since starting her writing business in 2010, she's worked with, the Houston Chronicle, the Arizona Republic, mindbodygreen and Healthy Directions Magazine.

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