3 Ways to Help Clients Cover Healthcare Costs in Retirement

Retirees may experience some sticker shock when it comes to healthcare costs. It’s easy to see why when, according to 2021 data, a 65-year-old couple would need to have saved a combined $301,000 ($142,000 for the man and $159,000 for the woman) to have a 90 percent chance of covering certain medical expenses. That’s a nine percent increase in just one year, up from 2020.What’s more, these numbers don’t even include expenses that Medicare doesn’t cover, such as dental, vision, over-the-counter medications and long-term care.

As people age, physical health becomes a primary concern. Worries about potential illness and lack of mobility may be top of mind, but the associated price tags for care only add to the unease.

What happens if retirement occurs prior to age 65? As a financial professional, you should encourage your clients to investigate affordable health care options through the Consolidated Omnibus Budget Reconciliation Act (COBRA), the Affordable Care Act or any other organizational discount your client may qualify for due to their membership in any group, professional or otherwise.

Whether pre-65 or post-65, there are ways clients can cover their healthcare costs in retirement.

Where Will the Money Come From?

Those still in the workforce likely have a cursory understanding that healthcare costs in retirement may be significant, regardless of their current health status. The question, then, shifts to how they intend to pay for it all once their retirement arrives. 

This can be particularly thorny if retirement happens earlier than anticipated or someone finds themselves out of work and has to adjust their savings strategy. Can Social Security benefits be relied upon for this? To an extent, perhaps, but retirees are likely to need more resources, especially since Medicare may not cover all their health-related expenses.

Bridging the gap between Medicare and unplanned medical expenses may leave some scrambling to find adequate funds. But there may be ways to help your clients proactively address these challenges through other financial means.

3 Suggestions for Advisors to Share With Clients

Given the likely impact of healthcare costs, accounting for those potential expenses as part of a solid financial plan is essential. Ideally, these considerations are addressed well before retirement age. 

Rather than viewing healthcare costs as a lump sum expense that will instantly diminish their savings, it may be more appropriate for your clients to view them as a cash flow issue that may need to be stretched out over time.

1. Medicare Supplement Insurance (Medigap)

Medicare covers a lot, but it doesn’t cover everything, and that’s where a Medigap plan can help.2 While not a source of income, these policies are offered by private companies to help pay for some of the remaining copayments, coinsurance and deductible costs left from Original Medicare, as well as some services Original Medicare doesn’t cover at all.2

2. Health Savings Account (HSA)

Employers with high-deductible healthcare plans sometimes offer HSAs so employees can leverage triple tax advantages: pre-tax/tax deductible contributions, tax-free growth and tax-free withdrawals when used to pay for qualified medical expenses.

HSA funds may be used to cover both care and premiums, making it a pre-tax way to save for healthcare in retirement. Individuals with self-coverage can contribute up to $3,650 to an HSA per year, and that figure rises to $7,300 for family plans.3 Those over the age of 55 can add $1,000 per year to each of these figures.3

3. Annuities

Annuities may also provide a way for your clients to establish and maintain an income during retirement. Different types of annuities exist. They can be selected for, and some can even be tailored to, your clients’ individual needs. Annuity selection can also be based on the level of market risk and potential reward a client is willing to accept.

Annuities are a way to help guarantee income for a period of time; the type of annuity, period of guarantee, and other factors can vary and what works best for one client may differ from what’s best for another. But the income stream generated by an annuity could supplement other sources of income and help provide the necessary resources to help cover medical expenses.

Help Clients Navigate an Uncertain Future

Healthcare coverage is on the minds of many Americans these days, and it’s not the only issue clients face as they plan for retirement. As an advisor, you can demonstrate your value by offering guidance and strategies that can help your clients move confidently into the future.

For more ideas and ways to connect with investors, read our Step by Step Guide to Helping Your Clients Achieve Financial Security and Satisfaction in Retirement. Click the button below to access your copy today.


Marshall Heitzman
Written by: Marshall Heitzman, CFP®, ChFC, FLMI, CPCU, BFA™

Marshall is TruStage's Advanced Planning Expert and has more than 25 years of experience in the insurance and financial services industry. He consults Financial Professionals on advanced retirement planning concepts for retirement and wealth management clients.

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