Do I have enough cash to cover my own health care needs in retirement? Here’s the math in 2024 to figure it out

Vawn Himmelsbach
5-min read
Do I have enough cash to cover my own health care needs in retirement? Here’s the math in 2024 to figure it out
Do I have enough cash to cover my own health care needs in retirement? Here’s the math in 2024 to figure it out

Many baby boomers are concerned about outliving their retirement funds — particularly when it comes to health care. Medicare kicks in at age 65, but even then, you can’t rely on it to cover all of your health care costs.

So how much can you expect to pay in additional medical expenses? There’s no way to know for sure, but as of last year, the Fidelity Retiree Health Care Cost Estimate puts it at $315,000 per couple (or $157,500 after tax per individual) for costs such as co-pays, deductibles, premiums, prescriptions and other health care costs.

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And that’s just for a 20-year retirement. Consider that if you retire at 65, you could live another 30+ years. You’ll also have to factor in inflation. For example, a $100 medical charge would be $180.61 after 20 years (with an average inflation rate of 3%) or $242.73 after 30 years.

That could be why only 14% of retirees are “very confident” and 41% are “somewhat confident” they will be able to afford long-term care, according to a report by the Transamerica Center for Retirement Studies. It also found three-in-10 retirees don’t have plans in place if their health declines — including 18% who say they don’t have any plans for long-term care.

While this may sound daunting, there are strategies that can help you map out your health savings plan.

Doing the math

First off, you can get a general idea of your annual costs by adding your potential monthly premiums for Medicare, deductibles, private insurance premiums (if applicable) and any recurring medical expenses that aren’t covered by Medicare or private insurance. You can start by considering each of the following:

Medicare Part A: Most people receive Medicare Part A (hospital insurance) without paying a premium if they paid Medicare taxes during their working years (if not, you’ll pay a monthly premium of up to $505). Plus, in 2024, there’s a $1,632 deductible per benefit period. This insurance covers most hospital, home health and hospice care.

Medicare Part B: Medicare Part B (medical insurance) covers things like physician services, medical equipment, outpatient hospital services and some home health services. The standard premium in 2024 is $174.70, but you could also pay an income-related monthly adjustment amount (up to $594) depending on your individual tax return amount from 2022. The Part B deductible for 2024 is $240.

Medicare Part D: Your monthly premium for Part D, which covers prescription drug costs, will depend on your plan, location and provider (you can compare coverage options before deciding). But there’s also a monthly adjustment amount based on your yearly income from two years prior, in 2022. If you filed an individual return of $103,000 or less (or a joint return of $206,000 or less), you won’t pay a monthly adjustment. After that, the adjustment ranges from an additional $12.90 to $81 on top of your premium.

Alternatively, you can opt for a Medicare Advantage Plan (Part C), which can combine the coverage of Part A, B and D.

Being aware of your total — and adjusting for inflation — can give you an idea of how much you should be saving and where you might be falling short.

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Consider long-term care costs

Many Americans mistakenly believe Medicare covers long-term stays in nursing homes. That isn’t the case, although it may be covered through Medicaid or if you’re a veteran. The median cost of long-term care is $5,350 per month in an assisted living facility and $9,733 per month for a private room in a nursing home facility, according to Genworth.

That’s why you might opt to buy private long-term care (LTC) insurance. It isn’t cheap, but it can certainly be cheaper than $116,796 a year for a private room in a nursing home. According to the American Association for Long-Term Care Insurance, a single male aged 65 would pay a $1,700 premium in 2024 for $165,000 in benefits, while a single female aged 65 would pay $2,700. However, compound inflation will build that policy value up to $270,700 by the age of 85.

Other options include adding a long-term care rider to your life insurance policy or buying a long-term care annuity. You could also consider a Health Savings Account (HSA), which offers a tax deduction on contributions and tax-free withdrawals for qualifying healthcare expenses.

If you’re healthy, you may even want to consider staying on the job longer. That means you could still take advantage of your employer’s health insurance plan and wait to claim Social Security while your retirement savings continue to grow.

With so much to consider, the math can get complicated. It may be worthwhile to consult a professional to figure out the best strategy forward to make sure you’ll be able to cover all your health care needs in retirement.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.