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A decade-by-decade plan to save for health care costs in retirement

Planning for health care costs in retirement is a lot like planning for retirement itself. You don’t wait to save for your post-work years until you’re ready to make your first withdrawal, and you don’t want to start thinking about rising health care costs after you leave the workforce.

“There’s a lot to consider, and it can be difficult to plan for the unknown,” says Heather Winston, assistant director of financial advice and planning at Principal®. “But far too many people put it off or don’t account for it at all, which can later put stress on both them and their loved ones.”

Many people take a decade-by-decade approach to retirement planning, and the same strategy may serve you well in saving for health care costs. Here’s what to think about and resources that can help you prepare.

Health care costs in your 20s and 30s

Health care costs now

Budget for regular check-ups and preventative care based on your needs. If your employer offers one with a high deductible health plan (HDHP), a health savings account (HSA) is a great way to steadily save for everything from contact lenses to dental check-ups.


Prepping for retirement health care costs

You know how everyone talks about the power of compound interest when it comes to investing while you’re young? Your health care costs work the same way. That preventative care you budget for now impacts how much it will cost to take care of your health later. “If your family has a history of a certain health condition, think about how it could affect your life, no matter how healthy you are,” Winston says.


Document to-dos

It’s never too early to add health-related documents such as a health care power of attorney to your estate plan.

Graphic stating that the average monthly rent payment for a two bedroom apartment is $1,976, the average monthly mortgage payment for a 30 year loan is $1,275, and the average monthly cost for a semi-private room in a nursing home is $7,756.

Health care costs in your 40s

Health care costs now

Keep budgeting for age-related check-ups and preventative care, and adjust your financial plans short term so you’re prepared for costs related to additional exams. (Women and men have different recommendations, too.)


Prepping for retirement health care costs

You’ll likely have a lot of financial goals that intersect at this stage of life, from saving for kids’ college educations to your retirement. If you haven’t already started an HSA, you might find it worthwhile to fit it into your budget.

For one, HSA funds that are invested grow tax free, and whatever savings you don’t use each year roll over. If you don’t need it now for health care-related costs, you can use it later for everything from doctor visits to long-term care.


Document to-dos

At least once a year, review your health care-related paperwork such as beneficiaries on life insurance policies and health care power of attorney.

Graphic stating that 7 out of 10 people will require long-term care in their lifetime.

Health care costs in your 50s

Health care costs now

The biggest thing to consider in your 50s when it comes to health care costs? Long-term care insurance. Like life insurance, long-term care insurance is more expensive and harder to get as you age. “Not all are created equal, and your options are determined by your health history, how much you need, and other factors,” Winston says.

And if you’re going to rely on Medicare, it generally does not cover long-term care.5 (Medicaid does, but it’s complicated.) That means if you need long-term care and don’t have coverage, any costs will come out of your retirement savings.


Prepping for retirement health care costs

Once you hit age 55, you can start making catch-up contributions to your HSA. HSA funds can be used for both retirement and rising health care costs; withdrawals you make for medical expenses are tax free. If you make the contributions on your own and not as a payroll deduction, they’re also tax deductible; if made through your employer they’re deducted pre-tax.


Document to-dos

Review your estate plan again to fill out any holes. Start talking with loved ones about what your life might look like (and what costs you have prepared for) in retirement as you age. Do you want to age in place? Or are you comfortable living in a graduated facility? If so, what’s your budget?

Health care costs in your 60s

Health care costs now

Start to integrate Medicare-related costs into your planning, and learn the ins and outs of what’s covered. Medicare drug coverage, for example, is a separate cost, and you may need supplemental insurance to cover out-of-pocket costs. Medicare has a window of enrollment, too.6


Prepping for retirement health care costs

A couple ways to avoid dipping into retirement savings for health care costs: Continue to add to an HSA. Or if you continue to work, take advantage of your employer-provided insurance plan (which may play a part in the age you decide to stop working entirely). “We’ve built this expectation that you’ll stop working in your mid-60s, but life expectancy has increased substantially. Our health care and retirement savings both need to last as long as possible,” Winston says.”7


Document to-dos

Continue to document and update your wishes, and notarize changes so they’re legally binding. Have detailed conversations with loved ones about what your retirement and health care may look like.

Graphic stating that $400,000 is what a healthy couple that retires at age 65 can expect to spend on healthcare costs.

Health care costs in your 70s and beyond

Health care costs now

“An unexpected health care event can really change your circumstances,” Winston says. But the more you’ve planned for health care costs throughout adulthood may mean it's less likely you'll have to dip into retirement savings reserved for other purposes.

Plus, the small investments you made in regular check-ups will hopefully pay off in better health (and in turn reduced costs) as you age.


Prepping for retirement health care costs

Revisit your plans for health care costs every two to three years. For example, if you’ve chosen to age in place, has the care you need changed? Is home still the best spot?


Document to-dos

Update beneficiaries and other estate documents yearly and tell a trusted loved one where they’re located.

What’s next?