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How Much to Save for Medical Expenses in Retirement?

By Danielle Miura March 08, 2023 Managing Money

Healthcare costs are one of the most significant expenses in retirement. And this trend unlikely to change. Why?

  • Longer lifespans of retirees will have higher total healthcare costs.
  • Inflation on healthcare has dramatically increased in the last three years.
  • Chronic illnesses and age-related health issues have increased.
  • The median retirement age is 61, and Medicare starts at age 65.

So, How Much Is Needed for Healthcare Costs in Retirement?

How much you will need for health costs in retirement will depend on when and where you retire, your health, how you will pay for the costs, and how long you live. According to a study by Fidelity, a typical retired couple aged 65 in 2022 will need approximately $315,000 to cover healthcare costs in retirement.

But Medicare will pay for it all, right?

Not quite. Only hospital coverage is free for most people under Medicare. If you want more coverage, you have to pay extra premiums. Even if you pay for additional coverage, it doesn’t mean it will pay for everything.

While many people often worry about medical expenses in retirement, they don’t consider the extra health costs associated with aging, such as hearing aids, prescriptions, and long-term care.

How to Cover Future Healthcare Costs

Since Medicare will not cover all of your Medicare costs, creating a plan to pay for these expenses can make it easier for you. Here are several ways you can save for healthcare costs:

Health Savings Account (HSA)

A Health Savings Account is a great starting point for saving for healthcare expenses if you are enrolled in a high-deductible health plan. An HSA has a triple tax benefit: your contributions are not taxed, invested contributions grow tax-free, and withdrawals are tax-free if used for medical expenses.

You can withdraw HSA funds at any age for health expenses; however, you can only contribute to the HSA until you turn 65. Also, there’s a limit to how much you can contribute to the account per year. So even if you can invest all your contributions, you may need more to support your healthcare needs.

Retirement Savings Accounts

A portion of your retirement savings accounts can be used for healthcare. Contributing to various retirement accounts can help you build enough long-term savings to contribute directly to healthcare costs someday. The key is to increase your retirement savings until you have made the maximum contribution to the account.

If you plan to use your retirement savings to pay for healthcare needs, the challenge is that your investments need to accumulate enough to beat the increase in healthcare costs every year.

For example, if I had $100,000 in an account today, it would have to grow by at least 6% to beat inflation. Unfortunately, investing in the stock market comes with risk. The most significant risk is that the market is down when you need the money.

In addition, remember that if you withdraw money from a traditional retirement account (pre-tax) or a taxable account to pay for healthcare costs, you may have a large tax bill. Therefore, utilizing an emergency fund is a better fit if you expect to have healthcare expenses in the near future.

Emergency Fund

As you get closer to retiring, it’s a good idea to create a substantial emergency fund to cover unexpected medical costs in retirement. Since an emergency fund is more liquid and accessible, it is quicker and easier to utilize your money in a pinch.

This money can be handy if you have an unexpected medical expense, like a broken pair of glasses or an emergency visit. Unfortunately, quick accessibility comes at the cost of a lower interest rate. In addition, keeping too much money in an emergency fund may make it more difficult for you to keep up with inflation.

Bonus: Long-Term Care and Disability Insurance

Since Medicare doesn’t cover long-term care, you may want to consider a long-term care insurance policy if you have not planned ahead of time for your long-term care costs and don’t have enough money to cover the expenses.

Similarly, disability insurance can provide income if you have an illness or injury that prevents you from working. Disability insurance, provided usually at a low cost through your employer, can preserve your savings from health expenses.

It’s Never Too Late to Start Saving

No matter where you are in your retirement journey, creating a fund to prepare for healthcare costs can help you exponentially in your future.

Here are some helpful steps to start the process of saving for your healthcare expenses:

Determine How Much You Spend

Keep track of all your expenses – every time you go out to eat, your household items, and your recurring monthly bills. Record your costs however is easiest for you, such as collecting receipts, keeping a spreadsheet, or a budget app.

Make a Budget

A budget should outline how your income matches your spending to limit overspending.

Determine Your Savings Goals

Analyze what you want to save for the short and long term, then estimate how much you will need and how long you will need to save.

Find Ways to Cut Back on Spending

If you can’t save as much as you would like, it might be time to cut back on your expenses. Start by identifying nonessential expenses, like entertainment and eating out, that you can spend less on.

Automate Your Savings

Select an amount you want to save each month and set up an automatic transaction to money your funds into an allocated account.

Let’s Have a Conversation:

Have you started saving for healthcare expenses in retirement? Which healthcare expense worries you the most?

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The Author

Danielle Miura, CFP®, is the founder of Spark Financials, a Fee-Only Financial Planning Firm focused on serving the needs of caregiving families nationwide. Danielle specializes in comprehensive financial planning, financial education, and tax law research. Find out more at and contact her at

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