How Will Your Health Impact Your Retirement Savings?

Odds are you'll have to bank more than you might have expected.

older couple walking hand in hand

Updated on June 1, 2022.

As science and medicine continue to advance and help us live longer, it’s only logical that we may need to save more for our retirement years. Although the average life expectancy in the United States is 77 years old, many financial advisors plan for their clients to live to 95 and even 100.

But as it turns out, saving money isn’t the only key to a comfortable retirement. You must take your health and the cost of your health into consideration, too.

How does your health impact your retirement plan?

It’s simple: If you’re healthy, you’ll likely live longer and will need a larger retirement fund to retain a comfortable lifestyle during those extra years. If you’re unhealthy, you may have a shorter lifespan—but you’ll most likely have higher medical bills during retirement.

The cost of health care is climbing, but we’re not planning for it

Not only are we living longer, but the cost of health care is rising. That’s to the tune of $4.1 trillion in 2020—or about $12,530 per person in the United States—according to the Centers for Medicare and Medicaid Services.

What’s more, approximately one-quarter of the workforce reports contributing less to their retirement funds due to healthcare costs. Meanwhile, 27 percent have delayed retirement because of healthcare expenses, according to a 2018 workforce poll by the Employee Benefits Research Institute. Half of American adults reported forgoing medical or dental care solely because it was too expensive.

The bottom line? Many Americans—whether they’re insured or uninsured—have a hard time affording their health care.

And retirees are no different. For those in retirement, the ability to pay for ongoing medical care can be a major financial concern. It’s true that government programs like Medicare can offset some health expenses, but out-of-pocket costs are not covered. Medicare wouldn’t cover a nursing home or assisted living services, for example. And, according to the U.S. Department of Health and Human Services, about 70 percent of adults over the age of 65 will need some sort of long-term care services.

These expenses add up. Reports estimate that retirees will need up to $360,000 saved to pay out-of-pocket medical expenses alone during their retirement years.

Start planning your healthier financial future today

If you are like most working adults, most of your healthcare expenses are being covered by your employer. But even before retirement, it’s important to start thinking of healthcare costs as a line item in your budget.

It’s vital to address some key concerns as you plan for and enter your golden years. Depending on your current health status, here are some things to consider:

If you’re healthy: You likely have fewer health-related expenses throughout the year, so try to put those savings toward your retirement fund. Those who are healthier generally live longer and need even more retirement savings. Plus, healthy retirees are likely to travel or pursue a range of hobbies with their newfound freedom, which can add to the overall cost of retirement.

If you have health issues: In addition to a sustainable retirement fund, be sure to plan for out-of-pocket medical expenses. According to a HealthView Services 2019 report, a woman over age 55 with diabetes will average nearly $3,500 more a year in healthcare costs than a healthy person. Working with a financial advisor and sticking to a budget now can help supplement your monthly savings so you can be prepared for unexpected health costs down the road.

The reality is that many Americans aren’t prepared for retirement. Nearly half have no retirement savings whatsoever. But with the proper planning and preparedness for both everyday and unexpected expenses, it is possible to live comfortably during retirement.

Article sources open article sources

Murphy SL, Kochanek KD, Xu JQ, Arias E. Mortality in the United States, 2020. NCHS Data Brief, no 427. Hyattsville, MD: National Center for Health Statistics. 2021.
U.S. Centers for Medicare & Medicaid Services. National Health Expenditure Data. NHE Fact Sheet. Page Last Modified: December 15, 2021.
Kaiser Family Foundation. Americans’ Challenges With Healthcare Costs. 2021.
Fronstin, Paul, VanDerhei, Jack. Projected Savings Medicare Beneficiaries Need for Health Expenses Spike in 2021. Employee Benefits Research Institute. January 20, 2022.
Brittany King. Those Who Married Once More Likely Than Others to Have Retirement Savings. United States Census Bureau. January 13, 2022.
HealthView Services. Why Health Needs To Be Part Of Retirement Planning. July 2019.

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