Paying Healthcare and Long-Term Care Costs in Retirement

Shawn Plummer

CEO, The Annuity Expert

The unpredictable nature of one’s health and healthcare-related expenses makes planning for today’s retiree’s long-term healthcare needs challenging. Discover ways to incorporate healthcare costs into your retirement income strategy using approaches and products that can serve multiple needs at once.

There’s a lot to think about when planning your retirement, from how much you need to save, when you should start taking social security, and what you will do with all your free time.

Yet all too often, retirees are surprised by one major expense they did not account for, healthcare.

Today we know that healthcare can be a major expense for retirees. In fact, the three largest expenses you will face in retirement are housing, transportation, and healthcare, so making sure you have planned for it is important.

Why does it catch so many off guard?

For starters, many assume that Medicare will cover all their healthcare costs. And while Medicare does provide for health care coverage in retirement, it does not cover everything. Premiums, deductibles, copays, co-insurance are just some of the costs you will be responsible for.

Related Reading: What Do I Need To Know About Medicare Costs?

Furthermore, if you want coverage for prescription drugs, vision and dental services, you will be required to purchase additional coverage.

And don’t forget Medicare doesn’t cover it stays longer than 90 days in a skilled nursing facility. So how much can you expect to spend on healthcare?

The amount you spend on healthcare will generally increase as you age.

  • Today, a healthy 65-year-old couple will spend about $12,052 a year in out-of-pocket healthcare expenses.
  • At 75, that will increase to $21,706.
  • And by age 85, it will jump $37,839, which is over three times what they spend at age 65.

Why a jump?

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Imagine your retirement has three distinct phases.

Phase #1: An Active Lifestyle

In the first phase, you are living life to the fullest. You’re traveling, playing golf, spending time with your family and friends, doing all the things you look forward to doing in retirement.

During this phase, you tend to be healthy and living independently. But as you age, you will enter the second phase of retirement, when you will start to slow down.

Phase #2: A Slower Pace

While you still might be able to do all of the things you were doing before, now it takes a little more energy to do them. Driving might become a little more difficult, and you are moving a little slower. Those aches and pains start to act up a little more, requiring a few more doctor visits than before.

Phase #3: Assisted Movement

During this time, you may no longer be able to live independently, things such as cleaning your house and grocery shopping may require you to hire someone to help, or you may need support from a nurse or family member. In addition, it is during this phase when healthcare costs really go up. The Annuity Expert has products and strategies to help you plan for these costs, such as insurance products, commonly referred to as linked benefit products.

These products combine life insurance with long-term care benefits, allowing you to access benefits to pay for services such as skilled nursing, in-home care, and medical services.


Many retirees underestimate the cost of healthcare in retirement. Some of this can be attributed to a misunderstanding that Medicare will cover all or nearly all a retiree’s healthcare costs. However, while estimates vary widely, out-of-pocket healthcare costs will be a substantial expense of retirement.

To understand why retirees first need to understand the cost structure of Medicare.

Today, Medicare costs can be broken down into three categories:

  • premiums,
  • deductibles, and
  • co-insurance.

Medicare Part B premiums, depending on income, can start at nearly $1,800 a year and can exceed $5,800 a year per person. It is also important to realize that Medicare is complex and has services and items it will not cover, like private insurance.

Today, some categories that Medicare does not cover include prescription drugs, long-term care costs, dental care, vision, hearing aids, and overseas travel.

Retirees who want these costs to be covered will be required to purchase additional insurance coverage. This can be done through a Medicare Advantage plan, Medicare Part D, long-term care insurance, a Medigap policy, or a combination of approaches. So, while Medicare may cover a significant portion of a retiree’s medical costs, costs can still add up.

Furthermore, healthcare costs are not constant. As retirees age, their use of medical services increases. While initial expenses may be manageable, between inflation and increased use of medical services, costs can increase significantly as retirees age.


While healthcare costs can be high, it should be noted that healthcare-related expenses tend to experience significantly higher inflation rates than other goods and services. For example, of the major categories tracked by the Bureau of Labor Statistics, healthcare has experienced the highest inflation rate.

To put healthcare inflation into perspective, compare the rises to education costs, which have experienced similar inflation rates. Those entering retirement may recall what they spent on college tuition. Comparing that cost to what it costs their children or grandchildren to attend college today can create a context for how much healthcare costs have increased.



The average annual cost of health insurance for a retired couple in 2019 is:

Source: HealthView Services


Long-term care is a topic many wishes to avoid. However, due to the significant costs associated with long-term care, not preparing can present major financial challenges for retirees. Additionally, the emotional and physical toll on spouses and family members can be difficult to quantify.

Many retirees will associate long-term care with a nursing home. However, it should be noted that the number of nursing home beds has decreased slightly between 2009 and 2019. As a result, long-term care typically begins at home before transitioning to a long-term care facility. This can place added pressure on family members and often require the assistance of home healthcare aides and other professionals.

Another option is to transition to an assisted living facility. Assisted living facilities attempt to combine the features of independent living with on-site health professionals. But such facilities can be substantially more expensive than staying in the home.

In the end, many families will make decisions based on the level of care that a family member requires. More serious conditions, such as Alzheimer’s Disease and dementia, may require more care and resources than a family member can provide, forcing family members to explore residential options like nursing homes.


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Service or FacilityAnnual Cost
Homemaker Services$53,768
Home Health Aide$54,912
Adult Day Health Care$19,240
Assisted Living Facility$51,600
Nursing Home Facility (Semi-Private Room)$93,075
Nursing Home Facility (Private Room)$105,850
Source: Genworth


Incorporating healthcare costs into a retirement income strategy can be critical to helping retirees maintain their standard of living. And while certain out-of-pocket expenses, such as premiums and deductibles, can be accounted for, other costs such as long-term care expenses can be expensive and unpredictable.

When it comes to long-term care expenses, there are basically four ways to cover the costs:

  1. government assistance,
  2. traditional long-term care insurance,
  3. linked benefit or hybrid insurance, and
  4. personal savings.

Government Assistance

Government assistance can take many forms. For example, benefits can be provided through the Veterans Health Administration or Medicaid for veterans and low-income retirees. There may also be additional state-run programs.

Either way, programs such as Medicaid have eligibility requirements requiring retirees’ income and assets to be below certain thresholds before benefits are provided. Furthermore, retirees will have limited choice as to where services are provided. Therefore, retirees should consult with a qualified elder law attorney or social worker to explore these types of programs.

Additionally, Medicare provides only limited long-term care coverage. For example, coverage is limited to 90-days in a skilled nursing facility and is subject to other limitations. Therefore, retirees should not rely on Medicare as a solution to long-term care costs.

Traditional Long-Term Care Insurance

Few, if any, insurance companies continue to offer new traditional long-term care insurance policies. But if a retiree happens to own a traditional long-term care policy, they would have been able to choose the amount of coverage, how long it lasts, waiting periods, etc., at the time of purchase.

Traditional long-term care policies can be subject to annual premium increases and can be quite expensive. Still, since these policies are not commonly available for sale to new policyholders, care should be given to evaluate these policies and keep them in force if determined that they continue to make financial sense and meet the policyholder’s needs.

Hybrid or Linked-Benefit Products

Today, long-term care insurance is typically combined with life insurance.

The concept is that if retirees need to access the life insurance policy for long-term care needs while they are alive, they would be able to draw down the death benefit to pay for long-term care needs. However, the drawn-down is usually subject to monthly limits and restrictions.

If a death benefit remains at the time of death, that would be paid to the policy’s beneficiaries as life insurance proceeds.

Additionally, some annuities will offer some enhanced benefit should the policyholder meet certain conditions. This can take the form of doubling the income generated by the annuity for a set period. Finally, like policies combined with life insurance, the annuity may offer a set amount of benefits that can be drawn down.

Personal Savings

Personal savings have the highest degree of flexibility. It is the retiree’s money. Therefore, they can use it as they see fit for whatever expense they may incur. However, since long-term care costs can be unpredictable and expensive, personal savings may not be sufficient to cover care costs. Furthermore, for married couples, if one spouse’s needs consume the bulk of personal savings, little may be left for the surviving spouse.


Healthcare is expensive and continues to increase every year. In addition, with longevity and advances in medical care, funding these procedures, services, and facilities becomes more challenging as you get older.

Luckily, insurance products can increase your retirement income or flat out pay for these ever-increasing costs.

Contact us to find out the best strategy for you.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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