5 Ways to Lower Health Care Costs in Retirement

Quick Answer

Health care can be a major expense for retirees. Here are some steps you can take to lower your health care costs in retirement:

  1. Understand your Medicare coverage
  2. Reduce prescription drug costs
  3. Prioritize your health
  4. Keep up with medical screenings
  5. Tweak your budget
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Health care is usually a major expense in retirement. The average retired couple who's 65 in 2022 could need roughly $315,000 in after-tax dollars to cover it, according to research from Fidelity Investments. If you're heading into retirement, you're probably looking for ways to cut costs.

The good news is there are many ways to stretch your dollars in retirement. Understanding your Medicare coverage, bringing down prescription drug costs and taking care of your health are simple things that can go a long way when you're on a fixed income. Here are some steps you can take to lower your health care costs in retirement.

1. Understand Your Medicare Coverage

A common misconception is that Medicare will cover all your health care needs in retirement. The truth is that it's a bit more complicated. Medicare is a federal health insurance option for folks 65 and older, but it doesn't cover everything. Knowing what is and isn't covered can help you plan accordingly.

  • Medicare Part A (hospital insurance): Covers inpatient stays and care received at a skilled nursing facility, hospice and some home care. You won't pay a premium for Part A if you or your spouse paid Medicare taxes for a certain amount of time during your working years. If you aren't eligible for free coverage, monthly premiums are up to $506 in 2023. Those who paid partial Medicare taxes while working can get a reduced rate.
  • Medicare Part B (medical insurance): Covers preventive services, medical supplies, certain outpatient care and some doctors' services. You can opt for Original Medicare or Medicare Advantage (Part C). Everyone pays a premium for Part B coverage. The monthly cost is $164.90 in 2023. Those with a higher modified adjusted gross income may have an extra charge added to their premium.
    • Original Medicare covers most health care services and supplies, but there are some limitations. Dental, vision and hearing are excluded. Once you meet your deductible, you kick in your share of costs as you incur them. You can also purchase Medigap coverage to reduce your patient responsibility. You can go to any health care provider that accepts Medicare.
    • Medicare Advantage combines Parts A and B into one plan and includes vision, hearing and dental. You can enroll through Medicare-approved companies that offer coverage. Premiums vary depending on your plan. The same is true for plan details. Some may offer additional coverage for specific conditions; others may require a referral to see a specialist.
  • Medicare Part D (prescription drug insurance): Covers prescriptions and many recommended vaccines. Part D coverage is included in some Medicare Advantage plans. Otherwise, you can add drug coverage through a separate drug plan. Your premium, covered drugs and costs vary from plan to plan.

2. Look for Ways to Save on Prescriptions

U.S. consumers ages 65 and older spend an average of $7,554 on prescription drugs each year, according to a survey conducted by MedicareGuide.com. Finding ways to save can help bring down your total spend. That might include:

Opting for Generic Brands

Generic drugs are just as safe and effective as name-brand medication—and it isn't uncommon for prices to be over 75% cheaper, according to the U.S. Food and Drug Administration (FDA).

Buying Medications in Bulk

For medications taken regularly, consider buying in bulk rather than filling your prescription monthly. It could work out to be cheaper. Every Medicare Part D plan is different, but check with your provider to see if this may be an option for you. They may allow for mail order programs or two- to three-month supplies of covered prescription drugs. A 2020 analysis by Honeybee Health, an online pharmacy, found that switching to a 90-day supply of the cholesterol medication Lipitor reduced the annual cost by 15%.

Shopping Around for a Better Medicare Part D Plan

The Centers for Medicare & Medicaid Services projects that the average basic monthly premium for standard Medicare Part D coverage in 2023 will be about $31.50. You may also pay an additional fee if your income is above a certain limit. Shopping around for a Part D plan that best serves your needs might help you save money. Narrow your search to plans that cover your regular medications and are compatible with your budget.

Bringing a Copy of Your Approved Drug Plan to Your Doctor's Visits

When planning your care, your health care provider can see what medications are covered by your plan and what the costs are if you bring a copy of what's covered. This can help you compare prices and ultimately save money.

3. Make Your Health a Top Priority

As the old saying goes, an ounce of prevention is worth a pound of cure. Being proactive about your health is a simple way to potentially avoid future health problems. You can do your best to keep healthy by:

  • Staying active: Aim for at least two and a half hours of moderate-intensity aerobic exercise per week, according to the National Institute on Aging.
  • Connecting to your community: This might be doing volunteer work or spending time with friends. The idea is to stay social and connected to the world around you.
  • Adopting healthy eating habits: Aim to eat a nutrient-rich diet, stay hydrated and avoid processed foods. Fresh fruits and vegetables, low-sodium foods and foods fortified with vitamin B12 are recommended by the National Institute on Aging.
  • Tend to your brain health: Keeping your mind active and engaged can help you stay alert as you age. Reading, playing games, learning new things and spending time with friends all promote healthy aging.

4. Keep Up With Medical Screenings

On top of living a healthy lifestyle, staying on top of regular health screenings can also reduce your health care expenses in retirement. Discovering a potential medical concern sooner rather than later allows you to take action before it progresses. Every person is different, so lead with your unique health needs. That might include:

  • Annual checkups and bloodwork
  • Following through with recommended tests and lifestyle changes
  • Getting routine mammograms, colonoscopies, skin cancer checks and whatever else your doctor recommends
  • Sticking to your prescription drug regimen
  • Managing chronic conditions
  • Telling your health care provider about any changes or concerns with your health

5. Tweak Your Budget

This step won't lower your health care costs, but it can free up extra cash you can use to cover those expenses. Revisit your budget to see if there's anything you can easily reduce or eliminate, like subscription services you don't use. You might also tweak your retirement income plan. Drawing income in a more tax-efficient way can lead to savings. (A financial advisor may come in handy here.)

Staying invested during retirement can also help your nest egg keep pace with inflation. This requires assuming some level of risk in your investment portfolio, so consulting a professional might be helpful. It's about finding the right balance to protect your assets and continue growing your wealth.

How to Prepare if Retirement Is a Few Years Off

If you're still a few years away from retiring, here are some simple tips for bulking up your savings:

The Bottom Line

Health care tends to be expensive in retirement. Finding ways to save can help you enjoy your golden years with less stress. Maintaining strong credit health in retirement is just as important. Free credit monitoring with Experian lets you know exactly what's going on with your credit report. That includes spotting potential identity fraud so you can take action quickly.