Community Resource Federal Credit Union
Community Resource Federal Credit Union

Saving For Medical Expenses in Retirement

Studies have found that people are spending a large portion of their retirement income on medical bills.

If you are saving for retirement, you know that part of that savings needs to be for your medical expenses. While you are most likely doing everything right when it comes to saving for retirement, it might be that you haven’t stowed away enough money. The Center for Retirement Research at Boston College recently put out a report that found that a substantial amount of retirees’ savings and Social Security benefits were spent on covering the costs of their medical expenses. In total, the median retiree spent $4,311 on medical expenses, most of that money on Medicare premiums. With medical costs on the rise, it is completely understandable for retirees to feel like it is getting more difficult to make ends meet. Most of us that are saving for retirement are not correctly forecasting how much we will need to spend on medical expenses in our golden years of life.

How to Prepare for Medical Expenses in Retirement

So what do you do? How can you best prepare for large medical expenses in the future?

There are a number of ways to use tax-advantaged accounts and insurance products to help cover the costs of healthcare.

401(k)s and IRAs

The first thing you should focus on is maximizing tax-advantaged investment accounts such as your employer-sponsored 401(K) or a traditional or Roth IRA. With a 401(k) and traditional IRA, the money you invest in it will not be taxed until you withdraw it in retirement. However, with a Roth IRA, your money is taxed upfront which allows your investments to grow tax-free over time. If you are lucky enough to have an employer 401(k) match program be sure to take advantage of that since it is fundamentally free money. You can always speak with your financial representative to see if you are eligible for a traditional or Roth IRA.

Health Saving Account

In addition to the IRAs, if you are enrolled in a high-deductible healthcare plan, you should think about contributing to a Health Savings Account or a Health Savings Checking Account. These accounts allow you to pay for a wide range of healthcare expenses using pre-tax dollars that can be deducted from your annual tax return. Learn more about Health Savings Checking Account available at Community Resource Federal Credit Union by clicking the link below.

In general, Health Savings Accounts and Health Savings Checking Accounts offer three major tax advantages. The contributions you make are tax-deductible which means they will reduce your overall taxable income. Also, you will not have to pay taxes on our contributions. You can then withdraw HSA funds for qualified medical expenses such as co-pays, co-insurance, prescription drugs, and menstrual products. As soon as you turn 65, you won’t have to pay taxes on your earnings.

Long-term Care Insurance and Medigap

If you find that the costs of healthcare in retirement are still high even after Medicare coverage, you may want to look into purchasing supplemental Medicare insurance with is known as Medigap. You can obtain Medigap insurance through private insurance companies and it can be used for a variety of medical expenses, i.e., Medicare co-pays, deductibles, and coinsurance. Medigap is an additional expense to Medicare parts A and B.

If Medigap isn’t for you, you may want to look into long-term care insurance. LTC insurance can be used to fund nursing home stays, assisted living, and adult daycare expenses. These types of expenses are not usually covered by Medicare or Medigap so you may want to start looking into this type of coverage in your 40s and 50s. Again, LTC insurance policies are an additional expense and are usually bought through a private insurance company.

To Sum it Up

Saving for retirement is expensive. You should be prepared to use a significant amount of your retirement income toward medical bills. However, there are different tax-advantaged investment accounts that exist to help you save for these expenses. In addition, you should consider purchasing Medigap or long-term care insurance if you anticipate substantial healthcare expenses in retirement. Find out more about Community Service Savings Accounts by clicking below and see how we can help you with your retirement savings plans.




Paul, T. (2022, October 3). Medical costs can eat up a sizeable portion of your retirement savings — here’s how much you should expect to spend. CNBC. Retrieved October 17, 2022, from