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Whatever you think your healthcare costs will be in retirement, they’re probably going to be higher. According to Fidelity, a 65-year-old married couple can count on paying out about $275,000 in medical costs over the rest of their lives.

Why the Price Tag Keeps Going Up

One of the reasons healthcare costs increase in retirement, of course, is that as you age, your health declines. Another reason not often considered by retirees is that previously, your employer subsidized up to 80 percent of the cost of your healthcare premiums. If you retire before age 65, you will likely pay the full cost until you qualify for Medicare. At that point the government will pick up about 80 percent of the cost of Medicare Part B (medical insurance) after deductibles and co-pays.

HealthView Services (HVS), which analyzes healthcare costs for its proprietary software, believes retiree healthcare costs could jump nearly 5.5 percent per year for the foreseeable future. Inflation and increased longevity are the two most important factors behind these increasing costs, according to HVS.

How to Manage Healthcare Costs

Fortunately, you won’t need the full $275,000 on hand to pay for your healthcare. Most of your medical costs can be paid out of your regular retirement income—e.g., Social Security benefits or your pension, if you have one—on an ongoing basis. Better yet, there are things you can do to ensure the money you need will be there.

Work Longer or Part-Time

Stay on the job longer and delay retirement to give yourself more time to save and prepare for those increased healthcare costs. Once you do retire, consider working part-time to boost retirement income.

Save More Money

Whether you work longer or not, save more of what you do earn. Fund your workplace 401(k) at least up to the employer match and consider contributing to a Roth IRA for tax-free withdrawals after you retire.

Start a Health Savings Account

Put money into a health savings account (HSA) while working to pay for current and future medical expenses. Contributions to your HSA are tax deductible or, if made through payroll deductions, reduce taxable income. In addition, withdrawals are tax free if you use them for qualified medical costs. Note that you can’t contribute to an HSA once you enroll in Medicare. Also note that you can only have an HSA if you sign up for a high-deductible health insurance plan, which isn’t the best choice for everyone.

Stay Healthy

It pays to take good care of your health by exercising, eating a healthy diet and monitoring your weight. If you have high blood pressure, for example, and you maintain proper body weight, limit salt intake and take prescribed medications, your efforts can lead to a longer lifespan and savings of $7,000 per year in healthcare costs during your lifetime, according to HVS.

Plan Ahead

Create a written plan (budget) for retirement and stick to it. Simply cutting discretionary spending will not be enough as it makes up less than 20 percent of a typical retiree’s budget. A comprehensive financial plan is needed that accounts for all income, assets and expenses.

Study Your Medicare Options Carefully

Do this well in advance of signing up. Keep in mind that the lowest-priced plan may not be your best option. Your choices include Original Medicare—consisting of Part A (hospitalization), Part B (medical) and Part D (prescription drugs)—or a Medicare Advantage (Part C) plan, which replaces Parts A and B and usually Part D. With Original Medicare you can also get a Medigap plan that often covers much of what Medicare does not. A good tool to use is the Medicare Plan Finder, available here.

Don’t Forget Out-of-Pocket Costs

No matter which Medicare plans you choose, there will be out-of-pocket costs and they can be substantial. Each time you visit a doctor, go to the hospital or have a prescription filled, there will likely be a co-pay. There may also be deductibles you must pay before your chosen plan kicks in.

Plan for Vision and Dental Care

Some Medicare Advantage and Medigap plans provide help with vision and dental expenses, but most do not and neither does Original Medicare. Vision and dental care are prime examples of areas often covered through employer insurance that suddenly go away in retirement.

Ponder Long-Term Care

Those retirement savings you worked so hard to accumulate can be drained quickly during a stay in an assisted living facility or nursing home. Solutions include buying long-term care insurance, keeping home equity in reserve or taking out a reverse mortgage line of credit. You could also maintain a separate investment account specifically for long-term care, including an HSA. Finally, you could buy a qualified longevity annuity contract (QLAC) set up to start lifetime income beginning anywhere from 70½ to 85.

Be Flexible

Unexpected things happen and your best estimate of future healthcare needs can be wrong. Plan as best as you can and then be flexible about working longer, saving more and working part time in retirement. Think about how you might adjust your travel plans or your lifestyle in the event of major illness. In short, try to be ready for whatever comes your way.

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