How Healthcare Costs Change as You Age

When planning for retirement, it is natural to focus on your current healthcare expenses. After all, today's costs are easy to see. You know what your insurance premiums cost, which prescriptions you take, and how often you visit the doctor.

The challenge is that retirement can last 20, 30, or even 40 years, and the healthcare needs you have at age 65 may look very different from the healthcare needs you have at age 85.

Understanding how healthcare costs often change throughout retirement can help you prepare for future expenses and build a more realistic retirement income plan.

At a Glance

Healthcare costs rarely remain constant throughout retirement.

While every situation is different, many retirees experience three distinct phases of retirement spending:

· The Go-Go Years
· The Slow-Go Years
· The No-Go Years

During the early years of retirement, spending is often driven by travel, hobbies, and lifestyle activities. As retirement progresses, overall spending frequently declines. Later in life, healthcare costs often become a larger part of the retirement budget as medical needs increase.

Understanding these phases can help you better prepare for the financial realities of a long retirement.

The Retirement Spending Smile

Many people assume retirement spending follows a straight line. In reality, retirement spending often follows a pattern known as the Retirement Spending Smile.

When graphed over time, spending often starts high, declines during the middle years of retirement, and then rises again later in life. The result resembles a smile.

This pattern is not driven entirely by healthcare costs. However, healthcare often plays an important role in the later stages of retirement when spending begins to rise again.

The Go-Go Years

The first phase of retirement is commonly known as the Go-Go Years. These are often the years when you spend the most time enjoying the freedom retirement provides.

You may travel more frequently, spend more time with family, pursue hobbies, tackle long-postponed projects, or explore interests that took a back seat during your working years. While work-related expenses often disappear, lifestyle spending frequently increases.

For many retirees, these years are among the most active and rewarding phases of retirement. Healthcare costs may still be relatively manageable during this period, particularly if you enter retirement in good health.

The Slow-Go Years

As you move into your 70s and beyond, spending often begins to decline. Travel may become less frequent, large home projects are often completed, and daily routines tend to become more predictable.

This stage is commonly referred to as the Slow-Go Years. During this phase, overall spending frequently decreases compared to the Go-Go phase of retirement.

For many retirees, this represents the lowest spending period of retirement before healthcare expenses begin playing a larger role later in life.

The No-Go Years

As retirement continues, healthcare often becomes a larger financial consideration. This stage is sometimes referred to as the No-Go Years and is often characterized by increasing medical needs and reduced physical independence.

Chronic health conditions may require ongoing treatment, medical appointments may become more frequent, and prescription drug usage often increases. Some retirees may also require additional support services such as home healthcare, assisted living, or long-term care.

At this stage, spending often shifts away from travel and recreation and toward healthcare and personal assistance. While every retirement experience is different, healthcare spending frequently becomes a larger percentage of overall spending later in life.

Why Healthcare Costs Often Increase With Age

It is easy to evaluate healthcare costs based on your current situation. The challenge is that retirement planning requires thinking beyond today's circumstances.

At age 65, you may take few medications, rarely visit specialists, and have relatively limited healthcare expenses. Twenty years later, your healthcare needs may look very different.

You may require ongoing treatment for chronic conditions, additional prescription medications, specialized medical care, mobility assistance, rehabilitation services, or ongoing support. Planning for retirement healthcare means preparing for future versions of yourself, not just the person you are today.

The Cost of Living Longer

One of the greatest risks retirees face is longevity risk. Simply put, living longer means more years of healthcare spending.

Advances in medicine have helped many people live longer lives than previous generations. While that is generally positive, it also means healthcare expenses may need to be funded for decades.

A retirement plan that works well at age 65 may face very different challenges at age 85 or 90. This is one reason healthcare planning should be viewed as an ongoing part of retirement planning rather than a one-time decision.

Healthcare Inflation Matters Too

Healthcare costs do not simply increase because your healthcare needs change. Healthcare services themselves often become more expensive over time.

Medical care, prescription drugs, long-term care services, and other healthcare expenses may rise faster than general inflation in certain years. As a result, future healthcare costs can be affected by both increased healthcare usage and rising healthcare costs.

This combination can create meaningful pressure on retirement budgets later in life.

What About Medicare?

Medicare can provide valuable healthcare coverage during retirement. However, Medicare should not be viewed as eliminating healthcare expenses.

Depending on your coverage choices, you may still encounter premiums, deductibles, copays, coinsurance, prescription drug expenses, dental expenses, vision expenses, hearing expenses, and other healthcare costs.

Medicare is an important part of retirement healthcare planning, but it is only one piece of the overall healthcare picture.

Planning for Future You

One of the most helpful retirement planning exercises is thinking about future versions of yourself.

It is easy to make decisions based on your current health and spending patterns. The challenge is that retirement planning requires preparing for circumstances that may not exist yet.

Future healthcare needs may look very different from today's healthcare needs. By acknowledging that healthcare costs often increase later in life, you can build more flexibility into your retirement plan and reduce the likelihood of being caught off guard by future expenses.

Questions to Consider

As you evaluate your retirement plan, consider:

· Have you planned for healthcare costs beyond your current expenses?
· How might your healthcare needs change over the next 10, 20, or 30 years?
· Does your retirement income plan account for rising healthcare costs?
· Have you considered the financial impact of a longer life expectancy?
· What happens if healthcare expenses increase significantly later in retirement?

Healthcare Costs FAQ

Do healthcare costs usually increase with age?

For many people, yes. Healthcare usage often increases as people age, which can lead to higher healthcare expenses later in retirement.

What is the Retirement Spending Smile?

The Retirement Spending Smile describes a common spending pattern where retirement expenses are often highest early in retirement, decline during the middle years, and rise again later in life.

Why do healthcare costs often increase during retirement?

Healthcare costs may increase because of greater healthcare usage, chronic medical conditions, prescription medications, long-term care needs, and healthcare inflation.

Does Medicare eliminate healthcare costs in retirement?

No. Medicare can provide valuable healthcare coverage, but you may still face premiums, deductibles, copays, prescription drug costs, and other healthcare expenses.

What are the Go-Go, Slow-Go, and No-Go years?

These terms describe the three common phases of retirement spending. The Go-Go years are often active and travel-oriented, the Slow-Go years are generally more routine and lower spending, and the No-Go years often involve increased healthcare needs and expenses.

Final Thoughts

Healthcare costs rarely remain constant throughout retirement. While it is impossible to predict every future expense, it is reasonable to expect that your healthcare needs will change as you age.

The Retirement Spending Smile can help you think about retirement spending in a more realistic way. Early retirement may be dominated by travel and lifestyle spending, while later years often bring increased healthcare expenses.

Retirement planning is not just about funding the next few years. It is about preparing for every phase of retirement, including the years when healthcare may become one of your most important financial considerations.

Disclosure

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This material is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; however, no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative purposes only.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific situation with a qualified tax professional.