How to plan for unexpected healthcare costs in retirement

Help manage your retirement savings and your health by making unexpected medical costs, well, not so unexpected. 

We all hope that when we retire we’ll have the time to focus on being as healthy as possible. But unexpected issues and illnesses arise, with recent research¹  estimating that an Australian couple will spend an annual cost of between $4,975 and $9,900 on healthcare once they’ve said goodbye to the workforce.

There are a lot of expenses in retirement you can plan for ahead of time, like utility bills and mortgage repayments. But it’s more difficult to plan for healthcare expenses, because you just don’t know what ailments could come your way.

Managing large hospital or specialist charges that you don’t see coming can be stressful, especially when you no longer have a steady income stream. But thankfully there are ways to reduce the risk of being faced with large medical costs when you’re retired, so you can instead spend your money on living life to its fullest.

Here’s 5 tips on how to plan for unexpected healthcare costs 

Live a healthy lifestyle

One of the best ways to reduce your chance of being faced with large, unexpected medical expenses is to try to prevent them from occurring in the first place. Preventative care, regular exercise, a healthy meal plan, and a strong network of relationships are all key. Think about treating your financial fitness like your physical fitness in retirement – the more you work at either of them, the stronger they’ll get.

Lower healthcare costs with Medicare

Australia has one of the best public healthcare systems in the world. And there are plenty of ways seniors can use this to avoid or reduce medical costs, like doctor visits and medications. Some doctors bulk bill, and you may find discounts on certain medications. But not everything is free or eligible for a Medicare subsidy, including potentially life-saving services like ambulance cover, which can set you back more than $1,200²  if you’re not prepared.

The other limitation of the public health system is potentially long waiting times – if you’re facing an emergency, you don’t want to have to wait 41 days to be seen by a specialist, which was the length of time 50% of Australian patients spent waiting³  before being admitted for elective surgery in 2018-2019.

Consider private healthcare cover

If you want to receive medical treatment as soon as you need it, and don’t want to be slugged with enormous bills you didn’t plan for, it’s worth considering whether private health insurance is right for you. You’ll be in good company, as recent statistics show that 71% of retirees have taken out a health insurance policy.

Many insurance companies offer healthcare insurance plans tailored to the specific needs of those at age 65 and over. You may need to cover hospital and extras, in case of potentially expensive medical costs that arise later in life, like seeing an occupational therapist, a dental specialist or an optometrist.
If you’re over age 65, some of the other positives of having health insurance can include at-home nursing, joint replacements, physiotherapy and theatre fees. At this age you’ll also receive higher government rebates (up to 29.24 %) on your health insurance than younger people – it jumps again (up to 33.41 %) when you reach 70.

But even when you have private health insurance, you’ll still likely have out-of-pocket expenses in retirement, including your excess and any other deductibles. This is why you should also consider additional ways to cover unexpected bills.

Think about a health-related savings account

You may no longer have an employer and monthly salary, but chances are that in retirement you’ll still have passive retirement income streams, whether that’s from your superannuation, investments or share portfolios. You could consider channeling your profits from these to start an emergency health fund: a health savings account that you automatically direct debit into every month, and won’t dip into for impulse purchases. Find out more about an AMP Saver product that may suit your needs.

Based on $9,900 a year, you’ll need to be budgeting about $27 a day, or $840 a month. This should be a sliding scale that grows as you get older and potentially face more health issues. There should also be a buffer for inflation rates and annual increases to medical expenses – private health insurance premiums alone rose 4.8% in 2017⁴.

Consider travel insurance

If you plan to travel in retirement, research whether you can add travel insurance on top of your existing health insurance. Most Aussie insurance companies won’t cover any medical expenses that you accrue while you’re overseas. Fracture your hip in the US and you could be looking at spending up to A$59,395⁵ to be treated.

To get an idea of your healthcare costs in retirement, take a look at a retirement calculator.

^{1 ASFA Research and Resource Centre (2019), 2019 ASFA Retirement Standard Budgets Review, September 2019
2 Nib (2020), How much does it cost to call an emergency ambulance in my state?, 22 Jan 2020
3 Australian Institute of Health and Welfare, Elective Surgery
4 ASFA Research and Resource Centre (2018), 2018 ASFA Retirement Standard Budgets Review, April 2018
5 Internationalinsurance.com, How Much Does Healthcare Cost in the USA}