Visualize Retirement

A New Way to Plan for Health Care Costs in Retirement

As a part of the Visualize Retirement program, Conversation Starters are an ongoing series of easy-to-digest articles designed to demystify the nonfinancial side of retirement. Stay in front of sponsors and participants with fresh, relevant insights based on research into actual retiree behaviors.

Health care costs are top of mind for many retirees. According to T. Rowe Price’s 2018 Retirement Savings and Spending Study, two of the top three spending concerns of retirees are paying for health insurance premiums and out-of-pocket health care expenses.1

Break Down Health Care Cost Concerns

This topic doesn’t have to spark fear. With an understanding of your account options and the help of a financial professional, health care costs can be saved for and managed effectively. Here are some effective ways to understand future health costs and break them down into manageable numbers:

  • Focus on annual costs: Health care is not a one-time expense and will, instead, unfold over time. Plan for annual needs.
  • Costs vary by coverage: You’ll likely be covered by Medicare, but there are many variations of coverage and costs.
  • Premiums vs. out-of-pocket expenses: Premiums will account for about 75% of your annual health care costs. While the exact dollar amount will depend on what kind of Medicare and Medigap coverage you choose, the average annual amount could be around $3,000.2 Out-of-pocket costs will be a smaller piece of your expenses, but their amounts are more uncertain. That means you can choose how much to save (and in what type of account) ahead of time.

What Can You Do Now to Prepare?

You can select from pretax or Roth accounts or health savings accounts (HSAs) to save for your future health care costs.* Selecting the right account type can help minimize taxes and free up money for health care costs, so it’s important that this is an informed decision. A financial professional can help you evaluate your account options and select the account type that best suits you.

* HSAs are only available if you are covered by a high-deductible health care plan.

Which Account Might Meet Your Needs?

As illustrated in the chart below, pretax and Roth accounts and HSAs have unique tax treatments and restrictions. The chart reflects Roth and pretax employer-sponsored plans (as opposed to IRAs) unless noted. Talk with your financial professional to ensure that you’re making the most appropriate choice to best save for future health care costs.

Account Types

Next Steps

  1. Understand the features of your savings options.

  2. Talk to your financial professional about what's right for your situation.

  3. Begin using the appropriate account(s).

Advantages of account type (relative to the others) shown in blue. All three types grow tax-deferred. These are not the only options when it comes to saving for health care and/or medical-related expenses in retirement. Note that while HSAs are structured for the individual to save or invest for health costs, this is not the intended primary purpose of a defined contribution plan or an IRA. Individuals should evaluate their health coverage needs and other factors before seeking tax benefits of an HSA. Source: IRS documents.

1The Retirement Savings and Spending (RSS) Study is a nationally representative annual survey of workers age 21 and above who are either currently participating in a 401(k) plan or eligible to participate and have a plan balance of at least $1,000. Along with 3,000 workers, the 2018 RSS Study also includes a sample of 1,000 retirees who had a rollover IRA or a left-in-plan 401(k) balance. 2Source: T. Rowe Price estimates based on projected 2019 Medicare premiums and data from the Health and Retirement Study (HRS). HRS, public use data set. Produced and distributed by the University of Michigan with funding from the National Institute on Aging (grant number NIA U01AG009740). Ann Arbor, MI. 3Federal income taxes. State laws vary. HSA contributions through an employer may be excluded from FICA taxes. 4Subject to income limitations on participation (Roth IRA) or deductibility (Traditional IRA). Amounts do not include catch-up contributions. 5Penalties end at age 65 for HSA and, generally, at age 59½ for Roth and pretax. Distributions of contributed assets from Roth accounts are tax- and penalty-free. 6Early distributions from retirement plans or IRAs may be subject to taxes and penalties unless an exemption applies. 7Once you reach age 59½ with an account that has been opened for at least five years, you may qualify for tax-free withdrawals of both Roth contributions and any accumulated earnings. 8By April 1 following the year you reach age 72 (70 ½ if you were born before July 1, 1949) you must begin to withdraw a certain amount of money annually from your retirement account(s). If you are still working with the company that sponsors your plan, you may be allowed to delay your first RMD until the April 1 following the year in which you retire. For each year following the year you reach your RMD age (or retire, if later—as applicable) the deadline is December 31. 9Roth IRAs have no RMDs for original owner.  

For additional information please reference T. Rowe Price’s “Using Health Savings Accounts Wisely.”

Charts are shown for illustrative purposes only.

This material is provided for general and educational purposes only, and not intended to provide legal, tax or investment advice. This material does not provide recommendations concerning investments, investment strategies or account types; and not intended to suggest any particular investment action is appropriate for you. Please consider your own circumstances before making an investment decision.

T. Rowe Price Investment Services, Inc.

© 2020 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the bighorn sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc.

Tap to dismiss

Manage Subscriptions

Unsubscribe All

Manage your watched Funds and Insights subscriptions from the mobile menu.

Mobile Watchlist Menu

Manage your watched Funds and Insights subscriptions here.


Change Details

Congratulations! You are now registered.

Begin watching and receiving email updates for:


Sign in to manage your subscriptions and watch list.



Latest Date Range
Download Cancel

This content is restricted for Institutional Investors use only. We were not able to validate your status as an Institutional Investor with the information you provided at registration.

Please contact the T. Rowe Price Team with questions or to revise your status.


You will need to accept the Terms & Conditions again.


You have updated your email address.

An activation email has been sent to your new email address from T. Rowe Price.

Please click on the activation link in order to receive email updates.


You have an existing account

Click OK to view your subscriptions and watch list.


Confirm Cancel