5 Tips To Help Employees Save for Health Care During Retirement

It may be easy for employees to estimate the cost of housing, travel, food and living expenses when they retire. But there is far more uncertainty when it comes to health care costs. It can be like hitting a moving target. No one knows how long they’re going to live or what health issues await them.

What we do know is that people are living longer. This means they’ll need to pay for health care over a longer period. We also know that health care inflation is rising faster than the rate of general inflation. Health care costs in retirement will be much higher than what they are today. And, while the individual retirement age varies by individual, we know the average age for retirement is 62. That is three years before retirees can enroll in Medicare.

For employees, the thought of calculating retiree health care costs can be intimidating. Here are five ways you can help them prepare.

Tip 1: Educate employees about estimated costs

It’s impossible to know exactly what employees will need to save for health care during retirement. However, giving them an idea of what to expect can help employees decide if they are on the right track or need to adjust their saving strategy. The Fidelity Retiree Health Care Cost Estimate reports that the average retired couple may need approximately $345,000 to cover health care expenses in retirement.

Tip 2: Communicate the benefits of a 401(k) or IRA

Taking advantage of an employer-sponsored retirement plan seems like a no-brainer. However, a report from the Government Accountability Office shows 48% of older households are not taking advantage of 401(k) or individual retirement arrangement (IRA) accounts. That doesn’t mean employees aren’t saving for retirement. It does mean 401(k) and IRA accounts are underutilized.

If you offer employees a 401(k) or IRA plan, be sure they’re aware of the benefits these accounts can provide. Highlight any matching contributions you make and encourage employees to enroll in these programs as soon as they can. The length of time employees invest can have a significant impact on their savings.

Tip 3: Offer an HSA and explain the benefits

If available, suggest employees contribute to a health savings account (HSA) and take advantage of triple tax savings by:

• Contributing money tax-free

• Growing earnings tax-free

• Withdrawing funds for qualified medical expenses tax-free

An HSA can reduce employees’ taxable income and potentially lower their current tax burden.

Tip 4: Explain how catch-up contributions can help older employees

The IRS limits contributions to retirement accounts. However, employees age 50 or older can make catch-up contributions to help them better prepare for retirement. New legislation allows employees age 60 to 63 to contribute even more. For 2026, catch-up contribution limits are:

• 401(k) for employees age 50 through 59, and age 64 and above: $8,000 (in addition to the $24,500 standard contribution limit)

• 401(k) for employees age 60 through 63: $11,250 (in addition to the $24,500 standard contribution limit)

• IRA: $1,100 (in addition to the standard $7,500 annual limit)

• HSA: $1,000 (for those age 55 or older, in addition to the self-only limit of $4,400 and the family limit of $8,750)

Tip 5: Explain the benefits of long-term care insurance

Long-term care services are expensive, and Medicare doesn’t provide extended long-term care coverage. But there are long-term care policies that pay a monthly benefit toward costs for care in a nursing home or assisted living facility, as well as at-home assistance.

Long-term care insurance premiums can range from approximately $1,000 to over $2,500 a year. However, the younger someone is when they enroll, the lower the cost.

Start planning today

It’s understandable that employees might be concerned about whether they’ll have enough money saved to cover their health care needs in retirement. Luckily, there are financial steps they can take today to prevent health care costs from eating into their retirement lifestyle.

This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.

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