The Encore Project Podcast

The Number That Will Shock You: Planning for Retirement Health Costs

The Encore Project Season 4 Episode 5

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0:00 | 21:15

Here’s a number that stops most men cold: according to Fidelity, a 65-year-old retiring today will need approximately 65,000 just to cover healthcare costs throughout retirement — and that figure has more than doubled since 2002. For men over 50 who are still in the planning phase, healthcare expenses are almost certainly the most underestimated line item in their retirement budget. In this episode, we walk through what Fidelity’s research actually tells us about retirement health costs, why those costs keep rising, what specific expenses they cover, and what you can do right now to start planning for them before they become a crisis. 

SPEAKER_00

You probably picture retirement as a time for relaxation, travel, or, you know, finally tackling that passion project.

SPEAKER_01

Absolutely. That's the dream, right?

SPEAKER_00

Right. But there is a hidden uh six-figure price tag attached to getting older that could completely derail those golden years if you aren't prepared.

SPEAKER_01

Yeah, it's a reality a lot of people just don't see coming.

SPEAKER_00

Welcome to the deep dive. Today we're unpacking a really eye-opening guide compiled by the editorial team at the Encore Project.

SPEAKER_01

A fantastic resource, by the way.

SPEAKER_00

It really is. And our mission today is to figure out exactly why aging has become so incredibly expensive for men over 50, and more importantly, how you can actually shield your savings.

SPEAKER_01

Because the numbers are well, they're intimidating to say the least.

SPEAKER_00

Exactly. So let's just rip the band-aid off immediately. We have to start with the number itself.

SPEAKER_01

Aaron Powell The sticker shock is very real here when you look at the data compiled by Fidelity, and they really serve as the uh the gold standard for tracking these specific financial projections. Trevor Burrus, Jr.

SPEAKER_00

Right. They've been doing it a long time.

SPEAKER_01

Exactly. The baseline requirement they found is just staggering. A 65-year-old retiring right now in 2024 is going to need approximately $165,000.

SPEAKER_00

Aaron Powell Wait, hold on. $165,000.

SPEAKER_01

Yeah. And that is specifically earmarked just for healthcare costs throughout their retirement?

SPEAKER_00

Aaron Powell That is I mean, that's like having to buy a whole second house or you know fund another Ivy League college tuition after you stop working.

SPEAKER_01

Aaron Powell It really is. It's a massive chunk of wealth.

SPEAKER_00

Aaron Powell If I have, say, a million dollars sitting in my 401k, taking out almost a fifth of it just to hand over to hospitals, leaves me with significantly less to actually live on.

SPEAKER_01

Aaron Powell Oh, without a doubt. It changes your whole withdrawal strategy.

SPEAKER_00

Aaron Powell When I first read that in the research, my immediate thought was, okay, they must be calculating an absolute worst-case scenario. Trevor Burrus, Jr.

SPEAKER_01

That's what everyone assumes, yeah. Trevor Burrus, Jr.: Right.

SPEAKER_00

Like, are they assuming you get hit by a bus or develop some uh some rare illness that requires years of specialized, round-the-clock intensive care?

SPEAKER_01

Aaron Powell That is the natural reaction. But the sobering reality is that no, this is not a worst-case scenario. This figure is actually an average baseline for a single individual, is what you should expect for standard run-of-the-mill care over the course of your remaining decades.

SPEAKER_00

Aaron Powell So just the average person, that's terrifying.

SPEAKER_01

Aaron Powell And what really demands our attention is the trajectory of this cost. It's a constantly moving target.

SPEAKER_00

Meaning it's going up Rapidly.

SPEAKER_01

That $165,000 projection, that's a 5% increase from just last year.

SPEAKER_00

Aaron Powell Just since 2023.

SPEAKER_01

Yep. And if you zoom out to when Fidelity first started tracking this metric back in 2002, the cost has more than doubled.

SPEAKER_00

Aaron Powell More than doubled. Wow. I suppose if inflation is doing its normal thing and medical technology is constantly pushing the envelope of what's possible.

SPEAKER_01

Aaron Powell Which usually means pushing the envelope of what is expensive.

SPEAKER_00

Aaron Powell Exactly. This number is only going in one direction and that's up.

SPEAKER_01

Yeah.

SPEAKER_00

But what exactly is that mountain of money buying? Like, is this just covering catastrophic events?

SPEAKER_01

Aaron Powell Not at all. It covers a very broad everyday spectrum of care. We are talking about routine doctor visits, scheduled surgeries like knee or hip replacements.

SPEAKER_00

Stuff that just naturally wears out.

SPEAKER_01

Exactly. And all of the specialist consultations that come with an aging body. It covers the daily medications you'll take to manage chronic conditions.

SPEAKER_00

Right, the stuff you take every single day.

SPEAKER_01

And it also absorbs the constant drip of copies. Every single time you walk into a clinic, spend a night in a hospital bed, or get a lab test, money is coming out of that pool.

SPEAKER_00

Just nickel and diming you for decades.

SPEAKER_01

Right. And crucially, it factors in long-term care costs, which includes assistance with daily living activities if you eventually have difficulty managing on your own.

SPEAKER_00

Okay, so if $165,000 is the baseline for someone who is reasonably healthy, where is that money actually bleeding out?

SPEAKER_01

That's the big question.

SPEAKER_00

Like what is draining the account day to day as you navigate your 60s, 70s, and 80s?

SPEAKER_01

The mechanism driving these costs really breaks down into a few distinct areas. The foundational issue is simply the shift in how we experience health issues as we age.

SPEAKER_00

Okay. What do you mean by that?

SPEAKER_01

Well, when you're younger, your medical costs are largely acute. You break an arm, you get it fixed, you pay the bill, and it's over.

SPEAKER_00

You're in and out.

SPEAKER_01

Exactly. But as you age, the risk of developing chronic conditions completely changes the financial math. We're talking about high blood pressure, type 2 diabetes, heart disease.

SPEAKER_00

Things that don't just go away.

SPEAKER_01

Right. You do not treat these once and cure them, you manage them constantly.

SPEAKER_00

Which means the math just compounds. You aren't just buying more medicine, you're suddenly paying for an entire network of specialists instead of one general practitioner.

SPEAKER_01

Aaron Powell Precisely. You are interacting with the medical system with far greater frequency. You see a cardiologist, an endocrinologist, maybe a physical therapist.

SPEAKER_00

And they all have separate copies.

SPEAKER_01

And those specialists recommend preventive checkups, which are fantastic for catching issues early.

SPEAKER_00

Sure, medically speaking, that's the goal.

SPEAKER_01

But financially, those checkups triggered diagnostic tests, imaging, and localized treatments. Your utilization of the healthcare system goes from a rare occurrence to a, well, a routine schedule.

SPEAKER_00

Yeah, if you are in your 50s right now, you've probably already noticed that shift.

SPEAKER_01

Oh, absolutely.

SPEAKER_00

You go from seeing a doctor once every five years for a sprained ankle to suddenly needing a team of experts just to keep your knees working and your blood pressure in the safe zone.

SPEAKER_01

It becomes a part-time job just managing your appointments.

SPEAKER_00

But even with a team of doctors and regular copays, that six-figure number feels incredibly high. Is there a specific uh financial iceberg out there that we just aren't seeing?

SPEAKER_01

The iceberg is what happens when you don't necessarily need a doctor, but you still need help. It's the cost of long-term care.

SPEAKER_00

Okay, the daily living stuff.

SPEAKER_01

Right. And to understand why this is so devastating financially, we have to look at the difference between medical care and custodial care.

SPEAKER_00

Aaron Powell What's the distinction there?

SPEAKER_01

Medical care is when a nurse gives you an IV or a doctor performs surgery. Custodial care is when you hire an aide to help you get out of bed, bathe, dress, or prepare meals because your mobility has declined.

SPEAKER_00

Ah, I see. So it's not strictly medical, it's lifestyle support.

SPEAKER_01

Exactly. And the costs for nursing homes or even part-time at-home help are exorbitant. The data from the editorial team suggests that simply relying on a fixed pension or a standard retirement withdrawal rate might not be enough to cover it.

SPEAKER_00

Really? Even a decent pension.

SPEAKER_01

Yeah. In fact, having a revenue-generating business or substantial passive income is often necessary just to keep up with the cost of having someone help you with daily activities.

SPEAKER_00

Man, that is a heavy realization. It transforms aging from a medical issue into this massive logistical and staffing expense.

SPEAKER_01

Aaron Powell It really does. It's a completely different category of spending.

SPEAKER_00

Aaron Powell What about the actual medications? Because, you know, every time I turn on the television, there is a commercial for some new life-changing drug.

SPEAKER_01

Aaron Powell And that brings us to the final major drain on your savings, the fundamental shift in how pharmaceuticals are made.

SPEAKER_00

Aaron Powell They're getting more advanced, obviously.

SPEAKER_01

Aaron Powell Right. We aren't just talking about generic mass-produced daily pills anymore. The pharmaceutical industry is heavily shifting toward what are called biologics.

SPEAKER_00

Biologics.

SPEAKER_01

Yeah. They are incredibly complex lab-grown treatments for conditions like rheumatoid arthritis or certain types of cancer. Okay. Because they're grown from living cells rather than synthesized in a chemical vat, they are phenomenally expensive to develop and manufacture.

SPEAKER_00

Aaron Powell So we're talking a lot more than a $20 copay at the pharmacy.

SPEAKER_01

Oh, we're talking thousands of dollars for a single dose. And the trap here is that standard insurance structures simply were not built to absorb these modern prices.

SPEAKER_00

Aaron Powell Which leaves the patient covering a massive gap out of pocket.

SPEAKER_01

Exactly.

SPEAKER_00

Wait, hold on. Let's talk about insurance. Because I know this is the exact question you are probably screaming at your audio player right now.

SPEAKER_01

The Medicare question.

SPEAKER_00

Yes. I have been paying FICA taxes out of every single paycheck since I was 16 years old. Doesn't Medicare step in and take care of all this once we hit 65?

SPEAKER_01

It is an entirely logical assumption to make.

SPEAKER_00

Why is this all coming out of my pocket?

SPEAKER_01

Well, relying on that assumption is one of the most dangerous mistakes you can make in retirement planning. Medicare is an essential safety net, sure, but it has massive structural gaps.

SPEAKER_00

Okay, break that down for us. Where are the gaps?

SPEAKER_01

To understand why, you have to look at how basic Medicare is divided. You have part A, which covers hospital stays, and part B, which covers doctor visits.

SPEAKER_00

Seems comprehensive enough.

SPEAKER_01

It seems like it, but basic Medicare still requires premiums, deductibles, and coinsurance. And it generally does not cover routine dental, vision, or hearing care.

SPEAKER_00

Aaron Powell, which are precisely the things that start to fail as you age.

SPEAKER_01

Exactly. And what about that custodial care we mentioned earlier? The aides helping you at home.

SPEAKER_00

Right. Does Medicare cover that?

SPEAKER_01

Basic Medicare covers almost none of it. It will pay to fix you medically, but it will not pay to maintain your daily living. Wow. Furthermore, if you want coverage for prescription drugs, you have to purchase a separate Part D plan, which comes with its own confusing out-of-pocket maximums and coverage gaps.

SPEAKER_00

Okay, so that $165,000 projection we started with?

SPEAKER_01

That is the expectation after basic Medicare does its part.

SPEAKER_00

Wow. Okay. That is a serious reality check.

SPEAKER_01

It wakes you up, doesn't it?

SPEAKER_00

It really does. And honestly, this is exactly why we are unpacking this editorial data today. I mean, the Encore project helps men in retirement find fresh inspiration and new purpose.

SPEAKER_01

Right. They focus on the next chapter.

SPEAKER_00

But let's be real, it is virtually impossible to focus on a new passion project or, you know, launching a second career or traveling the world if you are drowning in a sea of medical bills.

SPEAKER_01

Or constantly anxious about how you'll afford next month's prescriptions.

SPEAKER_00

Exactly. You cannot enjoy the encore if you're stressed about the ticket price.

SPEAKER_01

Financial stress will entirely consume your retirement if you let it. But you know, the value of this research isn't just to hand you a terrifying number and walk away.

SPEAKER_00

Thank goodness for that.

SPEAKER_01

Right. The data naturally points toward very specific, actionable financial defenses. We can actually build a playbook to insulate your savings from these costs.

SPEAKER_00

Well, let's get into the chance then. Because the most obvious strategy is simply to save early and rely on compound interest.

SPEAKER_01

Always a good idea.

SPEAKER_00

But for someone listening right now, why do I need a totally separate strategy for this? If I'm already aggressively funding my 401k or my IRA, why can't I just leave the money there?

SPEAKER_01

Just pull from the 401k when you need it?

SPEAKER_00

Yeah, let it grow and pull the $165,000 out of my standard retirement accounts when I eventually need a knee replacement. Why doesn't that work?

SPEAKER_01

The reason you don't want to use your 401k for medical bills comes down to tax drag.

SPEAKER_00

Tax drag. Okay.

SPEAKER_01

When you pull money out of a traditional 401k in retirement, the government taxes that withdrawal as ordinary income.

SPEAKER_00

Aaron Powell Right, because you didn't pay taxes on it when it went in.

SPEAKER_01

Exactly. So if you suddenly need $30,000 for a medical emergency, you might actually have to withdraw $40,000 from your 401k just to cover the taxes on the distribution.

SPEAKER_00

Oh wow. I hadn't thought of that.

SPEAKER_01

Yeah, you are losing a huge percentage of your wealth to the IRS just to pay a hospital.

SPEAKER_00

Which brings us to the ultimate tool highlighted in the data, the health savings account, or HSA.

SPEAKER_01

Aaron Powell Yes, the HSA. Think of it less like a standard savings account and more like an offshore tax haven that the IRS actually encourages you to use.

SPEAKER_00

Aaron Powell Provided the money only ever buys healthcare, right?

SPEAKER_01

Exactly. It has what financial planners call the triple tax benefit, and there is quite literally no other account in the American financial system that does this.

SPEAKER_00

Aaron Powell It's basically the financial Swiss Army knife of retirement planning. Walk us through the mechanics of that triple benefit. How does it actually shield the money?

SPEAKER_01

First, the money you contribute to the HSA goes in completely tax free. If you earn $100,000 and put $4,000 into your HSA, the IRS acts as if you only earned $96,000 that year.

SPEAKER_00

Aaron Powell So it lowers your taxable income immediately.

SPEAKER_01

Immediately. Second, while that money sits in the account, it grows tax-free. You don't just leave it in cash, you invest it in mutual funds or index funds, just like your 401k.

SPEAKER_00

Oh, so you invest it.

SPEAKER_01

Yes. Over decades, it compounds and you never pay a single dime in capital gains taxes on that growth.

SPEAKER_00

Aaron Powell And the third benefit is the withdrawal, right?

SPEAKER_01

Precisely. When you're 65 and you need to pay for that knee replacement, you pull the money out of the HSA. As long as it is used for a qualified medical expense, the withdrawal is 100% tax-free.

SPEAKER_00

That is incredible.

SPEAKER_01

You avoided taxes on the seed, you avoided taxes on the growth, and you avoid taxes on the harvest. The IRS never touches it.

SPEAKER_00

But there is a catch, isn't there? You can't just walk into a bank and open one of these on a whim.

SPEAKER_01

Correct. You are only legally allowed to contribute to an HSA if you are currently enrolled in a high deductible health plan, or HDHP.

SPEAKER_00

Aaron Powell Okay, what does that look like day-to-day?

SPEAKER_01

These plans have lower monthly premiums, but you have to pay more out of pocket before your insurance actually kicks in. The government gives you access to the HSA to help you save for that high deductible.

SPEAKER_00

Got it. So you're taking on more immediate risk for the tax benefit.

SPEAKER_01

Right. But if you have the cash flow to pay your current minor medical bills out of pocket, you can just let the HSA sit there. Invested, compounding tax-free for decades until retirement.

SPEAKER_00

Okay, but what if I am listening to this, I'm 55 years old, and I am just now realizing I am behind.

SPEAKER_01

It happens to a lot of people.

SPEAKER_00

Right, because decades of compounding interest sounds great for a 25-year-old, but what is the strategy if the runaway is getting shorter?

SPEAKER_01

The strategy is to utilize catch-up contributions immediately. The IRS recognizes that people get behind, so once you hit age 50, they actually change the rules for you.

SPEAKER_00

Oh really?

SPEAKER_01

Yeah. They bump up the legal limit on what you are allowed to throw into your retirement accounts, including your HSA and your 401k, every single year.

SPEAKER_00

So they give you a little more breathing room to catch up.

SPEAKER_01

Exactly. You are allowed to aggressively shovel extra cash into these tax-advantaged accounts to make up for lost time. The key is simply taking the action to adjust your automated contributions today.

SPEAKER_00

And beyond the saving mechanisms, the research from the Encore project emphasizes the absolute necessity of formal budgeting for these specific premiums.

SPEAKER_01

You cannot just wing it when it comes to Medicare.

SPEAKER_00

No, you really have to actually sit down and investigate the difference between, say, a Medicare Advantage plan and a Medigap plan.

SPEAKER_01

Aaron Powell You do, because they operate very differently, and making the wrong choice can be costly.

SPEAKER_00

Aaron Powell Can you give us a quick breakdown of the difference?

SPEAKER_01

Aaron Powell Sure. Medigap policies act alongside your basic Medicare to pay for the out-of-pocket costs, the co-pays and deductibles that standard Medicare leaves behind.

SPEAKER_00

Okay.

SPEAKER_01

You pay a higher monthly premium for Medigap, but your costs at the hospital are much more predictable.

SPEAKER_00

Aaron Powell And Advantage plans.

SPEAKER_01

Medicare Advantage, on the other hand, is essentially a private insurance alternative that bundles everything together, often including prescription drug coverage.

SPEAKER_00

That sounds easier.

SPEAKER_01

It can be. They might have lower premiums, but they usually require you to stay within a strict network of local doctors and hospitals.

SPEAKER_00

Which means if you plan on traveling the country in an RV during your retirement, a highly restrictive, localized advantage network might be a complete disaster for you if you get sick three states away from home.

SPEAKER_01

Exactly. You'd be totally out of network.

SPEAKER_00

You really have to investigate these options well before you retire to ensure your coverage actually matches your lifestyle.

SPEAKER_01

That alignment between lifestyle and financial planning is critical.

SPEAKER_00

And you know, that leads to a fascinating realization in the data. We have talked entirely about financial engineering so far.

SPEAKER_01

Right. HSAs, tax drags, catch-up contributions.

SPEAKER_00

Exactly. But the ultimate defense against healthcare costs isn't just having a bigger bank account, it is lifestyle as the financial strategy.

SPEAKER_01

I love this part of the guide.

SPEAKER_00

The most effective way to lower your health care costs is to aggressively avoid entering the medical system in the first place.

SPEAKER_01

It is the most direct way to protect your wealth. We often view diet, exercise, and sleep as purely biological concerns, just trying to feel good. Right. But the data shows they are direct, measurable financial strategies. By avoiding the behaviors that lead to chronic diseases, you are actively dodging the compounding costs associated with managing them.

SPEAKER_00

To put this in strict financial terms, avoiding type 2 diabetes by radically changing your diet in your 50s isn't just a win for your waistline. Not at all. Based on the cost of insulin, frequent endocrinologist visits, and localized treatments over a 20-year retirement, avoiding that single disease is the mathematical equivalent of adding roughly $80,000 in tax-free bonds to your portfolio.

SPEAKER_01

That is a staggering way to look at it.

SPEAKER_00

It really is. That is money that stays in your pocket rather than flowing to a pharmacy.

SPEAKER_01

And that biological maintenance extends to utilizing free preventative care. The system actually wants to help you catch things early because it is cheaper for them, too.

SPEAKER_00

Makes sense.

SPEAKER_01

Medicare provides a suite of free preventive services, including specific cancer screenings and vaccinations. The goal is to catch a problem when it's a tiny, manageable irregularity that costs a few hundred dollars to resolve.

SPEAKER_00

Rather than waiting until it becomes a systemic life-threatening emergency that costs tens of thousands of dollars and requires a massive surgical intervention.

SPEAKER_01

Exactly. A proactive defense beats a reactive scramble every time.

SPEAKER_00

But eventually, no matter how much broccoli you eat, you will have to interact with the medical system.

SPEAKER_01

True. Nobody escapes it entirely.

SPEAKER_00

And when you do, the research points out something that exposes a hilarious yet kind of tragic irony in human behavior.

SPEAKER_01

Oh, the shopping around aspect.

SPEAKER_00

Yes. We will spend three weeks reading reviews on different websites, tracking price history, and waiting for a holiday sale just to save 50 bucks on a new flat-screen television.

SPEAKER_01

Guilty as charged.

SPEAKER_00

But we will blindly accept the very first price a hospital gives us for a major multi-thousand dollar procedure without ever asking a single question.

SPEAKER_01

We have a massive psychological blind spot when it comes to medical billing. We operate under the assumption that the price a hospital quotes is an absolute law of nature.

SPEAKER_00

Like it's carved in stone somewhere.

SPEAKER_01

Right. But medical costs vary wildly. They vary by location, by facility, and by the specific provider you visit. An MRI at a major centralized hospital might cost three times as much as the exact same MRI machine at a standalone independent imaging center just two miles down the street.

SPEAKER_00

Three times as much for the exact same scam.

SPEAKER_01

Easily. Sometimes more. And beyond just shopping around for facilities, the data highlights that hospitals and private practices will frequently offer significant discounts for patients who are willing to pay out of pocket in cash.

SPEAKER_00

Wait, really? A cash discount at a hospital?

SPEAKER_01

Yeah. Dealing with insurance coding, claims adjusters, and delayed payouts is an administrative nightmare for a hospital's billing department.

SPEAKER_00

Sure, I can imagine.

SPEAKER_01

If you offer to bypass all of that and just hand them cash from your HSA, they will often drastically reduce the total bill.

SPEAKER_00

That is a huge pro tip.

SPEAKER_01

But they are not going to advertise that on a billboard. You have to advocate for yourself. You have to actively ask for the cash price.

SPEAKER_00

So bringing all of this together, the $165,000 figure, the Fidelity Projects for Your Retirement Healthcare is undoubtedly daunting.

SPEAKER_01

It's a scary number.

SPEAKER_00

But as the editorial team at the Encore Project has illuminated, it is absolutely not a financial death sentence. It's simply a math problem.

SPEAKER_01

Exactly. It's just math.

SPEAKER_00

And by utilizing the triple tax power of a health savings account, by taking advantage of catch-up contributions today, by treating your physical health as your highest yielding financial asset, and by refusing to be a passive consumer when you're handed a medical bill, you can systematically shield your savings.

SPEAKER_01

You transition from feeling like a victim of an aging body to an active manager of your future.

SPEAKER_00

And if you are looking for more strategies to navigate this season of life with confidence, we want to remind you that the Encore Project publishes fresh, incredibly useful content every single week designed specifically to help you thrive in your senior years.

SPEAKER_01

It's a must-read, honestly.

SPEAKER_00

Head over to the UncoreProject.org to explore their resources and continue building your playbook.

SPEAKER_01

You know, I think the most powerful takeaway from all of this data is a complete shift in perspective. Well, we spend our entire adult lives meticulously tracking the ROI of our stock portfolios, watching the housing market, and analyzing our 401ks.

SPEAKER_00

Obsessively sometimes.