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3 Ways to Handle Health Care Costs in Retirement

May 07, 2019

There are many factors to consider when you’re saving for retirement, such as whether you’ll be paying a mortgage or how much traveling you want to do. But don’t overlook health care costs when you’re planning, because they could be a substantial piece of your budget once your retirement begins.

Many people nearing retirement don’t have medical expenses on their radars, or they think Medicare will cover all their medical costs. Talk to a financial planner about how to estimate future costs. For example, Fidelity Investments says a 65-year-old couple retiring in 2018 will pay $280,000 on health care bills over the rest of their lives.1 This figure includes monthly payments for Medicare Part B and Part D prescription drug coverage, along with a possible Part C Medicare Advantage plan or Medigap coverage. It also includes out-of-pocket expenses, including deductibles and copays. It does not, however, account for possible long-term care costs, which could raise that total considerably.

How to Pay the Bills

That $280,000 figure can be scary to contemplate, but it’s important to remember you won’t be paying it all at once. There are ways you can plan to cover your retirement health care costs when they come up, especially if your retirement is still a few years off. Consider discussing the following three options with your financial advisor:

  1. Postpone Social Security. While 63 is the average age of retirement according to the U.S. Census Bureau, you could face financial challenges if you retire that early. If you go on Social Security right away, your benefits will be far lower than if you waited until full retirement age (approximately age 66 for most people today). And waiting until 70 can earn you a significant bonus on your monthly Social Security check. Those higher monthly benefits could ease the impact of medical expenses once you do retire. Additionally, retiring before you qualify for Medicare could force you to pay for expensive private-market insurance or go without coverage at all.
  2. Start a health savings account. When you sign up for certain high-deductible health insurance plans, either through your employer or on the open market, you can be eligible to start a health savings account (HSA). Deposits are made using before-tax dollars, which reduces your current taxable income, and balances roll over year after year. Any interest earned is tax-free, and you pay no tax on any withdrawals made to cover qualified medical expenses. These accounts travel with you, even if you leave your current employer, and you can continue to access the accounts into retirement. Having at least some savings dedicated to your health care costs can give you a head start as you go into retirement.
  3. Stay healthy. This may seem obvious, but better overall health generally leads to lower health care costs. The Kaiser Family Foundation found that a person in poor health spends about $1,700 more per year on out-of-pocket medical expenses than someone in very good health. Eating well and staying active can help your wallet as well as your health. We all tend to spend more on health care as we get older, but if you take care of yourself, there’s a greater chance of curbing some of those costs.
Get Help with Your Plan

Like any issue related to retirement planning, the real answers lie in the details of your personal goals and finances. Consulting with a financial advisor you trust is a great first step toward addressing your future financial needs — including the medical care you’ll need to stay healthy throughout your retirement.

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The Medicare Advantage and Medicare Part D plans are health plans with a Medicare contract or a standalone prescription drug plan with a Medicare contract. The Medicare Contract is renewed annually, and the availability of coverage beyond the end of the current year is not guaranteed.

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