Approaching retirement? If so, you may be surprised to learn that one of your biggest expenses could be health care. Many retirees assume that Medicare will cover most of their medical expenses. While Medicare is a valuable program, it doesn’t cover everything. According to a recent study from Fidelity, the average married couple will pay $275,000 for out-of-pocket health care costs in retirement.1
Those out-of-pocket costs include a number of different expenses, such as premiums, deductibles, copays and more. You also may face significant costs for long-term care, which is not reflected in the Fidelity estimate. As you get older, you may become more vulnerable to illness and injury. It’s possible that health care and long-term care costs could deplete your assets.
The good news is there are steps you can take to limit the impact of health care costs on your retirement. Below are four steps you may want to consider as part of your health care funding strategy. If you haven’t yet developed a plan, now may be the time to do so.
Contribute to a health savings account (HSA).
Do you have a health savings account (HSA) as part of your health coverage? You can use it as a powerful savings tool to pay for health care expenses in retirement. Your HSA allows you to make tax-deductible contributions and then grow your funds on a tax-deferred basis. As long as your withdrawals are made for qualified medical expenses, the distributions are tax-free.
In 2018 you can contribute as much as $3,450 to an HSA if you have single coverage and $6,850 if you have a family plan.2 Consider saving some of those funds for retirement. They can compound and grow on a long-term, tax-advantaged basis so you can then use the funds to cover out-of-pocket health care costs in retirement.
Consider purchasing long-term care insurance.
According to the U.S. Department of Health and Human Services, today’s 65-year-olds have a 70 percent chance of needing long-term care in the future.3 Long-term care is often provided either in a facility or in the home. In either case, it can cost thousands of dollars per month and may be needed for several years.
Long-term care insurance is a popular tool to help manage the expense. You make payments to an insurer, which then pays some or all of your long-term care costs in the future. Many policies cover care provided either in the home or in a facility. Some even cover reimbursements to family members who provide care or for modifications to your home to accommodate things like wheelchairs or medical beds.
Review your coverage options every year.
There was a time when Medicare simply covered hospitalizations. Today, however, Medicare offers a broad range of different types of protection. Part A, also known as Original Medicare, covers hospitalizations, while Part B covers doctor visits and other services. The newest addition, Part D, provides coverage for prescription drugs.
There’s also Part C, or Medicare Advantage, which allows you to purchase a coverage package through a private insurer. These policies provide the same base coverage as traditional Medicare but also enhanced protection for other services, such as dental and vision. Part C plans may also offer a broader range of different deductible and copay options.
Every year, Medicare allows beneficiaries the opportunity to review and change their plans. This enrollment period is a good time to analyze your changing health care needs and decide whether you need different coverage. You may find that you need a lower copay or coverage for a specific drug. This annual review can help you limit your out-of-pocket cost exposure.
Invest in your health.
Finally, perhaps the most important step you can take is to invest in your own health. Prevention is often far less expensive than treatment. Think about changes you can make today to improve your health and reduce your risk. You may consider quitting smoking, improving your diet or increasing your exercise. Your doctor can help you implement helpful changes.
Ready to develop your health care funding plan? Let’s talk about it. Contact us today at Spicer Wealth. We can help you analyze your needs and create a strategy. Let’s connect soon and start the conversation.
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