What will be your biggest expense in retirement? Housing? Travel? Taxes? It could be health care. According to Fidelity’s most recent study on health care in retirement, the average 65-year-old couple can expect to spend nearly $280,000 on out-of-pocket health care costs in retirement.1
Many retirees expect Medicare to pay for most of their health care costs. Medicare is a valuable service, but it doesn’t pay for everything. Even after Medicare pays its share, you could still be left with deductibles, premiums, copays and more. In fact many services and treatments aren’t covered by Medicare at all.
If you haven’t planned for your health care needs in retirement, now may be the time to do so. Fortunately, there are steps you can take to minimize your risk exposure and perhaps reduce your out-of-pocket costs. Below are a few tips to help you get started:
Be proactive with your health.
Perhaps the most effective way to minimize your out-of-pocket health care costs is to reduce your health risk. That means being proactive and taking steps now to improve your wellness. You could improve your nutrition or exercise routine, or take other steps to lose weight. Perhaps it’s time to cut back on unhealthy habits such as smoking or drinking. Maybe you should look into ways to reduce your stress level. Talk to your physician about your health and how you can reduce your risk for illness and injury before you retire.
You can also take control of your health care costs by becoming an informed patient. Don’t be afraid to ask questions about why certain tests and procedures are necessary. Ask for cost estimates before you commit to a certain line of treatment. After all, you’ll likely have to pay at least something for much of your care, in the form of either copays or deductibles. Don’t hesitate to ask which services are truly necessary and which aren’t.
Choose the right Medicare plan for your needs.
Medicare coverage is offered in a variety of different programs known as “parts.” Part A is standard for every retiree and is free. It covers hospitalizations and inpatient services. Part B covers doctor visits and outpatient care. Part D covers prescription drugs.
Part C is an innovative program also known as Medicare Advantage. It allows private insurers to offer coverage that includes traditional Medicare protection but also enhanced coverage. These policies may offer flexibility with deductibles or premiums and often provide protection for services not traditionally covered by Medicare, such as dental visits or eye care.
Take time to choose the Medicare package that best fits your needs. While you can’t predict your future health, you can make an educated decision based on your medical history. If you have a chronic condition or need regular care, robust coverage may be best for you.
Use a health savings account (HSA).
No matter which Medicare plan you choose, you’re likely to have some amount of out-of-pocket costs in retirement. Fortunately, you can use a tax-efficient savings tool called an HSA to create a reserve of savings specifically for health care costs.
You can make tax-deductible contributions to your HSA and then allocate the funds to meet your goals and risk tolerance. Your assets grow tax-deferred as long as the funds stay in the account. If you use the money for qualified health care costs, you can take tax-free distributions. That means you can start saving today to pay for your medical expenses in the future, and you can do so in a tax-favored manner.
Ready to plan your health care strategy? Let’s talk about it. Contact us today at Spicer Wealth. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
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