What’s the Cure for Rising Healthcare Costs in Retirement?

Healthcare Costs in Retirement

It’s no surprise that healthcare is likely to be one of the biggest expenses in retirement. The realities of aging can make this a difficult period in life from a health perspective. Currently, Fidelity Investments estimates that the average couple will need $280,000 just for medical expenses in retirement. With a little planning and education, however, this cost can become more manageable and you can go back to enjoying your stress-free golden years.

How to Budget for Medical Expenses in Retirement

Some people are caught off-guard by how expensive medical care can be in retirement. These individuals either did not include healthcare in their retirement budget or did not include accurate estimates.

After years of receiving employer-sponsored health insurance, the costs may be shocking. While working, employers typically cover a significant part of the insurance premiums and the employees are responsible for smaller monthly payments and deductibles. In retirement, individuals will have to cover 100% of the premium as well as out-of-pocket amounts.

Macroeconomic factors such as rising healthcare inflation and longer lifespans can also affect the amount needed in retirement. How healthy you are, where and when you decide to retire will also influence the calculation.

Some websites may offer retirement healthcare calculators, but these are not entirely accurate. It’s better to discuss your plans with a qualified professional who will take the time to understand your situation and unique needs.

What Should be Included in a Retirement Healthcare Budget

Here’s a sample list of what should be included in your healthcare budget for retirement:

  • Premiums
    • Medicare Part A (hospital insurance) is free
    • Medicare Part B (medical insurance), C (medigap coverage) and D (prescription drug coverage) have premiums
  • Doctors’ appointments
  • Co-payments
  • Hospital visits
  • Medication
  • Supplemental prescription plans
  • Additional insurance plans to cover dental visits or eye care
  • Long-term care insurance

How to Save Money on Healthcare Costs in Retirement

Managing your health and the related expenses doesn’t need to be overwhelming. As you age, here are some steps you can take to save on overall healthcare costs.

  1. Improve Your Health

Prevention can be the best medicine. Keeping healthy before and during retirement can help lower your risk of disease. A healthy diet, moderate exercise and a regular sleep schedule are all important. Routine preventative medical checkups and immunizations can also keep you healthy longer and potentially lower future medical expenses.

  1. Review and Adjust Medical Plans

Throughout retirement your insurance needs may change. If you have employer- or union-sponsored retiree insurance (sadly an increasingly rare occurrence), be sure to evaluate premiums and deductibles. If you expect you’ll need a lot of doctors’ visits and medical care, it may be more economical to pay for a higher premium/lower deductible plan. You can still evaluate your options if you are on Medicare. You are not stuck with the Medicare plan you first choose. Take note of when you can first enroll in Parts A, B and D so you don’t face late enrollment penalties. It’s also important to know some of the costs that are not covered by medicare.

  1. Access Savings in a Tax-Efficient Manner

Your Medicare premiums will be calculated based on your income. Working with a financial planner you may be able to access savings for medical expenses in a tax-efficient way. Some income or distributions, such as from Roth IRAs, Health Savings Accounts, reverse mortgage or cash value life insurance, aren’t considered in the formula to determine premiums. HSAs offer another benefit in that you can withdraw the money tax-free for qualified medical expenses.

  1. Save on Prescription Drugs

If you have to take prescription drugs, be sure to investigate ways to save money. For more expensive medicines, sometimes the manufacturer will offer discounts. If you take medicine daily, try to order the pills in bulk or through mail-order. Also, if possible, seek out generic versions which are typically cheaper and just as effective.

  1. Avoid Purchasing Medical Equipment

You don’t always need to buy expensive medical devices, especially if you only plan on using it for a short period of time. There are organizations that collect, maintain and loan medical equipment to people in need. If you need walkers, crutches, wheelchairs or other equipment, check with a senior center to find a group that can help.

  1. Remember Dental Care

Routine dental care is important even if your Medicare plan doesn’t cover it. Some diseases show up in the gums before they become major health risks. To save on out-of-pocket costs, consider visiting a dental school. Student teachers and residents take patients for a discounted price relative to regular private practices. If you have a lot of dental needs, it may be worth finding a dental savings plan. Some of these even offer free trial periods.

  1. Consider the Long-Term

While you may be independent and healthy now, it’s good to have a plan for the long-term. You may face unexpected medical costs or need ongoing health aides. Family may be able to help, but not everyone has this luxury or wants to put that burden on their loved ones. Taking care of this now can avoid stress and financial duress in the long-run.

Next Steps to Prepare for Future Healthcare

Even if you aren’t in retirement yet, there are steps you can take to prepare for future healthcare expenditures. Start saving now, whether in a retirement account or in a health savings account (HSA). Money that you place in HSAs is contributed pretax and is not taxed when used for qualified medical expenses. This money can be used now or in retirement.

As you approach retirement, periodically review your savings and estimated healthcare costs and make a plan to cover any shortfalls. This can help make sure you have the resources you need to enjoy your retirement years.

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