Planning for Healthcare Costs in Retirement: What to Consider After 50

As you approach retirement, it’s essential to factor in one of the most significant and often underestimated expenses: healthcare. With rising medical costs and the potential need for long-term care, planning for healthcare expenses is crucial to protecting your retirement savings.

Approximately half of U.S. adults struggle with the affordability of health care, and one in four say that either they or a family member in their household encountered difficulties paying for medical expenses over the past year.

Here’s what you need to consider after 50 to ensure you’re financially prepared for your healthcare needs in retirement.

1. Understand the Basics of Medicare

Medicare is a key component of healthcare planning for retirees, but it’s important to understand what it covers and doesn’t.

• Medicare Part A: Covers hospital stays, skilled nursing facilities, hospice care, and some home healthcare. Most people don’t pay a premium for Part A if they’ve paid Medicare taxes for at least 10 years.
• Medicare Part B: Covers outpatient care, doctor visits, preventive services, and some home health services. Part B requires a monthly premium adjusted based on your income.
• Medicare Part C (Medicare Advantage): An alternative to traditional Medicare, offered by private insurers, that bundles Part A, Part B, and often Part D (prescription drug coverage) into a single plan. These plans may offer additional benefits, like vision, dental, and hearing coverage.
• Medicare Part D: Provides prescription drug coverage. It’s important to choose a plan that meets your medication needs.

While Medicare covers many healthcare expenses, it doesn’t cover everything. For example, it doesn’t include long-term care, dental care, vision, hearing aids, or custodial care. Understanding these gaps is crucial for effective planning.

2. Plan for Out-of-Pocket Expenses

Even with Medicare, you’ll face out-of-pocket costs for premiums, deductibles, copayments, and coinsurance. These costs can add up, especially if you have ongoing health issues. Here’s how to manage them:

• Medigap (Medicare Supplement Insurance): Consider purchasing a Medigap policy to cover some of the costs that Medicare doesn’t, such as copayments, coinsurance, and deductibles. Private companies sell those policies and can help reduce unexpected expenses.
• Health Savings Accounts (HSAs): If you’re still working and have a high-deductible health plan (HDHP), you can contribute to an HSA. The funds in an HSA grow tax-free and can be used to pay for qualified medical expenses in retirement. HSAs are an excellent way to save specifically for healthcare costs.

3. Consider Long-Term Care Insurance

One of the most significant healthcare expenses in retirement is long-term care, which includes nursing home care, assisted living, and in-home care. Since Medicare doesn’t cover long-term care, for this potential expense is essential.

• Long-Term Care Insurance: Purchasing long-term care insurance can help protect your savings by covering some or all of the costs associated with long-term care. Policies vary widely, so it’s important to shop around and understand what each policy covers, including the daily benefit amount, the benefit period, and the elimination period (the amount of time you’ll pay out-of-pocket before coverage begins).
• Hybrid Policies: Some life insurance policies offer long-term care riders, allowing you to access your death benefit to pay for long-term care. These hybrid policies can provide flexibility if you don’t use the long-term care benefit.

4. Estimate Your Healthcare Costs

To effectively plan for healthcare costs in retirement, you need to estimate how much you might spend. According to recent estimates, the average couple retiring at age 65 can expect to spend over $315,000 on healthcare costs throughout retirement, not including long-term care. While this figure can vary based on your health and location, it’s a good starting point for planning.

• Use Online Calculators: Many online tools and calculators are available to help you estimate your healthcare costs in retirement. These tools can factor in your current health, family medical history, and expected retirement age to give you a more personalized estimate.

5. Incorporate Healthcare Costs into Your Retirement Budget

Once you’ve estimated your healthcare costs, incorporate them into your retirement budget. Make sure your retirement savings plan accounts for these expenses, and consider setting aside a specific portion of your savings for healthcare costs.

• Build an Emergency Fund: In addition to your retirement savings, having an emergency fund can help you cover unexpected healthcare costs without draining your retirement accounts.

6. Stay Healthy to Reduce Costs

Investing in your health now can pay off in the long run by reducing your healthcare costs in retirement. Regular exercise, a healthy diet, routine check-ups, and preventive care can help you avoid chronic conditions that could lead to higher medical expenses later.

7. Review and Adjust Your Plan Regularly

“Healthcare costs and insurance options change over time, so it’s important to review your plan regularly.” says Patricia Klein, Assistant Branch Manager, at David Lerner Associates, “ As you get closer to retirement, revisit your estimates and adjust your savings plan accordingly. Also, stay informed about changes to Medicare and other healthcare policies that could affect your coverage and costs.”

Planning for healthcare costs in retirement is a critical aspect of ensuring your financial security. You can be better prepared by understanding Medicare, considering long-term care insurance and estimating your healthcare expenses.

Incorporating these costs into your retirement plan, you can protect your savings and enjoy a healthier, more secure retirement. Start planning today to ensure you’re prepared the tomorrow’s healthcare challenges.

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Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.