Health Care Costs are Rising for Retirees – Here’s How to Plan Ahead

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Health care costs are rising for retirees, and it’s time to start planning ahead.

Alongside housing costs, retirees can expect that health care will be one of their most significant expenses in retirement. However, unlike previous generations, retirees today are likely going without access to employer- or union-sponsored retiree health benefits. This means that, as you’re planning for retirement, you need to be sure that you’re adequately considering the impact health care costs will have on your financial security.

Health Care Costs are Rising for Retirees: A Look at the Numbers

Recent research by Fidelity shows that an average retired couple (age 65), can expect to spend around $300,000 on health care expenses in retirement. Due to longer lifespans, health care inflation, and a younger retirement age, the health care cost hurdle is becoming more and more challenging as the years go on. Many retirees assume that Medicare will cover all of their health care costs in retirement, however, that’s not the case. Instead, retirees need to be sure that they’re making considerable efforts to create a specific plan as part of their retirement planning that focuses solely on how they’ll be able to cover the cost of health care once they’re no longer working.

Below are a few tips on how to plan for health care costs in retirement so that you can remain on solid financial footing as you age.

Include Health Care Costs Into Your Retirement Budget.

Too often, retirees and those getting ready to leave the workforce forget to budget for health care when they’re estimating their expenses in retirement. Failing to adequately account for health care can be detrimental since you’ll have to pay for both your health care premiums and any out-of-pocket costs in retirement. You’ll want to do research on the various health care options available to you as well as how much they’ll cost you so that you can accurately plan out your retirement budget.

                            SEE ALSO: The Pillars of Retirement Planning

Educate Yourself on the Various Health Care Premiums

Generally speaking, there are five types of health care premiums that you’re likely to have in retirement:

  • Medicare Part B: The premiums charged with this package are tightly tied to your income. If you earned $91,000 or less in 2021, then you can expect to pay a monthly premium of $170.10. If you earned more than you’ll have a higher premium depending on how much you earned.
  • Advantage Premiums (Medicare Part C): Medicare Advantage policies are useful because they include coverage for prescription drugs as well as options for dental, hearing, and eye care. However, these policies don’t always provide coverage for recurring conditions or extended hospital stays so if you or your family get a chronic or severe illness, you could still be left with a huge health care bill.
  • Medicare Part D Coverage: This coverage pertains primarily to prescription drugs that are self-administered. Typically, drugs that are given by a doctor are covered by Medicare Part B. Just keep in mind that this coverage doesn’t necessarily cover all drugs, so you’ll want to do some research to ensure that your needs be covered.
  • Medigap or Medicare: Retirees may look into purchasing a Medigap or Medicare Advantage Plan if they’re in need of insurance for costs that aren’t covered by basic Medicare. However, keep in mind that if you purchase a Medigap policy, it won’t necessarily cover costs for dental, hearing, and eye care so you’ll have to budget out those costs accordingly, as there’s a chance you’ll be left to pay some hefty expenses – especially for dental needs.
  • Long-Term Care Insurance Premiums: As you’re planning for health care needs in retirement, it’s important to consider long-term care – especially because Medicare does not cover the majority of long-term care costs. So, if you want to be sure that your potential long-term care costs will be covered, you’re going to want to look into purchasing long-term health care insurance.

Stay On Top of Your Health

While some sicknesses and diseases are out of our control, it’s generally a good idea to stay on top of your health and lead a healthy lifestyle if you want to minimize the burden of mounting medical bills. Try to get at least 30 minutes of exercise each day and be sure that you’re incorporating natural and healthy foods into your diet as much as possible. Additionally, make an effort to visit your doctor regularly – should something come up, the earlier your doctor can identify what’s going on, the sooner you can get treated. This helps to reduce your expenses in the long run, and it gives you a better quality of life, too.

                          SEE ALSO: What Wealth Retirees Fear the Most

Get Tax-Savvy With Your Distributions

If you’re a high-income taxpayer, you can expect to pay more for your Medicare Part B and Part D premiums. However, distributions from HSA accounts, Roth IRAs, or cash value from life insurance policies don’t count in the formula that Medicare uses to determine the final amount of your premiums. So, if retirees are smart with their distributions, they can often offset their high premium costs by managing their distributions in a more tax-efficient way. It can be complicated to understand exactly how best to go about making the most of your distributions, so it might be a good idea to work with a professional tax advisor or financial advisor who can help you devise the best tax strategy for you.

Don’t Let Health Care Costs Catch You Off Guard

Health care costs are on the rise, and there’s no sign that they’ll be slowing down. It’s imperative that you take time while you’re still working to build a plan for how you will be able to support yourself once you’re in retirement. Since health care utilization tends to increase as we age, you’ll want to have a solid understanding of how paying for future health care expenses will fit into your overall retirement income planning efforts.

At Andersen Wealth Management, our team is committed to taking a comprehensive approach to retirement planning to ensure that all of your financial bases are covered. If you’d like to begin a conversation with one of our professionals about how you can incorporate a plan for health care costs into your broader retirement plans, please contact us today.