Health Care in Retirement: Do You Have a Funding Strategy?

When planning your financial strategy for retirement, one of the most important steps is to estimate your spending and build a projected budget. You’ll likely factor in your usual bills and lifestyle expenses. However, be sure not to ignore health care costs as you predict your retirement spending.

Many retirees assume Medicare covers all health care costs in retirement. That assumption is usually incorrect. Fidelity estimates the average 65-year-old couple will have to pay $260,000 in out-of-pocket health care costs in retirement.¹ These costs can include your deductibles, premiums, copays and certain categories of medical care, such as services related to dental, vision or hearing.

If you haven’t yet developed a strategy for how you’ll pay for these costs in retirement, now may be the time to do so. Take a look at the three tips below, which can help you get on the right track.

Invest in your HSA.

If you’re still working and have a health savings account (HSA), you may want to use this opportunity to fund it as much as possible. Contributions to your HSA are usually tax-deductible, and growth inside the account is tax-deferred. Additionally, any withdrawals you make for qualified health care expenses are tax-free.

Because your HSA balance rolls over from year to year, you can take it with you into retirement after you leave the working world. That means you can receive tax advantages by saving today for future health care costs.

If you’re 55 or older, you may also want to consider taking advantage of the opportunity to make additional catch-up contributions to your HSA. After you turn 55, the maximum contribution limit increases to allow for additional savings.

Explore supplemental insurance coverage.

Medicare traditionally covers hospitalizations and visits to the doctor. You also may purchase a prescription drug plan to help with medication costs. However, Medicare usually covers only a portion of those costs, and there are many other health care costs that aren’t covered at all.

One option to consider is a Medicare Advantage plan. This is a program in which private insurers bundle traditional Medicare protection with supplemental coverage for health care needs such as prescription costs and dental and vision services. Many of these policies will have out-of-pocket caps to minimize the amount you’re forced to pay.

Medicare also typically does not cover the cost of long-term care, so it may be important to consider adding long-term care insurance to your protection strategy. This can be helpful if you develop issues that limit your cognitive abilities or your mobility, and provide protection if you need extended assistance with basic living activities such as eating, dressing or bathing.

Take stock of your health annually.

If you have Medicare, it may be important to know that it provides a yearly opportunity to change your protection levels. As you age, your health care needs may change, so it makes sense to make adjustments to your coverage when necessary.

Be sure to review your health and health care coverage regularly. If at some point you need greater protection, don’t hesitate to make a change. Staying on top of your health can be vital to help keeping your expenses down and enjoying your retirement years to the fullest.

Looking for more financial strategies that can help you get the most out of your retirement? Let’s start the conversation. Contact Wealth Management Services Group for more information and to speak with a financial planning professional today.

¹https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-in-retirement-rise

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