Health Care Funding Costs

Do You Have a Health Care Funding Strategy for Retirement?

Are you nearing retirement age? If so, you may have some big decisions to make regarding your health care plans. Many retirees assume Medicare will cover all their health care costs in retirement. While Medicare is a useful tool, it most likely won’t be able to cover all your needs.

According to a recent Fidelity study, the average 65-year-old couple will have to pay $260,000 in out-of-pocket health care expenses in retirement.1 This number includes deductibles, premiums, copays and non-covered services such as international treatment, dental checkups, and vision and hearing.

Do you have a strategy to pay for these out-of-pocket health care costs during your retirement years? If not, below are a few tips to get you started:

1.) Take advantage of your health savings account (HSA) while you can.

An HSA is a powerful tool that can help you fund the cost of health care. If you’re still working and have an HSA, you may want to take advantage of it before you retire. Your HSA allows you to make tax-deductible contributions, grow your money tax-deferred and take tax-free withdrawals for qualified medical expenses.

Your HSA balance also rolls over from year to year. That means you can take your account with you into retirement. It also means you can save for your health care in a tax-advantaged way today for any health costs you might run into in the future.

In 2017 the maximum annual contribution you can make to your HSA is $3,400 for individuals. But if you’re over the age of 55, you can take advantage of catch-up contributions and contribute an additional $1,000, raising your maximum to $4,400.2 If you’re nearing retirement age, taking advantage of catch-up contributions can be a good way to cover some of the medical costs you’ll encounter in retirement.

2.) Consider supplemental coverage.

While Medicare does cover many things, you may want to consider coverage beyond what the program offers. For example, you could look into a Medicare Advantage plan. These plans bundle your traditional Medicare coverage with private plans that fill in Medicare’s protection gaps. Many of these plans have out-of-pocket caps that minimize your exposure should you need costly treatment and care.

You might also want to consider long-term care insurance. This type of insurance can provide protection for extended assistance with basic living activities like eating, dressing or bathing. Long-term care insurance can be particularly useful if you develop conditions such as Alzheimer’s that limit your cognitive abilities or your mobility.

3.) Reassess your needs regularly.

As you grow older, your health care needs will more than likely change. It’s not a bad idea to review your coverage annually to ensure you’re covered. Thankfully, Medicare provides an annual opportunity to change your protection needs.

For example, one year you may have relatively few health issues, so you may choose a plan that offers lower protection levels but also has lower premiums and other costs. The next year you may be dealing with new ailments, so you may find it more prudent to choose a plan that has higher premiums but offers more protection. You can change your plan to meet your needs, but to do so you’ll need to actively review your options.

Not sure how to manage health care costs in retirement? Let’s talk about it. Contact us today to learn how we can help. We welcome the opportunity to help you examine your needs and develop a strategy. Let’s connect soon and start the conversation!

 

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

2https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-sets-2017-hsa-contribution-limits.aspx

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