Retirement planning involves determining all the expenses you’ll need to cover in retirement. One area where people often underestimate how much they’ll need is healthcare. Once you’re retired, not only will you no longer have access to health insurance through your employer, but insurance premiums can often be more expensive since you’re in an older demographic. You may also need additional forms of insurance to help cover healthcare needs that may increase as you age. All this is to say, healthcare costs can be a major expense in retirement. In order to prepare, take a look at the healthcare costs in retirement you need to plan for.
If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.
While the hospital insurance part of Medicare (Medicare Part A) is free, Medicare Part B is not. Medicare Part B premiums are based on your income level. As your income goes up, so does your premium. In 2020, the standard Medicare Part B premium is $144 per month. While this is lower than many other healthcare premiums, it is still a monthly expense you’ll need to factor in.
Medigap insurance, also known as Medicare Supplemental Insurance, is health insurance that helps cover many of the basic healthcare costs that Medicare does not. If you choose to purchase Medigap coverage, you should take the time to find one that is best suited to meet your needs, since these policies can vary greatly in what they cover.
Medicare Part C
Also known as Medicare Advantage, private companies that Medicare has approved offer these plans—not the government—like the other parts of Medicare. These plans are a form of Medigap insurance that were created to cover some of the healthcare costs that Medicare Part B does not, including vision and dental insurance.
One thing to be aware of with these policies is that they rarely cover any hospitalization outside of what’s covered by Medicare Part A, which is fairly limited. This means that if you were to suffer from a chronic or severe illness, you would likely have to pay for a large portion of that hospitalization out of pocket, even with this additional coverage.
Medicare Part D is the part of Medicare covering prescription drugs. This includes self-administered drugs, but rarely covers drugs that a doctor administers (this is usually covered by Medicare Part B). If you’re taking any prescription drugs, you’ll want to plan for any premium expenses as well as any out of pocket costs. Medicare Part D premiums are based on your income, and even if your prescription is covered by Medicare Part D, you’ll still have a co-pay. Many drugs also aren’t covered under Medicare Part D, in which case, you would pay for these drugs out of pocket.
Medicare—and even most Medigap policies—don’t cover many of the costs associated with long-term care. These costs are far less predictable than most other healthcare expenses. You may end up with only thousands of dollars in out of pocket long-term care expenses, but you also could end up with hundreds of thousands of dollars in expenses. If you don’t have enough in your retirement savings to cover these potentially incredibly high cost expenses, you may want to purchase long-term care insurance.
How to Limit Healthcare Costs
Healthcare costs can be incredibly expensive, but there are ways to minimize the burden of these expenses. The most obvious way is to stay as healthy and active as you can. While some of this is certainly out of your control, there is also plenty that is. A healthy lifestyle can save you money, but more importantly, it can also help you enjoy your retirement years even more.
You can also limit the burden of healthcare costs with certain financial planning strategies. For example, withdrawals from certain accounts, including Roth IRAs, don’t factor into your income for Medicare premium calculations. If you have a high balance in your traditional IRA, you may want to discuss converting your traditional IRA into a Roth IRA with your financial advisor.
Covering Healthcare Costs
Once you have a better idea of how much you may need to cover your healthcare costs, you may wonder how to best cover these expenses. Though this will obviously depend on your financial circumstances, one of the best ways is with an HSA, which is available with high deductible health plans. HSAs offer tax advantages through deductible contributions, tax-deferred growth, and withdrawals for qualified medical expenses are tax free.
Seek Assistance from an Experienced Financial Advisor
You can’t predict all of your expenses, but knowing the healthcare costs in retirement you need to plan for and creating a plan can help limit stress. For personalized advice on how to prepare for retirement, talk to a team member from Good Life Financial Advisors of Mount Pleasant!