Do You Have a Plan to Pay for Health Care in Retirement?

If you’re like many retirees, you may assume that you have a built-in plan to pay for health care expenses in retirement. That’s what Medicare is for, right?

It’s true that Medicare is a valuable form of health care coverage for retirees. Depending on which Medicare packages you choose, you could get coverage for doctor visits, prescription drugs, hospitalizations and more.

However, Medicare doesn’t cover everything. In fact, Fidelity recently found that the average 65-year-old couple can expect to spend $245,000 out of pocket on health care costs during retirement.1 That figure includes premiums, deductibles, copays and other expenses not covered by Medicare.

You could also face long-term care expenses. The U.S. Department of Health and Human Services estimates that the average 65-year-old has a 70 percent chance of needing long-term care, either in-home or in a facility, at some point in their life.2

The good news is there are steps you can take today to manage your healthcare expenses and give yourself a stronger ability to pay out-of-pocket bills. Below are three strategies to consider. If you don’t have a plan to cover health care in retirement, now may be the time to think about your options.

Max out your HSA.

A health savings account (HSA) can be a very effective way to save money and pay medical bills in a tax-advantaged manner. With an HSA you can contribute pretax dollars today, reducing your tax liability. You can then grow the money tax-deferred and withdraw it tax-free as long as the funds are used for qualified health care expenses.

You can also take your HSA balance with you when you retire. That means you can save money today in a tax-favored account to be used for health care costs after you retire.

In 2016 a single person can contribute up to $3,350 to their HSA, while a family can contribute $6,750. If you are over the age of 50, however, you can contribute an additional $1,000 as a catch-up contribution.3

Consider long-term care insurance.

As mentioned earlier, there is a very real possibility that you or your spouse may need long-term care at some point in retirement. Long-term care doesn’t just mean a stay in a nursing home, as many retirees believe. You can receive long-term care in an assisted living facility or possibly even in your own home.

No matter where you get your care, you could face a steep bill, especially if you need the care for several years. Unfortunately, Medicare only temporarily covers long-term care costs in specific situations. And to get Medicaid to cover it, you have to have few or no assets.

Long-term care insurance is one way to supplement the costs. With long-term care insurance, you pay an insurer premiums today and then, should you need care, the insurer pays some or all of the costs at that time. When and how much it pays depends on the terms of your policy.

You do have to go through underwriting to get a long-term care policy, and it is possible you could get declined or your premium could increase if you’ve had health issues. If you’re healthy, you may want to explore insurance before a health problem arises.

Invest in your health.

Finally, perhaps the most important step you can take to manage health care costs is to invest in your own health. The healthier you are, the less risk you may have of serious injury or illness.

Start exercising regularly and take steps to improve your diet. Stay socially active and engage in activities that challenge your mind to boost your cognitive health. Work on quitting unhealthy habits like smoking or drinking to excess.

Also, if there’s a major procedure that you’ve put off for some time, consider going through with it while you’re still working. You can take advantage of your employer’s coverage, and the procedure may reduce your need for further treatment after you retire.

Don’t have a plan to pay for your health care costs? Let’s discuss it here at Lighthouse Financial in Rocklin, California. We welcome an opportunity to help you identify your needs and objectives, and to help you develop a plan. Let’s connect today.



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15855 – 2016/6/27