Confronting the Costs of Retirement: Healthcare

When it comes to retirement expenses, it’s no secret that healthcare costs have the potential to be a big-ticket item. And as inflation surges in healthcare continue to outpace the rate of general inflation, these costs are only mounting. For workers nearing or entering retirement, healthcare costs are expected to consume a portion of their retirement budget – a concern shared by workers of all generations.

According to a recent survey, 73% of Millennials, 70% of Generation X, and 61% of Baby Boomers expect healthcare costs to have an effect on their retirement plans1. Fortunately, there is some good news. Life-expectancy rates are on the rise, and people are living longer, healthier lives. While prioritizing your health may boast its share of expenses, doing so certainly pays off in dividends.

So, how much, exactly should today’s retirees expect to pay for healthcare expenses? While the amount varies based on when and where you plan to retire and how healthy you are, Fidelity estimates that the average 65-year-old retired couple may need approximately $300,000 saved (after tax) to cover healthcare expenses2.

The figures may seem daunting, but there are some steps you can take to keep costs as low as possible and truly keep up with your health. Consider these strategies to get ahead of healthcare costs in retirement.

Leverage a Health Savings Account (HSA)
While the average retirement age is 62 for most Americans, Medicare eligibility does not go into effect until they reach the age of 65. To bridge this gap, approximately one-third of these “early retirees” opt to claim Social Security benefits at age 62 to offset healthcare expenses until they become eligible2. Fortunately, there is another way to help pay for healthcare expenses prior to Medicare eligibility – a Health Savings Account (HSA).

An HSA allows you to put pretax money aside to cover medical expenses. A smart way to get ahead of healthcare costs, HSA funds are tax-deductible, as are both the earnings and withdrawals – as long as they’re used for healthcare expenses.

Better yet, some HSA accounts let you invest your funds, making them an option to stash extra retirement money – even if you don’t plan on using it all for healthcare. And, unlike other retirement accounts, the government does not require you to take money out of your HSA once you reach age 72 – so you can leave your savings in there to grow until you need it.

However, you can only make contributions to an HSA fund if you have a high-deductible health insurance plan – $1,400 or more for an individual or $2,800 or more for a family. And once your Medicare coverage begins, you can no longer make contributions. However, you can tap into those funds to pay for any uncovered medical costs, such as copays and other out-of-pocket expenses.

Know Exactly What Medicare Covers
While most retirees rely on Medicare to cover their healthcare expenses in retirement, it’s important to note that the program is not free. What’s more, standard Medicare doesn’t cover everything. So, what exactly are you getting from your Medicare coverage?

The original Medicare program consists of two parts – Part A and Part B. Under Part A, you’re covered for hospital stays. While most people do not pay monthly premiums for this coverage, there is a $1,484 deductible, and you can face co-pays for hospital stays exceeding 60 days. Part B of your Medicare coverage is for doctor visits. Unlike Part A, this does have a monthly premium – as well as a deductible and co-pay. There are also some gaps in coverage – hearing aids, dental care, vision care, and prescription drugs are not part of this plan. Knowing the extent of your Medicare coverage is a smart place to start when budgeting for retirement healthcare spending and expenses.

Consider Supplemental Coverage or a Medicare Advantage Plan
As previously mentioned, original Medicare does not cover everything. Rather than paying for any gaps in coverage out-of-pocket, many retirees elect to purchase a Medicare Supplement or Medicare Advantage plan.

Offered by private insurers, these plans have many different options, features, and prices – so you’ll want to shop around. While coverage varies plan to plan, most include prescription drug coverage, also known as Medicare Part D. And while you do not have to buy any extra healthcare insurance in retirement, doing so can help you avoid high out-of-network and out-of-pocket costs. Your insurance cost will also be a predictable monthly payment, making it easier to factor in your budget.

Take Advantage of Free Preventative Benefits
They say that prevention is the best medicine. As a Medicare beneficiary, you are entitled to a variety of preventative-care benefits, without facing a deductible, fee, or co-pay. Some of these benefits include a personalized prevention plan and annual wellness visit. And depending on your age, you may also qualify for 100% coverage for certain cancer and high cholesterol screenings, in addition to flu shots and vaccines, mammograms for women, and certain types of prostate exams for men. Check out the full list on Medicare’s website at any time. After all, capitalizing on these free preventative services can go a long way toward keeping you healthy – without breaking your healthcare budget.

Prioritize Your Health
Perhaps the best way to mitigate healthcare costs in retirement is by investing in your health. With a more flexible retirement schedule, make a conscious effort to spend more time exercising, getting plenty of sleep, and eating healthy. You’ll be glad you did – as those who live an active and healthy lifestyle tend to spend less on healthcare than others who ignore diet and exercise or partake in other unhealthy habits, such as smoking. What’s more, studies have found than older adults who exercise report reduced risks of chronic illnesses and disease, as well as improved immune and digestive systems3.

Even if regular exercise isn’t part of your current routine, it’s never too late to get started. Consider talking to your doctor about some steps you can take toward improving your health and increasing your physical activity. You can also consult with a nutritionist to identify areas where you can refine your diet and eating habits.

­­­­As you plan for healthcare expenses throughout your golden years, it’s important to approach the matter with a realistic budget. While healthcare costs only continue to rise, there are financial planning steps you can take today to help prevent these costs from eating into your retirement savings in the future. If you could use an additional source of funds to help pay for healthcare expenses in retirement, tapping into home equity with a reverse mortgage could be a viable option.

Reverse mortgages work by allowing homeowners ages 62 and older to tap into this home equity4 while continuing to reside in their homes well into retirement years. Better yet, the funds from a reverse mortgage could be used for whatever you wish – such as to offset healthcare costs, make ‘aging in place’ modifications to your home, or establishing a financial “safety net” for the future.

See why over 1.2 million Americans have already made a reverse mortgage part of their retirement plan5. For more information, contact the Longbridge team of reverse mortgage experts today.

4 The loan balance increases over time as interest on the loan and fees accumulate

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