A 4-Part Strategy for Managing Health Care Costs in Retirement

​There’s an old saying that if you don’t have your health, you don’t have anything. That may ring true for retirees. According to a recent study from Fidelity, the average married couple will pay $275,000 for out-of-pocket health care costs in retirement.1
 
If you are approaching retirement, you may be surprised to learn that your health care costs could be that high. After all, you’ll likely enroll in Medicare, which you may expect will pay for much of your health care expenses. However, even Medicare comes with premiums, deductibles and copays. Also, Medicare doesn’t cover every treatment.
 
The truth is that you’re likely to face substantial out-of-pocket costs for most types of health care services and treatments. As you get older, you’re more vulnerable to illness and injury, especially in the later years of retirement. Your health care costs could quickly add up and deplete your savings.

Fortunately, there are steps you can take to limit the impact of medical expenses on your retirement. Below are four steps you may want to consider as part of your health care funding strategy. If you haven’t yet developed a plan, now may be the time to do so.

Fund an HSA.
Do you have a health savings account (HSA)? Many people use their HSA as a savings vehicle for short-term health care needs, but it can actually be used as a powerful retirement savings tool.
 
You can make tax-deductible contributions to your HSA and then grow those funds on a tax-deferred basis. As long as the money is used for qualified medical expenses, you can withdraw your HSA funds tax-free.
 
In 2018 you can contribute as much as $3,450 to an HSA if you have single coverage and $6,850 if you have a family plan.2 Consider saving some of those funds for retirement. They can compound and grow on a long-term, tax-advantaged basis. Then you can withdraw the funds tax-free in retirement to fund your health care costs.

Consider long-term care insurance.
The $275,000 health care spending figure from Fidelity doesn’t even include long-term care costs, which are considered likely for 70 percent of all retirees, according to the U.S. Department of Health and Human Services.3
 
Long-term care is often provided either in a facility or in the home. It can be costly and may be needed for several years. If you don’t have a plan in place, it could become a drain on your retirement assets.
 
You may want to consider purchasing long-term care insurance. These policies provide funding for some or all of your long-term care costs, depending on your specific coverage. Most policies cover care provided either in your home or in a facility, and some even provide death benefits for any coverage that’s unused.

Review your needs and your coverage every year.
Medicare offers a number of different types of coverage. Part A covers hospitalizations. There are no premiums for Part A, and the coverage is automatic. Part B provides coverage for doctor visits, and Part D covers prescription drugs.

There’s also Part C, which is sometimes called Medicare Advantage. Under Part C you can purchase a coverage package through a private insurer. These policies often have the same protection as traditional Medicare, but also enhanced coverage for things like dental, vision and more. Part C policies may also offer more flexibility with regard to deductibles and copays.
 
Each year, Medicare has an enrollment period in which you can change your coverage. It makes sense to review your needs and your coverage on an annual basis. What works for you at age 65 may no longer be suitable at age 85. Adjust your coverage to align with your changing health and needs.

Invest in your health.
Finally, perhaps the most important step you can take is to invest in your own health. Prevention is often far less expensive than treatment. Think about changes you can make today to improve your health and reduce your risk. You may consider quitting smoking, improving your diet or increasing your exercise. Your doctor can help you implement changes.
 
Ready to develop your health care funding plan? Let’s talk about it. Contact us today at First Fidelity Group. We can help you analyze your needs and create a strategy. Let’s connect soon and start the conversation.

 
1https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise
2https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-lowers-2018-family-hsa-contribution-limit.aspx
3https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
 
 
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17508 - 2018/3/26