What’s Your Plan to Fund Retirement Healthcare Costs?

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Are you finalizing your plans for retirement? The last few years before retirement are often your last opportunity to save money, paydown debt, and take other steps to stabilize your financial future. You also may be facing important decisions, like when to file for Social Security and how to develop an investment strategy.

You also may want to use this time to consider your health and how you may pay for medical needs after you stop working. Many retirees assume that Medicare will cover their health care expenses. While Medicare is a helpful program, it doesn’t cover everything.

Many types of treatment aren’t covered by Medicare at all. Even for those treatments that are covered, Medicare usually only pays a portion of the cost. You will likely face out-of-pocket costs for a wide range of medical needs, including premiums, copays, deductibles, and more. In fact, Fidelity estimates that the average retired couple will pay nearly $275,000 out-of-pocket for healthcare.1

Fortunately, there are steps you can take to minimize the financial risk of healthcare in retirement. Below are a few tactics to consider. If you haven’t yet developed your healthcare funding strategy, now may be the time to do so.

 

Maximize contributions to your health savings account.

Do you have a health savings account, also known as an HSA? While many people use their HSA to pay for current healthcare costs, it can also be a powerful tool to save for medical expenses in retirement.

In 2018, you can make tax-deductible contributions of up to $3,450 as an individual or as much as $6,900 as a family to your HSA.2 You can then invest the funds according to your goals and risk tolerance without paying taxes on any growth as long as the funds stay in the account. You can then withdraw the funds tax-free to cover any qualified medical expenses.

Many people assume that HSA funds have to be used within a calendar year, but that’s not accurate. You can accumulate HSA assets into the future, even after you retire. You can then use those tax-free funds to cover your retirement health care costs, including premiums, deductibles and even long-term care costs.

 

Consider supplemental Medicare coverage.

As mentioned, Medicare doesn’t cover everything. In fact, there are many treatments that Medicare doesn’t cover at all. Even if a treatment is covered, Medicare will usually only pay a portion of the bill. That may leave you with a significant amount of out-of-pocket costs.

However, you can buy supplemental policies to enhance your Medicare coverage. Some supplemental policies offer lower deductibles or copays, or even coverage for services not usually included in traditional Medicare, such as rehabilitation, dental and vision, and even prescription drugs. Supplemental policies may come with additional premiums, but they could also save you from substantial costs.

 

Think about long-term care insurance.

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 at some point.3 Long-term care is extended assistance with basic living tasks such as eating, mobility and bathing. It’s often provided in the home or in a facility.

As you might expect, long-term care can cost thousands of dollars per month and is sometimes needed for years. It’s also not covered by Medicare, so if you don’t have a plan in place, it can drain your retirement savings.

Long-term care insurance can help you offset these costs. You pay either a one-time or an ongoing premium. In exchange, the insurance company pays some or all of your costs if you ever need long-term care. Many policies will cover care provided either in a facility or in your own home. It could help you get the care you need without depleting your savings.

Ready to develop your retirement health care strategy? Let’s talk about it. Contact us at Peak Financial today. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

 

1https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise

2https://www.cbsnews.com/news/irs-allows-higher-retirement-savings-account-limits-in-2018/

3https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

 

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