Planning for Healthcare Costs in Retirement
For most Americans, healthcare will be one of the most significant expenses in retirement, following housing and transportation. Unlike previous generations, you won’t have retiree health benefits from employers or unions. Healthcare costs will be a significant part of your retirement budget. With people living longer and health care costs rising faster than general inflation, preparing for these expenses is crucial. As you near retirement, being aware of your healthcare needs and potential expenses can assist you in managing your budget more efficiently.
How Medicare Factors Into Your Plan
One of the main steps in planning for healthcare costs in retirement is understanding what Medicare covers. Many people assume Medicare will cover all your healthcare costs in retirement, but it doesn’t. Medicare Part A covers hospital costs, but you must pay a deductible. Medicare Part B covers medical expenses and requires an annual premium. Parts A and B do not cover everything, so you may also need Part D for prescription drugs and a Medigap policy to cover additional costs.
Medicare Advantage plans are another option. These plans provide services covered under Parts A and B, often including Part D coverage. It is essential to compare different Medicare plans and consider what best fits your needs. Remember, you can switch Medicare plans as you age and your situation changes. While Medicare helps, it still covers about one-third of healthcare costs. This is why planning and considering all available options, including supplemental insurance policies and private health insurance plans, is essential. Additionally, understanding the enrollment periods for Medicare can prevent late penalties and ensure continuous coverage.
How Much Money Do I Need?
Saving for health care costs is another crucial part of planning. Fidelity’s Retiree Health Care Cost Estimate suggests that an individual turning 65 in 2023 might require around $157,500 in savings to cover health care costs during retirement. An average retired couple may need roughly $315,000. This amount can vary depending on health, location, and life expectancy.
If you are still employed, consider using a Health Savings Account (HSA) if available through your employer. An HSA lets you save money before taxes, and these funds can grow and be taken out tax-free for eligible medical expenses. A healthy 65-year-old couple retiring in 2023 may need to allocate nearly 70% of their Social Security benefits to cover medical expenses during their retirement. One-third of early retirees claim Social Security at age 62 to help pay for health care expenses until they are eligible for Medicare. Planning for unexpected medical expenses, such as long-term care or major surgeries, is also vital.
If you delay retirement and can manage health care costs until age 65, you may choose to wait to start Social Security benefits. Delaying Social Security benefits can increase the amount you receive each month, especially if you can wait until age 70. This strategy can provide a more substantial income stream in your later years. Being proactive and starting early will give you the best chance to meet these costs without compromising your lifestyle. Consistently evaluating and updating your financial plan can help you maintain progress toward your healthcare savings objectives.
Plan Alongside Worth Advisors
Planning for health care costs in retirement ensures you have enough money to cover expenses as you age. Schedule a consultation with Worth Advisors, LLC, to secure your financial future in retirement. We’ll tailor our plans to your unique needs. Don’t wait until it’s too late; start planning for your healthcare costs today. Ensuring your financial security in retirement begins with a solid plan.
Disclaimer: Always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This material is intended for educational purposes only. Nothing in this material constitutes a solicitation to sell or purchase any securities. Any rates of return are historical or hypothetical in nature and are not a guarantee of future returns, which may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions and security positions, which, when sold, may be worth less or more than their original cost.
