One of the most crucial topics for anyone approaching retirement is healthcare. It’s no secret that healthcare is one of the most significant expenses retirees face. According to the 2023 Fidelity Retiree Healthcare Cost Estimate, a typical couple retiring at age 65 will need approximately $315,000 to cover healthcare costs throughout their retirement. This figure excludes long-term care, over-the-counter medications, and dental services.
Understanding Healthcare Options Before and After Age 65
Before Age 65:
For those retiring before age 65, there are several healthcare options to consider:
- Employer Benefits: Employer-sponsored medical benefits can be continued under the COBRA provision. This option might be more expensive since you’ll be responsible for the employer’s share of the premium. It’s crucial to compare this cost with other available options.
- Private Insurance: You can also explore individual coverage through private insurance carriers. The ACA Marketplace offers state-run options that might provide subsidies based on your income. Comparing these options will help determine the most cost-effective coverage.
After Age 65:
Once you reach 65, Medicare becomes your core coverage:
- Medicare Part A: Covers hospital stays and inpatient procedures, with a deductible of approximately $1,632 in 2024.
- Medicare Part B: Covers doctor visits and outpatient treatments, with a base premium of $174.70 and an annual deductible of $240 in 2024. The total deductibles could be around $1,900 when combined with Part A.
- Medicare Part D: Provides prescription drug coverage with an average basic premium of $55.50 in 2024. The costs can vary based on income.
Supplemental Coverage
Supplemental plans (Medigap) fill the gaps in Medicare coverage. These plans covers and supplements expenses that Medicare doesn’t, such as deductibles and co-pays and additional hospital coverage. The plans range from A through N, each offering different levels of coverage and premiums. Working with a specialist can help you choose the best plan based on your health history and financial needs.
Health Savings Accounts (HSAs)
HSAs are a valuable tool for managing healthcare costs. Contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free. In 2024, individuals can contribute up to $4,150 and families up to $8,300, with an additional $1,000 for those over 50.
Long-Term Care Planning
Long-term care costs, which Medicare doesn’t cover, can be significant. Approximately 70% of people will require some form of long-term care as they age. Here are your options:
- Self-Insurance: If you have substantial assets, self-insuring might be feasible. Consider setting aside $200,000 to $500,000 for long-term care expenses.
- Long-Term Care Insurance: Purchasing a policy in your 50s can offer more affordable premiums. These policies cover daily benefits for home care or facility care, typically for two to five years.
- Hybrid Policies: Combining life insurance with long-term care benefits can provide a more affordable alternative. This option allows you to use cash value accumulations from your life insurance for long-term care expenses.
Reducing Healthcare Costs in Retirement
To manage and reduce healthcare expenses, consider the following strategies:
- Prescription Drug Discounts: Take advantage of programs like GoodRx, which offer substantial savings on medications. Local municipalities and pharmaceutical companies may also provide discounts.
- Review Medical Bills: Ensure your medical bills are accurate and challenge any unexpected or unnecessary charges.
- Minimize Taxable Income: Managing your taxable income can help reduce Medicare premiums. For instance, Roth IRA distributions and HSA withdrawals for medical expenses are not considered taxable income. Cash value life insurance distributions and income from a reverse mortgage also don’t count in the Medicare premium calculation.
Healthcare spending is a significant part of retirement planning. Estimating these costs and creating a strategy can help preserve your retirement assets for other pursuits. Planning early and exploring various coverage options and strategies can make a significant difference.
We specialize in helping individuals and families prepare for retirement. If you need assistance in planning for your healthcare needs in retirement, don’t hesitate to reach out. We’re here to help you achieve a secure and fulfilling retirement. You can request a free consultation here.