5 Tips for Managing Your Healthcare Costs in Retirement

5 Tips for Managing Your Healthcare Costs in Retirement

One expense that people often overlook in retirement is healthcare, which can prove problematic considering that they need to make their funds last longer than ever. Healthcare has emerged as one of the largest expenses in the United States, especially during retirement. For instance, couples can spend over $200,000 on healthcare throughout these years with less support and insurance than past generations have had. When a person needs long-term care, the costs will be even higher. Even without considering out-of-pocket expenses, there are Medicare premiums and other insurance costs to keep in mind. Here are some tips to keep your healthcare costs under control:

1. Consider opening a Health Savings Account

A Health Savings Accounts (HSA) is a great tool to cover your healthcare expenses. An HSA is funded with pre-tax earnings and grows without being taxed. Furthermore, as long as the money from the account is used for qualified healthcare expenses, it will not incur taxes upon withdrawal. This allows people to build a nest egg specifically to cover their healthcare costs. However, not everyone is eligible for an HSA. Coverage under a high-deductible health plan is required to qualify and those enrolled in Medicare cannot open one. It is also worth noting that maximum contributions exist based on limits established by the Internal Revenue Service.

retirement savings

2. Purchase long-term care insurance

Many people will need long-term care at some point during retirement, but private insurance and Medicare generally do not cover the custodial expenses associated with this type of care. Therefore, those who do not have substantial funds saved to account for them should begin weighing their options. For instance, they can take out a home-equity loans or use financial assets to cover the cost of long-term care.

When purchasing long-term care insurance, keep in mind that the premiums are based on when a person takes out the plan, so purchasing coverage early can make keep the payments more affordable. However, it’s important to note that long-term insurance is unlikely to cover all expenditures.

3. Understand the Medicare options

While all US citizens qualify for Medicare when they turn 65, several options exist for various levels of coverage, and each has its own expense. Medicare consists of four parts. Part A covers hospitalization and generally comes without a premium, although there is a deductible. Part B covers doctor visits, certain tests, and medical equipment and requires a monthly premium. Part C, also called Medicare Advantage, is a health plan acquired through private insurers for added coverage, and premiums and benefits vary. These plans also include a network of providers that allow people to potentially save on healthcare by choosing physicians and hospitals within it. Part D offers prescription coverage, and premiums depend on income.

Some individuals might want to choose plans with higher premiums to avoid out-of-pocket costs. When looking at available plans, it’s advantageous for people to consider how often they anticipate seeing the doctor in a year, as well as the co-pay and coinsurance required at each visit. Doing so involves some guesswork, but individuals can base it off of their general health. Also, they can make changes to their plans over time, although they might encounter late enrollment penalties as a result.

4. Consider annual healthcare spending

In 2018, the Employee Benefit Research Institute (EBRI) estimated that a 65-year-old couple spends $265,000 over their lifetime in combined healthcare expenses, not including long-term care. Furthermore, this figure may vary depending on individual needs, chronic conditions, and other factors. Because such lump sums are potentially inaccurate, the EBRI advises individuals to focus less on possible future circumstances and more on what they will likely spend in a year throughout retirement to get a more accurate sense of what they need to feel comfortable in retirement. Understanding the various premiums and out-of-pocket expenses one will likely incur will make it easier to plan for a given year. However, it’s also important to recognize that the cost of healthcare will increase over time due to a greater consumption of healthcare services and inflation.


5. Carefully decide on the best time to retire

Today,many people work past retirement age for numerous reasons. Some individuals want to have more money saved, while others simply enjoy what they do. For those who have the option, choosing to work longer has some benefits in regards to healthcare beyond giving them more time to save. For instance, research suggests that an engaging job can help people to remain healthier. Retiring later also means that the money saved will not have to last as long.

Provided that individuals can receive insurance from their employers, they can mitigate many of the expenses that are typically associated with healthcare in retirement. People planning on retiring early might experience difficulty in securing healthcare prior to age 65 because they don’t yet qualify for Medicare coverage, which can result in high premiums.