Three healthcare costs your retirement plan should address

Posted by Alex Tolbert on Mon, May 21, 2018 @ 07:05

Plan ahead for healthcare costs in retirement

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Planning for retirement? Don’t forget health care. According to Fidelity Benefits Consulting, a 65-year-old couple retiring in the last year will spend $275,000 on health care, not including long-term care expenses.

This can be a real surprise for some consumers. There is a misconception that once a consumer reaches Medicare eligibility, there are no more out-of-pocket health care costs, but that is not the case.

Medicare does not cover everything, so planning ahead for health care expenses is a crucial part of a comprehensive retirement strategy. Here are three health care costs that can affect retirees.

The wrong Medicare strategy

Many incorrectly believe that consumers just “go on Medicare” once they are 65. There is not one singular Medicare option — in fact, there are at least 18 different strategies. These include Medicare Part A, Medicare Part B, Medicare Part D, Medicare Advantage, Medicare supplement plans, employer retirement plans and all the various combinations.

Faced with so many options, many 65-year-olds who plan to continue working decide just to stay on their workplace plan. This can seem more simple, but it can actually be a much more expensive option with more restrictions on coverage.

For this reason, finding the right Medicare strategy is key. One popular approach is combining Medicare Parts A and B, plus a Medicare supplement and Medicare Part D for prescriptions.

Another popular approach involves Medicare Advantage. Operated by private carriers, Medicare Advantage plans typically cost less than Medicare supplements and often include other benefits, like dental and vision coverage. However, these plans often have cost-sharing, co-pays and physician networks.

Long-term care

The estimated $275,000 figure includes Medicare premiums, co-payments, deductibles and out-of-pocket expenses, but it does not include nursing home or long-term care costs.

When planning for health care in retirement, it is important to include the possibility of these needs. Some financial advisers can help consumers near retirement forecast their health care expenses and build them into planning strategies.

Health Savings Accounts

Consumers can plan ahead for health care in retirement if they have a qualified high deductible health plan and open a Health Savings Account (HSA).

You can contribute to an HSA tax-free, and use the funds for medical expenses. Unused funds roll over every year, and surplus funds can be invested.


After age 65, you can withdraw the funds and pay only income taxes, just like an IRA. Or, you can continue to use the funds for medical expenses tax-free.

Individuals can contribute $3,450 in 2018 and families can contribute $6,900, and consumers 55 and older can contribute an additional $1,000 per year.


Summing things up

Consumers in or near retirement can take a few steps to reduce their expenses and ensure health care costs are covered in retirement.

First, find the right Medicare strategy for your situation, and be sure to conduct an annual review during Medicare open enrollment. Plan options change every year, and your needs may also evolve over time. An annual review can ensure you still have the most cost-effective coverage strategy.

Some brokers and financial advisers provide Medicare advice. If you have a broker or financial adviser you work with, ask if they can help you find and sign up for the right coverage.

Second, working with a financial adviser who integrates health care planning into retirement projections can also ensure you are prepared. Be sure to include the potential for long-term care.

Last, determine whether you are maximizing your HSA contributions, if you have such an account.

Taking these steps can provide more peace of mind around health care in retirement.

This column was originally published in The Tennessean

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Topics: healthcare, The Tennessean, healthcare costs

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