How
much do you figure you'll pay for health care expenses after you retire? You're
probably underestimating.
A
married couple, both age 65, will fork over an estimated $275,000 over their
lifetime on medical costs, according to Fidelity Investment's "2017 Retiree Health Care Cost
Estimate." That includes Medicare premiums, co-payments,
deductibles and out-of-pocket expenses for prescription drugs.
However,
it's likely that this same couple will pay a lot more than $275,000 because
Fidelity's estimate doesn't include items such eye exams and glasses, hearing
aids, dental care and long-term care. And if you retire before age 65, the
number will be significantly higher.
Medical
expenses represent one item in retirees' budgets that can increase
significantly when transitioning from your career job into retirement.
According to the U.S. Bureau of Labor Statistics, employers on average
subsidize 80 percent of the cost of health care premiums for their active
employees and more than two-thirds of the costs for family coverage.
But
these subsidies typically go away when you retire. As a result, you'll usually
end up paying for the full cost of medical insurance premiums if you retire
before age 65, when you're eligible for Medicare. After that, the federal
government subsidizes about three-fourths of the cost of Medicare Part B,
although you'll still pay substantial deductibles and co-payments.
One
erroneous conclusion that some people might make after reading about the
Fidelity study's results is that they need to have the full $275,000 amount set
aside when they retire, to be dedicated exclusively to future medical expenses.
While that might be great if you can swing it, most people don't have that
luxury, and fortunately you don't need to do that.
You can
pay for much of your medical costs with your regular retirement income, such as
your Social Security benefits, employer pensions if you have one, money you
make working in retirement and your withdrawals from savings.
By
making smart choices with Medicare and supplemental insurance, you can turn
large, unpredictable expenses into regular monthly premium payments that you
can then factor into your ongoing retirement budget. Because Medicare has
substantial deductibles and co-payments that can amount to thousands of dollars
each year, financial advisers highly recommend that you buy supplemental
medical insurance in one of two ways:
1. Purchase
a "Medigap" plan that
pays for part or all of Medicare's deductibles and co-payments, combined with a
separate insurance plan that covers the cost of prescription drugs under
Medicare Part D.
2. Purchase
a Medicare Advantage plan (MA)
that typically integrates inpatient care, outpatient care and the cost of
prescription drugs, and usually covers much of Medicare's out-of-pocket costs.
You can
also save for medical expenses with a Health Savings Account (HSA), in which
contributions have a unique triple tax advantage:
·
They're deducted from your taxable income when they're made
·
Investment earnings aren't taxed
·
Any amounts you withdraw for qualified medical expenses aren't
included in your taxable income
Because
of the triple tax advantages, HSAs are like a super-IRA,
and you should save as much as possible in these plans while you're working.
Qualified
medical expenses that can be paid from an HSA include:
·
Medical, dental, prescription drug and vision expenses,
including any deductibles and co-payments
·
Premiums paid after age 65 for Medicare or for your employer's
retiree medical plan (but not for Medicare supplement plans)
·
COBRA premiums
·
Long-term care services
·
Premiums for qualified long-term care insurance
You'll
also want to plan for vision and dental expenses when you retire because
Medicare doesn't cover these costs. Some MA or Medigap plans might help with
these costs, so you'll want to ask about that when you're shopping for these
plans. Another smart tip: Take full advantage of your employer-provided medical
plan's vision and dental benefits before you walk out the door of your career
job.
·
Buying long-term care insurance
·
Holding home equity in reserve
·
Taking out a reverse mortgage line
of credit and holding it in reserve for long-term care
·
Maintaining a separate investment account for long-term care,
including an HSA
·
Buying a qualified longevity annuity
contract (QLAC) that starts a lifetime income at an advanced
age, such as age 80 or 85.
When
you consider your potential costs for health care, you might be convinced it's
a smart idea to work longer, which is a
very reasonable -- and wise -- reaction to these threats. Working longer can
not only extend subsidized medical care coverage from your employer, but it can
also allow your Social Security benefits and savings to grow as long as
possible.
You
have a lot to consider when it comes to your retirement planning. But if you
start now, you'll be prepared when the time comes to leave the work force
entirely.
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us online today @ www.novareverse.com
