In retirement, healthcare is one of the biggest expenses you are likely to face. Fidelity Retiree Care Cost Estimates found that in 2022, a retired couple can spend up to $315,000 on medical expenses. That doesn’t even include additional costs that may come up as a result of dental service, OTC medication, or long-term care. Other medical expenses you may incur in retirement include $106,920 for a room in a nursing home annually. You certainly don’t want to be one of those people who aren’t financially prepared for the rising cost of healthcare in retirement. Planning for the cost can give you a lot of peace, and here’s how you can do it.
Healthcare Costs in Retirement
A couple aged 55 years, planning to retire in 10 years, can expect to spend upwards of $1,035,980 on healthcare. It is the state for a couple who are unhealthy as they likely spend less on healthcare than those who are healthy. The unhealthy are likely to spend less as they have a shorter life span than healthy retirees. The accumulative costs of a healthy retiree are likely to be more as they are likely to live longer. Your healthcare expenses are likely to take up around 15% of your spending in retirement if you had saved up.
How to Determine What Your Costs May Be
It isn’t all about the numbers when determining your healthcare costs in retirement. You need to use some predictable patterns that have been researched. Some of the major factors that help you estimate what you are likely to spend on medical care in retirement include:
- Your Health – Your current health state determines your future medical expenses more than other factors. Some conditions that may bring up higher costs in healthcare are high cholesterol, high blood pressure, diabetes, chronic kidney disease, cancer, asthma, and Alzheimer’s.
- Supplemental Medicare Policies – If you’re closing in on your retirement, you already know that Medicare doesn’t cover everything. Even when you have Medicare, you still have to deal with deductibles, co-pays, and other out-of-pocket charges.
- Income – Your income determines the premium you get for Medicare Part B and Medicare Part D. The standard you pay for Medicare Part B is normally around $148 per month. That is the subsidized amount, and some of the subsidies go away when your pay goes up.
How to Budget for Healthcare
One of the first things you need to do to budget for your healthcare in retirement effectively is to look at your Medicare options.
- Part A – You are eligible for Medicare Part A if you have worked in the US for over ten years. The premium is free and will cover your hospital expenses when you meet your deductibles.
- Part B – You will have to pay around $147 per month for this plan. It’s an optional cover for medical expenses. There’s a penalty if you don’t get Part B when you are eligible, which is when you turn 65.
- Part D – This is the Medicare plan that covers prescription drugs.
- Supplemental Policies – Here, you have Medigap, which private insurance companies offer to supplement the costs that aren’t covered by Medicare Part A and B.
Other Ways to Pay for Healthcare Costs Besides Your Savings
HSA Accounts – If you don’t want to spend on healthcare out of your savings, you can open a Health Savings Account. This option isn’t there for everyone and has a few limits. First, this is only an option for those with higher deductible healthcare plans. They also don’t have other forms of health insurance.
A high deductible plan is one where your policy has at least a $1,350 deductible for single coverage. For a family, the deductible should be around $2,700 and higher. You aren’t eligible for HSA accounts if you qualify for Medicare. You can also get health insurance before Medicare kicks in, which includes:
- Employer-provided insurance – In the ideal case, the employer should offer a retiree health care coverage.
- Affordable Care Act Marketplace – You can also get insurance through the health insurance marketplace. Policies under the state and federal exchange are normally affordable.
- COBRA – Under the Consolidated Omnibus Budget Reconciliation Act, you can get coverage through your former employer. Most employers don’t subsidize the plan hence can be quite expensive.
Learn More About Planning for the Rising Healthcare Costs in Retirement
Planning for retirement isn’t as clear-cut as you may assume. There are various factors to consider, and you need to look for a service that understands the terrain to help you through. You can talk to us whether you are planning for healthcare pre-retirement or sound financial planning. Contact us today.
