Most people assume that Medicare will cover all their health care expenses in retirement. In reality, however, it doesn’t. In fact, Fidelity estimates that the average 65-year-old couple will have to pay $260,000 out of pocket on health care expenses in retirement.1 That figure includes things like deductibles, premiums and copays; it doesn’t include long-term care.

If you’re not careful, you could spend a large portion of your retirement savings on health care costs. Planning ahead can help you make sure you’re prepared for the cost of health care and can ensure your hard-earned savings are spent the way you want. Below are three steps you can take to manage your health care costs in retirement:

Fund your HSA.

A health savings account (HSA) is a tax-advantaged way to pay for health care in retirement. It allows you to make tax-deductible contributions and grow tax-deferred funds. It also lets you take tax-free withdrawals for qualified health care expenses.

In 2016, individual HSA holders can choose to contribute as much as $3,350. However, you may be allowed to contribute more. Individuals age 55 and older are allowed to put an extra $1,000 into their HSA.2 Known as catch-up contributions, they can be a good way to fund your HSA in the years before retirement.

Consider long-term care insurance.

While the average retired couple has to pay $260,000 on health care, that number does not include the cost of long-term care (LTC). According to the U.S. Department of Health and Human Services, 70 percent of people age 65 today can expect to use some form of long-term care during their lives.3

Long-term care insurance (LTCI) is one way you can help pay for this kind of extended, costly care. Most policies have you pay premiums today for coverage later. The majority of policies also cover care either in the home or in a facility.

Take care of your health.

Overall, one of the best things you can do to manage health care costs is to stay healthy. Activities like gardening or walking are a good way to exercise and stay active. Switching to a healthier diet can also help you minimize your chances of injury or illness. It’s never a bad idea to quit bad habits like smoking or to reduce the stress in your life, too. You may also think about getting treatment for any chronic issues while you still have health insurance, as opposed to waiting until you start Medicare.

Do you have a strategy to pay for health care in retirement? Or do you think your current strategy could use some improvement? Contact us at Intelliplan Financial. We can help you evaluate your objectives and needs, and then develop a strategy. Let’s connect soon and start the conversation.

 


 

Citations
1 https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-in-retirement-rise
2 https://www.hsacenter.com/how-does-an-hsa-work/2016-hsa-contribution-limits/
3 https://longtermcare.gov/the-basics/who-needs-care/

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