Health Care Costs In Retirement


How The Chronic Act Could Help

Retirement Report: Health Care Cost in Retirement P.3

A recent law, however, may help. Medicare now looks poised to pay for more complex care needs, the kind that not only come with high out-of-pocket costs but are also expensive to the federal health program.

Earlier this year, Congress passed the Creating High-Quality Results and Outcomes Necessary to Improve Chronic Care Act . Among its initiatives: Medicare Advantage plans the systems managed care option will be permitted to provide care and devices that prevent or treat illness or injuries, compensate for physical impairments, address the psychological effects of illness or injuries or reduce emergency medical care as well as non-medical services such as home-delivered meals. The plans will likely start offering such benefits in 2019.

One goal of new benefit-plan flexibility is to allow patients and family to have a say and identify the services they need, says Katherine Hayes, health policy director at the Bipartisan Policy Center in Washington, D.C. Another, she says, is to figure out how to manage costs better, say, by reducing time spent in expensive hospitals and emergency rooms.

The devil is always in the details. The federal governments Centers for Medicare and Medicaid Services is now drafting regulations to flesh out the law and Medicare Advantage providers are figuring out which services to offer. Still, the shift in focus is a welcome step.

What You Can Do To Prepare

Prior to retirement , consider:

  • Comparing the premiums and out-of-pocket costs of different Medicare coverage options. Include prescription drug plans in the comparison, and choose the option that best suits you.

  • Calculating your monthly premiums based on the type of coverage you choose and budgeting for that amount from your monthly income.

  • Keeping enough liquid cash to meet your out-of-pocket expenses for the year. This amount can be based on past years expenses.

Its hard not to be intimidated by extreme estimates regarding future health care expenses. But recognize that your actual health care expenses will be a combination of regular, predictable expenses that you can budget for and, for most people, a smaller component of variable expenses that you can manage from your savings.

– Sudipto Banerjee, Ph.D., Vice President, Retirement Thought Leadership

– Sudipto Banerjee, Ph.D., Vice President, Retirement Thought Leadership

Medical Costs May Be More Predictable Than You Think

The approach of presenting people with a huge, perhaps unattainable, figure has long bothered Jean Young, senior research associate with the Vanguard Center for Investor Research.

The thing is, its not helpful, its not actionable, its not relatable, Young says.

You also may need six figures to cover food, or transportation, or shelter in a typical retirement. But these are costs you pay over time just like youll pay for health care.

Young and other Vanguard researchers partnered with actuaries at Mercer Health and Benefits consulting firm to create a proprietary model based on what retired people actually spend on health care. What they found was that medical costs tend to be in certain ranges, based on a handful of factors:

  • Where you live.

  • Whether you buy supplemental coverage.

  • Your income.

Higher-income people pay larger premiums for certain parts of Medicare. Some premiums also vary by location, as do medical costs in general. How much health care youll consume is greatly influenced by how healthy you are when entering retirement, and, to some extent, your genes.

The actuaries know that the health status of your parents tends to pass generationally, Young says.

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Develop A Savings And Budget Strategy

Much as there are many ways to save for retirement expenses, there are many ways to budget for healthcare expenses. Thats why a well-rounded retirement savings strategy is so important. Money from a 401, IRA, HSA, annuities, and traditional savings accounts offer ways to pay for everything from routine healthcare to more extensive needs. In addition, while Medicare may cover some hospitalizations, you will generally need to account for deductibles, premiums, out-of-pocket expenses, and supplemental insurance. Well before youre ready to retire, consult a financial advisor to help estimate future healthcare costs and savings tools.

Helping Clients Plan For Their Health Care Costs In Retirement

6 Useful Tips to Avoid Paying $280,000 Health Care Costs ...

Medicare decisions are more than medical decisions, they are also financial decisions. Providing your clients this valuable insight will demonstrate your value and distinguish your practice in a crowded marketplace. What follows are a few examples that illustrate how Medicare decisions are also financial decisions affording you opportunities to provide guidance that may lead to a significant financial impact for your clients.

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Calculating Health Care Costs In Retirement

Do you understand the link between health care costs in retirement and your financial security? Many do not. We are here to help you draw a link between the two, which will ultimately lead to a better understanding of the importance of each. Our health care cost retirement calculator will give you the opportunity to estimate your health care costs prior to retirement, allowing you to properly prepare by factoring this figure into your future financial plan.

Hang In There Until Medicare Kicks In

If you can hold off on retirement until age 65, you’ll have a leg up on health care costs, since you’ll then be eligible for Medicare, the federal health insurance program for seniors over 65 and the disabled. While all the rules and regulations for Medicare are dizzyingly complex, here is a basic breakdown of the four types of Medicare:

Medicare Part A covers seniors who need to be hospitalized. As long as you have paid into Social Security for at least ten years, you pay no premiums for using Part A.

Medicare Part B covers doctor visits and some outpatient needs, such as physical therapy and medical equipment. Some preventive care is also covered under Part B. Seniors using Part B must pay a monthly premium of around $100, although the premiums go up depending on their income.

Take special care to enroll for Medicare Part B when you are eligible because there’s a stiff penalty for not doing so. For each 12 month period you delay, the premiums go up 10% for the rest of your life if you ever sign up. One of my aunts mistakenly thought she could save some money by waiting 3 years after she became eligible before she signed up. Big mistake. Not only did she not have coverage and paid all her checkups out of pocket for 3 years, but her premiums are also now 30% more than what she would’ve been paying and that penalty will continue for the rest of her life.

Medicare Part D is a separate policy that you purchase through a private insurer. This policy covers prescription drugs.

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Plan To Have Health Insurance Until You’re Eligible For Medicare

If you retire before age 65, you’ll need to cover costs until Medicare kicks in. Options include:

  • Health plans from the Health Insurance Marketplace


  • Employer retiree insurance

  • Insurance from your spouse’s employer

  • Working longer to keep health benefits, possibly in a different job or part-time

Don’t Forget About Health Care Costs

Retirement Report: Health Care Cost in Retirement P.1

Many retirees and people getting ready to transition out of the workforce forget to budget for healthcare when they estimate their expenses in retirement. Why? Their employer is often picking up the majority of the tab and the remaining cost comes out of their paycheck. They think they need the same amount of take-home pay that they currently have, but they forget that they will now be responsible for paying their health care premiums in addition to the out-of-pocket costs.

If your modified adjusted gross income as reported on your IRS tax return from two years ago is above a certain amount, you’ll pay the standard premium amount and an Income Related Monthly Adjustment Amount . IRMAA is an extra charge added to your premium.

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What Are The Different Parts Of Medicare

Medicare Part A
Deductible and cost-sharing limits may apply. In the coverage gap stage, there are different cost sharing percentages for brand name vs. generic drugs

Several types of Part C plans are available, including:

  • Preferred Provider Organization . This plan allows you to see any doctor or specialist however, visiting doctors outside your PPO network will involve extra costs.
  • Health Maintenance Organization . You have access to doctors in the HMO network only.
  • Private Fee-for-Service . You can see any doctor who is willing to accept the fees and terms of the PFFS.
  • Special Needs. These plans are intended for people with certain chronic diseases or special health care needs.
  • Medical Savings Account . This plan includes a high-deductible health insurance plan and a savings account in which Medicare deposits money for you to use for health care costs.

Budgeting For Healthcare In Retirement

As you consider your retirement savings, its important to think about healthcare costs because it will likely take up a significant portion of your retirement budget.

The good news is that with planning, covering healthcare costsas daunting as they may seemis doable. We can help you work those costs into your retirement budget so youre ready to enjoy life.

A healthy 65-year-old couple may spend $662,156 on healthcare related costs throughout retirement.1

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What Does Medicare Cost And What Does It Cover

Medicare is a government health insurance program available to Americans aged 65 and older. But even with Medicare, retirees face significant out-of-pocket costs because the program doesnt cover all health care needs.

Medicare offers three parts A, B and D and private supplementary plans, including Medigap plans and Medicare Advantage plans available for purchase under Part C.

Services such as long-term care, dentures and acupuncture are not covered by the program. In addition, several Medicare services have copays, premiums and other costs.

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How Much Does Retirement Health Care Cost

Today’s retirees and soon-to-be retirees feel pretty confident about their next phase. But a major concern keeping them up at night is the idea of paying for health care. In fact, a PwC financial wellness study found that 38% of baby boomers said that health care costs are a top fearhigher than those who were most afraid of running out of money!

It doesn’t have to be that way! Health care is a line item in your annual retirement budget, just like food, clothing, and shelter. And like those other expenses, you can plan for it.

Our research has revealed 6 factors that can nudge your personal annual health care spending higher or lower.

Majority Of Respondents Are Optimistic About Their Retirement Prospects

Despite the financial turmoil caused by the COVID-19 outbreak, survey participants remain hopeful about their retirement prospects: 75% say they are “very or somewhat confident” in their ability to live comfortably in retirement.

A majority of respondents also report that:

  • Their investment outlook hasn’t changed since the beginning of the pandemic
  • The pandemic hasn’t changed their current or planned standard of living in retirement
  • Theyre confident the economy will improve in the next year

Still, 36% think that the current health crisis has lowered their expected standard of living in retirement, while a third of respondents believe theyll need a bigger nest egg for their future. Specifically, members of this last group say they plan to save more for their retirement by doing one or more of the following:

  • Cutting spending
  • Taking a part-time job to boost income
  • Boosting investments
  • Delaying retirement and work longer
  • Adopting a more conservative withdrawal rate from savings

Similarly, another survey from Logica found that a third of American workers expect to delay their retirement because of the pandemic a percentage that has increased from about a quarter of respondents in the spring of 2020.

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Factor : Your Health Status

It’s no surprise that the worse your health is when you enter retirement, the more you can expect to spend.

3 questions to consider:

  • Do you visit the doctor often ?
  • Do you have 2 or more chronic health conditions?

If you answer “yes” to at least one question, you should plan to spend a larger portion of your retirement income on health care. However, if you don’t have any chronic conditions , you’ve never smoked, and you don’t go to the doctor often, you can probably plan to spend less than average.

Open A Health Savings Account You Can Use In Retirement

How to plan for health care costs in retirement

Some health insurance plans give you the option of setting money aside in a health savings account . If you have an HSA-eligible plan, open an account and start saving money in it.

The money you contribute to an HSA is pre-tax, which reduces your income tax in the year you contribute. You also dont have to pay tax on the amount in the account when you use it cover medical expenses.

Theres no timeline or expiration date for money in an HSA. You can contribute to your account at age 45 or 50 but not use the funds until you reach age 65 or 70.

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Health Care Is Not A One

In our view, approaching health care costs as an annual expense makes it easier to plan for. Any type of expense incurred over a 20- to 30-year period can look daunting when summed up. We might balk at the thought of prepaying an $86,000 cable bill in retirement,2 but thats not how we pay for cable. Similarly, estimating cumulative future health care costs is not useful because we dont prepay for health care.

Factor : Your Location

There’s a big difference in price tags between the most expensive locations and the cheapest. Traditional Medicare coverage is the same everywhere, but prescription coverage , Medicare Advantage , “Medigap” supplemental plans, and private insurance vary, sometimes even within the same state.

For example, premiums for one supplemental plan* cost more than twice as much per year in the highest-cost area vs. the lowest-cost area in 2018.

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How Can I Use Hsa Funds

HSA withdrawals to cover qualified medical expenses are tax free. This gives them a major advantage over IRAs or 401s, which require taxes to be paid on withdrawals.

If you are younger than 65 and you withdraw the money for other purposes, you will owe a 20 percent tax penalty. However, if you are older than 65, withdrawals for other purposes are taxed the same as withdrawals from other qualified retirement savings accounts, such as 401s.

Qualified health expenses include things not covered by Original Medicare, such as dental care and hearing aids. Some Medicare Advantage Plans offer extra benefits that Original Medicare doesnt offer, such as vision, hearing, and dental.

HSA funds can also be used to cover specific health insurance premiums:

  • Long-term care insurance
  • Health care continuation coverage
  • Health coverage while receiving unemployment compensation
  • Medicare and other health coverage if you are 65 or older

To get the most out of your HSA for retirement savings, you should contribute the maximum possible. If you can avoid it, dont use your HSA funds for medical expenses before retirement. Consider this money earmarked for your retirement health care costs.

Also, shop around for HSA administrators that allow you to invest the money in high-quality, low cost options.

Healthcare Costs In Retirement Dont Make This Big Mistake

The Retirement Café: February 2016

If you were hoping to read about healthcare costs in early retirement, I had a guest post on that last year, and I plan to share more as I learn whats going to work best for my family and me. I should have an answer later this summer, but Ive got a pretty good idea of which direction well be taking.

When Dr. Jim Dahle spoke at WCICona year ago, he gave an overview of the current state of Medicare and the costs involved. I was honestly surprised to learn todays retirees need to budget somewhere between $5,000 and $10,000 for healthcare even when insured by Medicare. Its complex, and still quite expensive!

Our guest post today is from Danielle Kunkle Roberts she knows far more about Medicare than I do. We have no financial relationship and her brief bio is below:

Danielle K Roberts is the co-founder of Boomer Benefits where she and her team help baby boomers navigate their Medicare insurance options. She is a member of the Forbes Finance Council and writes frequently about Medicare, retirement and personal finance.

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How Much Is Health Care Going To Cost

Maybe not as much as you think! Today’s almost-retirees are confident about what the future holds, but if there’s one thing that worries them, it’s the cost of health care.

And no wonder! There are a lot of big, scary numbers being thrown around out there. But let’s be honest, if you add up your spending for anything over the course of 30 yearsfood, gas, vacationsit’s going to seem like a lot.

Health care is important to plan for, though. If you’re like most people, an employer has been subsidizing your insurance costs all your life, so your costs may go up once you retire. But never fear. Most years, your health costs will be a relatively stable piece of your retirement-spending pie, making them easy to plan for.

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