Paying For Healthcare In Retirement


How Do I Pay For Health Care In Retirement

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According to data from the Fidelity Retiree Health Care Cost Estimate, the average 65-year-old retired couple in 2022 would need roughly $315,000 to cover all their health care expenses in retirement. That’s a lot of money, and it doesn’t factor in the possibility of retiring early. Start saving for retirement early and consistently to cover those costs. Max out a health savings account if you have one and be proactive to stay healthy and active.

Health Care In Retirement: Costs Can Come Later

As you plan for health care expenses throughout your retirementhowever long it may beunderstand how paying for future health care expenses fits into your overall retirement income planning efforts, because health care utilization tends to increase as we age.

“Although health care costs continue to rise, there are financial planning steps that you can take today to help prevent health care costs from eating into your retirement lifestyle,” Feinschreiber advises. “For example, if you’re age 50 or older, you may be able to make up for a savings shortfall with additional catch-up contributions to your 401 or IRA. In addition, if you are age 55 or older, you can make an additional $1,000 catch-up contribution annually to your health savings account.”

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Health Savings Accounts and Other Tax-Favored Health PlansMedical and Dental Expenses

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

Consider A Health Savings Account

A health savings account can be a great way to save money for future health care expenses. The money you put in is tax-deductible, which means that it reduces your taxable income while you’re still working. Those funds can then be invested and grow tax-free. You can use HSA funds to cover qualified medical expensesand you won’t be taxed on these distributions. Copayments, deductibles and coinsurance all count as qualified expenses.

Your employer may offer an HSA. If not, you can open one yourself through a brokerage firm. To qualify, you’ll need to be enrolled in a high deductible health plan. In 2023, that’s a plan with:

  • A minimum deductible of $3,000 for family coverage
  • Annual out-of-pocket expenses that do not exceed $15,000 for family coverage

HSAs have another perk: Once you turn 65, you can use those funds for whatever you wantnot just health care expenses, though you’ll be taxed on non-health-care distributions. In 2023, you can contribute up to $3,850 to an HSA for self-only coverage .

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How Lifetime Income Products Can Help

Lifetime income products such as annuities can help fund retirement expenses including the ever-increasing costs of healthcare in retirement. Annuities offer a number of retirement advantages including:

  • Lifetime income that cant be outlived
  • Serving as a replacement for pension income
  • Helping ensure that basic monthly expenses are covered, including Medicare premiums and related healthcare costs
  • The insurance company that issues your annuity guarantees the income stream and backs the guarantee with its claims-paying ability

To learn more about strategies for lifetime income, check out our AIG 100 site for a wealth of informational articles, videos and other resources that can help with your retirement planning.

Be sure to factor in the ever-increasing costs of healthcare into your retirement planning. Failure to do so could result in a less financially secure retirement than you had anticipated.

How To Pay For Healthcare During Retirement

Breaking Down Healthcare Costs in Retirement

Its a sad fact of life: the more health care services improve, the more expensive costs become. Even in light of recent health care legislation, medical costs continue to soar, outpacing inflation for over two decades. In fact, industry experts predict that expenses related to health care will continue on this trajectory, increasing by up to 15% per year.

As nice as it would be to anticipate lower costs and increased cash flow in retirement, this is rarely the case. While retirement plans vary largely based on personal preferences, employment history, and life circumstances, an expectation of increased health care expenses cannot be ignored. It is prudent for aging adults to factor these expectations into retirement plans, but this is harder than it sounds.

With numerous ways to save and many expenses to save for, from standard medical expenses to long-term care costs, choosing the right approach can be very challenging. By understanding the available options and taking the benefits and risks of each into consideration, individuals young and old can take advantage of the best possible ways to save. These savings options include:

With proper planning, paying for health care in retirement doesnt have to be a struggle. Whether youre just starting out in your career or are nearing retirement and want to take the proper precautions, its never too early to ensure your health will be in good hands, no matter what the future may bring.

& More

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How Do I Reduce My Health Care Costs In Retirement

Apart from working to stay healthy, there are other ways you can manage your health care costs in retirement. Doing so requires carefully planning your income so you don’t bring in too much to qualify for subsidies for a health plan. Putting money in a health savings account is a great way to stow away tax-free money for retirement health expenses. You might also consider getting a part-time job that includes health benefits.

Factor : The Age You Retire

Retiring before age 65 sounds great, but it means you may have to come up with other coverage until you’re eligible for Medicare, the government-sponsored, subsidized health insurance program for retirees.

Here are some options:

  • Stay on a spouse’s plan. If your spouse or partner is still working and has employer-sponsored coverage, this is likely the cheapest way to stay insured.
  • Stay on your former employer’s plan. If you retire within 18 months before you become eligible for Medicare, you can use COBRA coverage to bridge the gap. It’s the same coverage you had while working, but your employer won’t subsidize it anymore, so your costs will increase.If you’re really lucky, your employer may also offer you continuing coverage as part of your retirement package. Win!
  • Buy insurance on the open market or through a professional association. All states now have exchanges where you can buy coverage from private insurers, and many associations offer group insurance coverage. This is likely your most expensive option, unless you qualify for tax credits.

How premiums vary

For a medium-risk woman. Marketplace cost based on Silver plan. Medicare cost based on traditional Medicare plus Supplemental Plan F. Source: Mercer-Vanguard health care cost model, 2018.

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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.

Reimburse Yourself For Expenses

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With an HSA you are not required to take a distribution to reimburse yourself in the same year you incur a particular medical expense. The key limitation is that you cant use an HSA balance to reimburse yourself for medical expenses you incurred before you established the account.

So keep your receipts for all healthcare expenses you pay out of pocket after you establish your HSA. If in your later years, you find yourself with more money in your HSA than you know what to do with, you can use your HSA balance to reimburse yourself for those earlier expenses.

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Phase #: Assisted Movement

During this time, you may no longer be able to live independently, things such as cleaning your house and grocery shopping may require you to hire someone to help, or you may need support from a nurse or family member. In addition, it is during this phase that healthcare costs go up. The Annuity Expert has products and strategies to help you plan for these costs, such as insurance products, commonly referred to as linked benefit products.

These products combine life insurance with long-term care benefits, allowing you to access benefits to pay for services such as skilled nursing, in-home care, and medical services.

Sample Yearly Costs For People Who Pay Maximum Additional Premium Charges Due To High Income

If you have low health risk, the median cost is $9.2K with a supplemental insurance plan, or $7.8K without. If you have moderate health risk, the median cost is $9.6K with a supplemental insurance plan, or $8.3K without. If you have high health risk, the median cost is $11.3K with a supplemental insurance plan, or $12.1K without.

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Factor : Amount Employer Subsidizes

If an employer has been carrying part of the weight of your health care costs, the loss of those subsidies can make your retiree health insurance costs feel much higher.

On average, our research shows that a 65-year-old woman will lose more than $5,000 a year in employer subsidies at retirement.

How do employer coverage and Medicare work together?

You’ll qualify for Medicare at age 65 even if you’re still working or have retiree health benefits through your employer or other coverage through a spouse who’s still working.

Whether you decide to enroll as soon as you become eligible depends on your specific situation. For more information, see

Why Use An Hsa For Retirement

Preparing for Medical Expenses in Retirement 2nd Smaller Pop Ups

According to a Wall Street Journal interview with Michael Kitces, the former director of financial planning at Pinnacle Advisory Group Inc. in Columbia, Md, HSAs are “the most tax-preferred account available.” He also advised, “Using one to save for retirement medical expenses is a better strategy than using retirement accounts.”

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Turning 65 And Still Gainfully Employed

If you’re still working when you’re 65 and get health insurance through your employer or your spouse’s employer, you’ll have the opportunity to enroll in Medicare when you leave your employer plan through a Special Enrollment Period.

In addition to Medicare options to consider, if your spouse or partner continues to work, they may be able to cover you through their health plan. Talk to your HR department to help you evaluate all your options, costs, and any restrictions. The rules of Medicare are complicated, so to get started, consider the following questions:

  • Which plan offers you the best coverage for your health needs?
  • Your employer is required to offer you coverage, but is that your best option?
  • Is it more expensive to stay in your employer plan or join Medicare?
  • Can your spouse or partner remain in your employer’s plan if you decide to leave?

Tip: Remember, one of the key goals at this stage is to avoid any gap in coverage.

Read Viewpoints on 6 key Medicare questions and Medigap 101: What you need to know

Take Advantage Of Medicare’s Free Services

Medicare offers all enrollees free annual wellness visits, along with free screening for diseases such as diabetes, cancer, depression, and more. These free services can help you catch health issues before they become too serious.

Recognizing your health issues early is key, not only to recovering quicker but to keeping your costs down. If you can make health changes before you develop diabetes, for example, you can avoid paying for monthly medications to treat it.

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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

Understand The Triple Tax Advantage And How Hsas Work

Early Retirement Planning: Health, Wealth, Education, & Location

You can save in an HSA if you are enrolled in an HSA-eligible health plan at work or in the private marketplace. Most people think of HSAs as a way to save to cover current medical costs not covered by such plans. But if you can pay for these costs out-of-pocket, the triple tax-free nature of an HSA makes it a powerful vehicle for retirement savings.

Many people contribute to HSAs pre-tax through payroll deductions at work so their contributions also escape FICA taxes. As long as you are enrolled in a health plan that qualifies, you can also open an HSA outside of work and fund it with after-tax dollars, which you then may take as a tax deduction on your personal taxes. These contributions can accumulate tax-free and can be withdrawn tax-free to pay for current and future qualified medical expenses, including those in retirement. If you are no longer covered under a qualifying plan, you cant continue to make contributions, but you can still hold the account and your previous contributions can continue to grow tax-free.

It gets better: Unlike most flexible spending accounts , the money in an HSA can remain in your account from year to year. You can earn interest or earnings with your HSA, and you can even take your HSA with you should you switch employers or retire.

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How Costs Will Change

With retirement planning, when it comes to healthcare costs time both is and is not on your side.

The good news is that healthcare costs tend to grow later in life. For most retirees this means that the bulk of their spending will come later in retirement, which gives you additional years to save. Absent individual circumstances, you can usually plan on an extra decade to let your medical savings grow before the costs really begin to accelerate. This means that you dont necessarily need that entire $362,000 by age 65, though you should be well on your way by then.

The bad news is that healthcare costs are growing quickly overall, sometimes as much as 5% per year. This is particularly bad news if youre young. For 20-, 30- and even 40-year olds currently saving up for retirement, its almost certain that your numbers will be much higher by the time you reach your 60s and 70s. Prepare for that, because if you plan on financing a 2062 retirement based on 2022 numbers youll be in for a rough surprise.

Planning And Paying For Healthcare In Retirement

Those saving and planning for retirement face a lot of important questions. How much will it cost to live comfortably in retirement? How much money is needed in order to pursue travel and other hobbies we enjoy? Importantly, how much is healthcare in retirement?

All too often, those approaching retirement fail to consider healthcare costs in their retirement planning and spending estimates. Several industry studies have pegged the costs of healthcare in retirement as a major expense that those approaching retirement often underestimate. Generally, the cost of healthcare for retirees is rising faster than the general level of inflation.

When it comes to paying for healthcare in retirement, planning ahead can pay off to ensure that you dont come up short.

If youre approaching retirement, here are some key healthcare issues to consider.

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Can You Keep Your Health Insurance When You Retire

Most people wont have an employer-sponsored healthcare benefits plan available to them in retirement.1

A few may be able to keep their plans by paying the same as they are now.

A few will be able to keep their plan by paying more for their insurance.

And a few will be able to join a separate rollover plan through their employer or association within a short time after they retire. With this type of plan, you wont have to answer medical questions or have a medical exam to qualify. The cost of insurance is based on your age, and you can choose the coverage package you need from basic to more enhanced.

Review Plan Choices Each Year

The 4% Rule, HSAs, and Healthcare Costs in Retirement

Once you’ve secured health insurance in retirement, you should be proactive about evaluating it regardless of your age. Conduct an annual review of your coverage options during open enrollment each fall.

Benefits and costs change, and it’s possible that a new plan may offer you better coverage at a lower price. You wonât know unless you look. Once again, you may want to talk with an experienced agent or contact your state’s SHIP to ensure that your plan change will benefit you.

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