The retirement period should be a time to relax and enjoy passions you couldn’t fully embrace during your career. However, working toward this ideal retirement is contingent upon having the financial resources to cover daily expenses and critical costs, particularly healthcare, which often becomes a primary concern as we age.
In today’s article, we’ll discuss healthcare costs in retirement and how you can manage them.
Why Healthcare Costs Matter in Retirement
When it comes to healthcare costs in retirement, longer life expectancy means higher medical expenses and an increased need for long-term care. Furthermore, the impact on healthcare inflation, especially in the future, will drive up medical services, from medications to insurance premiums.
These are both good reasons why planning for healthcare costs is crucial to maintaining your lifestyle throughout retirement.
Types of Healthcare Costs in Retirement
Medicare Premiums
Medicare is the centerpiece of healthcare coverage for retirees. It includes four parts (A, B, C, D):
Part A is the hospital insurance that covers hospital stays, nursing facilities, hospice care, and home health care. Part A is typically premium-free for those who have paid Medicare taxes for at least 10 years.
Part B is the medical insurance, which covers doctor visits, outpatient care, and preventive services. The standard premium cost is $185/month or higher, depending on your income level. This price is subject to change each year.
Part C, also called Medicare Advantage, includes Part A and Part B with additional benefits that often include dental and eye care. Premium cost varies by plan. Part C is often offered by private companies that Medicare approves.
Part D covers drug costs, such as prescription medications. Premiums vary depending on plan and income. For example, certain high-income earners are subject to the Income Related Monthly Adjustment Amount (IRMAA).
Out-of-Pocket Expenses
Even with Medicare, retirees will frequently incur out-of-pocket payments such as copays, deductibles, and coinsurance due to particular coverage limits, exclusions, and cost-sharing rules designed to balance the program’s affordability for the government and beneficiaries.
Copays: Fixed costs paid for doctor visits or hospital stays.
Deductibles: An amount you pay yourself before the premium is active and starts covering certain services.
Coinsurance: A percentage of the cost of the services after deductibles. For example, if a test costs $100 and Medicare pays 80%, you pay 20% ($20).
Some Medicare Advantage plans have yearly out-of-pocket limits, which usually exclude premiums, prescription medicines, and non-covered services.
Prescription Drug Costs
Part D of Medicare covers drug-related costs. However, there is typically a monthly fee (which varies by plan), a yearly deductible, and copays for each prescription.
Furthermore, if you require a large number of medications, you may encounter a coverage gap, which means paying more until you reach a larger spending limit, at which point costs fall again.
Long-Term Care
Long-term care encompasses daily tasks that individuals cannot perform independently, such as bathing, eating, and dressing, and is typically provided in nursing homes, in-home care, and assisted living facilities.
Medicare usually doesn’t cover these services, unless it’s short-term. For example, Medicare covers the first 20 days of nursing facilities, and beyond that, you’ll need to pay out-of-pocket.
Vision, Dental, and Hearing
Medicare often doesn’t include routine vision care (eye exams or glasses), dental (cleanings or dentures), or hearing (tests or hearing aids). If you don’t want to pay out-of-pocket expenses for these services, getting extra coverage, such as Medicare Advantage or private insurance, is another option that can help cover these costs.
Planning Ahead: How to Manage Healthcare Costs in Retirement
The best step for managing healthcare costs in retirement is to start saving early. The earlier you start, the more money you’ll have for retirement. Begin setting aside funds for healthcare expenses in a savings account or investment.
A Health Savings Account (HSA) is one great example. An HSA is a savings account designed specifically for healthcare expenses. Furthermore, HSAs provide tax benefits. Money saved in an HSA grows tax-free and can be used tax-free for medical expenses, including Medicare premiums, copays, and even dental care.
Long-term care insurance is another excellent option to take, since Medicare often doesn’t cover long-term services. With long-term care insurance, you ensure that any future care needs are covered.
Understand Your Medicare Options
Medicare options are plenty, and sometimes it can be overwhelming to understand and choose the right plan for your goals and needs. That’s why working with a financial advisor is a smart way to go.
Financial advisors understand the importance of building healthcare into your retirement plan. They can help evaluate plans while taking into consideration your goals and needs, so that the option you’ll take can accommodate these preferences.
How Butson Financial Advisors, LLC Can Help
Healthcare costs are one of the most significant aspects of retirement planning. Therefore, planning for it helps to work toward a stress-free and financially secure retirement future.
Butson Financial Advisors, LLC is here to help. Our team is here to assist you every step of the way. Contact us today to begin planning your retirement.
