How Will You Pay for Out-of-Pocket Health Care Costs in Retirement?

​One of the most important aspects of having a financially stable and successful retirement is keeping costs under control. Even if you have significant retirement assets, you still have to make those assets last for decades. By controlling your spending, you can limit the amount of money you withdraw from your savings.
 
There are plenty of costs that can quickly add up in retirement. Housing, dining out, shopping, travel and more may play a role in your retirement budget. One not-so-obvious expense to consider is health care.

Many retirees assume that Medicare covers all health care costs. That’s generally not true. Medicare will cover a large portion of hospitalizations, doctor visits and even prescription drugs. However, you will still likely face out-of-pocket costs. In fact, Fidelity estimates the average 65-year-old couple will spend $260,000 on out-of-pocket health care expenses in retirement.1
 
Have you included these costs in your retirement planning? Do you have a strategy to pay medical expenses that aren’t covered by Medicare? If not, now may be the time to think about your options. Below are three ways to manage health care costs after you retire:

Fund your health savings account.
If you’re still working, you may want to take advantage of a health savings account, also known as an HSA. In an HSA, you can make tax-deductible contributions and then invest those contributions to grow tax-deferred while the funds are in the account. As long as you use the money for qualified health care costs, you can withdraw funds from your HSA tax-free.
 
The best part is that your HSA stays with you after you retire. That means you can put money away today in a tax-advantaged manner to fund health care costs in the future. Consider funding your HSA to use as a dedicated health care funding source after you leave the working world.

Buy supplemental insurance.
While Medicare is a useful resource for retirees, it doesn’t cover everything. In fact, it covers only 80 percent of most types of treatment. It also doesn’t cover long-term care, many forms of rehabilitation, dental visits, eye checkups, international treatment and more.

However, you can purchase a policy through Medicare Advantage to fill in those gaps. Medicare Advantage policies are issued by private insurance companies, and they bundle traditional Medicare coverage with other types of protection. Also, many types of Medicare Advantage policies have a cap on out-of-pocket costs to provide further protection.
 
Additionally, think about buying a long-term care insurance policy. It’s possible that you or your spouse may need extended assistance with things like eating, dressing, bathing or mobility as you age. Long-term care insurance helps you hire in-home help or even pay for a room in an assisted living facility.
Invest in your health today.
 
Want to reduce health care costs in the future? One way to do that is to reduce your need for treatment by improving your health. Lose weight. Exercise more frequently and improve your diet. Drop some of those nasty habits, like smoking.

Consider meditation or new hobbies to help you eliminate stress.
You may also want to consider going forward with costly treatment or surgeries while you’re still on employer coverage. If you’ve had a lingering health problem, get it checked out now while you may have greater protection. That early treatment may prevent a future need in retirement.
 
Ready to plan your retirement and your health care funding strategy? Let’s talk about it. Contact us at Sprouse Financial Group today to welcome the opportunity to connect with you.


1https://www.fidelity.com/about-fidelity/employer-services/health-care-costs-for-couples-in-retirement-rise

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