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3 Tips on Health Care Costs in Retirement


One retirement cost that people tend to underestimate is the cost of health care.  The costs are usually higher than expected; they are unpredictable; and, ironically – the longer you live the more your total spending on health care will be. 

Failing to adequately include health care costs in your retirement plan will leave you with a dangerous gap.  Fidelity estimated that a couple retiring in 2016 would need an estimated $245,000 to pay for health care costs including Medicare premiums, copayments, deductibles and, prescription drugs.  Not included in that estimate is the cost of long term care which 7 out of 10 people over the age of 65 are likely to need for some period of time.

What can you do so you are not blindsided by health care costs in retirement?

  1. While you are still working consider a health saving account (HSA) if your company offers it.  The funds you don’t use today can grow in the HSA and be available to you to pay health care costs in retirement.  Remember, once you sign up for Medicare you can no longer fund your HAS so make sure you take that into consideration as you decide when to move from an employer plan to Medicare.  You can use the HSA to pay for Medicare premiums, copayments, coinsurance and deductibles (you can’t use it to pay for Medigap premiums.)  More on the rules for HSAs and Medicare here.
  2. Know the Medicare rules before you sign up.  There are lots of rules around Medicare sign up and missing deadlines can lead to lifetime penalties.  If you sign up when you turn 65 the process in pretty straightforward.  When you delay signing up for Medicare because you are still working, the process is a bit more complex so make sure you know the rules before you drop your coverage at work.  Medicare can cost more than you think.  You may pay a monthly Part B premium, a Part D premium for prescription drugs, and copays, deductibles and coinsurance depending on what type of coverage you have.   Read more about Medicare sign up rules here.
  3. Plan for yearly increases in health care costs.  Health care costs tend to rise faster than inflation and as we age most of us use more health care services.  Your retirement plan should include yearly increases in health care cost basics plus a reserve or additional insurance for paying what Medicare does not pay for including dental, vision and long term care costs.  Also an unexpected increase in income, for example from the sale of an investment property, can increase your monthly Medicare premium by putting you into a higher cost bracket.  Medicare is “means tested” which means that people with an income of greater than $85,000 pay more.  For example the income on the sale of a second home can jump you into a higher bracket for Part B and Part D premiums for a year.

In October, Medicare announces its premium and deductibles for the coming year.  For 2018, the prediction is that Medicare premiums will stay the same as 2017.  But remember, the cost of your insurance – Medicare supplement, Medicare Advantage and prescription drug plan will probably change.  And you can expect to pay more in copayments, deductibles and coinsurance and the drugs covered by your plan may change. So plan for health care cost increases each year.  And take advantage of the open enrollment period (Oct. 15 – Dec. 8) to make sure you have the best plan for your health care needs.


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