What will be your biggest costs in retirement? Housing? Travel? Food? Taxes? You may spend a substantial amount on all of those items, but there’s one expense category that could be even bigger. It’s health care.
You might assume that Medicare will cover most or all of your health care costs. That assumption is usually incorrect. Medicare is a valuable resource, but it doesn’t cover everything. In fact, Fidelity estimates that the average retired couple will spend $280,000 on out-of-pocket medical expenses.1 That figure doesn’t even include the cost of long-term care.
These out-of-pocket costs could create financial difficulty for you in retirement, especially in the later years. As you age, you become more vulnerable to illness and injury. Depending on your needs, medical expenses could be a drain on your retirement assets.
The good news is you can take action to limit your out-of-pocket expenses and protect your budget. Below are a few of the most common sources of health care costs in retirement. By understanding your potential health care costs, you can develop a funding strategy.
You’ve paid payroll taxes toward Medicare your entire career. Because all workers pay Medicare taxes, you may assume that coverage is free. Part A, which covers hospitalizations, doesn’t have a premium. The other parts, however, do have monthly premiums.
It’s also important to remember that all parts of Medicare have deductibles and copays. The amounts depend on your specific policy. The more robust your coverage, the higher your premiums are likely to be. You can reduce your premiums by changing your coverage, but doing so may increase your deductible and copay.
There are many services that simply aren’t covered by Medicare. Things such as dental services, vision, hearing and even physical therapy usually aren’t included in Medicare plans. That means you’ll have to pay out of pocket for all those services.
You can use a program called Medicare Advantage to obtain coverage for these services and more. Medicare Advantage, also known as Part C, allows private insurers to offer Medicare policies directly to seniors. These policies usually include traditional Medicare protection plus enhanced coverage.
Of course, since Medicare Advantage is optional, it also comes with additional premiums. A wide range of Medicare Advantage policies are available, so it’s important to consider your specific needs, budget and objectives before you purchase a policy.
According to the U.S. Department of Health and Human Services, many retirees can expect to utilize long-term care at some point in their lives. The agency estimates that today’s 65-year-olds have a 70 percent chance of needing long-term care in the future.2
As you may know, long-term care can be costly. According to Genworth, the average monthly cost for an assisted living facility in 2018 was $4,000. The average cost for an in-home health aide was about $4,195.3 Many retirees need long-term care for many months or even several years, and the costs can add up to be a drain on retirement assets.
You may want to consider purchasing long-term care insurance. You pay premiums to an insurer, which then covers some or all of your long-term care expenses. Most policies cover care provided either in a facility or in the home. Some even provide a death benefit to loved ones in the event that you don’t need the long-term coverage.
Ready to develop your health care funding strategy? Let’s talk about it. Contact us today at Jim Lee Financial. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
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