3 tips for managing medical expenses in retirement
As we grow older, our medical bills tend to grow bigger. That's why your retirement plan should anticipate spending a significant portion of your savings on healthcare costs.
Here are three things to think about before you meet with your financial advisor to discuss a strategy for covering your retirement healthcare needs.
1. Brace yourself for the costs
Here's a comparison to put the cost of retirement healthcare in perspective. If you and a spouse or partner were retiring this year at age 65, you could expect to spend an estimated $280,000 for your future healthcare costs, according to the latest analysis by Fidelity.1 That's nearly $50,000 more than you would have shelled out for a median-priced home in June 2018 by Zillow's survey numbers.2
That healthcare expense continues to increase year over year. In fact, it's up 75% since Fidelity's first study in 2002, which estimated $160,000 for the average couple's retirement health costs.
Studies of long-term care expenses provide another sobering reality check. According to Genworth's latest annual long-term care cost report, national median monthly costs in 2018 were the following, per month:3
$4,000 for assisted living
$4,195 for a home health aide
$8,365 for a private room in a nursing home
Did you know? A retired couple's total estimated healthcare costs could exceed the median price of a home.
2. Plan to cover the gaps in Medicare
Despite some common misconceptions, Medicare will not cover all your healthcare expenses in retirement. The list of healthcare costs Medicare won't pay for include:
Vision and dental care
Long-term nursing care
Medicare Supplemental Insurance (Medigap), obtained through a private insurer, can help pay your deductible and some other expenses Medicare doesn't cover. If you're still working and have a high-deductible health insurance plan, another option to consider is opening a health savings account (HSA), especially if you have an employer that will match your contributions. Because the money you save in an HSA rolls over every year, you can use it to help cover future out-of-pocket healthcare expenses. In addition, HSAs also offer significant tax advantages.
The IRS sets current annual HSA contribution limits at $3,450 for individuals and $6,900 for families, although savers age 55 and older are allowed an additional $1,000 in catch-up contribution each year.4 You can't contribute to an HSA once you're already enrolled in Medicare, so it's important to act now if you want to want to use an HSA as a savings tool.
3. Prepare for long-term care
Since Medicare doesn't pay for long-term care, consider whether buying long-term care insurance would be a good option for you. The structure of long-term care coverage has changed over the years, Robinson says. In years past, any money paid into premiums was simply forfeited if the long-term policies were never used. Today, some companies offer life insurance policies with long-term care riders. The death benefit decreases if you use the rider, but your beneficiaries still have a chance to receive something from your investment in the policy. A similar long-term care rider is available with certain annuities.
Payment terms vary for these arrangements, Robinson says, but people often fund them by shifting money from other types of investments, including retirement accounts.
Similar to how you rely on a team of trusted medical experts to maintain your health, a trusted financial expert can guide you in creating a holistic retirement savings plan that provides enough funding for your healthcare.
Synovus is here to help. When you're ready to talk with a financial consultant, please call us at 1-888-SYNOVUS (1-888-796-6887) to get started.
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This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
Fidelity, “A Couple Retiring in 2018 Would Need an Estimated $280,000 to Cover Health Care Costs in Retirement, Fidelity® Analysis Shows," accessed August 20, 2018.
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