During retirement, most expenses decrease on average. This includes housing, clothing and transportation. But there’s one expense that has been shown to increase and consume a large portion of older American’s incomes: health and Medicare cost.
The share of the 75-plus population’s total spending that goes toward health care is 15.6 percent, which is nearly double that of the younger group (under 75), which is 8.8 percent, according to a recent survey by the U.S. Bureau of Labor Statistics.
Luckily, there are ways to plan for your future financial needs and tips on how to avoid the high health and Medicare cost altogether, explains Corey Purkat, founder and CEO of Northwoods Financial Planning.
If you have time on your side, Purkat recommends starting to save at least 20 years before you plan to retire, especially if you are working for a company that gives you the option of a retirement savings account, such as an Independent Retirement Account or 401(k).
Even if retirement is just around the corner, save as much as you can now. Consider using a retirement calculator to find out how much you might need and what some of the other big levers like working longer you might have.
“Give yourself some time and always remember that the tech and medical fields are only going to continue to advance, which means we will all be living longer than our parents and grandparents,” says Purkat. “The more you can save before retiring, the better.”
An HSA (health savings account) can be a huge help if you currently have health issues or want to be prepared for health costs down the road. The money you contribute to an HSA is always going to be pre-tax and is specifically used for health care costs.
Many companies even offer HSA options in addition to their other retirement savings plan options, Purkat explains.
“HSAs are a really effective way of growing your savings for health costs,” says Purkat. “Before HSAs, people were taking funds from their retirement accounts to pay for health care costs, but now you can keep health care and other retirement costs separate.”
Another option for those looking for help with their health care costs is a long-term care policy. Medicare does not cover long term care. Historically, these policies have been seen as something you could only tap into if you were staying in a nursing home, but this assumption is not necessarily correct, shares Purkat.
“Long-term care policies are there to offset any kind of long-term care that is needed. I often see people using this option to help offset the costs of in-home care,” Purkat says.
Besides long term care insurance, there are other creative ways to fund these costs.
In an effort to avoid the high health and Medicare cost altogether, Purkat shares that staying healthy and active is the least expensive and the easiest option.
“When people retire, they are usually drastically changing their schedule from going to work every day to being home, so I always recommend implementing a new routine to stay busy,” Purkat says.
A large issue that Purkat explains he sees among many of his clients is having to deal with self-insuring. This can happen if someone chooses to decline health insurance his or her employer has provided or has retired too early and isn’t eligible for Medicare yet.
“If your employer is paying for health and life insurance, it is really cost-effective to use their plan until you can switch over to Medicare,” says Purkat. “It will always be less expensive than paying for your own insurance policies.”
Dealing with health care costs is a fact of getting older, but if you can prepare and be aware of the options that are available, it may be a lot easier to maneuver through the financial side of retirement. If you’re looking for more guidance on preparing for retirement, consider contacting a fee only retirement advisor for a more in-depth analysis for your specific situation.
Supplemental Medicare plans vary greatly. Some policies are best for certain medical conditions and others plans provide more coverage for other things.
It is important that you compare your options carefully.
And, you should assess your coverage every year. As your health changes, so should your coverage.
