Medicare can pay for some healthcare spending in retirement

Retirement Tips: Planning for Medical Expenses

A big part of planning for retirement includes budgeting for healthcare expenses. According to reports, a newly retired couple in 2020 will need about $295,000 for medical costs in retirement. For some, this goal seems way out of reach, while others may be in a better position. Know that Medicare can pay for some healthcare spending in retirement, but with restrictions. You need a Part D plan to get coverage for medications. Here are some ways to plan for healthcare premiums and out-of-pocket costs in retirement — that go beyond Medicare plans.

Related Post: Who Qualifies for Medicare?

Quick Statistics 

Many retirees underestimate how much they’ll need, individually — men 65 and older will need approximately $135,000, and women $150,000 to pay for medical care in retirement.

The usual person in their 60s has an estimated $172,000 in savings. 

Did you know? People 65 and older spend $3,800 each month, on average, with Social Security replacing around 40% of their working-life income. The amount of retirement income to budget for medical care mostly depends on your age and overall health.

A Glimpse of Medicare Costs for 2021

If you’re relying on Medicare to help pay for medical costs in retirement, expect deductibles, premiums, and out-of-pocket expenses. For 2021, here’s a quick look at Medicare costs:

Part A deductible $1,484
Part B monthly premium
Part B annual deductible
$148.50
$203
Part D base premium
Part D annual deductible
$33.06/month
Up to $445 for most plans

Create a Safety Net for Healthcare Spending

Rising healthcare costs don’t have to deplete your retirement savings. Consider the following to help pay for healthcare:

Health Savings Account 

Pre-retirees can set up a health savings account (HSA) through a high-deductible health plan (HDHP). HSAs offer tax-deferred growth, deductible contributions, and tax-free withdrawals for qualified medical expenses. You can use the funds to pay for Medicare and/or long-term care insurance premiums!

Folks in their 50s can maximize these plans by leveraging employer and “catch-up” contributions. If you’re 55 or older, you can make a catch-up contribution of $1,000 each year — on top of the maximum contribution limit. Many employers will provide cash rewards to an HSA for preventative screenings, like mammograms or annual physicals.

In 2021, the standard HSA contribution limit is $3,600 for individual coverage and $7,200 for family coverage. Limitations apply to both employee AND employer contributions. Note that you can no longer contribute to your health savings account if you’re enrolled in Medicare. 

Related Post: Do I Need Medicare If I Have Employer Coverage?

Long-Term Care Insurance

Long-term care is a service that helps meet your health or personal needs. The goal is to help folks live independently and safely when they can no longer do normal activities on their own.

Since no part of Medicare covers long-term care, some people buy long-term care insurance to fill the gap. This insurance policy can pay a monthly benefit for long-term care — for a 2-3 year window — which may keep you from spending assets to qualify for Medicaid. Note that Medicaid pays for long-term care.

However, premiums for long-term care insurance may not suit everyone’s budget. If they’re not affordable for you, consider purchasing a life insurance policy that includes an option to add a long-term care insurance rider. Younger people who want to get ahead of the game will like this option. It’s likely that the sooner you buy life or long-term care insurance, the lower the premiums would be. 

Talk to an Insurance Advisor

Whether you’re close to retirement or already transitioning out of the workforce, it’s critical to know how to plan for rising healthcare costs. If you need help with Medicare or long-term care planning, we want to hear from you. Speak to an insurance advisor at Fussell & Goodyear.