Planning For Health Care Costs In Retirement

December 17th, 2014

Planning for health care costs in retirement


Most people envision retiring as a time to shift gears, slow down and worry less. However, that picture perfect image can quickly change as you get closer to retirement, especially when thinking about paying for health care. Simply put, paying for health care costs in retirement may be one of the most intimidating retirement planning challenges you will face. If health care costs continue to rise as they have in the past, they will will be a significant part of your total retirement expenses. Which is why it is extremely important that these costs are factored into retirement savings strategies today so that retirees can be prepared to pay their medical bills throughout retirement.

The Importance Of Planning Now

  • Expect To Pay More: Due to the financial condition of the Medicare program and cutbacks to employment-based retiree health programs, you should expect to pay a greater share of their costs out-of-pocket in the future.
  • Health Care Uncertainty: Ongoing changes to the national healthcare system add uncertainty and risk.
  • Long Term Care: Research shows at least 70 percent of people who are over age 65 are going to need long-term care services, which can potentially cost hundreds of thousands of dollars.

Preparing Is Knowing

While most people admit to being concerned about taming health care costs during their retirement years, too many variables exist when making assumptions to determine what your approximate need will be. There are a few things you can do to start planning for your transition into retirement.

  • Simplify

    Simplify your planning by starting early and identifying income streams to cover annual costs, such Medicare Part D or Medigap premium.

  • Estimate

    Estimate costs and use a relatively high inflation rate to account for cost increases over time. Be sure to recalculate these costs annually for accuracy.

  • Insure

    Having insurance can help with expenses when you need care. Medicare Supplement insurance can help cover some health care costs not paid by Medicare, such as co-pays and deductibles. You can add an additional financial safety net with long term care insurance. These policies are designed to cover long term care services, such as assisted living, home care and hospice, which are services traditional health insurance doesn't cover.

  • Invest

    Earmark a separate account for retirement savings and invest those dollars for growth. This can be difficult for retirees who worry they may not have the time horizon to ride out a crisis like we saw in 2008. However, a growth investment strategy is your best protection against rising costs.

  • Review

    This is probably one of the most important items when planning for health care costs in retirement. People's financial situation change. By having a system in place where you consistently monitor your financial status and progress will allow to make the necessary modifications needed to stay on track.

Being educated about how you can manage health care costs is a valuable way to ensure that your wealth endures through retirement while leaving a legacy for your heirs.

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