It’s never too soon to learn how to prepare for health care costs in retirement. A recent study of U.S. adults ages 50 to 64 found that about half (45%) had low confidence in their ability to even afford health insurance during retirement.
Kiplinger’s article entitled “Are You Prepared for Health Care Costs While in Retirement?” says that the average 65-year-old couple in 2020 needed roughly $295,000 in today’s dollars during their retirement to cover health care expenses. And that’s not counting long-term care. That number continues to grow with inflation.
However, depending on your age, income, health, location, and Medicare eligibility, that figure could be much different. When long-term care is added, the expense for health care can increase dramatically. According to the U.S. Department of Health and Human Services, a person turning 65 today has almost a 70% chance of needing long-term care services in the senior years. Right now, the average cost for a private room in a nursing facility in the Dallas area is $7,604 and the average baseline cost for assisted living is $5,238 per month, with levels of care at additional cost. Therefore, planning ahead is critical.
Let us look at what can you do to help save for retirement and health care.
Use a tax-free account for health care expenses.
You can start budgeting for your health expenses by contributing to a Health Savings Account (HSA). If you have a high-deductible health care plan, your employer may offer an HSA. An HSA lets you contribute, while receiving a tax deduction. The money can be invested and grow tax deferred. If this money is eventually used for qualified medical expenses, the withdrawal is tax-free. This year, the IRS allows individuals to contribute $4,300 and families to contribute $8,550. This can add up to a significant sum, which can be a ready source of health care funds, when needed. Talk with an experienced Elder Law Attorney and a trusted Financial Advisor to learn more.
Prepare for long-term care.
Medicare Part A covers skilled nursing care for a specific period after hospitalization. However, it doesn’t pay for long-term care for Alzheimer’s or other chronic diseases. That is why many people buy a long-term care (LTC) insurance policy. This policy will go beyond what your health insurance may cover, by reimbursing you for services needed to help you maintain your lifestyle, if age, injury, illness or a cognitive impairment creates difficulties for you in caring for yourself. With long-term care insurance, you can prevent your retirement and savings from being depleted, if this care is needed in the future. An LTC insurance policy provides your loved ones with greater options for providing care, while relieving them from full-time caregiver responsibilities.
It makes a difference where you live.
Another factor that will have a big effect on how much you spend on health care is where you’re living in retirement. Traditional Medicare coverage is the same all over, but prescription coverage (Part D), Medicare Advantage (Part C), “Medigap” supplemental plans, and private insurance vary, depending on where you live. Plus, the costs of long-term care can vary by thousands of dollars from one state to another. If you’re currently living in a state where health care costs are higher, you might think about moving somewhere else in retirement.
The cost of long-term care services in Texas increased year-over-year, but remains lower than national costs, according to the 2024 Cost of Care Survey conducted by Genworth and CareScout.
Look at your age when you retire.
A person can start collecting Social Security at age 62, but you can’t begin Medicare until age 65. If you choose to retire earlier than 65, there are a few options you can look at for health insurance. When you retire, you may choose to continue your employer’s coverage under COBRA for up to 18 months. However, your premiums will increase substantially because you’ll be paying the full premium without the employer’s contribution. If your spouse is still working and eligible for health insurance, you may be able to move to their plan. You can also buy an Affordable Care Act plan on a federal or state health insurance marketplace.
There are many factors to consider as you plan for your retirement. Medical and long-term care costs may have a significant impact on your budget and quality of life. Contact our office today to learn more about the legal planning needed to prepare for retirement.
Reference: Kiplinger (Feb. 15, 2021) “Are You Prepared for Health Care Costs While in Retirement?”
