Plan for Health Care Costs in Retirement

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The mantra for most people is financing a good retirement. With 401 (k)s and Roth IRAs, saving for those retirement excursions or financing a hobby is at the forefront of most individuals.

But what about health care costs? Those usually increase with age. How do these expenses factor into your retirement fund? In a worst-case scenario, a 65-year-old couple is projected to need $315,000 saved, after taxes, for future health care costs. How does someone anticipate and plan for these expenses?

Plan by Breaking It Down Monthly

Many retirees had their health insurance subsidized by their employer, so this is a new expense. About 44 percent of retirees struggle to predict these costs. By not predicting the expenses, it may be hard to manage them.

But don’t look too closely at the big picture. That may be overwhelming. Instead, break it down into monthly fixed health care costs and plan accordingly.

For example, in 2023, Medicare will cost $164.90 monthly. That’s a done deal that you know will come out of your check monthly.

But Medicare doesn’t cover everything. So, you’ll need Medicare supplement insurance. That’ll run you anywhere from $50 to $400 monthly. The price is based on your location, age and gender.

It’s not over yet. You'll also need to factor in Part D, which is your prescription drug plan. In 2023 that will be $43 a month.

These premiums make up a range of 77–83 percent of a retiree’s healthcare expense.

When determining when you can retire, sit down and run the numbers. Half the battle is knowing what the expenses. It gives you the ammunition to develop your retirement budget.

Use a Health Savings Account

Consider a health savings account (HSA) if you’re still working. You’re eligible with healthcare plans that have a high deductible. They have their perks since they come with several tax deductions when you contribute to them.

The contributions to an HSA are deductible. They also have tax-deferred growth. And, finally, withdrawals for qualified medical expenses are tax-free.

There is a deduction limit annually. In 2023, the deduction limit is $3,850 for an individual. The family deduction is $7,750. This is combined with any employer contributions.

If you’re in your fifties, there’s a “catch-up” deductible amount for an HSA. An extra $1,000 can be deducted.

But if you’re already enrolled in Medicare, you’re not eligible to contribute to an HSA.

Analyze All Insurance Plans Yearly

Although there’s nothing you can do about Medicare, don’t let your Medicare supplement health insurance just roll over every year. Instead, take the time to analyze costs, deductibles, and copays.

If your health has changed and you have more expensive medications, you’ll want to check and see if there’s better coverage for them with another plan.

There are always new plans that may offer more for the same or less premium. It can be tedious, but take the time to comparison shop every year.

Contest High-Income Surcharge

There is a surcharge on Medicare premiums for those over a certain reported income. This surcharge is the income-related monthly adjustment amount (IRMAA), and it’s based on the last two year’s income from when you started Medicare. It’s calculated yearly by the Social Security Administration.

For example, in 2023, an individual reporting income of $97,000 to $123,000 will pay a monthly $230.80 for Medicare. The rate increases as the income increases.

But what if your income took substantially declined the year before you when on Medicare? When you receive the IRMAA notice, you can appeal. Experiencing a life-changing event such as the death of a spouse, divorce, or loss of income are all legitimate reasons to appeal.

The Social Security Administration might also have erroneous information regarding your income.

If you feel you have a legitimate reason, you have 60 days to appeal. Contact the Social Security Administration at 800-772-1213.

Long-Term Care Insurance

Long-term care insurance is an option. It reimburses policyholders a daily amount for specific services. These services could include daily activities like bathing, eating, dressing, etc. Long-term care in a facility may also be covered depending on the plan selected.

The cost is based on age and the amount the policy pays per day. Another cost factor is the duration of the coverage. For example, will the coverages last for months, years, or a lifetime. But it is rare that a policy will pay unlimited for a lifetime.

Long-term care insurance can be bought between 60 and 65, assuming you’re in good health. Of course, five years earlier is an even better age.

This is an effective solution if you fear running through your savings if you become ill.

Plan for Health Care Costs Early

Don’t leave health care expenses out of the equation when planning retirement. You’ve saved years for the perfect retirement. Don’t let premiums and variable expenses derail it.

The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.