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Preparing for the cost of health care in retirement

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For a healthy couple who are 65 years old, they can expect to pay around $597,389 on lifetime medical expenses. And if health care inflation remains at 11.85% for the next two years before returning to more expected healthcare inflation projections, they could face an additional $85,917 in retirement healthcare expenses over the next 20+ years. Even if they enter Medicare as retirees, they will need 71 percent of their lifetime Social Security benefits to cover their medical expenses. 

Many people find that they cannot rely solely on these benefits to meet their healthcare needs — even after claiming at Full Retirement Age (FRA) and including annual cost-of-living adjustments (COLAs). As you create a holistic retirement plan, it’s important to find solutions, like an annuity, that can close any income gaps and can assist with planned and unexpected medical expenses.

Consider these tips while planning to help cover your health care costs in retirement.

If you plan to retire at age 65 or later

After age 65, you’re typically on more of a fixed budget and may be able to plan out your costs more efficiently. At this stage, you become eligible for Medicare and can use this federal health insurance program to help with some of your medical expenses. You can sign up for Medicare Part A and Medicare Part B through Social Security’s online Medicare application. As an overview:

  • Medicare Part A helps cover inpatient care in hospitals and skilled nursing facilities.
  • Medicare Part B helps cover doctors’ services, outpatient care and home health services.

Keep in mind that Medicare may continue to change in the years ahead. However, it can still be a good idea to explore your Medicare plan options and estimate your monthly costs now. Once you have that ballpark number, speak with your financial professional about retirement planning options that could help support those expenses.

If you plan to retire before 65

If you're giving up the 9-to-5 grind before your 65th birthday, you may want to get coverage until you become Medicare eligible. Some employers may allow you to stay on your current insurance plan after you stop working for a certain cost, while others offer health insurance for their retirees. Talk to your HR department now about your future coverage options and what your financial contribution would be for each. If your employer doesn't offer additional insurance, you'll need to buy it on the health care exchange if you want coverage in the interim. Additionally, if you have a spouse who's still working, you may be eligible for health insurance through his or her plan.

If you and your spouse jointly make under a certain amount per year, you could quality for a subsidy, lower out-of-pocket costs or even Medicaid. Those numbers also vary by state, but you can determine your eligibility and find out how to estimate income before you apply.

Keep in mind, your income, household size and family status are factors used to determine your eligibility for assistance, not your total assets. If you could live off of the money in your savings, and keep your income on your tax return under that threshold, you could be eligible for subsidies and lower out-of-pocket health care costs. That might mean directing your savings efforts now into a non-retirement account to pay for your living expenses in the pre-Medicare years. You should weigh the pros and cons of this approach with your financial professional, legal counsel or tax professional to determine whether this would be the best move for you.

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