Health Care Costs in Retirement

How much can you expect to spend on health care during your retirement years? The answer depends on your overall health and your life expectancy. One study found that the average household can expect to spend around $122,000 on health care costs for the remainder of their lifetimes from age 70 on. Households in the top 5% of spenders can expect to pay around $330,000 in health care costs over the rest of their lives.

Health care costs are a significant source of concern and stress for people about to enter retirement and those already in retirement. According to a Harris Poll, nearly three-quarters of adults stated that they were concerned about health care costs spiraling out-of-control while they are in retirement. Almost two-thirds of adults said they were “terrified” about what the cost of health care could do to their retirement savings.

Although you can’t predict the future with 100% accuracy, you can take steps to plan for your retirement years and find ways to cover the cost of health care while you’re retired. For many people, a mix of Medicare coverage, private insurance, and long-term care insurance are sufficient. If you haven’t yet hit retirement age, making a plan for covering your costs in the future can also reduce the sting of health care expenses later on.

What Health Care Retirement Issues Concern People the Most?

People worry about not having enough money during their retirement years. Their concern about money takes several forms.

More than 70% of respondents to the Harris Poll stated they were concerned about the cost of unplanned health care expenses in retirement. People who had incomes under $150,000 per year were particularly concerned about health care costs. Those with incomes over $150,000 also expressed concern about health care cost to a lesser extent. Fear about the cost of health care was felt more palpably by people who had yet to retire compared to people already in retirement.

Adults are also fearful when it comes to covering the cost of long-term care. About 70% of adults said they were very or somewhat concerned about affording the cost of long-term care. As with the cost of health care in general, people who had yet to retire and people who had incomes under $150,000 were more concerned about long-term care costs than those who had already retired or who had an income over $150,000.

People also worry they will outlive their total retirement savings. More than half of adults expressed fear their health care expenses would cause them to deplete the money they had hoped to leave for their children. More than a third of people feared outliving their spouse or having their spouse survive them.

How to Reduce Potential Health Care Costs in Retirement

Fear and worry about the cost of health care during retirement are so great that some people take what seem to be preventative measures to lower their expenses. In some instances, preventative measures fall into the “can’t hurt” category. Other tactics can have a negative effect on a person’s overall health.

Among the “can’t hurt” measures people have taken in an attempt to lower their health care bills include eating a healthier diet and taking vitamins or supplements. If you are considering taking a vitamin or supplement to improve your health, speak with a doctor first to make sure that it doesn’t interfere or interact with any medications you take. Your doctor can also help you determine the appropriate dose to take. If you want to eat healthier, your doctor can help you put together a nutritious meal plan or refer you to a nutritionist or dietitian who can help you achieve your dietary goals.

While eating better and taking supplements usually do more help than harm, some people attempt measures that can negatively impact their health with the aim of reducing health costs. Potentially harmful cost-cutting tactics cited in the Harris Poll include:

  • Slashing spending on groceries
  • Delaying seeking treatment when sick, skipping a routine screening or wellness visit, or skipping a follow-up appointment with a doctor
  • Not taking medication or not filling a prescription
  • Cutting pills in half or sharing prescription medicines with someone else

How Can You Pay for Health Care in Retirement?

One thing that should put your mind at ease about health care costs during retirement is that you will most likely have multiple options for covering your expenses. These include using:

  • Federal health insurance, called Medicare
  • Private insurance
  • Savings

Medicare is a federal health insurance program available for people over the age of 65. Medicare is divided into several coverage options. Medicare Part A covers in-patient care in a hospital, hospice care, home health care and skilled nursing care at an in-patient facility but not long-term care. Medicare Part B covers preventative services as well as medically necessary services such as mental health care and ambulance services.A third option is a Medicare Advantage Plan, or Medicare Part C. Private companies contract with Medicare to offer Medicare Advantage Plans. The plans offer the services of both Medicare Part A and Part B. Medicare Part D provides coverage for prescription drugs. Part D coverage is sometimes included in Medicare Advantage Plans.

Is Medicare Free?

How much Medicare costs depends on the type of plan you purchase, how long you have worked and your income. Many people don’t pay a premium for Medicare Part A. People who did not pay Medicare taxes for at least 40 quarters will pay a premium ranging from $240 to $437 per month. The premium for Medicare Part B is at least $135.50 per month, with payments based on your income level.

Both Part A and Part B plans also have deductibles or co-insurance costs. For Medicare Part A, the deductible is $1,364 per benefit period with up to $682 co-insurance. Part B plans also have a deductible of $185 per year plus 20 percent of the cost of doctor services. The costs of Medicare Advantage Plans and for Medicare Part D vary based on the plan you choose and a person’s income.

Private Health Insurance in Retirement

Since Medicare doesn’t cover every health care expense, many people decide to purchase private insurance as a way to supplement their Medicare coverage in retirement. In some cases, people might continue to use private insurance even after they’ve become eligible for Medicare coverage. For instance, if you are age 65 but still working, you might continue to be covered by your employer’s health plan, rather than signing up for a Medicare plan right away. If you’re retired, but your spouse continues to work, their employer-sponsored plan might cover you.

If you do have Medicare but find it’s not sufficient for covering your health care costs, you can sign up for Medicare Supplement Insurance, or “Medigap” coverage. Medigap coverage plans usually help to pay for the co-insurance, deductibles and co-payments associated with Medicare plans. Private companies offer Medigap plans.

Coverage is available for individuals, which means if you’re married and both of you have Medicare, you will each need to purchase your own Medigap plan. One thing worth noting about Medigap plans is that they don’t cover long-term care, dental procedures, hearing aids or vision exams.

Long-Term Care Insurance in Retirement

You might have noticed both Medicare and Medigap plans don’t cover the cost of long-term care. There is a 70% chance that a person who is 65 years old today will need long-term care at some point in their lifetime. The average person needs long-term care for about three years. Care can take place at a person’s home or in a nursing home or assisted living facility.

Long-term care insurance isn’t the same as health insurance. Coverage is based on your age when you sign up for a policy, how many days a year the policy will pay for, the maximum amount a policy will pay each day and several optional features. In many cases, policies limit the number of years they will provide coverage (such as for up to two or five years). Some plans will provide benefits for an unlimited amount of time. The cost of your monthly or annual premium can go up over time as well.

According to the most recent numbers available from the government, the average cost of long-term care insurance is $2,207 per year. The average plan had a daily benefit amount of $160 and would provide coverage for just under five years.

Savings and Out-of-Pocket Expenses

Nearly half of all adults expect to cover some of their retirement health care costs using their savings, according to the Harris Poll we cited earlier. People who are relatively well-off or who have a financial plan are more likely to plan on using their savings to pay for health care during retirement compared to people with less wealth or lower incomes.

How much a person could cover out of pocket is in part determined by their financial status and whether or not they have a financial plan in place. About one-quarter of people with incomes under $150,000 surveyed in the Harris Poll said they would be able to cover a $500 unexpected expense out-of-pocket. At all income levels, the average person would be able to cover a $3,155 unexpected expense.

How to Prepare for the Cost of Health Care in Retirement Before You Retire

Although the future can be uncertain and anticipating the costs of health care can be stressful, there are steps you can take as a pre-retiree to prepare yourself as much as possible for future expenses. About 67 percent of pre-retirement age adults are doing something, according to the Harris Poll, by taking action to prep for retirement. Here are a few things you can do to get ready.

Save, Save, Save

More than 40 percent of adults in the Harris Poll stated they were building up their savings accounts in anticipation of retirement. If your employer offers a 401(k) or similar plan, it’s in your best interest to take advantage of that plan, especially if your employer also matches contributions. You might also consider contributing to a traditional or Roth IRA to boost your retirement savings.

Pay Down Debts

Another way people are prepping for retirement is by paying off their debt, such as credit card debt, mortgages and other loans. About one-third of people are focused on paying off their loans while about one-quarter of people are looking to reduce the amount of their debt, per the Harris Poll.

Reducing or paying off debt now minimizes your financial obligations in retirement. You don’t want to have to worry about paying off purchases you made years ago on a credit card when you have more pressing, immediate needs to consider.

As an added benefit, paying off certain debts, such as your mortgage, gives you equity in your property. If needed, you’ll be able to tap into your home’s equity to help cover retirement expenses.

Open a Health Savings Account You Can Use in Retirement

Some health insurance plans give you the option of setting money aside in a health savings account (HSA). If you have an HSA-eligible plan, open an account and start saving money in it.

The money you contribute to an HSA is pre-tax, which reduces your income tax in the year you contribute. You also don’t have to pay tax on the amount in the account when you use it cover medical expenses.

There’s no timeline or expiration date for money in an HSA. You can contribute to your account at age 45 or 50 but not use the funds until you reach age 65 or 70.

Get Preventative Care

Being proactive about your health won’t help you build up savings for retirement, but it can help to lower your health care costs in retirement. Seeing your physician for regular “well” check-ups or preventative care exams means that any medical issues are likely to be spotted earlier when they are easier and less expensive to treat.

Choose Insurance That Fits Your Needs Today

Don’t buy more insurance coverage than you need when you’re still young and relatively healthy. Depending on how often you need to see a doctor, choosing a plan that covers preventative care, has a high deductible and lower monthly premiums can make the most sense. If you need to visit your doctor regularly, opting for a plan with a higher monthly premium but lower out-of-pocket expenses can make more financial sense.

As your health care needs change, you can adjust your insurance plan to fit them.

How Much Money Will You Need for Health Care in Retirement?

The average adult expects to need enough money to cover the cost of living and health care expenses for 18 years during retirement, according to the Harris Poll. Although it’s difficult to assign a dollar amount to retirement costs, annual medical costs can range from $11,752 for a 65-year-old couple to $31,966, adjusted for future inflation, for that same couple at age 85. The average monthly cost of health insurance for retirees starts at around $600 per month and can go up as they age.

Get Assistance With Choosing Your Retirement Health Insurance Plan

Selecting the right health insurance plan for after retirement can make your costs more manageable. Health for California can help you find the insurance plan that fits your needs for the future and the needs of your family right now. Get your free quote today and start making plans for your future.

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