How to plan medical expenses for when you retire?

Planning your medical expenses for when you retire is one of the most important things to do when creating a plan for when it’s time to retire. And it is that one of the keys is to take into account all the edges and, of course, anticipate changing spending habits in the future. There are certain types of expenses that can add up to consume most of the retirement savings that citizen keeps in his plan.

Health care expenses are one of those edges andIn the case of retirees, medical and emergency services represent one of the most important expenses. A 65-year-old couple who retired in 2019, you can spend up to $285,000 for the duration of your retirement. This would include the additional annual cost of long-term care, which for that same year, increased to $19,500 (for senior day care services) and $102,200 for a private room in a nursing home.

What does all this mean? That despite the fact that retirees have prepared and saved throughout their lives to ensure a calm and trouble-free old age, are not mentally prepared for how their spending habits and ability will change.

It happens that many underestimate the level of spending they will have. So much so that the majority of adults over the age of 65 they think they will need less than $100,000 for their medical expenses, when in reality, men spend about $135,000, and women $150,000. So planning for medical expenses for when you retire becomes critical to your future financial stability.

How to plan medical expenses for when you retire?

How to plan to ensure medical care in retirement?

When it comes to finances, prevention is the key. That is why our main recommendation is to organize yourself now so that you can ensure your access to medical care during your retirement years. How can you start? Let’s see it!

Review the income and expenses that you will have to cover during retirement

There are two important numbers when it comes to health care in retirement: how much money comes in and how much money goes out. To give you an idea, the average 60-year-old American has savings that typically top $172,000. On average, people over the age of 65 spend about $3,800 per month on their health, but remember that the income they will receive from Social Security will only replace 40% of the money they earned during all the years of their working lives.

The Social Security Administration (SSA) estimates that the maximum monthly benefit for people who file for Social Security at retirement it would be $3,011 according to 2020 figures. This amount is reduced to $2,265 for anyone who claimed benefits at age 62. The amount of income you should take into account to plan for the necessary medical expenses for when you retire will depend, to a large extent, on your age and your state of health..

The healthier you are at retirement, the more money you can save on health care; This according to the statements of Chris Schaefer, head of the MV Financial retirement plan in Maryland. “The other side of that coin is that those who lead a healthier lifestyle will have a much longer life expectancy. This will force people to plan for a longer than standard retirement period.”

Medicare and retirement

Medicare can pay for some of the treatment you need in retirement, but with severe limitations. This has been stated Michael Gertman, founder, financial advisor and CEO of Gerstman Financial Group, LLC in Dallas. “For example, without a policy to purchase prescription drugs (Part D), Medicare will not cover any of the costs for this concept.”

Original Medicare, also known as the Part A and Part B program, also does not cover dental care or vision services. However, plans available through Medicare Advantage do. Unfortunately, neither part of the program (Medicare) offers coverage for long-term care. If you depend on Medicare and think this federal health program will help you cover medical expenses in retirement, take into account the deductibles, copays, premiums and other costs that will have to be borne by you.

What does Medicare cover?

For 2020, the standard Medicare Part A deductible was $1,408. The standard monthly Part B premium was $144.60, although some beneficiaries paid slightly less. The annual Part B deduction for 2020 is calculated at $198. The base premium for Part D coverage is projected at $198. The basic premium for this same Part in 2020 reached $32.74 per month and, to give you an idea, most Part D plans have a deductible of up to $435.

The plans MedicareAdvantage They are offered through private insurers. In this case, it is the insurance companies that establish the premiums, not the federal government, as it happens in Parts A, B and D of the plan. Depending on the insurer and what the policy covers, one could pay more or less for a Medicare Advantage plan.. These plans are offered by private companies pre-approved by Medicare instead of the Federal government.

These plans generally cover the same costs as the Original Medicare program., along with Part D drug coverage. Some plans may also extend your coverage to include costs associated with vision, dental, and hearing.

Save beyond your retirement plan

Think that covering the increased costs of medical care you will need in the future does not have to harm your retirement savings. Setting aside your plan, there are still ways to prepare and so create a safety net that allows you not to touch this money. Which?

The first would be opening a health savings account or HSA. This type of account is available for High Deductible Health Plans (HDHP) and will offer you several tax benefits: deductible contributions, tax-deferred growth, and tax-free withdrawals for qualified medical expenses.

In other words, the funds in your HSA can be used to pay certain medical premiums, including Medicare and your long-term care insurance. Those who are already over 50 years of age can even maximize the benefits of these plans. For example, taking advantage of the contributions to catch up and continue adding with the contributions that fall on your employer.

For 2020, the regular HSA contribution limit is $3,550 for individual coverage and $7,100 for family coverage. These limits apply to both employee and employer contributions., that is, to the combined contributions.

Warning: People enrolled in Medicare can no longer make new contributions to an HSA account.

Purchase long-term care insurance

Purchasing a long-term care insurance policy will be another way to protect your retirement income while also filling that gap left by Medicare. This type of policy can give you access to a monthly benefit so that you are able to attend to your health problems for a period of 2-3 years, which -for sure- will help you avoid spending more money out of your own pocket.

Long-term care insurance premiums are not as affordable for everyone. If this is the case for you, you could take Gerstman’s advice, which is to purchase a life insurance policy that has a rider for the insurer to cover long-term care expenses, if required.

This allows younger people to get involved early in their retirement planning.. In addition, it would also reduce the amount and number of premiums that will have to be paid to enjoy both benefits.

In short, how do you plan for medical expenses when you retire?

Health care expenses not only make up a significant chunk of your budget now, but also after you reach retirement age. In fact, a retiree’s healthcare bills can skyrocket as the years go by.. Estimating these costs early and preparing for them will help you further preserve the assets you receive during your retirement years. When doing so, remember that:

  • A newly retired 65-year-old couple in the United States will need $285,000 or more to cover their medical expenses after retirement.
  • On average, those over 65 years of age spend $3,800 per month, an amount that exceeds what you will receive from Social Security. Remember that the income you will get from the SSA is equal to 40% of the money you generated during your working life.
  • Medicare may pay for some of the health care you’ll need in retirement, but federal insurance won’t cover the cost of medications without having the formulary policy outlined in Part D active.

Our recommendation? Analyze your financial and health situation very well, and make time to plan your medical expenses for when you retire. You can choose to purchase long-term health care insurance or life insurance that includes a specific clause to cover medical expenses caused by chronic conditions.

Prefer to MedicareAdvantage or open one health savings account They would also be valid options that will help you enjoy a peaceful old age without setbacks.

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