February 26, 2019 • Retirement 101 / Articles and Insights

Three Things You Need to Know About Health Care

As you look ahead to retirement, there are many variables to consider—how much income you’ll need to sustain your lifestyle, how you want to spend your time, even where you want to live. But there’s another variable that needs to be taken into account: health care.

Right now, health care costs are rising, and it’s become a growing concern for many Americans who are approaching their retirement years and will be on a fixed income. Recent data from HealthView Services suggests that health care expenses are expected to rise almost 5.5 percent every year for the foreseeable future. A 55-year-old couple would need 92 percent of their Social Security benefits to cover their retirement health care costs.

The truth is that Medicare doesn’t cover all your health costs in retirement.

Medicare, the primary health insurance provider for those 65 and older, can help you with your health care costs in retirement. To give you a better understanding of what Medicare covers, and ways to fill potential gaps in coverage, let’s take a look at some of the details.

Medicare Doesn’t Cover Everything

The truth is that Medicare doesn’t cover all your health costs in retirement. While it does cover many of your health care expenses, it doesn’t take care of dental, vision, any hearing conditions, or long-term care, which means you have to pay for those services yourself. Plus, the services that it does cover usually require you to pay a deductible, coinsurance, or copayments. Either way, you’re going to have to continue to pay for your health care one way or another.

Three Ways to Reduce Your Retirement Health Care Costs

A recent Fidelity study found that a 65-year-old couple may need to save approximately $280,000 to pay for health care costs that aren’t covered by Medicare. To help you fill the gaps in Medicare coverage, here are three options to consider:

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1. Guaranteed Income

Guaranteed income is one way to help you plan for future medical expenses. It’s exactly what it sounds like: a consistent payout, regardless of market behavior. To create guaranteed income for yourself, consider an annuity. Apart from Social Security and pensions, annuities are one of the only financial products that can provide guaranteed income for life, and they’re primarily purchased through a financial professional.  

2. Health Savings Accounts (HSAs)

If you don’t have an HSA, it may be time to consider one. HSAs allow you to save money (pre-taxed) to put towards medical expenses to help with any out-of-pocket costs. If you don’t use the funds, they roll over each year, allowing you to save and grow your money for medical expenses.

3. Long-Term Care Insurance

Will you be one of the 70 percent of Americans that need long-term care? A 2018 study by the Moll Law Group, a personal injury firm, found that even though 70 percent will need long-term care, only 46 percent think they’ll need it. They also discovered that the out-of-pocket cost for long-term care is more than $47,000.

This is where long-term care insurance can help. Since Medicare doesn’t cover expenses that include personal care assistance or nursing home care, purchasing insurance can help protect you from any long-term care costs. Additionally, you can also purchase a long-term care rider on a life insurance or annuity policy, which provides you with financial benefits if you need long-term care later in life.

Even though Medicare can help you with your medical needs in retirement, the reality is that you’ll most likely need additional finances to pay for things like deductibles, copays, dental, vision, and long-term care. So, start preparing and saving now to help plan for those health care costs down the road.

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Insurance and annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company. Optional long-term care riders may involve an additional cost.

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