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Controlling Your Health Care Costs in Retirement

It’s no secret that health care becomes a major concern for most of us as we age. More diseases are likely to develop, which means more money spent on seeing medical professionals and buying medicine. Even if you remain healthy in your later years, the costs of preventive care and preparation for possible unexpected health situations increase.

Health-related expenses are likely to be one of the largest components of your retirement budget. You must be prepared to pay for full insurance coverage and any out-of-pocket costs for treatment. Here are three strategies to help you manage this essential retirement expense.

Understanding how Medicare works

The good news for Americans 65 and older is that you qualify for Medicare. This makes the increased dependence on health services more affordable. At age 65, most people are automatically eligible for no-cost Medicare Part A, which primarily covers hospital stays and skilled nursing care. Medicare Part B must be purchased (about $109 per month in 2017 for most retirees). Part B covers doctor’s visit costs, but with certain deductibles. Many people purchase additional coverage to use for out-of-pocket expenses, such as a Part D prescription drug plan or a Medicare supplement policy.

With Medicare, timing is important. Enrolling when you first qualify for coverage will keep costs down. If you maintain insurance with your employer after you turn 65, you can delay Medicare enrollment without risking late penalties.

If you retire before age 65, you will need to purchase open-market insurance to cover health-related expenses until you become eligible for Medicare. Individual coverage tends to get more expensive as you get older, so factor the cost into your retirement budget. Some employers offer health insurance to retirees as a benefit. Check with your human resources department if this option is available to you.

Allocate sufficient funds for health costs

As you develop your retirement income strategy, make sure you have money set aside for health care expenses that you will be responsible for. By one estimate, the average 66-year-old couple will need to draw more than half of their lifetime pretax Social Security benefits to pay for health care expenses through retirement. Most people will likely have to rely, in part, on their own savings to help offset some medical expenses.

Along with other retirement savings, you may want to set up a Health Savings Account (HSA) during your working years. HSAs are designed to help build tax-efficient savings to pay for medical expenses you incur during your working years. However, any remaining funds can be applied to health care expenses later in life, including premiums for Medicare and long-term care insurance. Keep in mind that you must be enrolled in a high-deductible health plan to open an HSA.

Focus on your own health

One of the ways to control health care costs in retirement is to create or maintain a healthy lifestyle. Small changes you make today, such as eating well or prioritizing sleep, could reduce the likelihood of medical issues affecting you later in life. Physical activity can also be good for your finances in retirement – ​​according to the American Heart Association, it could potentially save you $500 a year on health-related expenses today.

Having a plan doesn’t guarantee you’ll avoid health problems, but you can find comfort in knowing how you can cope with health care costs in retirement.

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