Health care can be one of the most significant expenses in retirement, with costs that often catch retirees by surprise. As medical expenses and long-term care costs rise, proactive and holistic financial planning is essential to ensure financial security and peace of mind during retirement years.
Studies estimate that an average retired couple may need upwards of $300,000 to cover health-related costs throughout retirement. This includes expenses like Medicare premiums, out-of-pocket costs, prescription drugs, and long-term care. Having a clear understanding of these costs and incorporating them into a your overall financial plan and retirement budget can help avoid unexpected financial strain. It is wise to include health care costs as a part of your overall budget and financial plan as you enter retirement. A good financial planning team can run multiple healthcare scenarios and see how this will impact your overall retirement and retirement savings. Health care costs are one of those items you know you will have, but you don't know when it will happen. If you can build a plan around it early it can help alleviate some of the stress and anxiety you may have.
For those with access, HSAs offer a tax-advantaged way to save for health care expenses. Funds contributed to an HSA grow tax-free and can be withdrawn tax-free when used for qualified medical expenses—even in retirement. While HSAs are only available for individuals with high-deductible health plans, they offer a valuable resource for managing future medical costs. If you have a HDHP saving money into your HSA can be a wise move. It creates a forced savings to pay for health care needs. If you don't have access to a HSA then a general savings account that you consistently save into can help alleviate healthcare costs. A good rule of thumb is to save 3-5 x your annual deductible. If you deductible is $5,000 then you work towards having $15,000 to $25,000 saved over time.
A nursing home or long-term care facility can be expensive and deplete a lifetime of savings quickly. A way you can help minimize this risk to an insurance company is by purchasing a long-term care insurance policy. Knowing exactly when to purchase a long-term insurance policy can be tricky. You don't want to purchase it to early or late in life as the premiums can become expensive. Starting to consider LTC insurance around age 60 is usually a good option. You can also consider looking at self-insuring through dedicated savings to help cover these expenses, however this can be a lofty savings goal. A long-term care need usually last up between 24-36 months and annual cost can range between $30,000 to $120,000 Making these decisions early can often mean lower costs and greater flexibility. It is best to work with a financial or insurance professional who understands you health needs and wants when purchasing these policies.
Medicare generally doesn’t cover everything, so it’s helpful to consider supplemental policies like Medigap or Medicare Advantage to minimize out-of-pocket costs. Each offers unique benefits, so researching and selecting a plan that aligns with personal needs and expected health care expenses can make a big difference. It is best to work with a financial or insurance professional who understands you health needs and wants when purchasing these policies.
Preparing for health care costs in retirement doesn’t have to be overwhelming. By estimating potential expenses and planning proactively, retirees can protect their wealth and enjoy a healthier, more secure future. Don't wait to start planning for your healthcare in retirement after you have already retired, get these things in order prior to retiring and lower your health care cost risks in retirement.
If you are getting close to retirement or are living in retirement, reach out to us to discuss your situation and see if we can help point you in the right direction. We do not offer or sell any insurance policies, but we can build a financial plan for you and connect you with the right people.
All the best,
The Wela Financial Advisory Team
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Brent Forrest & Associates, LLC. dba Wela Financial Advisory (Wela) is a registered investment adviser. The information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. This article and images may have been enhanced by utilizing artificial intelligence (AI). Brent Forrest & Associates, LLC dba Wela Financial Advisory (Wela) is a registered investment adviser. The information presented is for educational purposes only and is not intended to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance. Wela may discuss and display, charts, graphs, formulas which are not intended to be used by themselves to determine which securities to buy or sell, or when to buy or sell them. Such charts and graphs offer limited information and should not be used on their own to make investment decisions.
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