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How Much Should I Plan to Spend on Health Insurance in Retirement?

When discussing retirement planning, it’s crucial to prepare for the most significant expenses you’ll be facing. While you can control some of these, one cost that will only get higher is healthcare. Unfortunately, as you get older, your body will require more maintenance and upkeep, which can lead to more hospital visits, medications, and other treatments. how much should i plan to spend on health insurance in retirement 

To ensure that you’re ready for rising healthcare costs, we want to outline the best way to plan for them during retirement. Whether you’re going to retire in a few years or a few decades, it’s never too soon (or too late) to prepare. Here’s what you need to know. 

The Average Cost of Healthcare for Retirees

Although everyone’s situation is unique, recent reports estimate that most retired couples will need to save roughly $300,000 solely for medical expenses. What’s even more surprising is that these funds have to supplement Medicare, which kicks in once you turn 65. 

Are you over the age of 60? Did you know that healthcare is likely your biggest unknown expense in retirement? Check out our simple 3-step Medicare guide that could save you thousands in surprise medical bills or penalties.

One of the primary reasons healthcare is so expensive is that there are fewer options for retirees to get insurance coverage once they stop working. In decades past, pension plans and union contracts protected workers after they retired, which helped minimize healthcare costs. Since so few companies have these kinds of programs today, that means most of the money has to come out of pocket.

How Much Does Medicare Cover?

When planning for retirement, you have to make sure that you enroll in Medicare. However, while this system is designed to cover some healthcare expenses, it won’t take care of everything. Here is a quick breakdown of what Medicare does and doesn’t do for your healthcare needs. 

Medicare Part A, B, C and D

There are four options when enrolling in Medicare, and you must understand the parameters of each one. 

Medicare Part A covers in-patient visits to your doctor, surgery, lab visits, and home care. Part B helps take care of outpatient visits, preventative care, home care and some medical equipment costs. Part D covers prescription medications. 

If you want to avoid enrolling in three different types of Medicare, you can opt for a Medicare Advantage plan, which is also referred to as Part C. These programs are offered by private companies, and they bundle everything into a single policy. 

While Medicare Advantage plans are still part of the Medicare system, they vary between companies, so it’s crucial to pay attention to the details. Also, consider how your needs will change during your retirement. For example, you may not be taking many medications right now, but you could need more of them in the future. 

How Much Does Medicare Cost?

Your rates will depend on several factors, such as how long you paid into the system and your current income during retirement. Here is a quick overview of Medicare costs in 2020. 

Part A Premiums 

Many retirees don’t pay a monthly premium, assuming that they contributed to the fund for more than 40 quarters. If you paid into Medicare for 30 to 39 quarters, your monthly premium is $252. If you paid less than 30 quarters, the price jumps to $458. 

Part A Deductibles

The current deductible in 2020 is $1,408 for each benefit period. If you have to stay in the hospital for more than 60 days, your costs will go up the longer you’re there. Between 61 and 90 days, you’ll pay $352 daily. After 90 days, you’ll be using your “lifetime reserve days,” which will cost $704 out of pocket for each one. Most individuals have 60 reserve days in total. After that, Medicare doesn’t cover anything. 

Part B Premiums

Depending on your income level, you could be paying as little as $144 per month for Medicare Part B. This price is based on your last tax return before entering retirement. If you made less than $87,000 individually, you’d be at this level. There are five options for part B premiums, with a cap on those making more than $500,000 per year. The highest amount you could pay for part B would be $491.60 in 2020. 

Part B Deductible

Currently, the deductible is $198 for outpatient services, and Medicare will cover up to 80 percent of everything beyond that. 

Part C and D Premiums

The amount you pay for these Medicare programs will depend on the plan you choose. As a rule, the more prescription medications you need, the higher your deductible and monthly premium. 

What Services Are Not Covered by Medicare?

While Medicare does provide healthcare coverage for many conditions and situations, there are some notable exceptions. In most cases, you’ll have to cover these gaps with supplemental insurance from another source. The most common components not covered by Medicare include: 

  • Dental Care
  • Vision Care
  • Dentures
  • Cosmetic Surgery
  • Hearing Aids
  • Foot Care
  • Acupuncture
  • Long-Term Care and Assisted Living

Medigap Plans

Because Medicare doesn’t cover everything that you may need, it helps to fill in these gaps with supplemental insurance. Medigap coverage is offered by private insurance companies to provide comprehensive healthcare during retirement. It’s imperative to understand that Medigap coverage still doesn’t take care of many of the items listed above, including vision and dental services, as well as hearing aids. 

What Happens if I Retire Before 65?

Since 65 is still considered the “official” retirement age, that’s when Medicare coverage begins. However, many Americans are choosing to retire early, which can create a gap in healthcare assistance. For example, if you decide to stop working at 62, you’ll have three years when you’re not covered by insurance. 

Do you know when to enroll in Medicare and what your options are? Check out our simple 3-step Medicare guide that could save you thousands in surprise medical bills or penalties.

During that time, you’ll likely have to self-insure by buying a policy through the Affordable Care Act. While this tactic will be more expensive than Medicare, it does provide relief if something were to happen before you turned 65. Living without healthcare can be risky at any age, but even more so when you’re over 60. 

How to Save for Healthcare-Related Costs

When saving for retirement, chances are you’re using individual retirement accounts (IRAs) and other financial tools. However, you shouldn’t rely on these components alone to pay for your healthcare related expenses. Here are a couple of alternative options that can help you cover these expenses

Health Savings Account (HSA)

This type of account allows you to put away funds that will grow tax-deferred. Best of all, you can deduct contributions from your adjusted gross income (AGI) while you’re still employed. Also, if you use the money for qualified medical expenses, your withdrawals may be completely tax-free. 

Long-Term Care Insurance

One of the most significant expenses that can occur during retirement is staying in a long-term care facility. In many instances, these costs can bankrupt retirees as they eat into a nest egg faster than it will replenish. 

If you can buy an insurance policy that covers assisted living, it may be better than paying out of pocket. However, these plans can be pricey, so you have to weigh the benefits and disadvantages. Not only that, but your premiums could go up as you get older, so you have to keep that in mind when budgeting for retirement. 

Factors That Influence Your Healthcare Needs During Retirement

Since Medicare is limited in its scope, you need to be proactive about taking care of your health and wellness. Here are some crucial factors that can influence how much you’ll be spending on healthcare in your golden years. 

Marriage Status

According to research, married couples tend to live longer than individuals. While the reasons behind this can vary, one prevailing theory is that couples will look after each other. For example, if you get sick or injured, your spouse can help you with daily tasks. Your significant other may also encourage you to be healthier and more active than you would be if you were single. 

Retirement Age

Oddly enough, it seems that working longer can extend your lifespan. According to a recent study, those who retired at 62 had a lower life expectancy than those who stayed employed until 65. While early retirement may seem appealing, the lack of structure and activity may make your body weaker over the long term. 

Diet and Exercise Regimen

You should already know that working out is good for your body. Unfortunately, for many individuals, retirement is the perfect excuse to relax and live a more sedentary lifestyle. To make matters worse, many retirees will eat out more during their golden years, which can create a variety of problems, from high cholesterol to obesity. 

One way to minimize your health-related risks is to focus on eating a more balanced diet and exercising regularly. When it comes to working out, you don’t have to push yourself to your limits. Even something as simple as walking a mile every day can do more for your body than sitting around the house. 

Mental Health

Your mind influences your overall health more than you might realize. When you retire, you have to make sure to keep your brain sharp. Unfortunately, if you don’t maintain a schedule during retirement, it’s easy to lose some of your mental faculties. 

The brain is a complex organ that can work like a muscle. So, the more you use it, the stronger it becomes. Even though you’re not working a nine to five anymore, you should stay as mentally active as possible. Retirement is the perfect time to start a hobby if you haven’t already. You can also take advantage of your free time by volunteering for a charity or learning a new skill. Overall, keeping your mind sharp is an excellent way to regulate the rest of your body. 

Long-Term Care and Assisted Living

The longer that you can maintain independence in retirement, the less you’ll have to pay for healthcare. However, if you have to move into a long-term care facility, those costs can quickly spiral out of control. According to recent data, the average cost of staying in one of these places is $4,000 per month. Unfortunately, even if you can afford that right now, the price will only increase in the future. 

One way to minimize the cost of assisted living is to lean on friends or family members if you need help. In some cases, adult children may be able to handle chores and errands for you if they become too difficult. 

In most situations, it’s best to avoid moving to a long-term care facility for as long as possible. However, if you’re struggling to complete simple tasks like bathing and getting dressed, you might have very few options available to you. Also, if your children or relatives live too far away, it can be difficult to ask for assistance. 

Proactive Health Screenings

As you get older, you’re more likely to develop various conditions and diseases. If your family history shows a higher risk for these health problems, you need to be as proactive as possible. In many cases, you can avoid high hospital bills by catching a disease early. 

Are you already enrolled in Medicare and curious if you could save money with a different plan? Check out our simple 3-step Medicare guide that could save you thousands in surprise medical bills or penalties.

We recommend scheduling checkups with your primary care physician at least once a year after you turn 60. This way, you can spot any potential problems and get a customized healthcare plan to minimize your risk. For example, if you’re at a higher risk of developing prostate cancer, an annual colonoscopy can potentially save you thousands in medical bills. 

Overall, it’s never a good idea to wait until you get sick or notice symptoms. Even if you feel fine, there could be health problems bubbling beneath the surface. Ignoring them will only make them worse, which can lead to massive costs and potentially a shorter lifespan. 

Contact NextGen Wealth Today

If you’re worried that healthcare costs will become too much of a burden on your nest egg, you need to give us a call. We can help you develop a comprehensive savings plan that will put your mind at ease. No matter your financial situation, we can help you get on the right track. Contact us to find out more.

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About the Author

Aurtho Clint Haynes, CFPThis article was written by Clint Haynes, CFP®. Clint is a Certified Financial Planner® and Founder of NextGen Wealth. You can learn more about Clint by reading his full bio here.

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