Every year, Fidelity studies healthcare costs to estimate the amount of money retirees can expect to spend on medical expenses. The most recent study, conducted in 2015, found a 65-year-old couple could expect to spend $245,000 out-of-pocket on healthcare in retirement. That’s a 29 percent increase over the past 10 years.1
That figure includes things like copays, deductibles, premiums and prescription drugs. Surprisingly, it does not include long-term care costs, which can also be a significant expense for many retirees.
Fortunately, there are steps you can take to minimize your healthcare costs in retirement. Review the tips below and think about how you can implement them into your retirement plans.
Fund your HSA.
A healthcare savings account, also known as an HSA, can be a highly effective way to save money for medical expenses in retirement. Best of all, an HSA allows you to do so in a tax-efficient manner.
When you contribute to an HSA, you can deduct a portion of that contribution on your current-year taxes. You can then invest the funds in the HSA in a portfolio consistent with your goals and risk tolerance. Your earnings will grow tax-deferred, allowing your balance to potentially accumulate faster. Finally, when you withdraw money from your HSA, the withdrawal is tax-free as long as the funds are used for qualified medical expenses.
You can even roll your funds over from year-to-year. That means you can put away money today and then use it on healthcare costs after you retire. Many employer healthcare plans offer HSAs. If yours doesn’t, you can open one at most banks or through your financial professional.
Consider long-term care insurance.
According the U.S. Department of Health and Human Services, 70 percent of 65-year-olds will need long-term care in their lifetime. Often, that care is required for many years. The HHS says women need long-term care for an average of 3.7 years, while men need it for an average of 2.2 years.2
As you can likely imagine, paying for long-term care over months or even years can be a substantial financial commitment. Many retirees mistakenly believe the costs are covered by Medicare. It is true Medicare will pay for some of your long-term care costs, but usually only for a few months and only if that care comes after a procedure or condition that required hospitalization.
Unfortunately, many retirees have to use their own assets to pay for long-term care. That can quickly consume their savings and make it difficult for them or their spouse to live comfortably in retirement.
One potential effective strategy is long-term care insurance. With a long-term care insurance policy, you pay premiums today in exchange for benefits should you ever need long-term care. Your insurer will pay some or all of your long-term care bills, depending on the terms of your policy.
Many long-term care policies also pay for in-home care, such as visits from nurses and personal care professionals. In that sense, long-term care insurance may actually help you stay in your home rather than moving into a nursing facility.
Don’t let healthcare costs sink your retirement. Talk to your financial professional today about strategies you can implement to manage medical expenses in retirement.
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