One of the biggest risks that people face in retirement is the cost of healthcare. People frequently underestimate the cost of healthcare and often do not get adequate insurance to protect themselves.

That said, sometimes it’s impossible to correctly anticipate the coverage you’ll need in retirement. While some people know the health issues they will face in the future, most people must guess. Either way, underestimating healthcare needs can put a significant strain on your finances and make it difficult to make ends meet. Many people believe that Medicare will cover them completely. While Medicare Part A covers some levels of hospitalization, you’ll have to pay premiums for Medicare Part B, and you may need supplemental insurance. Even with this, you’ll still have out-of-pocket expenses.

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Some of the Issues with Health Insurance Coverage in Retirement

During your working years, your employer will often pick up the majority of healthcare insurance premiums, so it’s understandable that many retirees are caught off guard with the amount they suddenly have to pay. At the very least, you will need to pay Medicare Part B premiums. These premiums depend on income; costs are higher for people who make more money. While the premiums are low, starting around $140 per month, Medicare Part B does not cover all health expenses, which leaves many people needing a Medicare Advantage Plan or a Medigap policy to fill in the cracks. Even still, Medigap policies may not provide dental or vision coverage, both of which could also leave you with costly bills. Medicare Advantage covers dental and vision needs, but it offers fewer hospitalization benefits, so a serious illness could come at a very high expense.

The other issue you’ll need to consider as you approach retirement is long-term care coverage. Long-term care is one of the most expensive healthcare needs for older adults, and Medicare does not cover the majority of the cost. Luckily, long-term care insurance is available, but it’s not always cheap, especially if you wait until retirement to purchase it.

As a general rule, purchasing insurance earlier in life makes the premiums much more affordable. The downside is that you’ll be making monthly payments during a time when you’re less likely to actually need long-term care. At the same time, long-term care can quickly bankrupt you in retirement, so this type of insurance shouldn’t be dismissed lightly. This is especially true if you have a family history of a serious geriatric disease, or if you have a serious chronic health condition.

 

The Average Healthcare Costs Faced by Today’s Retirees

As you approach retirement, it can be helpful to use an online calculator to help estimate the costs of care you’ll face in the years to come. For the average, 65-year-old male, the typical cost for premiums and out-of-pocket healthcare expenses is about $4,500 per year, which translates to $375 per month. You should try to factor at least this amount into your monthly expenses.

Keep in mind that the cost of healthcare is rising at a rate double that of inflation. In other words, your out-of-pocket healthcare expenses could easily be closer to $675 in another decade. If you have a chronic condition, you may have to pay even more, and couples will need to double that figure. In addition, this amount does not account for long-term care. In other words, the cost of healthcare in retirement can be extraordinarily high.

 

The Key Strategies for Reducing Healthcare Costs in Retirement

Luckily, retirees aren’t completely helpless when it comes to the extremely high costs of healthcare. One of the most important things that you can do to control your costs is to stay healthy by receiving proper preventative care. Healthcare plans prior to and during retirement will cover preventative visits and services. While routine check-ups and such may seem unnecessary and come across as a hassle, they are all aimed at keeping you healthy and helping you avoid costly treatments and procedures. Skipping out on these visits can cause a small health problem to become more serious and therefore more difficult and expensive to treat. In addition, some cancers are curable only when detected and treated early.

The other side of the strategy for keeping your healthcare costs low involves managing distributions in a strategic way. As mentioned above, the cost for Medicare increases as your income rises, but you can manage your distributions in such a way that your premiums are kept in check.

For example, income from HSA accounts, Roth IRA accounts, and cash value life insurance policies do not factor into the formula that determines monthly Medicare Part B premiums. Income from a reverse mortgage is also not included in this calculation. If you have significant amounts of money in a traditional IRA, you may want to consider transferring some to a Roth account before turning 65 to avoid being forced to take large minimum withdrawals down the line. These minimum withdrawals do not apply to Roth accounts. You can also use deductible healthcare expenses to offset the money withdrawn from a traditional retirement account.