Think Medicare will cover all your health care expenses in retirement? Think again. Medicare is a valuable resource for retirees, but it doesn’t cover everything. In fact, even for covered services, Medicare doesn’t cover the full cost. In most cases you’ll have copays and deductibles.
In fact, Fidelity estimates that health care could be a major expense item for many retirees. A recent study found that the average 65-year-old couple can expect to spend nearly $280,000 on out-of-pocket health care costs in retirement.1 That figure largely consists of things such as premiums, copays, deductibles and costs for noncovered services.
If you haven’t included health care costs in your retirement strategy, now may be the time to do so. The good news is you can minimize your exposure to health care expenses by taking action early. Below are a few steps you can take now to better prepare for the future:
Take a preventive and proactive approach.
There may be no better way to reduce your health risk than by taking proactive, preventive measures today. For example, you could improve your nutrition or exercise routine to lose weight, improve your blood pressure and relieve pressure on your joints. You might cut back on unhealthy habits like smoking or drinking. Even simple changes like getting more sleep or taking up a new hobby could reduce your stress levels. Talk to your physician about how you can improve your health.
Also, try to become more informed as a health care customer. Once you switch to Medicare, it’s likely that you will have some out-of-pocket expenses for every possible drug, service or treatment. Make sure you understand why certain drugs or tests are being prescribed and if they are really necessary. The more informed you are as a patient, the more proactive you can be in managing your out-of-pocket costs.
Align your Medicare coverage with your needs.
Medicare isn’t a standard program that’s universal for all retirees. While nearly every retiree is eligible for Medicare, you have a broad range of options to choose from. Medicare is broken up into different types of coverage called “parts.” Part A is standard for every retiree and is free. It covers hospitalizations and inpatient services. Part B covers doctor visits and outpatient care. Part D covers prescription drugs.
Part C is a unique program that allows private insurers to offer coverage that includes traditional Medicare protection but also enhanced coverage. These policies may offer flexibility with deductibles or premiums and often provide protection for services not traditionally covered by Medicare, such as dental visits or eye care.
Take time to choose the Medicare package that best fits your needs. While you can’t predict your future health, you can make an educated decision based on your medical history. If you have a chronic condition or need regular care, robust coverage may be best for you.
Use a health savings account (HSA) to save.
No matter which Medicare plan you choose, out-of-pocket medical expenses are likely to be a part of your retirement. While you can save for these costs with traditional retirement vehicles, you may want to use an account called an HSA. These accounts are designed specifically for saving for health care expenses.
You can make tax-deductible contributions to your HSA and then allocate the funds to meet your goals and risk tolerance. Your assets grow tax-deferred as long as the funds stay in the account. If you use the money for qualified health care costs, you can take tax-free distributions. That means you can start saving today to pay for your medical expenses in the future, and you can do so in a tax-favored manner.
Ready to plan your health care strategy? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
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