Strategies to Pay Out-of-Pocket Health Care Costs in Retirement

​What’s your plan to pay for health care in retirement? If you’re counting on Medicare to fund all of your expenses, you may want to reconsider. According to a study by Fidelity, the average married couple will pay $275,000 for out-of-pocket medical expenses in retirement. That figure doesn’t even include the cost of long-term care.1
 
Why do retirees pay so much for health care? There are two answers. One is the simple fact that as you age you become more vulnerable to illness and injury. It’s common for seemingly small issues to balloon into larger medical challenges, especially in the later years of retirement.
 
The second reason for high out-of-pocket costs is that Medicare doesn’t cover everything. In fact, some medical services aren’t covered at all. Others are only partially covered. If you require treatment or service that isn’t covered by Medicare, you’ll have to foot the bill. You’ll also likely face premiums for your Medicare coverage, as well as deductibles, copays and other costs.

Fortunately, there are steps you can take to manage your health care costs in retirement. Below are three tips to help you fund your expenses and keep your costs down. If you haven’t yet developed your health care funding plan, now may be the time to do so.

Fund your HSA.
Do you have access to a health savings account? If so, it could be a powerful funding vehicle for health care costs in retirement. Many people use their HSA to pay for more immediate expenses, but it may be wise to think of it as a long-term savings account.
 
You can make tax-deductible contributions to your HSA and then grow those funds on a tax-deferred basis. All distributions are tax-free as long as you use the money for qualified medical costs.
 
Contrary to popular belief, you don’t have to use your HSA funds in a given year. In fact, you can let your funds grow and compound over time. That means you can save money today on a tax-advantaged basis to pay for medical costs in retirement.


Tap into your life insurance.
Do you have a life insurance policy that has a significant amount of cash value? Many people buy life insurance early in their lives, when they may have just married or become new parents. As you approach retirement and your children leave the home, however, you may find that you no longer need as much life insurance protection.
 
It may be wise to keep those cash value policies in force and use the funds to pay for unplanned medical costs. You can take withdrawals of your life insurance premiums tax-free. You can also take tax-free loan distributions from your policy. You have to repay the loans over time, but the distributions could help you preserve other assets and pay for your medical care.


Invest in your health.
Perhaps the most helpful step you can take is to protect your own health. The healthier you are, the less likely it is that you may need costly medical care. Think about steps you can take to improve your health. Perhaps you can quit smoking, improve your diet or exercise more frequently. It also may help your cognitive health to stay socially active or to pursue a hobby. Talk to your doctor about what steps you should take to improve your overall health.
 
Ready to develop your health care funding plan? Let’s talk about it. Contact us today at Carstens Financial Group. We can help you analyze your needs and implement a strategy. Let’s connect soon and start the conversation.

 
1https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise
 
 
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