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The issue of healthcare affordability in old age has become a key financial concern for many people, especially those who are nearing retirement.

Healthcare is the fifth-highest spending category for all Americans, after housing, transportation, food, and personal insurance and pensions. But for people who are around 75 years old or above, medical care becomes even more expensive. So it’s no surprise that the rising cost of healthcare is currently weighing heavily on the minds of American retirees and pre-retirees alike.

However, there are steps you can take to minimize the risk of uncovered medical costs, including long-term care expenses post-retirement. Keep reading to learn more about how you can prepare for the skyrocketing healthcare costs in retirement.

Tips to Manage Healthcare Costs in Retirement

Find Out What Your Costs Could Look Like

AARP has a great online cost calculator. You can plug in the information for you and your spouse, and the calculator will factor in your age, specific conditions you have that could add to your health care bills, and more. It will even estimate the percentage that Medicare will pay and how much may have to come from you.

Research Medicare Supplement Plans That Can Help Cover the Costs That Don’t Come under Medicare

A stethoscope is placed around blocks with various Medicare and Medicaid symbols.

Multiple studies have indicated that total healthcare costs for Medicare beneficiaries are high. So be sure of what you’re getting and what your deductible and out-of-pocket costs will be. As a novice, you may not know what’s right for you. Therefore, seeking the assistance of an experienced financial advisor or visiting your local branch of the National Association of Area Agencies on Aging (https://www.n4a.org/ ) can help.

If you’re retiring before you reach Medicare eligibility at age 65, an advisor can help you bridge the gap with a health insurance policy that suits your needs. Apart from this, always check out for information about future coverage choices on https://www.medicare.gov/.

Invest in Long-Term Care Insurance When You’re Still Young

Investors in their 30s and early 40s may want to ensure they have upside exposure to the market by investing in mutual funds or managed accounts. In addition, they should also consider buying long-term care insurance as the premium is lower for younger policyholders.

These days, only a handful of insurers offer long-term care insurance. So another option may be life insurance with a long-term care rider, which allows families to tap into the benefits while the insurer is still alive and requires care.

Think About Contributing to a Health Savings Account (HSA)

An HSA is like a personal savings account, except the money is meant to be used specifically to pay for health care expenses. To be eligible for opening an HSA, you must have a high-deductible health insurance plan. If you’re healthy now and want to save for future health care expenses tax-free, an HSA may be a great choice, especially if you’re close to retirement age. You can’t contribute to an HSA if you’re enrolled in Medicare, but you can draw on funds already in the account. Visit https://www.irs.gov/publications/p969 for more on HSA benefits and limitations.

Plan Now for Long-Term Costs

Seniors turning age 65 today have almost a 70% chance of needing some type of long-term care services—from assistance with everyday tasks to supervision due to cognitive impairment. Moreover, 20% of 65-year-olds will need it for longer than five years.

Research shows that by 2030, 24 million Americans will need long-term care, which is twice the current need. According to National Health Expenditure projections, home health care spending is expected to increase by 83 percent from 2018 to 2027. The cost of nursing homes and other continuing care retirement communities is also predicted to rise by 58 percent during that time period.

The cost of long-term care insurance is also rising, leading many to seek out alternative ways to pay the bills, from reverse mortgages to life insurance policies and annuities that offer accelerated benefits. This is why healthcare costs should be an important consideration when going over your retirement planning options with your financial advisor.

Keep an Eye on Your Retirement Income

If your income exceeds the designated IRS threshold, you’ll have to pay more for your Part B and Medicare prescription drug coverage. The IRS calls this the “income-related monthly adjustment amount.” Your financial advisor may be able to help you come up with a tax-efficient plan that can help with this additional cost.

If you’ve been worrying about the damage that rising healthcare costs could do, talk to your advisor about building some proactive strategies into your long-range retirement plans. If you are not working with someone who discusses these issues and helps plan for them, search for a planner who does.

Key Takeaways

Healthcare continues to be one of the largest expenses in retirement. Considerations about when to stop working, when to take Social Security, and how to generate cash flow in retirement all factor into how you prepare to meet health care expenses. To help fill the gap in saving for healthcare expenses, you can think about increasing contributions to your tax-advantaged accounts, especially HSAs (if you have one), which enable tax-free spending on healthcare in retirement.

Many of us have spent most of our lives accumulating the wealth we need to enjoy retirement. The more financially prepared you are, especially to cover healthcare costs, the more you’ll be able to actually enjoy your golden years. South Star Wealth Management can be your trusted financial organization when it comes to helping you save for healthcare costs in retirement. Get in touch with us for more details on how we can assist you with your retirement plans.