Saving for retirement is often top of mind for many, but it often involves navigating various uncertainties/unknowns. Above all, you generally want to save enough to live comfortably and cover both planned and unplanned expenses. Health care related costs can be a significant expense throughout retirement, and yet they are sometimes overlooked in the planning process. Many health care costs can be planned or even expected, but the unexpected costs may leave people feeling unprepared and could potentially impact retirement funds.
Planning for these unexpected costs early can help you feel more comfortable in your retirement knowing that you have considered potential uncertainties and are prepared for future financial needs. Below are three reasons why it is beneficial to start planning for health care costs in your retirement as early as you can, and tips on how to do so.
Medicare doesn’t work the same as employer insurance and has differing expenses
For most retirees, Medicare will be the primary insurance. However, it is not an all-in-one plan like you may have had with employer insurance. Because of this change, it is important to understand the different types of Medicare, and what plans are best suited to you. If you opt for only Medicare Parts A and B, you may not be getting the coverage you are used to, as this generally does not include coverage for prescription drugs, dental, vision, hearing, and other wellness services. If you would like coverage in these areas, you may want to consider additional Medicare plan options.
Medicare costs are not the same for everyone. If you income was higher, you may have to pay more for Parts B and D. The income-related monthly adjusted amount (IRMAA) which could result in paying hundreds of dollars a month for your Part B premium. Medicare costs may also be higher if you have one or more chronic conditions. The amount of increase may depend on the type and number of conditions you have, which is why it can be important to research beforehand what these factors may mean for you and your Medicare costs. You can learn more about these adjustments here.
Tips for planning for Medicare costs in retirement
Planning for Medicare costs in retirement can be a stressful process, as there are many uncertainties and the numerous factors you need to consider may feel overwhelming. Here are some of our best tips for Medicare planning:
- Build up your health savings account (HSA) as much as you can before retirement and try not to touch it until it’s needed. Once you enroll in Medicare, you generally cannot contribute pre-tax dollars to this account anymore, but you can still use it to pay for medical expenses. Building your HSA now may help you during retirement, especially when unexpected costs arise. Learn more about how enrolling in Medicare may impact your HSA.
- Learn about Medicare as early as possible. Work to understand what each part does and how much it would cost you. To calculate these costs as accurately as possible, keep track of the IRMAA rates and understand how your taxable income would impact the rates of Medicare plans.
- It is also important to understand cost-sharing options and how they work in your Medicare plan. This may include deductibles, copays, and coinsurance, which typically requires you to pay a specified amount or percentage first, with Medicare covering the remaining costs. Your adjusted gross income from two years ago is used to determine adjustments to you premium costs, so this should be considered as well.
- Research financial assistance programs that may help with Medicare costs. If you qualify for these programs, make sure you apply! This may help reduce overall health care costs.
- Consider if you should delay enrolling. If you are working past 65, you may be able to delay enrollment, which may allow you more time to save for retirement and Medicare-related costs. Carefully consider whether delaying Medicare enrollment or enrolling at 65 is the right choice for you. Each option may have advantages, so it comes down to what is best for you and your retirement planning.
- Assess your current health care costs and estimate your future needs. The future is filled with variables, but keeping a close eye on your current health may help you plan for the years ahead. Take note of your existing conditions, prescription drug needs, and family history to better assess what your future health care costs may look like and what Medicare plan may be right for you based on your coverage needs.
- Seek advice from professionals if you have questions. Planning for retirement can be a challenging task, and questions related to the Medicare program can further complicate the process. If you find yourself facing challenges related to Medicare enrollment, or are simply looking for additional educational resources, UnitedHealthcare is here to help.
Health care and costs of living are continuing to rise
Many healthcare related costs increase each year and this trend is likely to continue. This is important to keep in mind when you are planning for retirement, as you may need to plan for higher costs than your typical expenses right now. Certain health care services may not be covered by Medicare, so it is important to research what this might mean for you and plan to pay for these services out-of-pocket if necessary.
Depending on your age when you retire, you may not receive Social Security benefits immediately, so it’s important to budget for health care and other living costs during this time. Make sure that you have saved enough for expected expenses and have a cushion for unexpected costs. If not, start preparing for both of these as early as you can!
Resources that will help with retirement expenses
To help manage the stress and expenses of retirement planning, many resources are available to help reduce future costs. Proactive planning can also help set yourself up for comfort and stability in retirement.
Here are some of our best tips:
- If you qualify, you may want to consider a CareCredit card. A CareCredit card can often be used to pay for procedures ranging from dental cleanings to more complicated surgeries. This card may help manage health expenses and alleviate some of the expense burden that comes with retirement.
- Save an emergency fund that covers (at least) a year's worth of typical living expenses plus your health care costs from the prior year. This fund can help you avoid using your retirement savings if living or health expenses unexpectedly change.
- Plan for your future living expenses. If your current home is not something you anticipate being able to afford long-term, you may wish to consider downsizing or increasing your retirement savings. Another reason to consider a change in housing is accessibility as you age. If you anticipate stairs being a challenge in the future, you might want to look into one-story options as a preventative measure.
- Start tracking your yearly health care expenses to understand how much you need to save for your retirement budget. The earlier you start doing this, the better sense you can have of how much you need to save and how much your expenses increase each year.
Long-term care is typically overlooked
When it comes to retirement planning, a large cost that is often overlooked is long-term care. If this care becomes necessary, it may significantly impact your savings. In general, Original Medicare does not cover this expense, and it can be costly. An essential part of a solid retirement plan is evaluating your need for long-term care insurance and applying early. The preferred time to apply for this insurance is generally before you enroll in Medicare — typically, around age 50–60.
Research and apply for long-term care options
There are many important factors to consider when considering long-term care options. As you age or develop chronic conditions, the insurance premium for long-term care increases. This is why it may be important to apply for this care when you may be in better health and able to secure more reasonable rates.. When looking to apply, you should consider your current health conditions and any genetic predispositions to chronic conditions, what you are looking for in a long-term care facility, and how much you are willing or able to pay for long-term care. By understanding what you are looking for in a long-term care facility, you can make a more educated decision for your future, feel more confident applying early, while potentially saving money and offering yourself peace of mind.
While it may seem overwhelming to look for long-term care options, especially so far in advance, there are many resources available to you to assist you in your decision-making process. These resources include AARP and Caring.com, which both have easily accessible online guides. Beyond these resources, there are many other online platforms that provide detailed information on long-term care and the different options you have when it comes to applying.
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Medicare Made Clear brought to you by UnitedHealthcare provides Medicare education so you can make informed decisions about your health and Medicare coverage.