Retirement It’s often considered a great time to travel and do the things you’ve been planning for years. You save and invest for decades before deciding to stop working and move on to the next phase of your life. Unfortunately, not everyone plans retirement expenses correctly, which can cause a shift in your budget. One of the expenses that many people fail to properly plan for is health care. More and more people are retiring before they’re eligible for Medicare, and even those aren’t surprised at the cost their health care options can incur. You may want consult with a financial advisor who can help you make a financial plan to prepare for these expenses.
How much does health care cost in retirement?
The health care costs is what is squeezing the pockets of people who are still working and have access to an employer-sponsored health plan. These plans typically cost much less than other health insurance options, so it’s no surprise that those preparing to retire are worried about the potential costs of their care. This is due to the obvious failure to properly plan for health care expenses in retirement can negatively affect your future quality of life.
So how much does healthcare cost? According to a study by HealthView Services Financial, people retiring at the end of 2021 could expect to pay more than $660,000 just for health care during their retirement years. The study took into account the use of Medicare as primary insurance when possible and expected individuals to live into their 80s.
This is because of health care costs have increased over a decade and they show no signs of slowing down, especially given the current level of inflation. Healthcare that cost just $12,000 per year in 2019 is expected to cost more than $21,000 in 2029 and $34,000 in 2039.
A good estimate for what you will spend in retirement on health care is to set aside 15% of your income. If expected expenses are more than 15% of your expected income, then you may want to work with a financial advisor to find out what you can do to better prepare for your health care costs in retirement so they don’t derail your plans for that stage of your life.
Types of health care insurance in retirement
You have several options for the type of health care coverage you will receive. The option you are using can greatly affect your annual costs. If you retire early, you may need to combine several options throughout your retirement because you are not yet eligible for Health Insurance.
Here are your health care insurance options in retirement and how each option may affect your costs:
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Health Insurance: This is the health insurance that many people rely on when reaching traditional retirement age because it is supplemented by the government. Many people make the mistake of thinking they won’t have to pay anything like Medicaid, but it actually is. However, this may be the most affordable coverage you will have access to in retirement. Depending on the year, you can pay anywhere between $150 and $600 per month for your premiums. This will depend on your annual income. health insurance plan There’s also a deductible, and certain expenses like hospital stays can cost you more.
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Private health insurance: You can buy Health Insurance direct from a broker but this may be your most expensive option when you are looking at retirement age 60 to 90. Many companies have options specifically for retirees but these plans often focus focuses on people of pre-Medicare age. You’ll likely end up paying more for these plans than you’re currently paying for an employer-sponsored plan because you won’t have your employer subsidized coverage.
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Employer-sponsored insurance: Many businesses have retirement plans for employees who have worked for them for a very long time before retiring. You can buy this plan and get something similar to what you got while working at the company. There may be some changes including you paying a little more insurance fees on a monthly basis or less coverage for things like hospital stays. Another option is to work part-time for a business that provides health insurance to part-time employees.
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Cobra: When you retire, you also have the option to continue with your own coverage through your employer for up to 18 months through the end. Cobra. Your premium will go up because you’ll pay what you paid before plus your employer’s share of the premium. This can be a good, but expensive option for bridging the gap between retirement and Medicare eligibility.
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Insurance market: Similar to the private health insurance option, you can buy a plan on the market on a state or federal exchange as you will no longer be covered or provided by your employer. These plans are often a bit more affordable than buying private insurance, but you must pay attention to what each plan includes and does not before agreeing to purchase coverage. If you don’t have a lot of income then you may also be eligible for credit taxes to help pay for insurance.
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Coverage from spouse’s workplace: If you are older than your spouse and they are still working, accessing their health insurance may be an option. This can be a good opportunity to close the gap with Medicare or just an opportunity to reduce your total medical costs for a few years before your spouse retires.
No matter which path you choose, there is no easy or extremely affordable way to pay for health insurance during retirement. It’s important to prepare before retirement by making sure you have the right investments in place to provide enough income for you to live the lifestyle you desire while staying healthy.
How to reduce health care costs in retirement?
While health care is expensive, especially in retirement, that doesn’t mean there can’t be anything you can do to reduce your overall health costs. Preparing your retirement budget and income is something everyone should do, but here are a few other options that can help you keep costs down, depending on your situation.
Make sure you understand Medicare
It’s important to have a clear understanding of the different Medicare coverages and what it means for your situation. You may not get the best help when you sign up for Medicare, so it’s important that you know what type of coverage you need and which will help you cut costs when possible. You should also familiarize yourself with the qualification requirements so that you don’t plan for an expense when in reality you’ll end up paying more.
Have a payment plan for long-term care
Long-term care can be expensive and the need for it can come on quite suddenly. It can be expensive to enter a good facility that provides top-notch healthcare while maintaining as much independence as possible. A lot of health insurance, including many types of Medicare, will not cover long-term care, even though most people over 65 will eventually need it.
You’ll want to have a plan ready to cover these costs, in case you need to enter this type of facility. On average, a private room in a full care facility can cost more than $7,000 per month, while an assisted care facility can cost $4,000 per month or more.
Open a Health Savings Account (HSA)
Health savings accounts can be a great way to accumulate money that can only be used for specific healthcare purposes. If you currently have a high deductible health plan, then you may be eligible to contribute up to a certain HSA limit annually. For 2022, the limits are $3,650 for yourself or $7,300 if you have a family plan. For 2023, the limit is $3,850 for yourself or $7,750 if you have a family plan.
If you open an HSA now, you can use the money to pay for unexpected health expenses now, or keep rolling it through until retirement. This can give you a sizable chunk of money to draw from over 10 or 20 years, which can cut into how much of your retirement income will go to your health.
Take care of your health right now
the easiest way to reduce your potential healthcare costs future is to take care of your health in the present. Eat right and exercise regularly. Those two things alone can make a world of difference in your retirement years.
Best of all, take advantage of your annual checkups with the doctors your current health insurance covers, and get their advice on how you can stay as healthy as possible right away. now so you don’t have to pay in retirement.
bottom line
One of the biggest single expenses you will have in retirement is pay for your own health care. Estimates suggest that you could end up spending 15% or more of your annual income on your health, so it’s important to prepare yourself financially as early as possible to stay healthy. budget will work without sacrificing your retirement goals. There are things you can do now and in retirement that can cut your total expenses or give you the extra cash needed to cover these expenses.
Advice for retirement
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Retirement can be a very exciting time, but you’ll want to make sure you’ve planned for all possible expenses as you save and invest. One Financial Advisor trained to provide you with a tailored financial plan that meets your goals. SmartAsset’s free tool connects you with up to three financial advisors serving in your area, and you can interview the right advisors for you for free to decide which one is right for you. If you are ready to find an advisor who can help you achieve your financial goals, start right now.
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Not sure how much money you will need in retirement? You can use SmartAsset’s retirement calculator to estimate how much to save so you don’t let your guard down when health care costs rise.
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