Your Health Savings Won’t Last Through Retirement Unless You Do This | Global News Avenue

One of the biggest challenges in retirement is paying for health care, which most retirees severely underestimate. Fidelity Investments’ “2024 Retiree Health Care Cost Estimates” found that Americans can expect to spend about $75,000 on health care in retirement, less than half the $165,000 Fidelity estimates.

Inflation will most likely increase this number by the time you retire. PwC Health Research Institute predicts that the year-on-year trend of medical expenses in 2025 will be 8%, an increase of a full percentage point from 7% in 2024.

Of course, your personal health care costs will depend on many factors, but a proactive retirement planning and budgeting Critical to ensuring you can pay for unexpected health care expenses when they occur.

The importance of planning ahead

While Americans 65 or older can receive Medicare coverage, they must meet requirements such as paid medical bills social Securityit doesn’t cover everything you might need in retirement, and you’ll have to pay premiums for some of it. In 2025, monthly premiums for Medicare Part B, which covers things like doctor’s visits, will be $185 per month or more, depending on your income.

Your future expenses may include out-of-pocket expenses such as out-of-pocket expenses, prescription drugs, home care, and nursing facility stays. And none of these costs are cheap. According to the most recent data from Genworth (2023), hiring a home health aide to help you with daily life tasks could cost you $6,292 per month.

Medicare also doesn’t cover health care costs that could disrupt your income stream in retirement, including:

• dental work
• massage therapy
• hearing aid
• Glasses or contact lenses
• Home care or managed services provider
• private care facility

“Most people are surprised by the high cost of medical care in retirement. They don’t realize that Medicare (medical insurance) does not include activities of daily living and custody,” said Donna StephensFounder and Principal Attorney at Stefans Law Group PC. Stefans has more than 25 years of experience in elder law and retirement income planning. “Unfortunately, for most people, they don’t realize the difference until they receive their bill. People who proactively plan for long-term care expenses will be cautious to get ahead of it.”

Many factors contribute to rising health care costs in the United States; these include the cost of treating chronic diseases, unhealthy lifestyle choices, and the growth (and cost) of prescription drugs.

Additionally, health care inflation is typically higher than general inflation, meaning medical and health care prices are rising faster than wages or Social Security benefits. Research conducted by KFF shows that due to these factors, an unexpected medical emergency can deplete your assets or even lead to bankruptcy.

How to Prepare for Retirement Medical Expenses

Thankfully, there are financial tools that can help you pay for the high medical costs of retirement. Most of these can be combined with Medicare.

1. Buy long-term care insurance

Long-term care insurance (LTC) pays for help with household chores, adult day care, nursing home care, and other elder care services.

While premiums can be high, without long-term care insurance, the out-of-pocket cost of care could theoretically deplete retirement savings. For example, according to a recent Genworth long-term care report, the median annual cost for a home health aide will be $75,504 in 2023 (the most recent data available), while the median annual cost for a private room in a nursing home will be $116,796.

“I can’t stress this enough: long-term care planning is an important component of overall retirement financial planning because it is the highest and heaviest cost a retiree is likely to experience,” Steffans said.

Long-term care insurance costs will vary based on your age and other factors. To get a rough idea of ​​potential premiums, according to the American Association of Long-Term Care Insurance (AALTCI), a couple (both age 55) can expect to pay $2,080 per year in premiums for two policies, with an initial benefit of about $165,000 per month 173 Dollar.

If you are considering shopping around for a policy, one strategy is to Buy life insuranceso you get the benefits of two-in-one. Similar to life insurance, the cost of long-term care insurance generally depends on the individual’s health, the amount of coverage, and age at the time of application.

2. Contribute to a health savings account

if you have a High deductible health plans As your insurance, you may be able to open a tax-advantaged policy Health Savings Account (HSA). This account allows you to make tax-free withdrawals for qualified medical and healthcare expenses.

HSA funds can be used for home care, Medicare and long-term care insurance premiums, out-of-pocket expenses, dental, hearing and vision, and other health care expenses. Funds are rolled over from year to year, so your tax-free savings can keep growing.

In 2025, the annual HSA tax-deductible contribution limit (employee and employer combined) is $4,300 for individual coverage and $8,550 for family coverage. If you are 55 or older, you can contribute $1,000 per year as catch-up contributions in addition to the HSA maximum for that year.

While opening an HSA early in your working life can give you more time to save, individuals approaching retirement in their 50s should still consider opening an HSA and maximizing their contribution limits.

3. Purchase medical supplement insurance

When you turn 65 and become eligible for Social Security benefits, you are automatically enrolled in Medicare: Part Acovering hospitalization expenses, and Part Bwhich covers office visits, labs, X-rays and ongoing care. Because basic Medicare (Parts A and B) doesn’t cover everything you might need, there is a type of supplemental insurance called medical clearance.

You can buy Medigap insurance from private insurance companies during the following periods Medigap’s annual six-month open enrollment periodthey are required by law to offer standardized policies designed to help retirees supplement basic health insurance (Parts A and B). The cost of premiums depends on where you live, the insurance company selling the coverage, and the Medigap plan you choose.

4. Explore medical reimbursement arrangements

one Health Reimbursement Arrangement (HRA) are employer-sponsored group benefits offered by some employers to retired employees. Although less common than other benefits, this program reimburses up to a fixed amount each year. Retiree HRAs (also known as post-employment benefits) allow retired employees to use HRA funds to pay for health and medical expenses, including health insurance and insurance premiums.

As with all retirement benefits, HRA terms and conditions vary by employer, but the IRS has no rules regarding annual contribution limits (unlike HSAs). Therefore, if your employer offers an HRA, it can be a financial vehicle for you to pay for your health care expenses in retirement.

5. Use telemedicine and preventive care options

Many insurance plans cover telemedicine visits. These virtual appointments allow you to speak with a medical professional without leaving your home if you feel unwell. Telemedicine consultations aren’t just for health care, either. You can get help and support for weight management, lowering cholesterol, and even chronic health issues.

Preventing certain diseases or catching health complications early may save you money in the long run, Telemedicine and preventive care options A great tool to combat high health care costs in retirement.

6. Plan for the unexpected

Having a contingency plan and setting aside emergency funds for unexpected health care expenses is another layer of financial protection. TIAA recommends that individuals save at least six months (and preferably 12 months) of expenses in a money market or other easily accessible savings account to cover medical and other types of emergencies, including coverage for one-time or isolated medical events .

Developing a financial plan that allows for flexibility while accounting for guaranteed sources of income is critical to planning for potential “unplanned” expenses, he said Jeffrey MellonExecutive Wealth Management Advisor to TIAA-CREF. “If you can combine (financial planning) with understanding your care options, even if you don’t know what’s going to happen in the future, that may be the best way to plan for unknown or unpredictable expenses,” he said.

If you don’t plan on long-term care, you may want to use Medicaida joint state and federal program designed to assist low-income individuals and families. Unfortunately, if you are required to use Medicaid and have assets, you are required by law to spend those assets to qualify for Medicaid care.

Healthcare Cost Planning Resources

When you’re in the early stages of health care cost planning, online financial planning tools and other resources can help you start thinking about what you need.

bottom line

It’s impossible to know what medical emergencies will occur during your retirement—your age, health history, lifestyle and genetics all come into play. “People are not born with a shelf life, and while you may not end up with long-term medical problems, you should feel comfortable knowing that if one does show up, you’re prepared to cover the cost,” Mellon said.

By researching financial tools that can help you save for health care costs, such as savings accounts and long-term care insurance, and talking with a retirement financial professional, you can protect yourself from unexpected health care expenses in retirement.