How to Plan for Medical Expenses in Retirement
Saving for retirement involves building a fund to cover your housing, food, transportation, and medical expenses. Recent recommendations suggest putting aside at least 20% of your salary and planning to stick to savings withdrawals of less than 4%. Still, your nest egg may not cover your most significant expense — health care.
A typical 65-year-old retired couple can expect to pay $315,000 in medical expenses. Knowing how to plan for medical expenses in retirement is vital because the sum excludes dental care, over-the-counter medicine, and long-term care.
Consider Medical Insurance in Retirement
Many people are unaware of how much health care costs in retirement and that Medicare may not cover all their medical expenses. You can use Medigap coverage to supplement Medicare. In addition, consider long-term care insurance to fund stays in nursing homes. Without coverage, these costs can accumulate quickly.
What Medicare Does and Doesn’t Cover
Medicare is insurance for individuals aged 65 or older, not covering long-term care and only certain health costs. Medicare consists of various parts and supplement plans. Without Part D, you won’t have access to a prescription drug policy and consequently will not have access to your medications.
Parts A and B of Original Medicare plans don’t cover vision and dental care. This gap means you will need to account for out-of-pocket costs. Relying on Parts A and B may require you to budget for premiums and deductibles:
- Medicare Part A: Part A covers hospital stays and procedures with an inpatient hospital deductible of $1,600.
- Medicare Part B: The monthly premium for Part B covers doctor’s visits and outpatient treatments for about $164.90, with an annual deductible of $226 in 2023.
In partnership with Medicare, private medical insurance providers offer Medicare Advantage plans. These plans cover Medicare treatments and additional benefits at a monthly premium. Some may cover costs for hearing, dental, and vision.
Look Beyond Retirement Savings to Pay for Medical Expenses
Medical expenses in retirement account for a considerable portion of your savings. Invest in a long-term care insurance plan to cover nursing or other care to safeguard your earnings for other needs.
Consider building a robust emergency fund to cover unexpected medical costs. An emergency fund is helpful when unforeseen expenses arise. In addition, you can use a Health Savings Account (HSA) to set dedicated money aside until you retire. HSAs are not taxed, and they grow tax-free.
Get Investment Help for Retirement
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