Identify the triggers that could impact what you’ll pay for medical treatment in retirement.
While many Americans are aware that health care expenses will be significant during retirement, it can be tough to decipher exact amounts to set aside for medical treatment. Four out of five workers have not calculated how much they will need for health costs in retirement, according to a 2018 Employee Benefit Research Institute and Greenwald & Associates survey. Among retirees, six out of 10 have not estimated what they will need for medical bills, the survey found.
Understanding the realities of health care costs can make the budgeting process easier. Here are common myths about medical expenses in retirement, as well as the truth behind them.
Medicare will cover drug prescriptions. It may seem at first glance that Medicare will take care of most of your health expenses, but you should know what is not covered to avoid surprises. “The basic plans of a government-run insurance program only cover routine doctor visits and hospitalizations, and prescription drug coverage is an extra fee,” says Joseph Sanginiti, CEO of FamilyWize, which provides pharmacy discount cards. Medicare also generally does not include coverage for eye, dental or hearing care.
Supplements are not worth the money. Since Medicare only provides basic insurance coverage to those who are 65 and older, you’ll need to find ways to cover other health-related costs. Adding on other policies to help pay for expenses Medicare doesn’t typically cover could be helpful for your budget. “An outside supplement insurance will pick up the cost of Medicare deductibles and also include more benefits and perks, like discounts on gym memberships,” says Robert Baltzell, president of RLB Financial in Los Angeles.
It’s impossible to save for health care costs. While you can factor in health care costs when you set aside funds for retirement, another strategy with tax benefits involves a health savings account. “The money you put into a HSA account is tax-deferred, and when you withdraw the money for medical expenses, it is tax-free,” Baltzell says. You can also take out funds before retirement if you need them.
Current good health will reduce future expenses. With longer life expectancies, it can be difficult to anticipate what will happen in the coming years or even decades. Even if you’re in great health now, conditions can change – often unexpectedly. “A question that must be answered when planning for retirement is who will care for me when I can no longer care for myself,” says James Colozzo, founder of TakingCareofaParent.com. You may have to suddenly pay for a home health aide to help with a medical condition or contract a landscaping service to tend to your yard.
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